<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1997
Registration No. 333-17785
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
on Form S-1
Under
THE SECURITIES ACT OF 1933
---------------------
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 8742 36-4069408
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
875 North Michigan Avenue
Suite 3000
Chicago, Illinois 60611
(312) 255-5000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------------
Mr. Melvyn E. Bergstein
Chairman, Chief Executive Officer and President
Diamond Technology Partners Incorporated
875 North Michigan Avenue, Suite 3000
Chicago, Illinois 60611
(312) 255-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------
Copies of all communications to:
<TABLE>
<S> <C> <C> <C>
James A. Ounsworth, Esq. N. Jeffrey Klauder, Esq. Mark L. Gordon, Esq. Robert H. Strouse, Esq.
Safeguard Scientifics, Inc. Morgan, Lewis & Bockius LLP Scott L. Glickson, Esq. Drinker Biddle & Reath
800 The Safeguard Building 2000 One Logan Square Gordon & Glickson P.C. 1000 Westlakes Drive
435 Devon Park Drive Philadelphia, Pennsylvania 19103-6993 444 North Michigan Avenue Suite 300
Wayne, Pennsylvania 19087 (215) 963-5694 Suite 3600 Berwyn, Pennsylvania 19312-2409
(610) 293-0600 Chicago, Illinois 60611-3903 (610) 993-2213
(312) 321-1700
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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 earlier effective registration
statement for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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 JANUARY 29, 1997
PROSPECTUS 3,255,000 Shares
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Class A Common Stock
(and Rights to acquire
up to 3,255,000 of such shares)
Diamond Technology Partners Incorporated ("Diamond" or the "Company")
is granting at no cost to holders of the outstanding common stock ("Safeguard
Common Shares") of Safeguard Scientifics, Inc. ("Safeguard") of record at the
close of business on ________, 1997 (the "Record Date"), transferable rights
("Company Rights") to purchase up to 3,100,000 shares of Class A common stock of
Diamond, par value $.001 per share (the "Class A common stock," and together
with the Class B common stock of Diamond, par value $.001 per share (the "Class
B common stock"), the "Common Stock"). Safeguard and certain other selling
stockholders (the "Selling Stockholders") have agreed to sell an aggregate of
1,550,000 shares of Class A common stock owned by them upon the exercise of the
Company Rights and the Company will sell the remaining 1,550,000 shares. Of the
shares being offered by the Selling Stockholders, an aggregate of 1,458,365
shares are being offered by Safeguard and certain entities having a relationship
with Safeguard. See "MANAGEMENT -- Certain Relationships" and "CERTAIN
TRANSACTIONS." A record holder of Safeguard Common Shares will receive one
Company Right for every ten Safeguard Common Shares owned on the Record Date
(the "Rights Offering"). Each Company Right will entitle the holder to purchase
one share of Class A common stock at a purchase price anticipated to be between
$5.00 and $6.00 (the "Exercise Price") per share. This Prospectus also relates
to transferable rights (the "Direct Rights") to purchase an aggregate of 155,000
additional shares of Class A common stock that have been reserved for issuance
and are being granted at no cost by the Company to certain persons selected by
the Company having a relationship with the Company, Safeguard, one of
Safeguard's other partnership companies or other persons selected by the Company
(the "Direct Purchasers"). Each Direct Right will entitle the holder to purchase
one share of Class A common stock from the Company at the Exercise Price. The
Company Rights and the Direct Rights are sometimes collectively referred to as
the "Rights." The exercise period for the Rights will expire at 5:00 p.m.,
Eastern Standard time, on __________, 1997 (the "Expiration Date"). Persons may
not exercise Rights for fewer than 50 shares of Class A common stock. This
minimum exercise requirement applies to each account in which Safeguard Common
Shares are held. Accordingly, persons holding fewer than 50 Rights will not have
the opportunity to exercise such Rights unless action is taken to comply with
such minimum exercise requirements. See "THE OFFERING--Exercise Privilege."
----------------------------------------------- (Continued on next page)
An investment in the Class A common stock offered hereby involves a high degree
of risk. See "RISK FACTORS" on pages 6 to 10.
-----------------------------------------------
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>
====================================================================================================================
Assumed Proceeds to Proceeds to the
Exercise and the Company Selling
Offering Price Underwriting Discount (1) (1)(2)(3) Stockholders(1)(3)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ...... $5.50 Min. $0.165 Max. $5.335 Max. $5.335
Max. $0.385 Min. $5.115 Min. $5.115
- --------------------------------------------------------------------------------------------------------------------
Total(3)........ $17,902,500 Min. $537,075 Max. $9,096,175 Max. $8,269,250
Max. $1,089,055 Min. $8,885,195 Min. $7,928,250
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In connection with the Offering, the Underwriters will receive (a) a
financial advisory fee in an amount equal to 3% of the Exercise Price of
each share of Common Stock sold in the Offering (the "Financial Advisory
Fee") and (b) an additional fee of 4% of the Exercise Price of each share
of Common Stock actually purchased by the Underwriters pursuant to the
Standby Underwriting Agreement or the Underwriters' exercise of Rights in
certain instances (the "Underwriting Discount" and, together with the
Financial Advisory Fee, the "Total Underwriting Discount"). If all of the
Rights offered hereby are exercised, no shares of Common Stock will be
required to be purchased by the Underwriters pursuant to the Standby
Underwriting Agreement. The "Minimum" Total Underwriting Discount assumes
that no shares of Common Stock are purchased by the Underwriters. The
"Maximum" Total Underwriting Discount assumes (i) that only the chairman
and chief executive officer of Safeguard and/or his assignees will elect to
acquire shares of Common Stock upon the exercise of Company Rights (for an
aggregate of approximately 291,000 shares) and that such shares will be
sold by the Company, (ii) that 300,000 shares of Common Stock are sold by
the Company to the Other Purchasers (defined below), (iii) that 155,000
shares are sold by the Company pursuant to the exercise of the Direct
Rights, and (iv) that a total of 2,564,000 shares of Common Stock are
purchased by the Underwriters pursuant to the Standby Underwriting
Agreement. In addition, the Company has agreed (i) under certain
circumstances, to pay to the Underwriters certain amounts as a non-
accountable expense allowance and (ii) to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "UNDERWRITING."
(2) Before deduction of expenses estimated to be $700,000 and payment of a non-
accountable expense allowance to the Underwriters.
(3) The Company has granted to the Underwriters a 20-day option commencing on
the Expiration Date to purchase a maximum of 310,000 additional shares of
Class A common stock to cover over-allotments. See "UNDERWRITING." If
such option is exercised in full, the net incremental proceeds to the
Company from the exercise of such option would be $1,585,650 and the Total
Underwriting Discount with respect to the shares issued pursuant to such
option would be $119,350.
TUCKER ANTHONY ROBERT W. BAIRD & CO.
INCORPORATED INCORPORATED
The date of this Prospectus is , 1997.
<PAGE>
(Continued from previous page)
Once a Right has been exercised by the holder and accepted by the Company, it
may not be withdrawn by the holder. Shares of Class A common stock that are not
purchased upon exercise of Rights (the "Unsubscribed Shares") will be sold, as
to the first 300,000 Unsubscribed Shares, at the Exercise Price to certain
persons selected by the Company (the "Other Purchasers") and will be sold, as to
the number of Unsubscribed Shares exceeding the 300,000 shares of Class A common
stock offered to the Other Purchasers (the "Excess Unsubscribed Shares"), at the
Exercise Price (less the Total Underwriting Discount) to Tucker Anthony
Incorporated and Robert W. Baird & Co. Incorporated (the "Underwriters")
pursuant to a Standby Underwriting Agreement (the "Standby Underwriting
Agreement"). See "THE OFFERING--Sales of Unsubscribed Shares; Standby
Commitment." The Underwriters' standby underwriting obligations are subject to
certain conditions, including the condition that the Other Purchasers have
purchased the first 300,000 Unsubscribed Shares, although the Underwriters may
elect to purchase all, but not less than all, Unsubscribed Shares in the event
such condition is not met. Accordingly, there is no assurance that the Other
Purchasers or the Underwriters will purchase any Unsubscribed Shares and the
Rights Offering will be canceled if all of the Unsubscribed Shares are not
purchased. See "UNDERWRITING" and "THE OFFERING--Cancellation of Rights
Offering." The Rights Offering and the offering of Class A common stock to the
Other Purchasers are collectively referred to in this Prospectus as the
"Offering."
The number of Company Rights which will be granted to the holders of Safeguard
Common Shares is solely dependent upon the number of Safeguard Common Shares
which are outstanding on the Record Date. Accordingly, less than 3,100,000
Rights will be granted to holders of Safeguard Common Shares if there are less
than 31,000,000 Safeguard Common Shares outstanding on such date. The shares of
Class A common stock subject to such undistributed Company Rights (the
"Undistributed Rights"), however, will be offered by the Company to the Other
Purchasers at the Exercise Price. As a consequence, a total of 3,100,000 Rights
will be granted in the Rights Offering.
The Class A common stock and the Class B common stock are identical in all
aspects other than with respect to voting rights. Shares of Class A common stock
are entitled to one vote per share and shares of Class B common stock are
entitled to five votes per share. Accordingly, while the Class A common stock
will represent 53.1% of the outstanding Common Stock upon completion of the
Offering, such Shares will possess only 18.5% of the aggregate voting rights of
the Common Stock. The Class B common stock is convertible into Class A common
stock on a one-for-one basis automatically upon certain transfers of the Class B
common stock and termination of employment with the Company. See "DESCRIPTION OF
CAPITAL STOCK."
Of the shares of Common Stock offered hereby, 1,705,000 shares of Common Stock
will be sold by the Company and an aggregate of 1,550,000 shares of Common Stock
will be sold by the Selling Stockholders. Warren V. Musser, the chairman and
chief executive officer of Safeguard, and/or his assignees are expected to
exercise all Company Rights distributed to them and acquire approximately
291,000 shares of Common Stock through the Rights Offering. The Company will
receive no proceeds from the sale of any shares by the Selling Stockholders.
After the completion of the Offering, the Selling Stockholders, in the
aggregate, will beneficially own approximately 26.1% of the outstanding Common
Stock. See "PRINCIPAL AND SELLING STOCKHOLDERS."
The Rights being granted in the Rights Offering are subject to cancellation if
certain conditions are not satisfied. In that event, any payments received by
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, in respect of the
Exercise Price of the Rights shall be promptly returned. See "THE OFFERING--
Cancellation of Rights Offering."
The Company has filed with the Securities and Exchange Commission a Registration
Statement pursuant to the Securities Act of 1933, as amended, with respect to
the Rights offered hereby and the Class A common stock issuable upon the
exercise thereof. Prior to the Rights Offering, there has been no public market
for the Class A common stock or the Rights. See "THE OFFERING-- Background" for
factors considered in determining the Exercise Price of the Rights. As a
consequence, there can be no assurance that a public market will develop,
although the Company has filed an application to have the Rights and the Class A
common stock approved for quotation on the Nasdaq National Market.
Prior to the Expiration Date, the Underwriters may offer shares of Class A
common stock on a when-issued basis, including shares to be acquired through the
purchase and exercise of Rights, at prices set from time to time by the
Underwriters. Each such price when set will not exceed, if applicable, the
highest price at which a dealer not participating in the distribution is then
offering the Class A common stock to other dealers, plus an amount equal to a
dealer's concession, and an offering price set on any calendar day will not be
increased more than once during such day. After the Expiration Date, the
Underwriters may offer shares of Class A common stock, whether acquired pursuant
to the Standby Underwriting Agreement, the exercise of Rights or the purchase of
Class A common stock in the market, to the public at a price or prices to be
determined. The Underwriters may thus realize profits or losses independent of
the underwriting compensation specified herein. Shares of Class A common stock
subject to the Standby Underwriting Agreement will be offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters. It is expected that delivery of the shares of Class A
common stock will be made against payment therefor in Boston, Massachusetts on
or about _________________, 1997.
--------------------
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by independent certified public accountants.
--------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK, THE WHEN-ISSUED CLASS A COMMON STOCK OR THE RIGHTS OR ALL OF THE
FOREGOING AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus. Except as otherwise
indicated, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option, (ii) assumes an Exercise Price of $5.50,
and (iii) gives effect to a 1.65-for-1 split of the Common Stock to be effected
prior to the consummation of the Offering. Unless the context otherwise
requires, all references to "Common Stock" refer collectively to the Class A
common stock and the Class B common stock. See "CERTAIN TRANSACTIONS" and
"DESCRIPTION OF CAPITAL STOCK--Common Stock." All references to fiscal years of
the Company in this Prospectus refer to the fiscal years ended on March 31 in
those years. All references to the term "Partner" refer to the internal
designation by Diamond of certain of its employees and does not refer to a
partner of a general or limited partnership. Unless the context otherwise
indicates, Diamond Technology Partners Incorporated and its wholly-owned
subsidiary are referred to collectively herein as "Diamond" or the
"Company."
The Company
Diamond is a management consulting firm that devises business
strategies enabled by information technology ("IT") and manages the
implementation of those strategies. Diamond was founded upon, and continues to
stress, a business culture in which strategic consulting and IT expertise are
optimally integrated to provide superior client solutions. The Company believes
that the distinguishing qualities of its consulting process are its ability to
synthesize strategy with technology, deliver solutions with measurable results,
deliver services through small multidisciplinary project teams and maintain
objectivity in solution recommendations.
The Company leads its clients through a process which broadens their
understanding of the ways that IT can be incorporated into their businesses to
gain competitive advantage in their markets. Diamond's professionals, working
closely with client personnel, perform thorough analyses of the client's current
business with a focus on alternative IT-driven business strategies. When an
appropriate strategy has been developed, Diamond's professionals provide
important management oversight of the strategy implementation process, which
generally includes design, deployment and integration of IT solutions together
with modification of business processes and organizational structure. Diamond
manages the deployment phase by utilizing the client's internal resources or
third-party resources selected by Diamond for their particular expertise.
Throughout the entire process, Diamond transfers relevant knowledge to the
client organization.
Diamond has grown rapidly since its inception in January 1994,
generating $33.8 million in net revenues over the 12 month period ended
December 31, 1996 and expanding from 18 employees at inception to 177 as of
December 31, 1996. Diamond serves clients in a variety of industries, ranging
in size from Fortune 500 companies to smaller private companies. The number of
clients served by the Company in each fiscal quarter has increased from nine
clients served during the fiscal quarter ended June 30, 1994 to 29 clients
served during the fiscal quarter ended December 31, 1996. These clients are
primarily in the telecommunications, insurance, financial services and consumer
products and services industries. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Recent Developments."
Pursuant to the terms of the Amended and Restated Voting and Stock
Restriction Agreement dated as of April 1, 1996 (the "Voting and Stock
Restriction Agreement") among Safeguard, Technology Leaders L.P. ("TL") and
Technology Leaders Offshore C.V. ("TL Offshore" and together with TL,
"Technology Leaders") and CIP Capital L.P. ("CIP" and together with Safeguard
and Technology Leaders, the "1994 Purchasers"), CompuCom Systems, Inc.,
Cambridge Technology Partners (Massachusetts), Inc. and each employee-
stockholder of the Company, each employee-stockholder of the Company has granted
a proxy to the Chief Executive Officer of the Company (currently Melvyn E.
Bergstein) conveying the right to vote their shares of Common Stock.
Accordingly, after the completion of the Offering, the Company's Chief Executive
Officer will control approximately 81.9% of the voting rights of the outstanding
Common Stock.
The Company was initially incorporated in Illinois in 1994 and was
reincorporated in Delaware in 1996. The Company's principal executive offices
are located at 875 North Michigan Avenue, Suite 3000, Chicago, Illinois 60611,
and its telephone number is (312) 255-5000. The Company also has a homepage on
the World Wide Web and its e-mail address is [email protected].
Information contained in the Company's web site shall not be deemed to be part
of this Prospectus.
3
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Terms of Offering............ Holders of record at the close of business on
________, 1997 of the outstanding Safeguard
Common Shares will receive one Company Right for
every ten Safeguard Common Shares. The Direct
Purchasers will be granted the Direct Rights.
Each Right will entitle the holder to purchase
one share of Class A common stock at a purchase
price anticipated to be between $5.00 and $6.00
per share. Persons may not exercise Rights for
fewer than 50 shares of Class A common stock.
Holders of Rights will have the opportunity to
acquire an aggregate of approximately _____
shares of Class A common stock upon exercise of
the Rights
Exercise Price............... Anticipated to be between $5.00 and $6.00 per
share of Class A common stock.
Expiration Date for Rights... _______ __, 1997 at 5:00 p.m., Eastern Standard
Time.
Rights....................... Rights will be evidenced by transferable
certificates that will be exercisable by the
holder until the Expiration Date, at which time
unexercised rights will be null and void. See
"THE OFFERING."
Exercise by Safeguard CEO.... The chairman and chief executive officer of
Safeguard and/or his assignees are expected to
exercise all Company Rights distributed to them
and acquire approximately 291,000 shares of
Class A common stock.
Sale to Other Persons........ The Direct Rights will be granted by the Company
to the Direct Purchasers. The first 300,000
Unsubscribed Shares and the shares of Class A
common stock subject to the Undistributed Rights
will be sold by the Company to the Other
Purchasers.
Standby Underwriting......... The Excess Unsubscribed Shares will be sold to
the Underwriters and offered to the public by
the Underwriters. See "THE OFFERING--Sales of
Unsubscribed Shares; Standby Commitment" and
"UNDERWRITING."
Class A common stock
Offered:
by the Company.............. 1,705,000 shares
by the Selling Stockholders. 1,550,000 shares
Common Stock to be
Outstanding After
the Rights Offering......... 11,258,051 shares (representing 5,976,439 shares
of Class A common stock and 5,281,612 shares of
Class B common stock) (1)
Voting Rights and
Conversion.................. Shares of Class A common stock are entitled
to one vote per share and shares of Class B
common stock are entitled to five votes per
share. Shares of Class B common stock are
convertible on a one-for-one basis into shares of
Class A common stock automatically upon certain
transfers of the shares of Common Stock and
termination of employment with the Company. See
"DESCRIPTION OF CAPITAL STOCK."
Use of Proceeds.............. $2.0 million for the repayment of debt to
Safeguard and the remainder for working capital,
general corporate purposes and capital
expenditures. A portion of the net proceeds may
be used for acquisitions, although the Company
is not currently engaged in any acquisition
negotiations. See "USE OF PROCEEDS."
Nasdaq National
Market Symbols:
Rights..................... DTPIR
Class A common stock....... DTPIV (when-issued)
DTPI (thereafter)
</TABLE>
- ---------------------
(1) Excludes as of January 28, 1997 (i) 2,762,240 shares of Common Stock
issuable upon the exercise of options (of which options to purchase
24,750 shares were exercisable at January 28, 1997) at a weighted average
exercise price of $2.16 per share and (ii) 526,598 shares of Common Stock
issuable upon the exercise of warrants (all of which were exercisable as
of January 28, 1997) at an exercise price of $5.50 per share. See
"MANAGEMENT--Stock Options" and "CERTAIN TRANSACTIONS."
4
<PAGE>
Summary Financial Information
(in thousands, except per share data and number of clients)
<TABLE>
<CAPTION>
Inception Nine Months Ended
to Year Ended March 31, December 31,
March 31, ---------------------- --------------------
1994 1995 1996 1995 1996(1)
--------------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.............................. $ 261 $12,843 $26,339 $18,756 $26,245
Income (loss) from operations............. (889) (462) 1,374 945 (569)
Net income (loss)......................... (886) (377) 1,236 855 (380)
Pro forma net income (loss) per share of
Common Stock.............................. $(.35) $(.05) $0.13 $0.09 $(0.04)
Shares used in computing pro forma net
income (loss) per share of Common
Stock..................................... 2,509 8,270 9,821 9,759 10,437
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------
Jun. 30, Sept. 30, Dec. 31, Mar 31, Jun. 30, Sept. 30, Dec. 31,
1995 1995 1995 1996 1996(1) 1996(1) 1996(1)
-------- --------- -------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.............................. $ 5,863 $ 5,975 $ 6,918 $ 7,583 $ 7,753 $ 8,336 $10,156
Income (loss) from operations............. $ 363 $ 149 $ 433 $ 429 $(1,215) $ (589) $ 1,235
Net income (loss)......................... $ 312 $ 159 $ 383 $ 382 $ (714) $ (385) $ 719
Other Operating Data:
Number of clients served.................. 13 10 13 17 21 25 29
Number of clients generating
revenues greater than $250,000............ 8 9 8 7 11 11 16
Average revenue per client................ $ 451 $ 598 $ 532 $ 446 $ 369 $ 333 $ 350
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------
Actual As Adjusted
(1) (2)(3)
-------------------- ------------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $7,132 $13,192
Working capital......................... 6,312 14,372
Total assets............................ 13,928 19,988
Long-term debt, including current
portion................................ 2,177 177
Total stockholders' equity.............. 8,751 16,811
</TABLE>
- ----------------------------------
(1) See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Recent Developments."
(2) Adjusted to give effect to the sale by the Company of 1,705 shares of
Common Stock and the receipt and application of approximately $8,060 in
net proceeds from this Offering, after deducting the maximum Total
Underwriting Discount with respect to such shares of approximately $492
and estimated offering expenses of $825 (including $125 representing the
maximum applicable non-accountable expense allowance to the Underwriters).
(3) The "As Adjusted" long-term debt amount reflects the repayment of a $2,000
loan from Safeguard using net proceeds from this Offering. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Liquidity and Capital Resources" and "USE OF PROCEEDS."
5
<PAGE>
RISK FACTORS
In evaluating the Company and its business, prospective investors
should consider carefully the following risk factors in addition to the other
information contained herein. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the following risk factors.
Recent Operating Losses and Limited Operating History. The Company has
only been in existence since January 28, 1994. In fiscal 1994 and fiscal 1995,
the Company experienced losses due primarily to the developmental nature of the
business. While the Company was profitable in fiscal 1996, the Company
experienced the cancellation of significant projects at its then two largest
clients in the last quarter of fiscal 1996 and the first quarter of fiscal 1997.
The cancellation of these projects resulted from each client's cancellation of
the business initiative for which the Company had been retained. In addition, in
order to support the growth of its business, the Company expanded its level of
operations in all areas during fiscal 1996 and fiscal 1997. As a result of the
cancellation of these two projects and the increase in the Company's operating
expenses caused by the Company's expansion, the Company experienced a net loss
of approximately $1.1 million during the first six months of fiscal 1997. The
Company's operating results and financial condition will be adversely affected
if revenues do not increase sufficiently to cover the Company's expanding level
of operations. There can be no assurance that the Company will be successful in
its efforts to so increase its revenues. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Variability of Quarterly Operating Results. The Company has
experienced and may in the future continue to experience fluctuations in its
quarterly operating results. Factors that may cause the Company's quarterly
operating results to vary include the number of active client projects, the
requirements of client projects, the termination of major client projects, the
loss of major clients, the timing of new client engagements and the timing of
personnel cost increases. Certain of these factors may also affect the Company's
personnel utilization rates which may cause further variation in quarterly
operating results. The timing of revenues is difficult to forecast because the
Company's sales cycle is relatively long and the Company's services are impacted
by general economic conditions. Because a high percentage of the Company's
expenses are relatively fixed, a variation in the timing of the initiation or
the completion of client assignments, particularly at or near the end of any
quarter, can cause significant variations in operating results from quarter to
quarter and could result in losses for any particular fiscal period. In
addition, many of the Company's engagements are, and may be in the future,
terminable by its clients without penalty. A termination of a major project
could require the Company to maintain under-utilized employees, resulting in a
higher than expected percentage of unassigned professionals or to terminate the
employment of excess personnel. The Company believes that it must at all times
maintain a sufficient number of senior professionals to oversee existing client
projects and participate in the Company's marketing efforts in securing new
client engagements. The Company's general policy is to not adjust its staffing
levels based upon what it views as short-term circumstances. Due to all of the
foregoing factors, there can be no assurance that the Company's operating
results will not be below the expectations of investors for any given fiscal
period. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
Concentration of Revenues. The Company has in the past derived, and
may in the future derive, a significant portion of its revenues from a
relatively limited number of major projects. During fiscal 1996, the Company had
three clients which individually accounted for more than 10% of its net revenues
and collectively accounted for 51% of its net revenues. For the nine months
ended December 31, 1996, the Company had one client that individually accounted
for 15% of its net revenues. There are no long-term commitments by any of the
Company's clients for the Company's services. All of the Company's services are
provided to its clients on a project-by-project basis. During the last quarter
of fiscal 1996 and the first quarter of fiscal 1997, the Company's then two
largest clients terminated projects with the Company, contributing to a net loss
for the first nine months of fiscal 1997 of approximately $380,000. There can be
no assurance that the Company's major clients will continue their relationships
with the Company and be a significant source of revenue for the Company or that
they will not terminate major projects at any given time. Any unanticipated
termination of a major project or the loss of any one of the Company's large
clients will have a material adverse effect on the Company and its financial
results. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and "BUSINESS--Sales, Marketing and Clients."
Control by Chief Executive Officer; Election of Future Chief Executive
Officers. Pursuant to the terms of the Voting and Stock Restriction Agreement,
each employee-stockholder of the Company has granted a proxy to the Chief
Executive Officer of the Company (currently Melvyn E. Bergstein) conveying the
right to vote their shares of Common Stock. Accordingly, after the completion of
the Offering, the Company's Chief Executive Officer will control the vote with
respect to 5,281,612 shares of Class B common stock and 115,913 Shares of Class
A common stock, constituting approximately 81.9% of the voting rights of the
outstanding Common Stock of the Company after the Offering and will have the
voting power to elect the
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Company's entire Board of Directors and to approve all matters requiring
stockholder approval. In addition, pursuant to the terms of the Amended and
Restated Partners' Operating Agreement among the Company and its Partners (the
"Partners' Operating Agreement"), the Company's Chief Executive Officer must be
selected from among the Partners pursuant to the procedures set forth in such
Agreement. While the Company's Board of Directors maintains veto rights with
respect to any such person nominated by the Partners, the inability of the Board
to elect a non-Partner as the Company's Chief Executive Officer significantly
limits the number of qualified persons which the Board may consider for such
office. Accordingly, there can be no assurance that the Company will be
successful in attracting future persons who are qualified to serve as the
Company's Chief Executive Officer and the inability to attract such persons
could have a material adverse effect on the Company. See "MANAGEMENT--Executive
Officers and Directors," "MANAGEMENT--Certain Relationships," "PRINCIPAL AND
SELLING STOCKHOLDERS," "CERTAIN TRANSACTIONS--Voting and Stock Restriction
Agreement" and "SHARES ELIGIBLE FOR FUTURE SALE."
Reliance on Senior Management. The Company's success depends upon the
continued service of its key executive officers. The Company maintains, and is
the beneficiary of, life insurance policies on the lives of Melvyn E. Bergstein
and Michael E. Mikolajczyk in the amounts of $3.0 million and $1.0 million,
respectively. The Company does not maintain key person life insurance on any of
its other key executive officers. The loss for any reason of one or more of its
key executive officers could have a material adverse effect on the Company and
its prospects. Furthermore, there can be no assurance that the Company will be
successful in attracting and retaining additional key executive officers that it
will require to accommodate growth successfully. See "MANAGEMENT."
Management of Growth. The Company has been experiencing a period of
substantial growth which has placed, and may continue to place, a strain on the
Company's financial and other resources. During fiscal 1996 and the first nine
months of fiscal 1997, the size of the Company's professional staff increased
from 85 to 177 full-time employees. Further increases are anticipated during the
remainder of fiscal 1997. The Company's ability to manage its staff growth
effectively will require it to continue to improve its operational, financial
and other internal systems, and to train, motivate and manage its employees. If
the Company's management is unable to manage growth effectively and new
employees are unable to achieve anticipated performance levels, the Company's
results of operations could be adversely affected. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Dependence on Skilled Professionals. The Company's success will depend
in large part upon its ability to attract, retain and motivate highly skilled
professionals, particularly Partners and senior principals. Qualified client-
serving professionals are in particularly great demand and are likely to remain
a limited resource for the foreseeable future. There can be no assurance that
the Company will be successful in attracting and retaining the skilled
professionals it requires to conduct and expand its operations successfully. The
loss of some or all of the Company's professionals or the inability to attract,
hire and train additional skilled personnel could have a material adverse effect
on the Company, including its ability to secure and complete engagements. See
"BUSINESS--Human Resources and Culture."
Project Risks. Because many of the Company's projects are critical to
its clients, a failure or inability to meet a client's expectations could damage
the Company's reputation and adversely affect its ability to attract new
business. In addition, the failure of a project or the failure of the Company to
collect a large account receivable could also result in significant financial
exposure to the Company, which could have a material adverse effect on the
Company's financial condition. From inception through December 31, 1996, the
Company wrote off accounts receivable totalling approximately $974,000 which it
could not collect. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS--Industry Background."
Technological Advances. The Company's success will depend in part on
its ability to develop strategic business and IT solutions which keep pace with
continuing changes in evolving industry standards, IT and changing client
preferences. There can be no assurance that the Company will be successful in
addressing these developments on a timely basis or that, if addressed, the
Company will be successful in the marketplace. The Company's delay in addressing
or failure to address these developments could have a material adverse effect on
the Company's business. See "BUSINESS--Industry Background."
Competition. The management consulting and systems integration markets
include a large number of participants, are subject to rapid changes and are
highly competitive. The Company competes with and faces potential competition
for client assignments and experienced personnel from a number of companies that
have significantly greater financial, technical and marketing resources,
generate greater revenues than does the Company and have greater name
recognition. A majority of the Company's revenue is derived from Fortune 500
companies and other large organizations, and there are an increasing number of
professional services firms seeking consulting engagements from that client
base. The Company believes that the principal competitive factors in the segment
of the consulting industry in which the Company competes include scope of
services, service delivery approach, technical and industry expertise, perceived
value, objectivity and a results orientation. The Company believes that its
ability to compete also depends in part on a number of competitive factors
outside of its control, including the ability of its competitors to hire, retain
and motivate senior project managers, the price at which others offer comparable
services and the extent of its
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competitors' responsiveness to customer needs. There can be no assurance that
the Company will be able to compete successfully with its competitors in the
future. See "BUSINESS--Competition."
Liquidity. The Company was not profitable in the first two quarters of
fiscal 1997. While the Company was profitable during the third quarter of fiscal
1997, there can be no assurance that the Company will continue to be profitable
in the future. The Company believes that the combination of the net proceeds
received by it from this Offering, the amounts available under its revolving
line of credit, cash generated from operations and existing cash balances will
be sufficient to satisfy its operating cash needs for the 12 months following
the consummation of this Offering. Any future decreases in its operating income,
cash flow, or stockholders' equity may impair the Company's future ability to
raise additional funds to finance operations. There can be no assurance that the
Company will in the future maintain adequate liquidity to support its
operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
Broad Discretion in Application of Proceeds. After the repayment of
$2.0 million of debt to Safeguard, the Company intends to use a significant
portion of the net proceeds from the Offering for working capital, general
corporate purposes and capital expenditures. A portion of the net proceeds may
also be used to make acquisitions or to form strategic alliances. Accordingly,
the specific uses for the net proceeds will be at the complete discretion of the
Board of Directors of the Company and may be allocated based upon circumstances
arising from time to time in the future. See "USE OF PROCEEDS."
Dilution. The average price per share paid upon the issuance by the
Company of Common Stock prior to the Offering was $1.02. The average price per
share of Common Stock paid by the 1994 Purchasers in the 1994 Purchase was $0.91
per share. Purchasers of the Common Stock of the Company offered hereby will
suffer an immediate dilution of $4.02 in the net tangible book value per share
of the Common Stock from the Exercise Price of the Rights and the offering price
of the Common Stock issued to the Direct Purchasers. See "DILUTION" and "CERTAIN
TRANSACTIONS."
Benefits of Offering to Current Stockholders. The Offering will
provide significant benefits to the current stockholders of the Company,
including the creation of a public market for the Common Stock and the receipt
of proceeds from the sale of Common Stock in the Offering by the Selling
Stockholders. As a result, the Company's current stockholders will generally
have greater liquidity with respect to their investment in the Common Stock and
their holdings of Common Stock will potentially have a greater value.
Furthermore, the Company intends to use $2.0 million of the proceeds to the
Company to repay a loan from Safeguard, one of the Selling Stockholders. The
Selling Stockholders and the Company's other executive officers and directors
will own 4,821,072 shares of Common Stock. Based on the Exercise Price of $5.50,
such shares owned will have an aggregate market value of approximately $26.5
million. See "PRINCIPAL AND SELLING STOCKHOLDERS."
Requirements for Listing Securities on the Nasdaq National Market;
Application of the Penny Stock Rules. The Company has applied with the Nasdaq
National Market to have the Class A common stock and Rights (the "Listed
Securities") approved for listing upon completion of the Offering with respect
to the Class A common stock and from the date of this Prospectus through the
Expiration Date with respect to the Rights. If the Company is unable to maintain
the standards for continued listing, the Listed Securities could be subject to
delisting from the Nasdaq National Market. Trading, if any, in the Listed
Securities would thereafter be conducted on the Nasdaq Small Cap Market, if the
Listed Securities met the listing requirements for such market. If the Listed
Securities did not meet the Nasdaq Small Cap Market listing requirements, or if
the Listed Securities were delisted from the Nasdaq Small Cap Market, trading of
such securities would thereafter be conducted on an electronic bulletin board
established for securities that do not meet the Nasdaq listing requirements or
in what is commonly referred to as the "pink sheets." As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, the Company's securities.
In addition, if the Company's securities were delisted, they would be
subject to the so-called penny stock rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1.0 million or annual income exceeding $200,000,
or $300,000 together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. Consequently, delisting, if it occurred, may affect the ability of
broker-dealers to sell the Company's securities and the ability of purchasers in
the Offering to sell their securities in the secondary market.
The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as defined in the regulations) of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market
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in penny stocks. As a result, if the Common Stock is determined to be "penny
stock," an investor may find it more difficult to dispose of the Company's
Common Stock.
No Prior Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Common Stock or the Rights,
and there can be no assurance that an active public market will develop or be
sustained. The Exercise Price of the Rights and purchase price of the Common
Stock has been determined solely by negotiations between the Company, the
Selling Stockholders and the Underwriters and does not necessarily reflect the
price at which shares of Common Stock may be sold in the public market during or
after the Offering. See "THE OFFERING--Background" for a discussion of the
factors considered in determining the Exercise Price. The public markets, in
general, have from time to time experienced extreme price and volume
fluctuations, which have in some cases been unrelated to the operating
performance of particular companies, and the market for technology stocks, or
small capitalization stocks such as the Common Stock, can be subject to greater
price volatility than the stock market in general. In addition, factors such as
announcements of technological innovations, announcements of new products by the
Company's competitors or third parties, and market conditions in the IT industry
may have a significant impact on the market price of the Common Stock.
Shares Eligible for Future Sale. A substantial number of outstanding
shares of Common Stock and shares of Common Stock issuable upon exercise of
outstanding stock options and warrants will become eligible for future sale in
the public market at various times. In addition to the factors affecting the
stock market in general and the market for the Common Stock discussed above,
sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock and inhibit the Company's ability to raise additional
capital in the future. Upon completion of the Offering, the Company will have
11,258,051 (11,568,051 if the Underwriters' over-allotment option is exercised
in full) shares of Common Stock outstanding, excluding 2,762,240 shares of
Common Stock issuable upon the exercise of stock options and 526,598 shares of
Common Stock issuable upon the exercise of warrants outstanding as of January
28, 1997 and excluding any stock options granted by the Company after January
28, 1997. Of these shares, the Common Stock sold in the Offering, except for
certain shares described below, will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the "Act").
The remaining 8,003,051 shares of Common Stock (the "Restricted Shares") were
sold by the Company in reliance on exemptions from the registration requirements
of the Act and are "restricted securities" as defined in Rule 144 under the Act
("Rule 144") and may not be sold in the absence of registration under the Act
unless an exemption is available, including an exemption afforded by Rule 144 or
Rule 701 ("Rule 701") under the Act. Without considering the contractual
restrictions described below, approximately (i) 5,660,531 Restricted Shares will
be eligible for sale ninety days after the date of this Prospectus, subject to
volume and other resale conditions imposed by Rule 144, and (ii) 2,342,520
Restricted Shares will be eligible for future sale subject to the holding period
and other conditions imposed by Rule 144. Certain restrictions on shares of
Common Stock are applicable to (i) any shares of Common Stock purchased in the
Offering by affiliates of the Company, which may generally only be sold in
compliance with the limitations of Rule 144, except for the holding period
requirements thereunder, and (ii) the shares of Common Stock owned by the
Selling Stockholders that are not being offered hereby, all of which, together
with the shares of Common Stock owned by the Partners of the Company, each
director of the Company and certain other stockholders and 157,000 shares of
Common Stock beneficially owned by Warren V. Musser and/or his assignees, are
subject to lock-up agreements (the "Lock-Up Agreements") and pursuant to such
agreements will not be eligible for sale or other disposition until 180 days
after the Expiration Date (the "Lock-Up Expiry Date") without the prior written
consent of the Underwriters. Pursuant to the 1994 Purchase, the Company has
granted Safeguard, Technology Leaders and CIP certain registration rights
whereby they may cause the Company to register their shares of Common Stock
under the Act for public sale. See "SHARES ELIGIBLE FOR FUTURE SALE."
It is anticipated that a registration statement (the "Form S-8
Registration Statement") covering the Common Stock that may be issued pursuant
to the exercise of options awarded by the Company will be filed and become
effective prior to the Lock-Up Expiry Date, and that shares of Common Stock that
are so acquired or offered thereafter pursuant to the Form S-8 Registration
Statement generally may be resold in the public market without restriction or
limitation. Subject to the provisions of any Lock-Up Agreement, shares of Common
Stock may be resold in the public market beginning 90 days after the date of
this Prospectus pursuant to Rule 701 (i) by persons who are not affiliates of
the Company, without compliance with the public information, holding period,
volume limitation or notice provisions of Rule 144 and (ii) by affiliates of the
Company, without compliance with the holding period requirements of Rule 144.
See "MANAGEMENT--Stock Options," "SHARES ELIGIBLE FOR FUTURE SALE--Options and
Warrants" and "UNDERWRITING."
Anti-takeover Provisions. Shares of preferred stock may be issued by
the Company in the future without stockholder approval and upon such terms as
the Board of Directors may determine. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding stock of the Company and
potentially prevent the payment of a premium to stockholders in an acquisition
transaction. The Company has no present plans to issue any shares of preferred
stock. See "CERTAIN TRANSACTIONS--Voting and Stock Restriction Agreement."
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The Company has adopted a number of provisions in its charter and
bylaws that may make a change in control difficult, if not impossible, and
therefore may tend to discourage an unsolicited or unfriendly takeover bid. The
Company's Class B common stock is entitled to five votes per share and currently
constitutes 81.5% of the voting power of the Common Stock. All of the issued and
outstanding Class B common stock is owned, and after the Offering will continue
to be owned, by employee stockholders of the Company, all of whom have granted
proxies to the Chief Executive Officer of the Company to vote their shares.
Therefore, the Chief Executive Officer (or his successors) will have the power
to determine all matters submitted to a vote of shareholders, including any
matter related to a change in control of the Company. The charter and bylaws of
the Company also provide that special stockholders meetings may be called only
by the Chairman of the Board of Directors, by the Secretary at the direction of
the Board of Directors, or by stockholders holding at least 30% of the shares of
outstanding Common Stock. Notice of stockholder proposals at annual meetings of
stockholders must be presented to the Company at least 45 days prior to the date
of the meeting. In addition, the Company's Board of Directors is divided into
three classes, each of which serves for a staggered three-year term, which may
make it more difficult for a third party to gain control of the Board of
Directors. See "DESCRIPTION OF CAPITAL STOCK."
No Dividends. To date, the Company has not paid any cash dividends on
its Common Stock, and does not expect to declare or pay any cash or other
dividends in the foreseeable future. Further, the secured credit agreement with
the Company's commercial lender prohibits payment of dividends or other
distributions on the Company's Common Stock. See "DIVIDEND POLICY."
Cancellation of Rights Offering. If the conditions precedent to the
sale to the Underwriters of the Excess Unsubscribed Shares on the sixth business
day after the Expiration Date (the "Closing Date") are not satisfied (assuming
that there are Excess Unsubscribed Shares), the Underwriters may elect, on or
before the Closing Date, to cancel the Rights Offering and the Company and the
Selling Stockholders will not have any obligations with respect to the Rights
except to return promptly, without interest, any payment received in respect of
the Exercise Price. See "THE OFFERING--Cancellation of Rights Offering" and
"UNDERWRITING." The Company has been advised by the NASD that it is likely that
trades in the Rights and the when-issued shares of Common Stock in the market
would be canceled if the Rights Offering is not consummated.
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THE OFFERING
The Company is granting, at no cost, to the holders of Safeguard
Common Shares of record at the close of business on the Record Date, Company
Rights, on the basis of one Company Right for every ten Safeguard Common Shares.
The Selling Stockholders have agreed with the Company to sell 1,550,000 shares
of Class A common stock upon the exercise of the Company Rights. The Company
will sell the remaining 1,550,000 shares of Class A common stock upon the
exercise of the Company Rights. The Company is granting, at no cost, the 155,000
Direct Rights to the Direct Purchasers. Each Right enables the holder to
purchase one share of Class A common stock at an assumed Exercise Price of $5.50
per share. As of the close of business on the day before the date of this
Prospectus, there were approximately ___________ Safeguard Common Shares
outstanding. Accordingly, subject to changes in the number of outstanding
Safeguard Common Shares through the Record Date (principally as a result of the
exercise of options and the conversion of convertible securities to purchase
Safeguard Common Shares), a total of approximately _________ Company Rights are
expected to be issued to holders of Safeguard Common Shares outstanding on the
Record Date. In the event that Company Rights to purchase fewer than _________
shares of Common Stock are issued to holders of Safeguard Common Shares, the
shares of Common Stock subject to such Undistributed Rights will be offered by
the Company to the Other Purchasers at the Exercise Price.
Background
The Company has agreed with the Selling Stockholders to make a Rights
Offering to holders of Safeguard Common Shares on the terms set forth in this
Prospectus. The Company believes that the Rights Offering offers several
advantages over a traditional initial public offering, including, the
opportunity to offer its Common Stock to investors who, as Safeguard
shareholders, already have some knowledge of the Company's business, the
opportunity to achieve a broader distribution to a more stable shareholder base
and the minimization of underwriting discounts and commissions. In addition,
Safeguard has advised the Company that it prefers the Rights Offering to a
traditional initial public offering because it allows its shareholders the
opportunity to purchase shares of Common Stock at the initial offering price
before such shares are offered to the general public by the Underwriters.
Prior to the Rights Offering, there has been no public market for the
Common Stock or the Rights. Consequently, the Exercise Price was determined by
negotiations among the Company, the Selling Stockholders and the Underwriters.
In determining the Exercise Price, the Underwriters, the Board of Directors of
the Company and the Selling Stockholders considered such factors as the future
prospects and historical growth rate in revenues and earnings of the Company,
its industry in general and the Company's position in its industry; revenues,
earnings and certain other financial and operating information of the Company in
recent periods; market valuations of the securities of companies engaged in
activities similar to those of the Company; the management of the Company; and,
with respect to the Company, the advice of the Underwriters.
Exercise Privilege
Each Right will entitle the holder thereof to receive, upon payment of
the Exercise Price, one share of Class A common stock, subject to the
restrictions described herein (the "Exercise Privilege"). Persons may not
exercise Rights for fewer than 50 shares of Common Stock. In the event that a
holder of Rights meeting the minimum exercise requirement elects to exercise in
multiple transactions and one such transaction involves less than the minimum
exercise requirement, such holder should provide to the Rights Agent a letter
stating that such holder has already exercised a sufficient number of Rights to
satisfy the minimum exercise requirement. For purposes of the Rights Offering, a
person that holds Safeguard Common Shares in multiple accounts must meet the 50
share minimum purchase requirement in each account. Accordingly, persons holding
fewer than 50 Rights in an account should consider the advisability of
consolidating the Rights in one account, selling Rights, or purchasing
additional Rights to comply with the minimum exercise requirements of the Rights
Offering. The Company has established these minimum exercise requirements
primarily to limit the costs associated with a significant number of odd lots of
the Common Stock.
No Fractional Rights
No fractional Rights will be issued in the Rights Offering and a
holder of a number of Safeguard Common Shares not evenly divisible by ten will
be entitled to receive the next higher whole number of Rights. For purposes of
this rounding process, record holders of Safeguard Common Shares known to be
acting as nominees for beneficial holders of Safeguard Common Shares will be
disregarded, and the rounding process will take place with respect to the
aggregate holdings of Safeguard Common Shares by the beneficial holder.
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Expiration Date
The Rights Offering will terminate, and the Rights will expire, at
5:00 p.m., Eastern Standard time, on _____, 1997, the Expiration Date. After the
Expiration Date, unexercised Rights will be null and void. Neither the Company
nor any Selling Stockholder will be obligated to honor any purported exercise of
Rights received by ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent")
after the Expiration Date, regardless of when the documents relating to such
exercise were sent, except pursuant to the delayed delivery procedures described
below under "-- Method of Exercising Rights."
Method of Transferring Rights
Rights may be transferred, in whole or in part, by endorsing and
delivering to the Rights Agent, at the addresses set forth below under "--Method
of Exercising Rights," a Rights certificate that has been properly endorsed for
transfer, with instructions to reissue the Rights, in whole or in part, in the
name of the transferee. The Rights Agent will reissue certificates for the
transferred Rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the Rights, in each case to the extent it is
able to do so prior to the Expiration Date. Safeguard and the Company believe
that a market for the Rights may develop during the period preceding the
Expiration Date. The Company has applied with the Nasdaq National Market to have
the Rights approved for quotation for the period ________, 1997 through ______,
1997 and has reserved "DTPIR" as the Nasdaq symbol under which the Rights will
trade during such period. Any questions regarding the transfer of Rights should
be directed to the Rights Agent at P.O. Box 798, Midtown Station, New York, NY
10018, Attention: Reorganization Department, telephone number (800) 223-6554.
Because persons may not exercise Rights for fewer than 50 shares of
Common Stock, persons holding fewer than 491 Safeguard Common Shares in one
account will not be entitled to exercise Rights unless they consolidate Rights
received in multiple accounts or acquire enough additional Rights in the market
to satisfy the 50 share minimum exercise requirement. Such holders should
consult with their regular investment advisor and review various alternatives,
including acquiring additional Rights or selling or otherwise transferring their
Rights. All commissions, fees and other expenses (including brokerage
commissions and any transfer taxes) incurred in connection with the purchase or
sale of Rights are for the account of the transferor and transferee of Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Selling Stockholders.
Method of Exercising Rights
Rights may be exercised by completing and signing the election to
purchase form that appears on the back of each Rights certificate. The completed
and signed election to purchase form, accompanied by payment in full of the
Exercise Price for all shares for which the Exercise Privilege has been
exercised, must be received by the Rights Agent on or before the Expiration
Date. Neither the Company nor the Selling Stockholders will be obligated to
honor any purported exercise of Rights received by the Rights Agent after the
Expiration Date, regardless of when the documents relating to such exercise were
sent, except pursuant to the delayed delivery procedures described below.
Therefore, the Company and Safeguard suggest, for the holders' protection, that
Rights be delivered to the Rights Agent by overnight or express mail courier,
or, if mailed, by registered mail. Persons may not exercise Rights for fewer
than 50 shares of Common Stock in each account.
The Rights and Exercise Price, if any, should be mailed or delivered
to the Rights Agent as follows:
By Mail: By Hand or by Overnight/Express Mail
Courier:
ChaseMellon Shareholder
Services, L.L.C. ChaseMellon Shareholder
Reorganization Department Services, L.L.C.
P.O. Box 798 Reorganization Department
Midtown Station 120 Broadway, 13th Floor
New York, NY 10018 New York, NY 10271
Payment of the Exercise Price must be made in U.S. dollars by cash, check or
money order payable to "Safeguard Escrow Account." Mellon Bank N.A. will serve
as the escrow agent of the Safeguard Escrow Account.
An exercise also will be in acceptable form if, on or before the
Expiration Date, the Rights Agent has received payment in full of the Exercise
Price for shares to be purchased pursuant to the Exercise Privilege and a letter
or
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telegraphic notice from a bank, trust company or member firm of the New York or
American Stock Exchange setting forth the subscriber's name, address and
taxpayer identification number, the number of shares subscribed for pursuant to
the Exercise Privilege, and guaranteeing that a properly completed and signed
election to purchase form will be delivered to the Rights Agent within three
business days after the Expiration Date. Acceptance of subscriptions in the
foregoing manner will be subject to receipt of the duly executed election to
purchase form with respect to the Exercise Privilege within such three business
day period. No formal arrangements for the deposit of election to purchase
forms have been made with any bank, trust company or member firm.
A holder of Rights who purchases less than all the shares of Common
Stock represented by his Rights certificate will receive from the Rights Agent a
new Rights certificate representing the balance of the unsubscribed Rights, to
the extent that the Rights Agent is able to reissue a Rights certificate prior
to the Expiration Date.
Certificates representing the Common Stock purchased by exercising the
Exercise Privilege will be issued as soon as practicable after the sale of the
Unsubscribed Shares and in no event later than six business days after the
Expiration Date. See "--Sales of Unsubscribed Shares; Standby Commitment." All
funds received by the Rights Agent in payment of the Exercise Price will be
retained in escrow by the Escrow Agent and will not be delivered to the Company
or the Selling Stockholders until the certificates representing Common Stock
have been issued.
Record holders of Safeguard Common Shares who hold such shares for the
account of others (e.g., brokers or depositories for securities), and who thus
receive Rights certificates representing Rights for the account of more than one
beneficial owner, should provide such beneficial owners with copies of this
Prospectus and should ascertain and execute on their behalf the intentions of
such beneficial owners as to the exercise or transfer of such Rights.
All questions as to the validity, form, eligibility (including times
of receipt, beneficial ownership and compliance with minimum exercise
provisions) and acceptance of subscription forms and the Exercise Price will be
determined by the Company and Safeguard, whose determination will be final and
binding. Once made, subscriptions are irrevocable, and no alternative,
conditional or contingent subscriptions will be accepted. The Company and
Safeguard reserve the absolute right to reject any or all purchases not properly
submitted or the acceptance of which would, in the opinion of its counsel, be
unlawful. The Company and Safeguard also reserve the right to waive any
irregularities (or conditions) and their interpretations of the terms (and
conditions) of the Rights Offering shall be final and binding. Any
irregularities in connection with purchases must be cured within five business
days of the giving of notice of defect by the Rights Agent, but no later than
three business days after the Expiration Date, unless waived by the Company and
Safeguard. The Company, the Selling Stockholders, the Underwriters and the
Rights Agent are not under any duty to give notification of defects in such
subscriptions and will not have any liability for failure to give such
notifications. Exercises will not be deemed to have been made until such
irregularities have been cured or waived and rejected exercises and the Exercise
Price paid therefor will be returned promptly by the Rights Agent to the
appropriate holders of the Rights.
Investor Information
Investors who desire additional copies of this Prospectus or
additional information should contact Gregory R. Rush at Tucker Anthony
Incorporated, One Beacon Street, Boston, Massachusetts 02108, telephone number
(617) 725-1757 or William J. Filip at Robert W. Baird & Co. Incorporated,
777 E. Wisconsin Avenue, Milwaukee, Wisconsin 53202-5391, telephone number
(414) 298-7665.
Expectations Concerning the Exercise of Rights
Warren V. Musser, the chairman and chief executive officer of
Safeguard, and/or his assignees are expected to exercise all Rights distributed
to them and acquire approximately 291,000 shares of Common Stock through the
Rights Offering.
Sales of Unsubscribed Shares; Standby Commitment
The Unsubscribed Shares will be sold, as to the first 300,000
Unsubscribed Shares, at the Exercise Price to the Other Purchasers (who are
persons selected by the Company having a relationship with the Company,
Safeguard, one of Safeguard's other partnership companies or other persons
selected by the Company) and, as to the number of Unsubscribed Shares exceeding
the 300,000 shares of Common Stock offered to the Other Purchasers (the "Excess
Unsubscribed Shares"), to the Underwriters at the Exercise Price less the Total
Underwriting Discount pursuant to the Standby Underwriting Agreement.
13
<PAGE>
The Company is offering the first 300,000 Unsubscribed Shares at the
Exercise Price to the Other Purchasers and expects to enter into, prior to the
Expiration Date, agreements obligating it to sell up to an aggregate of 300,000
Unsubscribed Shares to the Other Purchasers and obligating the Other Purchasers
to purchase from it up to an aggregate of 300,000 Unsubscribed Shares. In the
event that less than 300,000 Unsubscribed Shares are available for sale to the
Other Purchasers as of the Expiration Date, the number of remaining Unsubscribed
Shares will be sold to each Other Purchaser, on a discretionary basis, as
derived by multiplying the maximum number of Unsubscribed Shares each Other
Purchaser has agreed to purchase by the fraction obtained after dividing the
aggregate number of remaining Unsubscribed Shares by 300,000. In the event that
the Other Purchasers fail to purchase any of the Unsubscribed Shares which they
are obligated to purchase such circumstances would result in the failure to
satisfy a condition precedent to the Underwriters' obligation to purchase Excess
Unsubscribed Shares under the Standby Underwriting Agreement which would result
in the termination of the Rights Offering and the return of payments received in
respect of the Exercise Price without interest unless the Underwriters elect to
purchase all, but not less than all, of the remaining Unsubscribed Shares. See
"--Cancellation of Rights Offering" and "UNDERWRITING."
In accordance with the Standby Underwriting Agreement, the
Underwriters (i) will receive the Financial Advisory Fee of 3% of the Exercise
Price for each share of Common Stock subject to the Offering, and (ii) will
purchase, within six business days after the Expiration Date and subject to the
terms and conditions of the Standby Underwriting Agreement, the Excess
Unsubscribed Shares at a price per share equal to the Exercise Price less the
Underwriting Discount equal to 4% of the Exercise Price for each Excess
Unsubscribed Share, in addition to the Financial Advisory Fee for such shares.
Under certain circumstances, the Underwriters may be entitled to receive the
Underwriting Discount for shares of Common Stock acquired by them pursuant to
the exercise of Rights purchased by them. See "UNDERWRITING." The Excess
Unsubscribed Shares acquired by the Underwriters pursuant to the Standby
Underwriting Agreement, the Common Stock acquired by the Underwriters pursuant
to the exercise of Rights and the Common Stock acquired by the Underwriters in
the market will be offered by the Underwriters to the public at prices which may
vary from the Exercise Price. If all of the Rights are exercised, or if the
number of Unsubscribed Shares is 300,000 or less, there will be no Excess
Unsubscribed Shares and the Underwriters will not be required to purchase any
Common Stock pursuant to the Standby Underwriting Agreement unless the Other
Purchasers do not fulfill their obligations to purchase the Unsubscribed Shares.
The Underwriters may terminate their obligations under the Standby Underwriting
Agreement if certain events occur, or if the Company or any Selling Stockholder
fails to comply with any of their respective obligations under the Standby
Underwriting Agreement. See "UNDERWRITING." The Company has granted to the
Underwriters a 20-day option commencing on the Expiration Date to purchase a
maximum of 310,000 additional shares of Common Stock to cover over-allotments,
if any. See "UNDERWRITING." The Company intends to supplement the Prospectus
after the Expiration Date to set forth the results of the Rights Offering, the
transactions by the Underwriters during the Exercise Period, the number of
Unsubscribed Shares purchased by the Other Purchasers, if any, the number of
Unsubscribed Shares purchased by the Underwriters, if any, and the subsequent
reoffering thereof.
Cancellation of Rights Offering
If the conditions precedent to the sale to the Underwriters of the
Excess Unsubscribed Shares on the sixth business day after the Expiration Date
(the "Closing Date") are not satisfied (assuming that there are Excess
Unsubscribed Shares), the Underwriters may elect, on or before the Closing Date,
to cancel the Rights Offering and the Company and the Selling Stockholders will
not have any obligations with respect to the Rights except to return, without
interest, any payment received in respect of the Exercise Price. See
"UNDERWRITING." The Company has been advised by the NASD that it is likely that
trades in the Rights and the when-issued shares of Common Stock in the market
would be canceled if the Rights Offering is not consummated.
Federal Income Tax Consequences
The following is a summary of the material federal income tax
consequences affecting holders of Safeguard Common Shares receiving Company
Rights in the Offering. In the opinion of Morgan, Lewis & Bockius LLP, the
distribution of the Company Rights by the Company may constitute taxable income
to holders of Safeguard Common Shares under the Internal Revenue Code of 1986,
as amended (the "Code"), and may also be subject to state or local income taxes.
Because of the complexity of the provisions of the Code referred to below and
because tax consequences may vary depending upon the particular facts relating
to each holder of Safeguard Common Shares, such holders should consult their own
tax advisors concerning their individual tax situations and the tax consequences
of the Offering under the Code and under any applicable state, local or foreign
tax laws.
Safeguard has been advised by Morgan, Lewis & Bockius LLP that, under
current interpretations of case law, the Code, and applicable regulations
thereunder, the federal income tax consequences applicable to holders of
Safeguard Common Shares receiving Company Rights in the Offering generally are
as follows:
14
<PAGE>
Distribution of Company Rights to Holders of Safeguard Shares
The Company Rights, representing the right to acquire shares of Common
Stock from the Company or the Selling Stockholders, can be considered as
constituting "property" within the meaning of Section 317(a) of the Code. The
federal income tax consequences of a distribution by the Company of the Company
Rights which are considered "property" to holders of Safeguard Common Shares, as
determined under the Code and the regulations thereunder, are as follows: (i)
each noncorporate holder of Safeguard Common Shares will be deemed to have
received a distribution from Safeguard, generally taxable as ordinary dividend
income, in an amount equal to the fair market value (if any) of the Company
Rights, as of the date of distribution, (ii) each corporate holder of Safeguard
Common Shares (other than foreign corporations and S corporations) will be
deemed to have received a distribution from Safeguard (generally taxable as a
dividend subject to the dividends received deduction for corporations (generally
70%, but 80% under certain circumstances)) in an amount equal to the fair market
value (if any) of the Company Rights, as of the date of distribution; and (iii)
the tax basis of the Company Rights in the hands of each holder (whether
corporate or noncorporate) of Safeguard Common Shares will be equal to the fair
market value (if any) of the Company Rights as of the date of distribution.
Because of the predominantly factual nature of determining the fair market
value, if any, of the Company Rights, Morgan, Lewis & Bockius LLP has expressed
no opinion with respect to the fair market value of the Company Rights.
Since the fair market value of the Company Rights will determine the
amount of taxable income deemed received by the holders of Safeguard Common
Shares, the determination of the fair market value of each Right as of the date
of distribution is critical. The Exercise Price was determined through arms-
length negotiations among the Company, the Selling Stockholders and the
Underwriters. Based on these negotiations and because Safeguard views the
Company Rights as merely a mechanism that permits the purchase of the Common
Stock, Safeguard's Board of Directors believes that the per share value of
Common Stock represented by the Company Rights at the date of the commencement
of the Offering approximates the Exercise Price, and that the Company Rights
should have no value for federal income tax purposes. However, the Internal
Revenue Service is not bound by this determination. See "--Background."
Exercise of Rights
Holders of Company Rights, whether corporate or noncorporate, will
recognize neither gain nor loss upon the exercise of the Company Rights. A
holder of Company Rights who receives shares of Common Stock upon the exercise
of the Company Rights will acquire a tax basis in such shares equal to the sum
of the Exercise Price paid under the Offering and the tax basis (if any) of the
holder of Company Rights in the Company Rights.
Transfer of Rights
The transferable nature of the Company Rights will permit a holder of
Company Rights to sell Company Rights prior to exercise. Pursuant to Section
1234 of the Code, a Company Rights holder who sells Company Rights prior to
exercise will be entitled to treat the difference between the amount received
for the Company Rights and the adjusted tax basis (if any) of the holder of
Company Rights in the Company Rights as a short-term capital gain or capital
loss, provided that Common Stock subject to the Company Rights would have been a
capital asset in the hands of the holder had it been acquired by him. The gain
or loss so recognized will be short-term since the Company Rights will have been
held for not longer than one year.
Non-Exercise of Rights
The income tax treatment applicable to holders of Company Rights who
fail to exercise or transfer their Company Rights prior to the Expiration Date
also is set forth in Section 1234 of the Code. Holders of Company Rights who
allow their Company Rights to lapse are deemed under the Code to have sold their
Company Rights on the date on which the Company Rights expire. Since upon such
lapse no consideration will be received by a holder of Company Rights, and since
the Company Rights will have been held for not longer than one year, a short-
term capital loss equal to the tax basis (if any) in the Company Rights will be
sustained by the holder on such lapse, provided that Common Stock subject to the
Company Rights would have been a capital asset in the hands of the holder had it
been acquired by him.
15
<PAGE>
USE OF PROCEEDS
The minimum net proceeds to the Company from the sale of the 1,705,000
shares of Common Stock offered by the Company hereby are estimated to be
approximately $8.1 million after deducting estimated offering expenses allocable
to and payable by the Company (including the maximum applicable non-accountable
expense allowance to the Underwriters) and assuming the sale of all such shares
pursuant to the Standby Underwriting Agreement (other than the 155,000 shares
sold to the Direct Purchasers pursuant to the exercise of the Direct Rights),
the payment to the Underwriters of the Total Underwriting Discount with respect
to the shares sold by the Company pursuant to the Standby Underwriting Agreement
and the payment of only the Financial Advisory Fee with respect to the shares of
Common Stock sold by the Company to the Direct Purchasers through the Direct
Rights. In the event more of the shares of Common Stock offered hereby are sold
pursuant to the exercise of Rights, the Company will not be obligated to pay the
Underwriting Discount with respect to such shares and will, therefore, realize
an amount of net proceeds greater than approximately $8.1 million. See "RISK
FACTORS--Liquidity" and "--Broad Discretion in Application of Proceeds," "THE
OFFERING--Sales of Unsubscribed Shares; Standby Commitment" and "UNDERWRITING."
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
The principal reason for the Offering is to establish a stronger
capital base for the Company to support the continued expansion of its revenues.
The Company intends to use the net proceeds, together with cash flow from
operations, to repay a $2.0 million loan from Safeguard (the "Safeguard Loan")
and for working capital, general corporate purposes and capital expenditures.
The Safeguard Loan has a maturity date of November 1, 2001 but must be prepaid
in full upon the consummation of this Offering and bears interest at rates which
escalate 1.0% annually, starting at 6.0% in the initial year. In addition, the
Company may expand its technical and marketing capabilities through the
acquisition of other companies or businesses that are complementary to the
Company's current business. A portion of the net proceeds from the Offering may
be used in the future for such acquisitions, although the Company has no
commitments or understandings with respect to future acquisitions, nor is it
currently actively considering any particular acquisition. The Company has not
determined the amounts it intends to utilize on each of the listed uses, or the
timing of such uses. The amounts actually expended for each use may vary
significantly depending upon a number of factors, including future revenue
growth, if any, the amount of cash generated or used by the Company's operations
and the status of acquisition opportunities, if any, presented to the Company.
The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with its current cash balances and cash flow from
future operations will be sufficient to fund its operating requirements for the
12 months following the consummation of this Offering. Pending such uses, the
net proceeds of the Offering will be invested in short-term, investment-grade,
interest-bearing securities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION--Liquidity and Capital Resources."
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment of future dividends, if any, will depend, among
other things, on the Company's results of operations and financial condition,
any restriction in the Company's secured credit agreement and on such other
factors as the Company's Board of Directors may, in its discretion, consider
relevant. The Company's secured credit agreement with its commercial lender
currently prohibits the payment of dividends.
16
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company
as of December 31, 1996, and as adjusted to reflect the sale of 1,705,000
shares of Class A common stock by the Company pursuant to the Offering and the
application of the estimated minimum net proceeds of approximately $8.0 million
therefrom. This table should be read in conjunction with the Financial
Statements and related notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
---------------------------
(dollars in thousands,
except per share data)
Actual As Adjusted
----------- ------------
(1)
<S> <C> <C>
Long-term debt, including current portion(3)............................................ $ 2,177 $ 177
------- ------
Stockholders' equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized, and no shares issued
and outstanding...................................................................... - -
Class A common stock, $.001 par value; 40,000,000 shares authorized, and
4,271,439 and 5,976,439 (as adjusted) shares issued and outstanding(2)............... 4 6
Class B common stock, $.001 par value; 20,000,000 shares authorized, and
5,281,612 and 5,281,612 (as adjusted) shares issued and outstanding(2)............... 5 5
Additional paid-in capital(2)........................................................ 9,294 17,352
Notes receivable from sale of Common Stock........................................... (146) (146)
Accumulated deficit.................................................................. (406) (406)
------- ------
Total stockholders' equity........................................................... 8,751 16,811
------- ------
Total capitalization.................................................................... $10,928 $16,988
======= ======
</TABLE>
- ---------------
(1) Adjusted to give effect to the sale by the Company of 1,705,000 shares of
Class A common stock and the receipt and application of approximately
$8,060 in net proceeds from this Offering, after deducting the maximum
Total Underwriting Discount with respect to such shares of approximately
$492 and estimated offering expenses of $825 (including $125 representing
the maximum applicable non-accountable expense allowance to the
Underwriters).
(2) Excludes as of January 28, 1997 (i) 2,762,240 shares of Common Stock
issuable upon the exercise of options (of which options to purchase 24,750
shares were exercisable at January 28, 1997) at a weighted average exercise
price of $2.16 per share and (ii) 526,598 shares of Common Stock issuable
upon the exercise of warrants (all of which were exercisable as of January
28, 1997) at an exercise price of $5.50 per share. See "MANAGEMENT--Stock
Options" and "CERTAIN TRANSACTIONS."
(3) The "As Adjusted" long-term debt amount reflects the repayment of a $2,000
loan from Safeguard using net proceeds from this Offering. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources" and "USE OF PROCEEDS."
17
<PAGE>
DILUTION
The net tangible book value of the Company as of December 31, 1996
was approximately $8.6 million or $0.90 per share of Common Stock. Net tangible
book value per share of Common Stock represents the amount of the Company's
tangible assets less its total liabilities, divided by the total number of
shares of Common Stock outstanding. Without taking into account any changes in
net tangible book value after December 31, 1996, other than to give effect to
the items described in Note 1 appearing immediately below the following table,
the pro forma net tangible book value of the Company as of December 31, 1996
would have been approximately $16.7 million or $1.48 per share. This represents
an immediate increase in such pro forma net tangible book value of $0.58 per
share to existing stockholders and an immediate dilution of $4.02 per share to
investors purchasing Common Stock at the Exercise Price in the Offering. New
stockholders that acquire Common Stock from the Underwriters at a price greater
than the Exercise Price will experience greater dilution. The following table
illustrates this per share dilution in net tangible book value:
<TABLE>
<S> <C> <C>
Exercise Price.................................................. $5.50
Net tangible book value per share as of December 31, 1996..... $0.90
Increase per share attributable to new stockholders (1)....... 0.58
Pro forma net tangible book value per share as of December 31, ----
1996........................................................... 1.48
-----
Dilution per share to new stockholders.......................... $4.02
=====
</TABLE>
- --------------------
(1) Reflects the sale by the Company of 1,705,000 shares of Common Stock and
the receipt of approximately $8.1 million in net proceeds from the Offering
after deducting the maximum Total Underwriting Discount with respect to
such shares of approximately $492,000 and estimated offering expenses of
$825,000 (including $125,000 representing the maximum applicable non-
accountable expense allowance to the Underwriters).
The following table sets forth, on an adjusted basis as of January 28,
1997, the number of shares of Common Stock issued by the Company, the total
consideration paid and the average price per share paid upon original issuance
to stockholders prior to the Offering and by new investors, based upon the
Exercise Price of $5.50 per share before deducting the Underwriters'
compensation and estimated offering expenses:
<TABLE>
<CAPTION>
Average
Shares Total Price
Purchased (1) Consideration (2)(3) per Share (2)
------------------ ----------------------- -------------
Number Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
Existing shares.............. 9,553,051 84.9% $9,774,631 51.0% $1.02
New shares................... 1,705,000 15.1 9,377,500 49.0 5.50
--------- ----- ----------- -----
Total.................... 11,258,051 100.0% $19,152,131 100.0% 1.70
========== ===== =========== =====
</TABLE>
- --------------------
(1) Sales by the Selling Stockholders in the Offering will cause the number of
shares held by existing stockholders to be reduced to approximately
8,003,051 shares or 71.1% of the total shares of Common Stock to be
outstanding after the Offering, and will increase the number of shares held
by new investors to approximately 3,255,000 shares, or 28.9% of the total
shares of Common Stock to be outstanding after the Offering. See
"PRINCIPAL AND SELLING STOCKHOLDERS."
(2) Reflects gross consideration from the issuance of Common Stock and
therefore does not reflect deductions for stock issuance costs of $471,000
and notes issued in exchange for stock issuance of $146,000.
(3) Reflects gross consideration from the issuance of Common Stock and
therefore does not reflect deductions for the maximum Underwriting Discount
with respect to such shares of approximately $492,000 and estimated
offering expenses of $825,000.
The foregoing tables do not assume the exercise of any options. As of
January 28, 1997, there were outstanding options to purchase an aggregate of
2,762,240 shares of Common Stock (of which 24,750 were exercisable at January
28, 1997) at a weighted average exercise price of $2.16 per share and excludes
526,598 shares of Common Stock issuable upon the exercise of warrants at an
exercise price of $5.50 per share. As of January 28, 1997, the Company had an
additional 719,710 shares of Common Stock available for future grants and
other issuances under its Stock Option Plan. See "MANAGEMENT--Stock Options,"
"CERTAIN TRANSACTIONS" and Note 7 to the Consolidated Financial
Statements appearing elsewhere in this Prospectus.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The financial data presented below has been derived from the Company's
consolidated financial statements. The audited balance sheets as of March 31,
1995 and 1996 and the related statements of operations, stockholders' equity and
cash flows for each of the years in the two-year period ended March 31, 1996 and
for the period from January 28, 1994 (inception) to March 31, 1994 and the KPMG
Peat Marwick LLP report thereon and the Company's unaudited balance sheet as of
December 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for the period then ended are included elsewhere in this
Prospectus. The data presented below should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," the Consolidated Financial Statements and the notes thereto and
other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Inception Year Ended Nine Months Ended
to March 31, December 31,
March 31, ------------------- -------------------
1994 1995 1996 1995 1996
---------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues........................ $ 261 $12,843 $26,339 $18,756 $26,245
----- ------ ------ ------ ------
Operating expenses:
Project personnel and related
expenses........................... 633 8,351 15,312 10,710 16,307
Professional development and
recruiting......................... 106 1,395 4,587 3,508 4,478
Marketing and sales................ 94 451 606 430 1,189
Management and administrative
support............................ 317 3,108 4,460 3,163 4,840
----- ------ ------- ------ ------
Total operating expenses........ 1,150 13,305 24,965 17,811 26,814
----- ------ ------ ------ ------
Income (loss) from operations...... (889) (462) 1,374 945 (569)
Interest income, net............... 3 85 164 119 82
----- ------ ------ ------ ------
Income (loss) before taxes......... (886) (377) 1,538 1,064 (487)
Income taxes....................... -- -- ( 302) (209) 107
----- ------ ------ ------ ------
Net income (loss).................. $(886) $(377) $1,236 $ 855 $ (380)
===== ======= ====== ====== ======
Pro forma net income (loss) per
share of Common Stock(1)........... $(.35) $(0.05) $0.13 $0.09 $(0.04)
Shares used in computing pro forma
net income (loss) per share(1)..... 2,509 8,270 9,821 9,759 10,437
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------------ ---------------
1994 1995 1996 1996
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............. $1,148 $4,690 $4,635 $7,132
Working capital....................... 558 4,345 4,396 6,312
Total assets.......................... 1,456 7,513 11,615 13,928
Long-term debt, including current
portion(2)............................ -- 256 125 2,177
Total stockholders' equity............ 766 5,187 6,568 8,751
</TABLE>
- -----------------------
(1) Pro forma net income (loss) per share is computed using the weighted average
number of shares of Common Stock and Common Stock equivalent shares (stock
options and warrants) outstanding unless anti-dilutive. As required by Staff
Accounting Bulletin No. 83 issued by the Securities and Exchange Commission,
Common Stock and Common Stock equivalent shares issued by the Company during
the twelve-month period preceding the initial filing of the Registration
Statement have been included in the calculation as if they were outstanding
for all periods presented (using the treasury stock method and the assumed
public offering price).
(2) As of December 31, 1996, the Company had long-term debt of approximately
$2,177, which includes a loan from Safeguard for $2,000 made on November 8,
1996.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in connection with the information
contained in the Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "RISK FACTORS."
Overview
Diamond is a management consulting firm that devises business strategies
enabled by information technology ("IT") and manages the implementation of those
strategies. Diamond was founded upon, and continues to stress, a business
culture in which strategic consulting and IT expertise are optimally integrated
to provide superior client solutions. The Company has experienced substantial
revenue growth as its net revenues have increased from $12.8 million in its
first full fiscal year of operations ending March 31, 1995 to $26.3 million in
fiscal 1996 while growing its client base from 16 clients served in fiscal 1995
to 24 clients served in fiscal 1996. The number of the Company's client-serving
professionals has also grown during this two-year period from 69 to 115 at the
end of fiscal 1995 and fiscal 1996, respectively.
The Company's revenues are comprised of professional fees for services
rendered to clients which are billed either monthly or semi-monthly in
accordance with the terms of the client engagement. Prior to the commencement of
a client engagement, the Company and its client agree on fees for services based
upon the scope of the project, Diamond staffing requirements and the level of
client involvement. The Company recognizes revenues as services are performed in
accordance with the terms of the client engagement. Out-of-pocket expenses are
reimbursed by clients and offset against expenses incurred and are not included
in recognized revenues. Provisions are made for estimated uncollectible amounts
based on the Company's experience. Although the Company from time to time has
been required to make revisions to its clients' estimated deliverables, to date
none of such revisions has had a material adverse effect on the Company's
operating or financial results.
The largest portion of the Company's costs consist primarily of employee-
related expenses for its client-serving professionals and other direct costs,
such as third-party vendor costs and unbilled travel costs associated with the
delivery of services to clients. The remainder of the Company's costs are
comprised of the expenses associated with the development of the business and
the support of its client-serving professionals, such as professional
development and recruiting, marketing and sales, and management and
administrative support. Professional development and recruiting expenses
consist primarily of recruiting and training costs. Marketing and sales
expenses consist primarily of the costs associated with the Company's
development and maintenance of its marketing materials and programs, in addition
to other marketing programs. Management and administrative support expenses
consist primarily of the costs associated with operations, finance, human
resources, information systems, facilities and other administrative support for
project personnel.
The Company regularly reviews its fees for services, professional
compensation and overhead costs to ensure that its services and compensation are
competitive within the industry. In addition, Diamond monitors the progress of
client projects with client senior management on a periodic basis. The Company
manages activities of its professionals by closely monitoring engagement
schedules and staffing requirements for new engagements. Because most of the
Company's client engagements are, and may be in the future, terminable by the
client without penalty, an unanticipated termination of a client project could
require the Company to maintain under-utilized employees, resulting in a higher
than expected percentage and number of inactive professionals. While
professional staff must be adjusted to reflect active engagements, the Company
must maintain a sufficient number of senior professionals to oversee existing
client engagements and participate with the Company's sales efforts to secure
new client assignments.
Recent Developments
The Company's net revenues of $10.2 million during the quarter ended
December 31, 1996 increased $1.8 million, or 21.8%, from the prior quarter's net
revenues. This increase, combined with the impact of the cost reductions
described in the following paragraphs, resulted in net income of $719,000
during the quarter, substantially offsetting the net losses during the six
months ended September 30, 1996 of $1.1 million.
The Company's net revenues continued to grow during each of the three
quarters ended December 31, 1996, despite the cancellation of two significant
projects during the last quarter of fiscal 1996 and the first quarter of fiscal
1997. The cancellation of these projects resulted from (a) one client's
acquisition of an existing business which eliminated its need for Diamond's
continued services in assisting the client in the establishment of a similar
business and (b) the other client's cancellation of the business initiative for
which the Company had been retained. The revenues from these two clients
represented approximately $3.8 million in the quarter ended March 31, 1996 and,
after such cancellations, represented approximately $1.5 million in the quarter
ended June 30, 1996, $300,000 in the quarter ended September 30, 1996 and zero
in the quarter ended December 31, 1996. At the time of these project
20
<PAGE>
cancellations, the Company was in the process of increasing the number of its
client-serving professionals to support anticipated revenue growth.
Accordingly, the lost revenue associated with these projects, together with the
expanded capacity for future anticipated revenue growth, resulted in a higher
than expected percentage of unassigned professionals during each of the quarters
ended June 30, 1996 and September 30, 1996 and net losses of $714,000 and
$385,000, respectively. The Company responded to the impact of this lost
revenue and reduced utilization of its client-serving professionals by
evaluating its cost structure and eliminating, or deferring, certain planned
spending and terminating certain non-client-serving professionals. At the same
time, the Company elected to retain existing client-serving professionals so
that it could be in a position to respond to anticipated future growth.
Finally, the following compensation reductions were implemented to help the
Company recover from the situation.
. The Company eliminated employee bonuses for the year ending March 31,
1997.
. The Partners agreed to a temporary 8.3% reduction in compensation for
one year commencing with the quarter ending December 31, 1996.
. Certain of the Partners forgave prior years' deferred compensation
totalling approximately $485,000 during the quarter ended December 31,
1996. These Partners also agreed to forgive an additional $485,000 of
deferred compensation during the quarter ending March 31, 1997 if the
Company does not achieve certain revenue thresholds during that quarter. To
the extent that such amounts are forgiven in the quarter ending March 31,
1997, the Company will recognize the amount as a reduction in operating
expenses in the period.
The Company's response to these project cancellations and the resulting
business circumstances effectively reduced spending levels, while maintaining
the consulting capacity required to support future growth. In the aggregate
(assuming the revenue thresholds related to potential forgiveness of deferred
compensation described above are not met), the Company reduced or will reduce
its expense levels by approximately $800,000 in the quarter ended September 30,
1996, approximately $1.1 million in the quarter ended December 31, 1996, $1.1
million in the quarter ending March 31, 1997, and $200,000 in each quarter
ending June 30, 1997 and September 30, 1997 as compared to the expense levels
included in the quarter ended June 30, 1996.
Results of Operations
The Company's operations during the period from inception on January 28,
1994 to March 31, 1994 (the "Inception Period") reflect a loss of $886,000 which
was attributable to the developmental nature of the business during the start-up
phase of operations. The Company's investment in its consulting capacity and
marketing programs during the Inception Period was focused primarily on the
development of a core group of consultants and administrative personnel to start
the business, recruitment of new consultants to support the future growth of the
business and development of a corporate identity and marketing approach.
Accordingly, a comparison of fiscal 1995 to the Inception Period is not
meaningful and the discussion that follows is only directed toward a comparison
of the nine months ended December 31, 1996 and 1995 and a comparison of fiscal
1996 and fiscal 1995.
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
--------------------- -----------------
1995 1996 1995 1996
------- ------ ----- ------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues..................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Operating expenses
Project personnel and related
expenses........................ 65.0 58.1 57.1 62.1
Professional development and
recruiting...................... 10.9 17.4 18.7 17.1
Marketing and sales............. 3.5 2.3 2.3 4.5
Management and administrative
support......................... 24.2 17.0 16.9 18.4
----- ----- ----- -----
Total operating expenses..... 103.6 94.8 95.0 102.1
----- ----- ----- -----
Income (loss) from operations.... (3.6) 5.2 5.0 (2.1)
Interest income, net............. 0.7 0.6 0.7 0.3
----- ----- ----- -----
Income (loss) before taxes....... (2.9) 5.8 5.7 (1.8)
Income taxes..................... -- (1.1) (1.1) 0.4
----- ----- ----- -----
Net income (loss)................ (2.9%) 4.7% 4.6% (1.4%)
===== ===== ===== =====
</TABLE>
21
<PAGE>
Nine Months Ended December 31, 1996 Compared to Nine Months Ended December 31,
1995
The Company's net revenues increased 39.9% to $26.2 million during the nine
months ended December 31, 1996, as compared to the same period in the prior
year. The increase in the Company's net revenues reflects an increase in the
volume of services delivered to new clients, as well as the leveraging of the
Company's existing client base by undertaking additional projects for these
clients. For the nine months ended December 31, 1996, $9.4 million of revenue
was derived from services delivered to new clients and $16.8 million related to
the completion of projects or undertaking additional projects from the Company's
client base of the previous fiscal year. The Company served 39 clients during
the nine months ended December 31, 1996 (of which 16 were clients during the
prior fiscal year) as compared to 18 clients during the same period in the prior
year.
Project personnel and related expenses increased $5.6 million to $16.3
million during the nine months ended December 31, 1996 from the same period in
the prior year. In aggregate, project personnel and related expenses increased
52.3% from the same period in the prior year due to the increase in the number
of its client-serving professionals hired during the period to respond to
anticipated future growth. The Company increased its client-serving
professional staff from 100 at December 31, 1995 to 143 at December 31, 1996.
As a percentage of net revenues, project personnel and related expenses
increased from 57.1% to 62.1% during the nine months ended December 31, 1996.
This largely reflects the impact of the reduced utilization that occurred as a
result of the cancellation of two significant projects in March and April 1996
as previously noted.
Professional development and recruiting expenses increased from $3.5 million
to $4.5 million, or 27.7%, during the nine months ended December 31, 1996 due
to the increase in recruiting and the training of a higher number of
professional consultants. The increase also reflects the Company's continued
emphasis on its investment in recruiting and training to support the growth of
its business as partially offset by certain cost containment initiatives
undertaken in response to the events described in "--Recent Developments." As a
percentage of net revenues, professional development and recruiting expenses
decreased to 17.1% as compared to 18.7% during the same period in the prior
year.
Marketing and sales expenses increased from $430,000 to $1.2 million during
the nine months ended December 31, 1996. As a percentage of net revenues, these
expenses increased from 2.3% to 4.5%, reflecting the Company's expanded
investment in its marketing and sales programs.
Management and administrative support expenses increased from $3.2 million
to $4.8 million during the nine months ended December 31, 1996. As a percentage
of net revenues, these expenses increased from 16.9% to 18.4%, reflecting the
costs associated with the additional facilities, equipment and personnel
necessary to support the Company's growth and increased consulting capacity and
the recognition of certain legal expenses. See "CERTAIN TRANSACTIONS--
Cancellation of Promissory Note."
Fiscal 1996 Compared to Fiscal 1995
The Company's net revenues increased 105.1% to $26.3 million in 1996, as
compared to $12.8 million in 1995. The increase in the Company's net revenues
reflects an increase in the volume of services delivered to new clients, as well
as the leveraging of the Company's existing client base by undertaking
additional projects for these clients. The Company served 24 clients during
1996 (of which 12 were clients during the prior year) as compared to 16 clients
during the same period in the prior year.
Project personnel and related expenses increased from $8.4 million to $15.3
million, or 83.4%. This reflects the increase in the number of professional
consultants required to support the Company's growth during the period and to
respond to anticipated future growth. In response to the Company's requirements
for additional project personnel, the Company increased its number of client-
serving professionals from 69 at March 31, 1995 to 118 at March 31, 1996.
22
<PAGE>
As a percentage of net revenues, these expenses decreased from 65.0% to 58.1%
during 1996, reflecting the Company's improved utilization of its client-serving
professionals relative to the preceding year.
Professional development and recruiting expenses increased from $1.4
million to $4.6 million during 1996. As a percentage of net revenues, these
expenses increased from 10.9% to 17.4% in 1996. This increase reflects the
Company's emphasis on its investment in recruiting and training to support the
growth of the business and to conduct internal training to support the
assimilation and development of its highly skilled employee base.
Marketing and sales expenses increased from $451,000 to $606,000, or 34.4%
as a result of the Company's expanded investment in its marketing and sales
programs. As a percentage of net revenues, these expenses decreased from 3.5%
in 1995 to 2.3% in 1996.
Management and administrative support expenses increased from $3.1 million
to $4.5 million, or 43.5% as a result of the additional facilities, equipment
and personnel necessary to support the Company's growth and increased consulting
capacity. As a percentage of net revenues, these expenses decreased from 24.2%
to 17.0% as a result of the Company's improved operating leverage resulting from
the Company's net revenue growth.
The Company's effective tax rate of 19.6% in 1996 was lower than the
federal statutory rate primarily due to the recognition of benefits not
recognized during fiscal 1994 and 1995. The Company did not recognize these
benefits in 1994 and 1995 because of its operating losses during those years,
its limited operating history and the likelihood of their realization at the end
of each of those fiscal years.
Unaudited Quarterly Results
Set forth below are selected statements of operations data for each of the
Company's full quarters since inception. In the Company's opinion, this data
has been prepared on the same basis as the audited financial statements and
includes all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the information for the period presented when read in
conjunction with the Consolidated Financial Statements and notes thereto
contained elsewhere herein. Results of operations for any previous fiscal
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------------------------
Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar 31, Jun. 30, Sept. 30, Dec. 31,
1994 1994 1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Net revenues $1,332 $2,859 $3,542 $5,110 $5,863 $5,975 $6,918 $7,583 $7,753 $8,336 $10,156
Income (loss) from
operations $(1,188) $ (271) $ 112 $ 885 $ 363 $ 149 $ 433 $ 429 $(1,215) $(589) 1,235
Net income (loss) $(1,178) $ (243) $ 146 $ 898 $ 312 $ 159 $ 383 $ 382 $(714) $(385) 719
Other Operating Data:
Number of clients served 9 12 10 10 13 10 13 17 21 25 29
Number of clients
generating revenues
greater than $250,000 2 4 5 6 8 9 8 7 11 11 16
Avg. revenue per client $148 $ 238 $ 354 $ 511 $ 451 $ 598 $ 532 $ 446 $369 $333 $350
</TABLE>
The Company has experienced quarterly fluctuations in its operating results
partially due to its rapid growth since inception, together with the impact of
the Company's considerable investments in recruiting and training during the
periods. Because the Company's revenues are derived from professional fees and
the Company is in its early stages of investment with many of its clients,
quarterly results can be affected by the commencement and completion of client
23
<PAGE>
engagements and the booking of new business. In addition, expenses are impacted
by the investment made in training programs, campus recruiting and the
development of new business.
The Company's loss from operations during the quarters ended June 30, 1994
and September 30, 1994 reflects the impact of the costs incurred in the
Company's efforts to increase the number of its client-serving professionals and
develop its corporate identity and marketing programs. Since that time, the
Company has expanded its client base and key client relationships, thereby
generating substantial growth in net revenues. The Company increased its
investment in recruiting and training during each of the quarters of fiscal 1996
partially offsetting the impact of increased revenues in these quarters. During
each of the three quarters ended December 31, 1996, the Company continued to
expand its client base, key client relationships and client-serving
professionals, despite the cancellation of two significant projects. See "--
Recent Developments" and "RISK FACTORS -- Concentration of Revenues."
Liquidity and Capital Resources
Historically, the Company has used proceeds from the private sales of
Common Stock and cash from operations to fund its operating and capital
requirements. The Company expects that cash from operations and the proceeds
from this Offering will provide the principal sources of future liquidity for
the Company. Variations in the Company's operating results have occurred in the
past and any significant decreases in net income could adversely affect
liquidity.
The Company is currently experiencing a period of growth which could place
a strain on the Company's financial resources. The Company expects to increase
its client-serving professional staff by nearly 30% during the next 12 months.
Although the Company's plans to hire personnel are driven in response to
increased demand for the Company's consulting services, a portion of these
expenses may be incurred in anticipation of increased demand. Operating results
and liquidity may be adversely affected if market demand and revenues do not
increase as anticipated. Capital expenditures for computer equipment,
telecommunications equipment, and furniture and fixtures and leasehold
improvements totaled $1.2 million during the nine months ended December 31, 1996
and $1.8 million during the year ended March 31, 1996. The Company anticipates
that its capital expenditures for fiscal 1998 will not exceed $1.0 million.
The Company entered into a $2.0 million subordinated loan agreement with
Safeguard on November 8, 1996 for general working capital purposes. In
connection with this loan, the Company issued warrants to Safeguard for the
purchase of 526,598 shares of the Company's Common Stock at $5.50 per share. The
loan has a maturity date of November 1, 2001 but must be repaid in full upon
the consummation of this Offering and bears interest at rates which escalate
1.0% annually, starting at 6.0% in the initial year.
The Company also obtained a revolving line of credit (pursuant to the terms
of a secured credit agreement) from a commercial bank under which the Company
may borrow up to $3.0 million at an annual interest rate based on the prime rate
or based on the LIBOR rate plus 2.5%, at the Company's discretion. As of
December 31, 1996, the Company had approximately $2.7 million available under
this line of credit. See Note 6 of Notes to Consolidated Financial Statements.
The Company may expand its capabilities through the acquisition of other
businesses that are complementary to the Company's business. A portion of the
net proceeds from this Offering may be used in the future for such acquisitions,
although the Company is not currently engaged in active discussions with respect
to any acquisition. See "USE OF PROCEEDS."
The Company currently anticipates that the net proceeds received by the
Company from this Offering, together with amounts available under its current
revolving line of credit, cash generated from operations and existing cash
balances will be sufficient to satisfy its operating cash needs for the 12
months following the consummation of this Offering. Should the Company's
business expand more rapidly than expected, the Company believes that additional
bank credit would be available to fund such operating and capital requirements.
In addition, the Company could consider seeking additional public or private
debt or equity financing to fund future growth opportunities.
24
<PAGE>
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121") was issued in March 1995. SFAS 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
anticipates the adoption of SFAS 121 will not have a material impact on its
results of operations or financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") was issued in October 1995. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock based awards or to continue to account for such
items using the intrinsic value method as outlined under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") with
pro forma disclosures of net income and net income per share as if the fair
value method had been applied. The Company intends to continue to apply APB 25
for future stock options and stock based awards, and accordingly, does not
anticipate that the adoption of SFAS 123 will have a material impact on its
results of operations or financial position.
The Company will adopt both SFAS 121 and 123 effective for its fiscal year
ending March 31, 1997.
25
<PAGE>
BUSINESS
Overview
Diamond is a management consulting firm that devises business strategies
enabled by information technology ("IT") and manages the implementation of those
strategies. Diamond was founded upon, and continues to stress, a business
culture in which strategic consulting and IT expertise are optimally integrated
to provide superior client solutions. The Company believes that the
distinguishing qualities of its consulting process are its ability to synthesize
strategy with technology, deliver solutions with measurable results, deliver
services through small multidisciplinary project teams and maintain objectivity
in solution recommendations.
The Company leads its clients through a process which broadens their
understanding of the ways that IT can be incorporated into their businesses to
gain competitive advantage in their markets. Diamond's professionals, working
closely with client personnel, perform thorough analyses of the client's current
business with a focus on alternative IT-driven business strategies. When an
appropriate strategy has been developed, Diamond's professionals provide
important management oversight of the strategy implementation process, which
generally includes design, deployment and integration of IT solutions together
with modification of business processes and organizational structure. Diamond
manages the deployment phase by utilizing the client's internal resources or
third-party resources selected by Diamond for their particular expertise.
Throughout the entire process, Diamond transfers relevant knowledge to the
client organization.
Diamond differentiates itself from other management consultants primarily
by its in-depth knowledge of IT and its broader scope of services, including
implementation management. The Company differentiates itself from systems
integrators primarily by its ability to devise business strategies, its focus on
knowledge transfer and program management during implementation, and its
objectivity in recommending solutions. Finally, in comparison to firms that
offer both management-consulting and systems-integration services through
separate business units, Diamond differentiates itself by its ability to offer
integrated strategy and IT services simultaneously through a single
multidisciplinary team and by its objectivity.
Diamond was founded in January 1994 by executives with extensive experience
with both major consulting firms and emerging growth technology businesses.
Diamond has grown rapidly since its inception, serving clients in a variety of
industries ranging in size from Fortune 500 companies to smaller private
companies.
Industry Background
The organizational structure and service offerings of consulting firms at
any given time coincide with the concerns of the businesses these firms serve.
For many decades, business organizations have retained management consultants to
provide general strategic advice. The advent of the computer, however, changed
the way businesses operate. Consequently, software developers emerged to offer
custom software applications that would improve the functionality of the
hardware in which businesses had invested. In the 1970s and 1980s, as the
investments businesses made in IT continued to grow (including investments in
hardware, networks and software provided by different vendors), systems
integrators emerged to help businesses integrate and deploy these products. By
the 1990s, IT had become a significant part of most business operations, and was
starting to be used for more strategic purposes. In response to these
developments, many consulting firms created or acquired complementary business
units in an attempt to provide a single source for all consulting needs of a
business.
Many large corporations face a rapidly changing business environment and
new bases of competition. Success in the midst of change may require mastering
increasing complexity, adapting products and services to dynamic market
conditions, reducing costs and improving quality. With businesses and consumers
becoming more comfortable with technology, IT is increasingly being used in a
variety of innovative, strategic ways to create new businesses, products and
services, open new sales and marketing channels and provide cost reduction and
time-to-market advantages. IT
26
<PAGE>
is also, however, creating new competitors, eliminating established sales and
marketing channels, and shortening research and development cycles. In response,
the Company's experiences indicate that business leaders are developing a
different and more sophisticated view of how technology can be used to create a
business strategy, rather than simply to enable a business strategy.
There is increasing recognition of the change in the business environment
driving this new use of technology. A company looking for help to develop a
business strategy incorporating IT generally has two choices: hire two separate
firms (a management consultant followed by a systems integrator) or hire one
firm that offers both management-consulting and systems-integration services.
When hiring separate firms, a management consultant first works with the
senior management of the company to develop a new business strategy. Senior
management then hires a systems integrator to determine and develop the
information systems to support the business strategy. The Company believes that
there are several inherent disadvantages to this two-step approach. First, a
management consultant that does not have a comprehensive understanding of IT may
not recognize the strategic potential of IT for that business, and therefore not
recommend a strategy that fully incorporates IT. Second, after a systems
integrator is hired to deploy the strategy, transition time is often required
for the integrator to fully understand the strategy recommended by the
management consultant. This transition between the two firms generally increases
the overall risk and length of the project (i.e., time-to-market), and may
threaten the integrity of the original strategy. In addition, systems
integrators often have proprietary software or have hardware reseller agreements
that give them an economic incentive to recommend a particular solution over a
potentially more advantageous one. The second alternative is to hire one firm
that offers both management-consulting and systems-integration services.
However, these services are typically delivered by separate practices or
business units within the same firm. The separate units generally function like
two separate firms, and typically require a transition period between strategy,
development and deployment.
The Company believes that it competes in a developing market comprised
of portions of the management-consulting market and the systems-integration
market. International Data Corporation ("IDC"), an industry analyst, defines the
market for management-consulting service to include strategy, business process
reengineering, change management services, operational analysis, process
improvement and technology consulting. Diamond participates in this entire
market. IDC defines the market for systems-integration services to include IT
planning, IT design, custom software development, project management, test and
debug, installation, training/knowledge transfer, system migration, staging,
relocation services, system configuration, software reengineering, site
preparation, documentation service, and business recovery. Diamond participates
in the project management and training/knowledge transfer segments of this
market. IDC estimates aggregate revenue from these segments of the systems-
integration market and the management-consulting market were $20.6 billion in
1995 and will grow at a compound annual growth rate of 13.7% to $39.2 billion in
the year 2000.
The Diamond Advantage
Diamond was founded with the objective of creating a common business
culture in which strategic consulting and IT expertise are optimally integrated
to provide superior client solutions. The Diamond solution is defined by the
ability to (i) consult with clients to synthesize strategy with technology,
(ii) deliver an operating solution with measurable results, (iii) deliver
services through small multidisciplinary project teams and (iv) maintain
solution objectivity.
Consult with Clients to Synthesize Strategy with Technology. Diamond
simultaneously provides expertise in strategy consulting, business processes
and IT. This enables the Company to identify strategic opportunities that
might not otherwise be considered by a management consulting firm or a
systems integration firm.
Deliver a Solution with Measurable Results. Diamond delivers a solution with
measurable goals for its clients that is supported by a cost/benefit
analysis. Because the solution is delivered to the client by the same
multidisciplinary team that created the strategy, the time-to-market and risk
associated with these projects is reduced.
27
<PAGE>
Utilize Small, Multidisciplinary Project Teams. The Company's services are
delivered through small, experienced and multidisciplinary teams that work
collaboratively with a client. The Company refers to its project staffing
model as a "diamond," which contemplates a team configuration of highly
skilled professionals representing multiple areas of expertise. The size and
composition of a "diamond" is determined based upon the needs of a given
project. Diamond consultants, working closely with the client, create an
environment in which knowledge and skills are constantly shared. This
transfer of knowledge is of significant value to the client.
Maintain Solution Objectivity. Diamond has intentionally refrained from
entering into alliances that might influence, or be perceived to influence,
the strategy that it recommends to a client. Furthermore, the Company does
not offer systems integration programming services that might bias its
recommendation. Diamond believes this objectivity is critical to its ability
to address strategic issues and earn its clients' trust.
Diamond's Strategy
Diamond's goal is to become the leader in the development and deployment of
business strategies that are enabled by IT. As a professional services firm,
there are two constituencies critical to the realization of this goal: the
Company's professionals and its clients. Accordingly, each of the following
strategies focus on developing, attracting and retaining the Company's
professionals and clients.
Develop a Culture of Multidisciplinary Teams. The Company seeks to develop and
sustain a strong culture that equally supports all disciplines within the
Company through common career paths, compensation programs and training. The
Company seeks to promote its culture by exposing its professionals to all of
the various services that Diamond provides while further developing skills in
each professional's principal area of expertise.
Develop Long-Term Client Relationships. The Company seeks to continue to
develop strong relationships with clients to sustain and grow repeat
business. The Company plans to expand marketing activities designed to
strengthen, encourage and accelerate relationship building with both current
and prospective clients.
Identify and Disseminate Intellectual Capital. Diamond utilizes its accumulated
knowledge and experience to provide relevant intellectual capital to a given
project and to develop innovative solutions for its clients. The Company
continuously seeks to identify and disseminate new intellectual capital
throughout its organization to keep abreast of business and technology
trends. Intellectual capital is provided by individuals both within and
outside the Company and incorporated into the Company's practice and training
to insure that all of the Company's professionals are provided with the most
current information on relevant topics.
Develop Diamond Brand Image. Diamond intends to continue to invest in the
creation and maintenance of its brand identity in the marketplace. The
Company promotes its name and credentials through publications, speaking
engagements, media relations, direct marketing and other efforts. The Company
believes that building a brand image facilitates the lead generation process
by raising awareness of the Company, and consequently, increasing the number
of opportunities to propose on new projects.
Refrain from Entering into Hardware or Software Agreements. In order to
maintain its objectivity, the Company intentionally refrains from entering
into relationships with computer hardware and software vendors that may
create a real or perceived bias in the solution it recommends to a client.
Diamond's Services
The Company devises and implements business strategies enabled by IT.
Diamond leads a client through a process combining creative and analytical
thinking with an in-depth understanding of IT to enable the client to
conceptualize its business differently, and then develop and implement a
business strategy that more effectively
28
<PAGE>
incorporates IT. This is fundamentally different than the traditional,
sequential approach that addresses strategy first, followed by development of
new or revised IT solutions.
While Diamond manages the implementation of IT-driven strategies, it does
not provide programming services. The Company's collaborative approach utilizes
the client's IT staff for programming functions. In the event that a client's
organization is unable to provide such functions internally, Diamond
subcontracts to third-party software programmers or systems integrators selected
for their expertise.
A small project team of Diamond consultants with expertise in strategy,
business processes and IT works closely with the client throughout this process.
See "--Human Resources and Culture--Organization." The phases which are
included on any given client project, and the amount of time spent on each phase
vary greatly depending upon the scope of work and the readiness of the client
organization to change. The Company's Service Delivery Process is generally
outlined in the following diagram:
Learning - Collaboration - Prototyping - Strategy - Architecture - Development -
Deployment
Executive Alignment --- Program Management
Executive Alignment Segment
The executive alignment segment of the process is designed to help the
client explore the new strategic possibilities of technology before determining
a strategy. This segment consists of three phases: learning, collaboration and
prototyping. Learning helps clients explore and understand the new strategic
possibilities of technology in order to set preliminary goals, collaboration
gains consensus within the client's organization on these preliminary goals and
prototyping tests the goals to ensure they are realistic and prioritizes them
based on desired results. This segment leads to the development of an IT-driven
business strategy to achieve a client's objectives.
Learning -- The objective of the learning phase is to help the client
evaluate the strategic possibilities of IT for its business and
explore an appropriate range of potential goals. During the learning
phase, all aspects of the attendant business issues (e.g., shrinking
margins, heightened competition, reduced market share, etc.) are
examined in order to identify and understand new alternatives based
on relationships between emerging technologies and the marketplace.
Collaboration -- The collaboration phase is an extension of the learning
phase in which specific alternatives are shared with key members of
the client organization. During the collaboration phase, Diamond
works with the client to gain consensus on the goals that were
preliminarily established in the learning phase.
Prototyping -- During the prototyping phase, the goals agreed upon in
the collaboration phase are translated into potential strategies.
These strategies are then modeled in a number of ways, including
using computer simulation technology or conducting a small market
test. Prototyping helps to prioritize and determine which strategies
are realistic by understanding their effect on the client's
customers, processes, organization and technology.
Strategy Segment
Based on the results of the executive alignment segment, an IT-driven
business strategy is then determined by the Company and the client. The
strategy is a blueprint to help the client reach its goal. When determining the
strategy, the team further evaluates the dynamics of the client's competitive
and financial environments. Importantly, specific
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performance goals and detailed deployment plans for the new strategy are
created, which constitute milestones by which the client can readily measure
results during the deployment phase. The deployment plans developed in this
phase correspond to the requirements of the project, but generally include an
organizational strategy, a process redesign strategy and an IT strategy.
Program Management Segment
The objective of the program management segment is to keep client and/or
third-party resources focused on the business value of the project throughout
the implementation of the strategy. Diamond's program management services
provide the leadership and management needed to implement adjustments to the
deployment plan as needed to deliver a solution on time and within budget. Key
variables managed throughout this segment include project content,
constituencies affected by the project, knowledge transferred, risk associated
with the project and resources utilized.
Program management services are delivered either as part of the
implementation of a strategy, or as a service by itself. As part of the
implementation of a strategy, program management consists primarily of three
phases: architecture, development and deployment. When delivered as a separate
service, program management services are used to manage very large, enterprise-
wide initiatives, or to help a client regain control of a project that has
materially deviated from plan.
Architecture--The architecture phase of the process defines how the
new strategy will be implemented. During this phase, the team
examines and defines the business and technical components of the
solution. Examples of business components include new/renovated
buildings, new/redesigned business processes, personnel training, or
organizational redesign. Technical architectures address tools,
methodologies, procedures and controls to build and support new and
existing IT systems; physical networks; and hardware and software
standards.
Development--The processes and systems to realize the benefits of the
new strategy are put into place during the development phase.
Diamond's program management services are most prominent in this
phase. During development, Diamond teaches, coaches and manages the
implementation team comprised primarily of client IT staff. Specific
knowledge about new technologies and processes are transferred more
broadly to the client organization during this phase, as the team
aligns the people, processes and technologies required for a
successful deployment.
Deployment--The strategy becomes operational during the deployment
phase. Diamond manages the implementation of the strategy using the
client's IT management and programming resources and, if needed,
third-party programmers or systems integrators. Diamond measures
results against the performance goals defined in the strategy phase.
Representative Projects
Diamond currently focuses on providing services to clients primarily in
four major industries: telecommunications, insurance, financial services, and
consumer products and services. The Company intends to expand the industries in
which it focuses as its expertise and market demands evolve.
The following are examples of projects that are representative of the
Company's business:
Consumer Products Company -- The operations of this consumer products company
were not able to keep pace with its rapid growth spurred primarily by new
international markets. A team of Diamond and client professionals examined
and evaluated potential benefits in various areas across the client's
organization. The team identified the following functions as having the
highest potential positive impact and addressed them simultaneously: IT
architecture, supply-chain processes and marketing strategy. The team updated
the IT architecture to accommodate
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international standards (e.g., multiple languages, currencies, procedures and
cultures), addressing all components of the architecture, including network,
operations, applications, data, execution and development. The team also
recommended and implemented supply-chain improvements to more closely link
the organization with its key vendors to improve forecasting, accountability
and delivery. Finally, recommendations to the marketing strategy were made to
reflect the growth that the client's operations were now able to support.
Insurance Company -- This insurance company initially engaged Diamond to assess
its IT capabilities in light of a corporate cost-cutting mandate. Through its
multidisciplinary approach, the client more than met its cost-cutting goals
and the team helped the client identify an opportunity to integrate IT in a
new sales strategy to give it an advantage over its competitors. During the
assessment, the team of Diamond and client personnel reviewed the client's IT
architecture, organization and operations, as well as the current and
potential impact of IT on the business. This assessment helped the project
team identify opportunities for improvement in four areas of the business:
new business, collections, policy service and claims. The team redesigned
business processes and deployed notebook computers throughout the field sales
force, fundamentally improving the way sales personnel sold new business,
served existing customers, managed claims and collected premiums.
Telecommunications Provider--This traditional telecommunications provider
engaged Diamond to define the requirements and costs of the customer service
and sales functions of a new market it was preparing to enter. The Diamond
project team identified a strategy to design and implement two sophisticated,
integrated inbound/outbound call centers. The call centers use various
technologies, including interactive voice response, computer/telephony
integration and knowledge-based systems (compilations of information and
experiences supported and distributed by IT) in order to create facilities
that are able to provide feedback and support to the marketing, customer
service and operations of the business. The project team designed and
implemented telephony and IT systems, as well as new processes, procedures
and training for the call center agents, supervisors and management. The
creation of the centers to support both inbound and outbound contacts enabled
the company to leverage critical information gathered in the centers with
other areas of its business.
Intellectual Capital
Consulting firms are notably knowledge-intensive organizations. In the
past, the existence of accumulated experience within a consulting firm was
enough to attract and retain clients. Today, information is more readily
accessible and the useful life of new knowledge is shortening. In recognition
of this trend, Diamond has developed programs to identify, capture and
disseminate intellectual capital from individuals both within and outside the
Company.
Knowledge Leaders--The Company has created a career path for certain of its
professionals who desire to specialize in a particular area, such as
technical architecture, electronic commerce or supply-chain operations.
Diamond refers to these professionals as "knowledge leaders" within its
organization. Knowledge leaders are responsible for identifying new
developments within their respective areas of expertise and capabilities, and
applying that knowledge on client projects. Diamond currently has four
Partner-level knowledge leaders and anticipates that more knowledge leaders
will be added in the future.
Diamond Exchange--The Diamond Exchange is an executive learning forum that the
Company plans to launch in February 1997. Senior executives ranging from CEOs
to CIOs will be invited to participate in the Diamond Exchange. The Company
will provide its paid-subscription members with innovative, leading-edge
research to explore and understand the strategic risks and opportunities of
emerging technologies. The Company anticipates that Diamond Exchange members
will meet three times a year to discuss research findings and their business
implications. During these meetings, Diamond will provide the members of the
Diamond Exchange with the opportunity to discuss their issues with Diamond
Network members and other business leaders. There will also be a number of
smaller working sessions throughout the year. The objectives of this program
are threefold: (i) to help clients and prospects learn and research the
strategic possibilities of technology, (ii) to maintain and develop
relationships with clients, and (iii) to build intellectual capital and
integrate it into the Company.
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Diamond Network--The Diamond Network is a group currently comprised of 12
recognized business and technology leaders associated with the Company.
Members of the Diamond Network provide Diamond with a set of skills which
augment and enhance the value which Diamond can provide to its clients.
Diamond Network members provide a source of intellectual capital, introduce
the Company to prospective clients, participate in joint-marketing
initiatives, and participate in client projects. Members are contractually
committed to a certain number of days dedicated to Diamond to support
marketing, sales, and client work. Diamond Network relationships are
generally non-exclusive, two-year contracts. Network members may work for
other employers, however, the members must be able to continue working with
Diamond in their designated roles. Members are compensated with a combination
of stock options and per diem payments for services actually provided to
clients of the Company on the Company's behalf. Current members of the
Diamond Network include:
John Perry Barlow is a writer and lecturer on the social, legal and
economic issues arising on the border between the physical and
virtual worlds. Mr. Barlow is a Diamond Exchange fellow, a faculty
member of Diamond Technology Partners. He is a contributing editor of
numerous publications, ranging from Communications of the ACM to
Mondo 2000. He has been a contributing writer for Wired magazine
since its first issue. Mr. Barlow is co-founder and vice chairman of
the Electronic Frontier Foundation, an organization that promotes
freedom of expression in digital media.
Gordon Bell is a senior researcher with Microsoft Corporation, computer
consultant-at-large and Diamond Exchange fellow. Mr. Bell spent 23
years at Digital Equipment Corp. as vice president of research and
development where he managed the development of the first time-
sharing and mini computers, and led the development of the DEC VAX.
He has been a founder, advisor and investor of numerous start-up
companies. Mr. Bell also directed the National Science Foundation's
computing research, has written numerous books and has been awarded
several patents.
Leonard L. Berry, Ph.D. is a professor of marketing and director of the
Center for Retailing Studies at the College of Business
Administration at Texas A&M University. Dr. Berry is the former
national president of the American Marketing Association and holds
the JC Penney Chair in Retailing Studies. Dr. Berry is the author of
"On Great Service: A Framework for Action" (1995, Free Press) and co-
author of "Marketing Services: Competing Through Quality" (1991, Free
Press).
Tim Gallwey consults in the area of learning in the business environ-
ment and is a Diamond Exchange fellow. Mr. Gallwey has worked with a
number of major corporations to develop the coaching skills of their
managers and to create work environments that support learning and
peak performance. He is also the author of the "inner game" series of
instructional books on tennis, golf and skiing.
James H. Gilmore is a co-founder (with B. Joseph Pine II) of Strategic
Horizons LLP. Mr. Gilmore provides expertise in the areas of
creativity and Mass Customization (using technology to efficiently
customize goods and services to individual customers). Prior to co-
founding Strategic Horizons, Mr. Gilmore served as head of the
process redesign practice to CSC Consulting.
Alan Kay, Ph.D. is a Disney fellow and vice president of research and
development for Walt Disney Imagineering. Dr. Kay is also a Diamond
Exchange fellow and a member of Diamond's Board of Directors. Dr. Kay
was also a founding principal of the Xerox Palo Alto Research Center
(PARC), chief scientist of Atari, Inc. and an Apple Computer fellow.
Dr. Kay was one of the principal inventors of personal computing, the
bit map screen, overlapping window interfaces, and object-oriented
programming. He contributed to the inventions of 3D graphics and the
ARPANet (now the Internet).
Andrew Lippman, Ph.D. is an associate director and a founding member of
the Media Lab at the Massachusetts Institute of Technology. Mr.
Lippman has served on advisory boards of IBM and various technology
start-up companies. He has presented his views on the future of the
information and television industries to Congressional subcommittees,
the National Endowment for the Arts, and the National Academy of
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Sciences. Currently, he is on the science council of the Corporation
for National Research Initiatives' program to develop global
information infrastructures.
B. Joseph Pine II is a co-founder (with James H. Gilmore) of Strategic
Horizons LLP. Mr. Pine provides expertise in the area of Mass
Customization (using technology to efficiently customize goods and
services to individual customers). He is author of "Mass
Customization: The New Frontier In Business Competition" (Boston:
Harvard Business School Press, 1993). Mr. Pine is a Diamond Exchange
fellow, and a member of the Executive Education faculty at the UCLA
Anderson Graduate School for Management.
David P. Reed, Ph.D. is an information architect and independent
entrepreneur who focuses on designing the information space in which
people, groups and organizations operate. Dr. Reed is a Diamond
Exchange fellow. He was a senior scientist at Interval Research
Corp., vice president and chief scientist for Lotus Development
Corp., and vice president of research and development and chief
scientist at Software Arts Inc. (the creators of VisiCalc, the first
electronic spreadsheet). Before joining Software Arts, he was an
assistant professor of computer science and engineering at the
Massachusetts Institute of Technology.
John J. Sviokla, DBA is an associate professor at the Harvard Business
School. Dr. Sviokla's current work focuses on electronic commerce and
knowledge management. He is the author of several books including
"Keeping Customers" (1993, Harvard Business School Press) and
"Seeking Customers" (1993, Harvard Business School Press), as well as
several Harvard Business Review articles including "Managing in the
Marketplace" and "Exploiting the Virtual Chain." Dr. Sviokla consults
to large and small firms, and teaches regularly in the Harvard
Business School masters in business program, as well as with a
variety of executive education programs.
Richard Y. Wang, Ph.D. is co-director for Total Data Quality Management
(TDQM) Research Program at the Massachusetts Institute of Technology
and founder of Cambridge Research Group, a firm specializing in data
quality management. Dr. Wang is regularly called upon for advice by
both the public and private sectors. He has published extensively in
leading academic journals addressing issues related to the
development of concepts, models and methods fundamental to the field
of data quality research and practice.
DiamondWorks--DiamondWorks is a proprietary knowledge management system (a
compilation of information and experiences supported and distributed by IT)
that accumulates, generates and disseminates intellectual capital developed
by Diamond professionals. The system shares the intellectual capital of the
Company among its employees by gathering best practices and synergies within
and across industries. DiamondWorks also provides Diamond consultants a
single place to search for information, approaches and frameworks across all
disciplines.
The intellectual capital gathered through these various programs is shared
throughout the Company in both formal and informal ways. Some formal venues
include frequent all-hands meetings, an interactive case-based training system
called ASK Diamond, and the Company's training and development programs .
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Sales, Marketing and Clients
The Company primarily markets its services to senior executives of large,
national and multinational corporations. The Company markets its services both
directly and on a collaborative basis with members of the Diamond Network and
through relationships with certain third-party industry sector specialists. To
date, Diamond has focused its efforts primarily in four industries:
telecommunications, insurance, financial services, and consumer products and
services. The Company expects this list of industries to change and grow as
Diamond's expertise and market demands evolve. As of December 31, 1996,
Diamond had six dedicated marketing personnel, including three full-time
Partners responsible for managing overall marketing, the Diamond Exchange, the
Diamond Network, lead identification and follow up. The majority of Diamond's
sales activities are pursued by its Partners.
Personal referrals and relationships have historically been among the
most successful methods of gaining new business. The Company has initiated a
number of relationship marketing programs designed to encourage and accelerate
personal relationships. The Diamond Network and the Diamond Exchange are two
such relationship marketing programs currently underway. See "-- Intellectual
Capital." The Company employs a variety of other business development and
marketing techniques to communicate directly with current and prospective
clients, including authoring articles, maintaining media and industry analyst
relations, conducting direct marketing, participating in conferences as speakers
and panelists, and providing a home page on the World Wide Web.
Although every client relationship is unique, the Company's client
relationships to date generally have included multiple projects for a client.
Fees generated from each of these projects generally ranged from less than
$100,000 to more than $3.0 million, and have spanned from one month to more than
20 months. Diamond's objective is to develop long-term relationships with its
clients in several different areas of the client organization, as appropriate,
over a period of time. While it is a goal of the Company to have less than 10%
of its net revenues from any given client, during fiscal 1996 the Company had
three clients which individually accounted for more than 10% of its net revenues
and collectively accounted for 51% of its net revenues. For the nine months
ended December 31, 1996, the Company had one client that individually
accounted for 15% of its net revenues.
Competition
While the Company believes that no one firm competes with it in all
service areas, several firms compete with it in one or more areas. The Company's
primary competitors include management consulting firms, systems integrators and
firms that provide both management-consulting and systems-integration services.
The Company believes that it competes favorably with these firms. In addition,
Diamond believes that future competition will also come from new entrants into
the market. Against these new entrants, the Company will compete based on its
early entry in the market and the reputation and awareness it is currently
developing. The Company believes that the principal criteria considered by
prospective clients when selecting a consulting firm to develop and implement
business strategies that incorporate IT include: scope of services, service
delivery approach, technical and industry expertise, perceived value,
objectivity and a results orientation. Many of the Company's competitors are
substantially larger than the Company and have significantly greater financial,
technical and marketing resources, greater name recognition and generate greater
revenues than the Company.
The recent growth in the IT services market has attracted many new
competitors and has afforded traditional competitors significant growth
opportunities. Diamond believes that a new and growing portion of this market in
the future is for consulting firms that are able to help clients synthesize
strategy with technology. While the Company believes that there will be a market
for general management consulting firms, it believes that firms that deliver
management consulting based on an in-depth understanding of technology will have
the greatest opportunity to grow. Furthermore, the Company believes that the
firms that will be sustainable will also be able to maintain solution
objectivity and to deliver an operating solution with measurable results. While
the Company believes some existing management consultants and systems
integrators will eventually be able to position themselves in such a manner,
there is currently a window of opportunity to establish an early and defensible
market position.
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Human Resources and Culture
As of December 31, 1996, Diamond had 143 client-serving professionals,
comprised of 26 Partners, 27 senior principals, 25 principals, 48 associates and
17 analysts. Employees designated as Partners also serve as officers of the
Company in the capacity of vice presidents. In addition, the Company had 34
management and administrative personnel comprising marketing, human resources,
finance, accounting, internal information systems and administrative support.
The responsibilities of a Partner include client relationship
development, business development, client management, program management,
thought leadership, professional staff development and mentoring. Partners
typically have ten to 20 years, or more, of experience. Senior principals and
principals have six to ten years, or more, of experience. Consultants at these
levels generally have an advanced degree and are primarily responsible for
project management, cost/benefit analysis, interview design and conduct,
operations and process evaluation, technical architecture design and evaluation,
and recommendation development and execution. Associates generally have four to
seven years of experience and are responsible for project team management,
financial modeling, process mapping, and economic analysis. Analysts have up to
five years of experience and are responsible for data collection and analysis,
industry and competitive research development, application design and
presentation development.
Culture
Diamond believes its ability to simultaneously provide expertise in
strategy, business processes and IT is dependent upon its ability to develop and
sustain a business culture that is common across all disciplines in the
organization. There are three primary elements that comprise Diamond's culture:
(i) an environment that intellectually challenges its people through continuous
training and client work; (ii) consistency in compensation and career paths
across all disciplines and skill sets within the firm; and (iii) participation
by all employees in the continuing development and ownership of the firm. The
Company plans to further strengthen its culture through various policies and
programs and by continuing to increase promotions from within the organization.
Examples of culture-developing programs include the Company's all-hands
meetings and its assimilation program. The Company has brought its employees
together in all-hands meetings on a regular basis (four to six times annually)
to further develop and reinforce Diamond's culture while also introducing
outside perspectives from leaders in business, technology and industry. During
these all hands meetings, employees are encouraged to exchange ideas and issues
related to the development of the Company. The Company's assimilation program
is designed to introduce new employees to Diamond's culture. It is supported by
an interactive computer system, ASK Diamond, that shares the knowledge and
observations of the Company's founders ("corporate memories") through indexed
video clips.
Organization
Diamond's organization also reflects its multidisciplinary culture.
Diamond's client-serving professionals below the senior principal level are not
organized internally by skill or industry. Rather, in order to reduce the
barriers between people with different functional skills, the Company's
professional organization is grouped into multidisciplinary "staff teams." The
composition of the staff teams reflects the combination of skills represented on
a typical project. Project teams are generally comprised of professionals from
various staff teams.
Each staff team is typically comprised of ten to 15 people and is led by
a Partner. Team members interact as a group to build relationships and for
general communications, and individually with the Partner for project
assignments, annual performance reviews and general career development advice
and direction. While mentoring is the primary responsibility of the staff team
Partner, all Partners provide mentoring to Diamond's professionals to give
individuals access to numerous senior people with various perspectives and
experiences.
A project team's composition generally reflects the shape of a diamond
and represents the Company's commitment to provide services to its clients
through small, multidisciplinary teams of highly skilled and experienced
professionals. The size and composition of a "diamond" is determined by the
particular needs of a given project and
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is generally comprised of a Partner, who serves as the project leader, three to
five senior principals or principals and two to four associates or analysts.
Partners may, in some cases, serve as project leader for more than one project
team simultaneously.
From a marketing and client service perspective, Partners and senior
principals are assigned to one of several market-focused teams. These teams are
designed to capitalize on common issues impacting clients within the same
industry. To date, Diamond has concentrated its services primarily in four
industries: telecommunications, insurance, financial services, and consumer
products and services. The Company expects this list of industries to change
and grow as Diamond's expertise and market demands evolve.
Recruiting
The Company intends to grow primarily from within to maintain a strong
culture. The Company's success will depend on its ability to continue to
attract, retain and motivate highly skilled employees to support current
operations and future growth. The Company attributes its success in hiring
these people to its ability to provide individuals with competitive
compensation, multidisciplinary training and career development, attractive
long-term career advancement opportunities, small teams and a collaborative
approach to consulting.
Although a significant number of the Company's current employees were
hired directly from other firms, a growing number of associates are being hired
annually from graduate business programs at many of the country's leading
universities. The Company also has a summer associate program that provides an
additional source of graduate business program hires. Over time, the Company
expects to hire a majority of its employees from these programs and, as a
result, the more senior levels will be filled from internal promotions.
Training and Development
The Company's training and professional development programs help it to
deliver high-quality services to its clients, as well as to attract and retain
highly skilled professionals. The Company has developed programs that ensure
all individuals have the opportunity to develop consulting, business and IT
skills throughout their careers. These programs reinforce Diamond's culture by
exposing all professionals to the various services Diamond provides while
further developing deep skills in each professional's principal area of
expertise.
Diamond utilizes innovative, case-based training to simulate real client
projects with real client issues. This approach creates a "learn-by-doing"
environment supported by Diamond Partners and outside professionals who provide
coaching and feedback to participants. Industry executives are brought in to
simulate the role of the client executive during Diamond's training courses.
Because training is conducted in teams structured similarly to an actual
engagement, participants learn in an environment which resembles their work
environment. As a result, consultants are able to successfully transfer what
they learn to their projects.
Compensation
The Company's compensation programs have been structured to attract and
retain highly skilled professionals by offering competitive base salaries
coupled with annual cash bonus opportunities. Equity is used at all levels
within the organization to provide long-term wealth creation opportunities and
to retain individuals through vesting provisions. Diamond believes that those
professional services firms able to offer equity will be more successful in
attracting talented individuals to their organizations.
Individuals below the Partner level are awarded annual cash bonuses based
on their performance as it compares to their peers. Partners can receive an
annual bonus comprised of both cash and equity commensurate with their level of
responsibility and based on the overall performance of the Company. Non-Partners
are granted stock options at the time of hire and/or promotion, based on their
level. These options vest after three years. Partners buy stock and are
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granted stock options upon being elected a Partner. Additional equity grants are
made in conjunction with movement through the Partner levels. Stock and options
issued to Partners vest annually over five years.
Facilities
The Company's headquarters and principal administrative, information
systems, financial, accounting, marketing and human resources operations are
located in approximately 24,000 square feet of leased space in Chicago,
Illinois. The approximate payments due from the Company under this lease for the
1997 and 1998 fiscal years are $600,000 and $800,000, respectively. This lease
expires in 2002, but permits an extension of five years with notice (see Note 5
to the Financial Statements). Diamond has also leased approximately 7,000 square
feet of office space in Cleveland, Ohio. The approximate payments due from the
Company under this lease for the 1997 and 1998 fiscal years are $100,000 and
$200,000 respectively. This lease expires in 2001, but permits an extension of
three years with notice.
The Company anticipates that additional office space will be required as
business expands and believes that it will be able to obtain suitable space as
needed.
Legal Proceedings
In the opinion of management, there are no claims or actions against the
Company the ultimate disposition of which will have a material effect on the
Company's results of operations or financial position.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position(s)
---- --- -----------
Melvyn E. Bergstein......... 54 Chairman of the Board of Directors,
Chief Executive Officer and President
Christopher J. Moffitt...... 42 Senior Vice President, Secretary and
Director
Michael E. Mikolajczyk...... 45 Senior Vice President, Chief
Financial and Administrative Officer,
Treasurer and Director
James C. Spira.............. 54 Senior Vice President and Director
Donald R. Caldwell.......... 50 Director
Edward R. Anderson.......... 49 Director
John D. Loewenberg......... 56 Director
Alan Kay.................... 56 Director
Melvyn E. Bergstein co-founded the Company in January 1994 and has served
as its Chairman, Chief Executive Officer and President since that time. From
1991 to 1993, Mr. Bergstein at various times served as vice chairman, executive
vice president, president and co-chief executive officer, and a member of the
board of directors of Technology Solutions Company, a publicly traded, Chicago-
based systems integrator. From 1989 to 1991, he was senior vice president-
systems integration for Computer Sciences Corporation. From 1968 to 1989, Mr.
Bergstein held a number of positions with Arthur Andersen & Co.'s consulting
division (now Andersen Consulting). While with Andersen Consulting, Mr.
Bergstein served as partner from 1977 to 1989 and managing director of worldwide
technology from 1985 to 1989. Mr. Bergstein served on Arthur Andersen's Board
during the 1985 to 1989 period, and as chairman of Arthur Andersen's Consulting
Oversight Committee during 1989. Mr. Bergstein received his bachelors degree
from the University of Pennsylvania. Mr. Bergstein is also a member of the
board of directors of Integrated Systems Consulting Group, Inc., a publicly
traded company and a Safeguard partnership company.
Christopher J. Moffitt co-founded the Company in January 1994 and has
served as Senior Vice President, Secretary and a member of the Board of
Directors of the Company since that time. From 1988 to 1993, he served as
senior vice president of Technology Solutions Company. From 1986 to 1988, Mr.
Moffitt was a principal in the Management Consulting Group of Arthur Young (now
Ernst & Young) where he became partner in 1988. From 1981 to 1986, Mr. Moffitt
served as director of information systems for Neiman Marcus. Mr. Moffitt began
his career in 1974 with Electronic Data Systems as a systems engineer and
account manager. Mr. Moffitt received his bachelors degree from the University
of Miami.
Michael E. Mikolajczyk joined the Company in April 1994 and has served as
Senior Vice President, Chief Financial and Administrative Officer and a member
of its Board of Directors since that time. From 1993 to 1994, he served as
senior vice president of finance and administration and chief financial officer
for Technology Solutions
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Company. From 1981 to 1993, Mr. Mikolajczyk was with MCI Telecommunications
Corporation where he served at various times as vice president of finance and
administration for both its Business Services Division and its Central Division,
vice president of corporate development and analysis, vice president of business
analysis, tariffs and contracts, and vice president of marketing and finance for
MCI's Digital Information Services Company. Mr. Mikolajczyk received his
bachelors degree from Wayne State University and his M.B.A. from Harvard
Business School.
James C. Spira joined the Company in November 1995 and has served as Senior
Vice President since that time. He became a member of its Board of Directors in
February 1996. From 1991 to 1995, Mr. Spira was a group vice president of the
Tranzonic Companies, Inc., a $200 million public corporation specializing in the
manufacture and distribution of quality paper, cloth and vinyl products. Prior
to that time, Mr. Spira co-founded Cleveland Consulting Associates in 1974,
where he served as the firm's president and chief executive officer. Mr. Spira
serves on the board of directors of CIBER, Inc., and the Tranzonic Companies,
Inc. Mr. Spira holds an M.B.A. from the University of Pennsylvania's Wharton
School and a B.A. in history from Hobart College.
Donald R. Caldwell, a Director of the Company since June 1994, has been the
president and chief operating officer of Safeguard since February 1996 and a
director of Safeguard since May 1996. Mr. Caldwell was an executive vice
president of Safeguard from December 1993 to February 1996. Prior to such time,
Mr. Caldwell was the president of Valley Forge Capital Group, Ltd., a business
mergers and acquisition advisory firm that he founded, from April 1991 to
December 1993 and an executive officer of a predecessor company of Cambridge
Technology Partners (Massachusetts), Inc., a provider of information technology
consulting and software development, from December 1989 to March 1991. Mr.
Caldwell's prior positions included serving as a partner in the national office
of Arthur Young & Co. (a predecessor to Ernst & Young, LLP). Mr. Caldwell
serves on the board of directors of Integrated System Consulting Group, Inc.,
one of the Safeguard partnership companies. Mr. Caldwell also serves on the
boards of numerous privately held companies and other organizations such as the
Pennsylvania Academy of Fine Arts, Episcopal Community Services, the Committee
on Economic Development, and the Philadelphia Orchestra.
Edward R. Anderson, a Director of the Company since June 1994, has been
president, chief executive officer and a director of CompuCom Systems, Inc., a
PC dealer and network integration company and a Safeguard partnership company
since January 1994. He joined CompuCom as chief operating officer in August
1993. From 1988 to 1993, Mr. Anderson served as president and chief operating
officer of ComputerLand USA. From 1984 to 1988, he served as vice president of
marketing, chief financial officer, and as a member of the board of directors
and the executive management team of the Computer Factory. Mr. Anderson began
his career in 1974 as a financial analyst with W.R. Grace & Company, serving as
director of real estate and vice president of planning and control for specialty
retailing until 1980. He served as vice president of strategic planning and
business development for a division of the American Express Company.
John D. Loewenberg, a Director of the Company since October 1996, was an
executive vice president and chief operating officer of Connecticut Mutual, a
life insurance company, from May 1995 through 1996. Prior to joining
Connecticut Mutual, Mr. Loewenberg served as senior vice president of Aetna Life
and Casualty, a multi-line insurer, and as chief executive officer of Aetna
Information Technology, the information systems company of Aetna Life and
Casualty, from March 1989 to May 1995. Mr. Loewenberg was chairman of Precision
Systems, Inc. until April 1996 and is a director of CompuCom Systems, Inc., and
Sanchez Computer Associates, Inc., two of Safeguard's partnership companies.
Alan Kay, a Director of the Company since June 1996, is currently vice
president of research and development for Walt Disney Imagineering, Inc. and is
a Disney fellow. From 1984 to 1996, Dr. Kay was an Apple fellow at Apple
Computer, Inc. From 1982 to 1984, he was chief scientist of Atari Corporation.
From 1971 to 1982, he was a member of research staff, principal scientist, and
Xerox fellow at the Xerox Palo Alto Research Center. From 1969 to 1971, he was a
research associate and lecturer in computer science at Stanford University.
The Board of Directors is divided into three classes. Each Director will
serve for a term of three years and until his successor has been elected and
qualified. The classes of the current members will be determined prior to the
commencement of this Offering.
The Board of Directors has an Audit Committee, which reviews and recommends
to the Board internal accounting and financial controls for the Company and
accounting principles and auditing practices and procedures to be employed in
the preparation and review of financial statements. The Board of Directors also
has a Compensation Committee, which reviews and recommends to the Board
policies, practices and procedures relating to the compensation of managerial
employees and the establishment and administration of employee benefit plans,
except for stock option plans. The members of the Board's committees will be
determined prior to the commencement of this Offering.
39
<PAGE>
Compensation Committee Interlocks and Insider Participation
In fiscal 1996 the Company did not have a Compensation Committee or any
other committee of the Board of Directors performing similar functions.
Recommendations concerning the aggregate compensation of all of the Company's
Partners (including its executive officers) were made to the Board of Directors
by the Company's Chief Executive Officer and the Company's Management Committee.
The Management Committee is a non-board operating committee which has been
established by the Company pursuant to the terms of the Partners' Operating
Agreement. Pursuant to the terms of the Partners' Operating Agreement,
allocations among the Company's Partners (including its executive officers) were
made by the Management Committee upon approval of the aggregate amount of such
compensation by the Board of Directors and the approval of the actual
allocations by at least seventy percent of the Company's Partners. The Company
expects to generally continue these procedures except that the Compensation
Committee of the Board of Directors will review and approve the aggregate
recommendations made by the Chief Executive Officer and the Management Committee
and the actual allocations of such amounts which will be granted to the
Company's executive officers. See "CERTAIN TRANSACTIONS--Partners' Operating
Agreement."
Certain Relationships
Technology Leaders Management L.P., a limited partnership, is the sole
general partner of Technology Leaders L.P. and a co-general partner of
Technology Leaders Offshore C.V. Technology Leaders L.P. and Technology Leaders
Offshore C.V. are venture capital funds that are required by their governing
documents to make all investment, voting and disposition actions in tandem.
Technology Leaders L.P. and Technology Leaders Offshore C.V. are referred to
collectively in this Prospectus as "Technology Leaders." Technology Leaders
Management L.P. has sole responsibility for all investment, voting and
disposition decisions for Technology Leaders. The general partners of Technology
Leaders Management L.P. are (i) Technology Leaders Management, Inc., a privately
held subsidiary of Safeguard, (ii) TL Partners I, a general partnership among
Technology Leaders Management, Inc. and the Managing Directors of Technology
Leaders Management, Inc., other than Mark J. DeNino, and (iii) four other
corporations (the "TLA Corporations") owned by individuals, one of whom serves
as a director of Safeguard, and three of whom are not currently otherwise
affiliated with Safeguard or the Company. Technology Leaders Management L.P. is
managed by an executive committee, by whose decisions the general partners have
agreed to be bound, that consists of seven voting members including (i) Warren
V. Musser, Robert E. Keith, Jr. and Gary J. Anderson, M.D., each of whom are
designees of Technology Leaders Management, Inc., and (ii) one designee of each
of the TLA Corporations. Clayton S. Rose is a non-voting member of that
executive committee. Technology Leaders Management, Inc. is the administrative
manager of Technology Leaders, subject to the control and direction of the
executive committee of Technology Leaders Management L.P. Mr. Musser is the
chairman and Mr. Keith is president and chief executive officer of Technology
Leaders Management, Inc. and Mr. Keith, Ira M. Lubert, Dr. Anderson, Mr. DeNino
and Christopher Moller, Ph.D., are the managing directors of Technology Leaders
Management, Inc. Mr. Keith, Mr. Lubert and Dr. Anderson are former officers of
Safeguard and Mr. Keith is a director of Safeguard.
Safeguard Scientifics (Delaware), Inc., a privately held subsidiary of
Safeguard, is a limited partner in Technology Leaders L.P. holding 3.3% of the
aggregate limited partnership interests in Technology Leaders L.P. Technology
Leaders Management, Inc. holds directly or indirectly 31% of the general
partnership interests in Technology Leaders Management L.P.
40
<PAGE>
Executive Compensation
The following table sets forth certain information concerning compensation
paid or accrued in fiscal 1996 with respect to the Company's Chief Executive
Officer, its other executive officers and a former executive officer at
March 31, 1996 (collectively, the "Named Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation(1) Awards
-------------------------------------- --------------
Other Annual Securities
Name and Fiscal ------------ Underlying All
Principal Position Year Salary Compensation Options Other Compensation
- ------------------ ------ ------ ------------ ------- ------------------
<S> <C> <C> <C> <C> <C>
Melvyn E. Bergstein...... 1996 $480,000 $127,207(2) -- $5,472(3)
Chairman, Chief
Executive Officer, and
President
Christopher J. Moffitt.... 1996 400,000 105,630(4) -- 1,938(3)
Senior Vice President,
and Secretary
Michael E. Mikolajczyk.... 1996 360,000 92,548(5) 16,500 1,938(3)
Senior Vice President,
Chief Financial and
Administrative Officer
and Treasurer
James C. Spira............ 1996 208,789(7) -- 74,250 456(3)
Senior Vice President
Alan J. Weyl............. 1996 307,864(8) -- -- 252,736(6)
Former Senior Vice
President
</TABLE>
_________________________
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Officers which are
available generally to all salaried employees of the Company and certain
perquisites and other personal benefits, securities or property received by
the Named Officers which do not exceed the lesser of $50,000 or 10% of the
aggregate of any such Named Officer's salary and bonus in fiscal 1996.
(2) Includes $120,000 of deferred compensation earned but not paid during the
year ended March 31, 1996 and $7,207 of interest on such cumulative
amounts.
(3) Represents excess group life insurance premiums paid.
(4) Includes $100,000 of deferred compensation earned but not paid during the
year ended March 31, 1996 and $5,630 of interest on such cumulative amounts
(5) Includes $90,000 of deferred compensation earned but not paid during the
year ended March 31, 1996 and $2,548 of interest on such cumulative amounts
(6) Represents severance payments of $250,000 and excess group life insurance
of $2,736.
(7) Represents a partial year as Mr. Spira joined the Company in November 1995.
(8) Represents a parital year as Mr. Weyl left the Company in January 1996.
41
<PAGE>
Deferred Compensation
From the inception of the Company through March 31, 1996, certain
Partner's base salaries were reduced by a percentage which was to be paid at a
future date, plus accrued interest. Amounts deferred under this program
initially ranged from 20% to 40% of base salary and were subsequently revised to
20% of base salary effective April 1, 1995 for all participants. Certain amounts
of this deferred compensation were exchanged for Common Stock in January 1995
and April 1996.
After March 31, 1996, the deferral of compensation for these Partners was
discontinued. As a result of the losses sustained by the Company in the first
two quarters of fiscal 1997, each of these Partners agreed to waive their rights
to deferred compensation if the Company does not achieve certain revenue targets
in the third and fourth quarters of fiscal 1997. Pursuant to this agreement
these Partners forgave prior years' deferred compensation totalling
approximately $485,000 during the quarter ended December 31, 1996. These
Partners also agreed to forgive an additional $485,000 of deferred compensation
during the quarter ending March 31, 1997 if the Company does not achieve certain
revenue thresholds during that quarter. To the extent that such amounts are
forgiven in the quarter ending March 31, 1997, the Company will recognize the
amount as a reduction in operating expenses in the period.
Employment Agreements
The Company entered into Employment Agreements with Mr. Bergstein, Mr.
Moffitt, Mr. Mikolajczyk and Mr. Spira that provide for annual salaries and
bonuses of up to 100% of annual salaries. The annual salaries are subject to
annual reviews. The Employment Agreements are terminable at any time by either
party and contain non-competition provisions, which last for 18 months following
cessation of employment with the Company. In addition, the Employment Agreements
prohibit the individuals from disclosing any of the Company's confidential
information and require the individuals to disclose to the Company, and to
grant ownership to the Company all ideas, inventions and business plans
developed during the course of employment to the extent they relate to the
business of the Company, result from work performed for the Company or result
from use of any of the Company's property. Mr. Bergstein's agreement is dated
February 1, 1994 and provides for a current annual salary of $525,000. Mr.
Moffitt's agreement is dated February 1, 1994 and provides for a current annual
salary of $450,000. Mr. Mikolajczyk's agreement is dated April 18, 1994 and
provides for a current annual salary of $400,000. Mr. Spira's agreement is dated
November 1, 1995 and provides for a current annual salary of $500,000.
Stock Options
The Company's Amended and Restated 1994 Stock Option Plan (the "Stock
Option Plan") provides for the grant to any employee of the Company of
"incentive stock options" within the meaning of Section 422 of the Code. Under
the Stock Option Plan, the Company may grant options to purchase in the
aggregate 8,910,000 shares of Class B common stock, less (at the time of the
grant of any option) all shares (i) theretofore issued to any party other than
Safeguard, Technology Leaders Offshore C.V., CIP Capital L.P., Technology
Leaders L.P., or any member thereof or transferee therefrom, or (ii) subject to
any options granted by the Company. As of January 28, 1997, the Company has
granted options under the Stock Option Plan to purchase in the aggregate
2,762,240 shares of Common Stock (net of any expired or terminated options) at a
weighted average exercise price of $2.16 per share. Additionally, the Company
expects to grant options under the Stock Option Plan to purchase in the
aggregate 397,650 shares of Common Stock at $5.45 per share prior to the
effective date of this Offering.
The Company's Board of Directors has the power to select employees to
whom options shall be granted under the Stock Option Plan and to determine the
terms of each grant, including the number of shares of Common Stock subject to
the option, the term of the option, the vesting schedule and the exercise price
(which may not be less than the fair market value of a share of Common Stock on
the date of grant). Options have been granted to Partners to purchase 763,950
shares of Common Stock which vest incrementally with 10%, 15%, 25%, 25% and 25%
of the option vesting on the first through fifth anniversaries of the date of
grant, respectively and expire on the seventh anniversary of the date of grant.
Options have been granted to employees to purchase 1,060,959 shares of Common
Stock which fully vest upon the third anniversary of the date of grant and
expire on the fifth anniversary of the date of grant. Options to purchase
398,495 shares of Common Stock which provide for an acceleration of the vesting
schedule to six months following the consummation of this Offering have been
granted to Partners and employees.
The Company's Board of Directors has also granted non-qualified stock
options to purchase 538,836 shares of Common Stock to certain persons who were
not employees on the date of grant and certain non-employee members of the Board
of Directors. These non-qualified stock options have exercise prices equal to,
or greater than, the fair market value on the date of grant with vesting over
periods ranging from immediate to five years.
The Board of Directors may alter, suspend or discontinue the Stock Option
Plan in any respect whatsoever, provided, however, that certain amendments, as
required by the Code with respect to incentive stock options, are subject to
stockholder approval. The Stock Option Plan shall continue in effect until
terminated by the Board of Directors or until there is no more stock as to which
an option may be granted and no options are outstanding; provided, that all
options must be granted thereunder within ten years of the effective date of the
plan.
The options granted under the Stock Option Plan are not transferable in
any way other than upon the death of the employee. Shares issued upon the
exercise of any option granted under the Stock Option Plan are subject to the
terms and restrictions contained in the Voting and Stock Restriction Agreement.
Under Section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the Chief Executive Officer or to any of the other four most
highly compensated officers in any one year. Total remuneration would include
amounts received upon the exercise of stock options granted under the Stock
Option Plan. An exception does exist, however, for "performance-based
compensation," including amounts received upon the exercise of stock options
pursuant to a plan approved by stockholders that meets certain requirements. The
Stock Option Plan is intended to meet the requirements of Treasury Regulation
section 1.162-27(f), and the options granted under the Stock Option Plan are
intended to meet the requirements of "performance-based compensation."
42
<PAGE>
The following table provides information on stock options granted by the
Company in fiscal 1996 to the Named Officers. All Company option grants
depicted below were made pursuant to the Stock Option Plan.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percent of
Total Realizable Potential
Number of Options Value at Assumed
Shares Granted to Annual Rate of Stock
Underlying Employees Exercise Price Appreciation for
Options in Price Per Expiration Option
Name Granted Fiscal Year Share Date Term(1)
- ---- ------- ----------- --------- ---------- ----------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
Melvyn E. Bergstein -- -- -- -- -- --
Christopher J. Moffitt -- -- -- -- -- --
Michael E. Mikolajczyk(2) 16,500 1% $1.21 3/31/02 $8,142 $18,974
James C. Spira 74,250 4% $1.82 11/1/02 $54,959 $128,077
Alan J. Weyl -- -- -- -- -- --
- --------------------
</TABLE>
(1) The amounts shown are calculated assuming that the Common Stock market
value was equal to the exercise price per share as of the date of grant of
the options. This value is the approximate price per share at which shares
of the Common Stock would have been sold in private transactions on or
about the date on which the options were granted. The dollar amounts under
these columns assume a compounded annual market price increase for the
underlying shares of the Common Stock from the date of grant to the end of
the option term of 5% and 10%. This format is prescribed by the Commission
and is not intended to forecast future appreciation of shares of the Common
Stock. The actual value, if any, a Named Officer may realize will depend
on the excess of the market price for shares of the Common Stock on the
date the option is exercised over the exercise price. Accordingly, there
is no assurance that the value realized by a Named Officer will be at or
near the value estimated above.
(2) In fiscal 1997, Mr. Mikolajczyk received the following options: an option
to purchase 16,500 shares of Common Stock on April 1, 1996, which expires
on March 31, 2003 and has an exercise price of $1.82 per share, an option
to purchase 6,397 shares of Common Stock on November 1, 1996, which expires
on October 31, 2003 and has an exercise price of $3.18 per share and an
option to purchase 14,632 shares of Common Stock on November 1, 1996, which
expires on October 31, 2003 and has an exercise price of $2.27 per share.
The following table sets forth information concerning options exercised
during fiscal 1996 and the number and the hypothetical value of certain
unexercised options of the Company held by the Named Officers as of March 31,
1996. This table is presented solely for purposes of complying with the
Commission rules and does not necessarily reflect the amounts the optionees will
actually receive upon any sale of the shares acquired upon exercise of the
options.
Aggregated Option Exercises and
Last Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options at Money Options at
March 31, 1996 March 31, 1996
-------------------------------------------------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable(1)
- ---- --------------- -------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Melvyn E. Bergstein -- -- -- -- -- --
Christopher J. Moffitt -- -- -- -- -- --
Michael E. Mikolajczyk -- -- 0 16,500 0 $70,785
James C. Spira -- -- 0 74,250 0 273,240
Alan J. Weyl -- -- -- -- -- --
- --------------------
</TABLE>
(1) Assumes, for presentation purposes only, a per share fair market value of
$5.50.
43
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to the terms of the 1994 Purchase, Safeguard, Technology
Leaders and CIP purchased from the Company 1,512,501 shares, 1,512,501 shares
and 274,999 shares, respectively, of the Common Stock at a purchase price of
approximately $0.91 per share and Safeguard was granted a warrant (the "1994
Purchase Warrant") exercisable for 825,000 shares of Common Stock at an exercise
price of $1.21 per share. Safeguard subsequently transferred to each of two of
its partnership companies, CompuCom Systems, Inc. ("CompuCom") and Cambridge
Technology Partners (Massachusetts), Inc. ("Cambridge"), a portion of the 1994
Purchase Warrant, each portion covering the purchase of 165,000 shares of Common
Stock. In the second quarter of fiscal 1997, Safeguard, CompuCom and Cambridge
exercised in full their respective portions of the 1994 Purchase Warrant in
accordance with its terms. After completion of the Offering, Safeguard,
Technology Leaders and CIP will beneficially own approximately 15.1%, 9.0% and
1.6%, respectively, of the Company's outstanding Common Stock and CompuCom and
Cambridge will each beneficially own approximately 1.0% of the Company's
outstanding Common Stock. In addition, pursuant to the terms of the 1994
Purchase, Safeguard, Technology Leaders and CIP were granted certain
registration rights and entered into certain arrangements with respect to
voting, which arrangements will terminate upon the consummation of the Offering
by their terms and without the need of any further action on the part of any
party thereto. See "SHARES ELIGIBLE FOR FUTURE SALE--Registration Rights."
In December 1996, the Company entered into an Agreement and Plan of
Recapitalization with Safeguard, Technology Leaders and each other holder of
Common Stock of the Company. Pursuant to such agreement, the Company
reclassified (i) the shares of Common Stock of the Company held by Safeguard,
Technology Leaders and all other nonemployee stockholders into shares of Class A
common stock of the Company and (ii) the shares of Common stock of the Company
held by employee stockholders into shares of Class B common stock of the
Company. See "Description of Capital Stock--Common Stock."
On November 8, 1996, the Company borrowed $2.0 million from Safeguard,
payable on November 1, 2001. Interest on the outstanding principal balance of
the loan accrues during the first year at an annual interest rate of 6% and the
interest rate increases as of each succeeding anniversary of the loan by one
percentage point to a rate of 10% per year during the fifth year. Interest is
payable quarterly during the term.
In connection with the loan, the Company granted Safeguard a security
interest in all of its assets. The obligations to repay the loan and the
security interest are subordinated to the interests of the commercial bank which
is the Company's principal lender. Notwithstanding the subordination, the
Company is required to repay the loan from Safeguard upon the closing of this
Offering, if the net proceeds received by the Company are sufficient to pay the
loan in full. As a condition to the making of the loan, the Company also
granted Safeguard a warrant to purchase 526,598 shares of Common Stock at an
exercise price of $5.50 per share. The rights granted under the warrant expire
on November 1, 2001.
The Company has granted options to purchase Common Stock to certain
non-employee Directors. In June 1996, Alan Kay received options to purchase
110,001 shares of Common Stock at an exercise price of $1.82 per share. In
October 1996, John D. Loewenberg and Edward R. Anderson each received options to
purchase 16,500 shares of Common Stock at an exercise price of $3.18 per share.
All of these options vest over a period of five years. See "MANAGEMENT - Stock
Options."
Cancellation of Promissory Note
Until being finally resolved by a global settlement among all parties in
June 1996, Melvyn E. Bergstein, Chairman, Chief Executive Officer and President
of the Company, the Company and others were involved in a lawsuit with
Technology Solutions Company ("TSC"). Because of the nature of the claims by
Mr. Bergstein and TSC, Mr. Bergstein and the Company were represented by the
same counsel. During the course of the litigation, the Company and Mr.
Bergstein each paid legal fees attributable to the litigation. Mr. Bergstein
executed a promissory note, dated April 14, 1995, under which he agreed to pay
certain of the fees paid by the Company, with interest, after the conclusion of
the litigation. The Company subsequently determined, however, that the amounts
due under the note more accurately reflected fees attributable to the Company's
defense and settlement of these claims, and therefore the Company
canceled the full amount ($226,402) due under the note and expensed this amount
in the quarter ended September 30, 1996. "See MANAGEMENTS' DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Nine Months Ended
December 31, 1996 Compared to Nine Months Ended December 31, 1996."
44
<PAGE>
Voting and Stock Restriction Agreement
The Selling Stockholders and each employee-stockholder of the
Company have agreed to be bound by the Amended and Restated Voting and Stock
Restriction Agreement dated as of April 1, 1996 (the "Voting and Stock
Restriction Agreement"). Any employee considering purchasing shares of the
Common Stock from the Company must agree to become bound by and a party to the
Voting and Stock Restriction Agreement (to the extent not already bound).
The Voting and Stock Restriction Agreement provides for, among other
things: (i) the grant of a proxy by each employee-stockholder of the Company to
the Chief Executive Officer of the Company conveying the right to vote their
shares of Common Stock, (ii) rights to purchase shares of employee-stockholders
upon termination of employment; and (iii) rights of first offer of the Company
to purchase shares (other than shares sold in the Offering) offered by any (A)
employee-stockholder who is not also a Partner or (B) of the Selling Stock-
holders (excluding any shares offered in the Offering); and (iv) restrictions
on the transferability of certain shares of Common Stock.
Partners' Operating Agreement
All of the Partners of the Company have agreed to be bound by the
Partners' Operating Agreement. Each individual proposed to be hired as, or
promoted to, a Partner, must agree to become bound by and a party to the
Partners' Operating Agreement. The Partners' Operating Agreement provides for,
among other things: (i) nomination procedures for the nomination of candidates
to the office of Chief Executive Officer; (ii) procedures for the removal and
retention of the Chief Executive Officer; (iii) procedure for the admission
and removal of Partners; and (iv) the compensation of management personnel. In
addition, the Partners' Operating Agreement provides that the Chief Executive
Officer must be selected from among the Partners pursuant to the procedures set
forth in such Agreement, subject to the right of the Company's Board of
Directors to veto any such person nominated by the Partners. The Chief Executive
Officer may be removed by the Board of Directors or for certain other specified
reasons.
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Common Stock as of the date of this Prospectus, and
as adjusted to reflect the sale of the shares offered hereby, by (i) each
Selling Stockholder, (ii) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (iii) each
director of the Company, (iv) each Named Officer, and (v) all directors and
executive officers of the Company as a group. Holders of Class A common stock
are entitled to one vote per share and holders of Class B common stock are
entitled to five votes per share. Shares of Class B common stock are convertible
immediately into shares of Class A common stock on a one-for-one basis, and
accordingly, holders of Class B common stock are deemed to own the same number
of shares of Class A common stock. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
Number of Shares
Beneficial Ownership to be Sold in the Beneficial Ownership
Prior to the Offering (1) Offering After the Offering (1)
------------------------- ------------------- ----------------------
Number of Number of
Name and Address(2) shares Percentage Shares Percentage
- -------------------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Melvyn E. Bergstein(3)
(Includes 4,603,462 shares
reflected solely as a result
of Mr. Bergstein's right to
vote such shares and 794,063
shares owned by Mr. Bergstein) 5,397,525 56.5% -- 5,397,525 47.9%
Safeguard Scientifics, Inc.(4) 2,678,474 26.6 899,390 1,779,084 15.1
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders(5) 1,512,501 15.8 503,994 1,008,507 9.0
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Christopher J. Moffitt(6) 707,850 7.4 -- 707,850 6.3
Michael E. Mikolajczyk(7) 560,183 5.9 -- 560,183 5.0
James C. Spira(8) 205,425 2.1 -- 205,425 1.8
CIP Capital L.P. (9) 274,999 2.9 91,635 183,364 1.6
Cambridge Technology Partners
(Massachusetts), Inc.(9) 165,000 1.7 54,981 110,019 1.0
CompuCom Systems, Inc.(9) 165,000 1.7 54,981 110,019 1.0
John D. Loewenberg(10) 8,250 * -- 8,250 *
Alan Kay -- -- -- -- --
Donald R. Caldwell(11) -- -- -- -- --
Edward R. Anderson(12) -- -- -- -- --
All executive officers and
directors as a group (8
persons)(13) 5,406,600 56.5 -- 5,406,600 48.0
</TABLE>
--------------------------
* Less than 1% of the outstanding Common Stock
(1) Solely for the purpose of determining beneficial ownership herein, the
number of shares of Common Stock deemed outstanding prior to the
Offering (i) assumes 9,553,051 shares of Common Stock were outstanding
as of the date of this Prospectus, (ii) assumes 11,258,051 shares of
Common Stock will be outstanding upon the successful completion of the
Offering, and (iii) includes additional shares of Common Stock issuable
pursuant to options or warrants held by such owner which may be
exercised within 60 days after the date of this Prospectus ("presently
exercisable options"), as set forth below. The beneficial ownership
after the Offering does not account for the exercise of Rights by such
stockholders in the Offering.
46
<PAGE>
(2) The address of each of Messrs, Bergstein, Moffitt and Mikolajczyk is
875 North Michigan Avenue, Suite 3000, Chicago Illinois 60611.
(3) The shares of Common Stock include 5,281,612 shares of Class B common
stock and 115,913 shares of Class A common stock and together represent
81.9% of the aggregate voting rights of the Common Stock. Includes
4,487,549 shares of Class B common stock and 115,913 shares of Class A
common stock held by other persons who have granted Mr. Bergstein the
right to vote such shares pursuant to the terms of irrevocable proxies.
Mr. Bergstein is the record holder of 794,063 shares of Class B common
stock. Excludes approximately 10,000 shares of Common Stock purchasable
upon the exercise of Company Rights.
(4) The shares are Class A common stock and represent 5.5% of the aggregate
voting rights of the Common Stock. Includes a warrant which is
presently exercisable for 526,598 shares of Class A common stock and
the shares of Common Stock owned by CompuCom Systems, Inc., of which
Safeguard owns approximately 50% of the voting securities. The warrant
and all shares of Class A common stock are held of record by Safeguard
Scientifics (Delaware), Inc., a privately held subsidiary of Safeguard.
Includes 153,690 shares of Common Stock granted by Safeguard to certain
of its employees pursuant to a long-term incentive plan (the "LTIP
Plan"). Safeguard will continue to exercise voting rights with respect
to these shares until the occurrence of certain vesting requirements.
Excludes all shares of Common Stock beneficially owned by Technology
Leaders, in which Safeguard has a beneficial interest. See
"MANAGEMENT--Certain Relationships" for a description of the
relationships between Safeguard and Technology Leaders. Excludes all
shares of Common Stock owned by Cambridge Technology Partners
(Massachusetts), Inc. of which Safeguard owns approximately 21% of the
voting securities. The largest shareholder of Safeguard is Warren V.
Musser, the chairman and chief executive officer of Safeguard, who is
the record holder of approximately 9.5% of the total Safeguard Common
Shares outstanding.
(5) The shares are Class A common stock and represent 3.1% of the aggregate
voting rights of the Common Stock. See "MANAGEMENT--Certain
Relationships" for a description of the relationships between Safeguard
and Technology Leaders.
(6) The shares are Class B common stock and Mr. Moffitt has granted Mr.
Bergstein all voting rights with respect to these shares pursuant to an
irrevocable proxy. Excludes approximately 998 shares of Common Stock
purchasable upon the exercise of Company Rights.
(7) The shares are Class B common stock and Mr. Mikolajczyk has granted Mr.
Bergstein all voting rights with respect to these shares pursuant to an
irrevocable proxy. Includes 1,650 shares of Common Stock issuable
pursuant to presently exercisable options. Excludes approximately 500
shares of Common Stock purchasable upon the exercise of Company Rights.
(8) The shares are Class B common stock and Mr. Spira has granted Mr.
Bergstein all voting rights with respect to these shares of Common
Stock pursuant to an irrevocable proxy. Includes 7,425 shares of Common
Stock issuable pursuant to presently exercisable options.
(9) The shares are Class A common stock and represent less than 1.0% of the
aggregate voting rights of the Common Stock.
(10) The shares of Common Stock represent less than 1.0% of the aggregate
voting rights of the Common Stock. Excludes approximately ___ shares of
Common Stock purchasable upon the exercise of Company Rights.
(11) Excludes all shares of Common Stock beneficially owned by Safeguard.
Mr. Caldwell serves as president and chief operating officer of
Safeguard. See "MANAGEMENT--Executive Officers and Directors." Mr.
Caldwell disclaims beneficial ownership of such shares. Excludes 28,050
shares of Common Stock allocated to Mr. Caldwell under the LTIP Plan,
of which Mr. Caldwell has neither dispositive nor voting power.
Excludes approximately 8,113 shares of Common Stock purchasable upon
the exercise of Company Rights.
(12) The shares of Common Stock represent less than 1.0% of the aggregate
voting rights of the Common Stock. Excludes approximately 240 shares of
Common Stock purchasable upon the exercise of Company Rights.
(13) Includes, in the aggregate, 9,075 shares of Common Stock issuable
pursuant to presently exercisable option. Excludes approximately ______
shares of Common Stock purchasable upon the exercise of Company Rights.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Class A common stock, par value $.001 per share, 20,000,000 shares of Class B
common stock, par value $.001 per share, and 2,000,000 shares of Preferred
Stock, par value $.001 per share.
Common Stock
As of January 28, 1997, there were 9,553,051 shares of Common Stock
outstanding and held of record by 71 stockholders. After giving effect to the
issuance of the 1,705,000 shares of Common Stock offered by the Company hereby,
there will be 11,258,051 shares of Common Stock outstanding.
The Common Stock is divided into two classes, Class A and Class B. Class A
common stock is entitled to one vote per share and Class B common stock is
entitled to five votes per share on all matters submitted to a vote of holders
of Common Stock. Class B common stock may be owned beneficially or of record
only by Permitted Holders (as defined below). In the event that any share of
Class B common stock is transferred to any party other than a Permitted Holder
or if a beneficial or record holder of a share of Class B common stock ceases to
be a Permitted Holder, the share automatically and immediately shall be
converted into a share of Class A common stock. Shares of Class A Common Stock
may not be converted into shares of Class B common stock. On the date hereof,
there are 4,271,439 shares of Class A common stock and 5,281,612 shares of Class
B common stock issued and outstanding. All of the shares of Common Stock being
offered by this Prospectus are shares of Class A common stock.
"Permitted Holders" of Class B common stock are (i) persons who are
employees of the Company or any of its majority-owned subsidiaries and (ii) the
Company. A person shall cease to be a Permitted Holder on the date on which he
or she ceases to be an employee of the Company or any of its majority-owned
subsidiaries.
The holders of Common Stock do not have cumulative voting rights. The
election of directors is determined by a plurality of votes cast and, except as
otherwise required by law or the Certificate of Incorporation of the Company,
all other matters are determined by a majority of the votes cast. Accordingly,
the holders of the Class B common stock may elect all directors standing for
election. See "RISK FACTORS -- Control by Principal Stockholders."
The holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
Preferred Stock. Upon the liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive ratably the net assets of
the Company available after the payment of all debts and other liabilities.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights other than as described herein. The outstanding shares of
Common Stock are, and the shares offered by the Company in the Offering will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future. See "--Preferred
Stock."
Rights
The Company is granting on the date hereof the Rights to the holders of
Safeguard Common Shares. The Rights, subject to minimum exercise requirements,
are each exercisable for one share of Common Stock at an exercise price
anticipated to be between $5.00 and $6.00 per share. Persons may not exercise
Rights for fewer than 50 shares of Common Stock. For purposes of the Rights
Offering, a person that holds Safeguard Common Shares in multiple accounts must
meet the 50 share minimum purchase requirement in each account. Accordingly,
persons holding fewer than 50 Rights in an account should consider the
advisability of consolidating the Rights in one account, selling Rights, or
purchasing additional Rights to comply with the minimum exercise requirements of
the Rights Offering. Rights may be transferred, in whole or in part, by
endorsing and delivering to the Rights Agent a Rights certificate that has been
properly endorsed for transfer, with instructions to reissue the Rights, in
whole or in part, in the name of the transferee. The Rights Agent will reissue
certificates for the transferred Rights to the transferee, and will reissue a
certificate for the balance, if any, to the holder of the Rights, in each case
to the extent it is able to do so prior to the Expiration Date.
48
<PAGE>
The Rights Offering will terminate and the Rights will expire at 5:00 p.m.,
Eastern Standard time, on the Expiration Date, which is ______, 1997. After the
Expiration Date, unexercised Rights will be null and void. For more information
about the Rights and the Rights Offering process, reference should be made to
"THE OFFERING" and to "RISK FACTORS--Cancellation of the Rights Offering."
Preferred Stock
The Company, by resolution of the Board of Directors and without any
further vote or action by the stockholders, has the authority, subject to
certain limitations prescribed by law, to issue from time to time up to an
aggregate of 2,000,000 shares of Preferred Stock in one or more classes or
series and to determine the designation and the number of shares of any class or
series as well as the voting rights, preferences, limitations and special
rights, if any, of the shares of any such class or series, including the
dividend rights, dividend rates, conversion rights and terms, voting rights,
redemption rights and terms, and liquidation preferences. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. As of the date of this Prospectus, there are
no shares of Preferred Stock outstanding, and the Company has no plans to issue
any shares of Preferred Stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., Overpeck Centre, 85 Challenger Road, Ridgefield
Park, New Jersey 07660.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,258,051,
(11,568,051 if the Underwriters' over-allotment option is exercised in full)
shares of Common Stock outstanding, excluding 2,762,240 shares of Common Stock
subject to stock options and 526,598 warrants outstanding as of January 28, 1997
and any stock options or warrants granted by the Company after January 28, 1997.
Of these shares, the Common Stock sold in the Offering, except for certain
shares described below, will be freely tradeable without restriction or further
registration under the Act. The remaining 8,003,051 shares of Common Stock (the
"Restricted Shares") were sold by the Company in reliance on exemptions from the
registration requirements of the Act and are "restricted securities" as defined
in Rule 144 and may not be sold in the absence of registration under the Act
unless an exemption is available, including an exemption afforded by Rule 144 or
Rule 701. See "RISK FACTORS--Shares Eligible for Future Sale."
In general, under Rule 144 as currently in effect, if three years have
elapsed since the date of acquisition of restricted securities from the Company
or any affiliate and the acquiror or subsequent holder is not deemed to have
been an affiliate of the Company for at least 90 days prior to a proposed
transaction, such person would be entitled to sell such shares under Rule 144(k)
without regard to the limitations described below. If two years have elapsed
since the date of acquisition of restricted securities from the Company or any
affiliate, the acquiror or subsequent holder thereof (including persons who may
be deemed affiliates of the Company) is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then-
outstanding shares of Class A common stock or the average weekly trading volume
in the Class A common stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. Without
considering the contractual restrictions described below, approximately (i)
5,660,531 Restricted Shares will be eligible for sale ninety days after the date
of this Prospectus, subject to volume and other resale conditions imposed by
Rule 144, and (ii) 2,342,520 Restricted Shares will be eligible for future sale
subject to the holding period and other conditions imposed by Rule 144. Certain
restrictions apply to any shares of Common Stock purchased in the Offering by
affiliates of the Company, which may generally only be sold in compliance with
the limitations of Rule 144, except for the holding period requirements
thereunder. See "RISK FACTORS--Shares Eligible for Future Sale."
Rule 144A under the Act provides a nonexclusive safe harbor exemption from
the registration requirements of the Act of specified resales of restricted
securities to certain institutional investors. In general, Rule 144A allows
unregistered resales of restricted securities to a "qualified institutional
buyer," which generally includes an entity, acting for its own account or for
the account of other qualified institutional buyers, that in the aggregate owns
or invests at least $100 million in securities that, when issued, were of the
same class as securities listed on a national securities exchange or quoted on
the Nasdaq National Market. The shares of Common Stock outstanding as of the
date of this Prospectus would be eligible for resale under Rule 144A because
such shares, when issued, were not of the same class as any listed or quoted
securities.
Options and Warrants
As of January 28, 1997, there were outstanding (i) options to purchase an
aggregate of 2,762,240 shares of Common Stock (of which 24,750 were exercisable
at January 28, 1997) and (ii) a presently exercisable warrant to purchase an
aggregate of 526,598 shares of Common Stock. The holders of options to purchase
a total of 1,230,703 shares are subject to Lock-Up Agreements, which restrict,
until after the Lock-Up Expiry Date (without the Underwriters' prior written
consent), the holders' ability to sell or otherwise dispose of Common Stock
acquired upon the exercise of such options and warrants. An aggregate of
719,710 additional shares are available for issuance pursuant to future grants
under the Stock Option Plan. See "MANAGEMENT--Stock Options."
The Company issued options and underlying shares of Common Stock to
employees of the Company who were not executive officers and directors of the
Company pursuant to Rule 701. Under Rule 701, such employees of the Company who
prior to the Offering purchased shares pursuant to the Stock Option Plan are
entitled to sell such shares without having to comply with the public
information, holding period, volume limitation or notice provisions of Rule 144
commencing 90 days after the date of this Prospectus. Rule 701 also permits the
shares subject to unexercised options under such Plan to be sold upon exercise
without having to comply with such provisions of Rule 144. As of the date
hereof, (i) no shares of Common Stock will be eligible for sale under Rule 701
by Company employees, commencing 90 days after the date of this Prospectus, and
(ii) approximately 2,762,240 shares of Common Stock subject
50
<PAGE>
to unexercised options will be eligible for sale under Rule 701 by Company
employees commencing 90 days after the date of this Prospectus, subject to
applicable vesting provisions.
It is anticipated that a Form S-8 Registration Statement covering the
Common Stock that may be issued pursuant to the exercise of options after the
effectiveness of the Form S-8 Registration Statement will be filed and declared
effective prior to the Lock-Up Expiry Date and that shares of Common Stock that
are so acquired and offered thereafter pursuant to the Form S-8 Registration
Statement generally may be resold in the public market without restriction or
limitation, except in the case of affiliates of the Company, which generally may
only resell such shares in compliance with Rule 144, except for the holding
period requirements thereunder.
Lock-Up Agreements
The Selling Stockholders, each Partner of the Company, each director of the
Company and certain other stockholders, who in the aggregate will own
approximately 7,872,288 shares of Common Stock after the completion of the
Offering and will be deemed to beneficially own an additional 551,348 shares of
Common Stock, have agreed with the Underwriters that they will not sell or
otherwise dispose of any shares of Common Stock (other than shares of Common
Stock sold in the Offering) until after the Lock-Up Expiry Date without the
prior written consent of the Underwriters. In addition, Warren V. Musser has
agreed that he and/or his assignees will not sell or otherwise dispose of
157,000 shares of Common Stock without the prior written consent of the
Underwriters.
Registration Rights
In connection with the 1994 Purchase, the Company granted certain
registration rights to Safeguard, Technology Leaders, CIP and certain employees
of the Company, including each Named Officer (collectively, the "Registration
Rights Holders"). In particular, under certain circumstances and subject to
certain limitations, the Registration Rights Holders can require the Company to
register under the Act (i) a minimum of 20% of the aggregate number of shares of
Common Stock acquired by them in connection with the 1994 Purchase, provided
that the Company is not obligated to effect more than one such registration, and
(ii) on Form S-3 such number of shares of Common Stock having a market value of
at least $500,000, provided that the Company is not required to effect more than
one such registration during any twelve-month period or three such registrations
in the aggregate. The Registration Rights Holders were also granted certain
"piggy-back" registration rights whereby on three occasions ending on the tenth
anniversary of the date of this Prospectus, under certain circumstances and
subject to certain conditions, they may include shares of Common Stock in any
registration of shares of Common Stock under the Act on a form which permits
registration of secondary shares.
51
<PAGE>
UNDERWRITING
The Company, the Selling Stockholders and the Underwriters have entered
into the Standby Underwriting Agreement on the date hereof, pursuant to which
the Underwriters are required, subject to certain terms and conditions (all of
which are set forth below), to purchase the Excess Unsubscribed Shares in
accordance with the percentages set forth below. If all of the Rights are
exercised, or if the number of Unsubscribed Shares is 300,000 or less, there
will be no Excess Unsubscribed Shares and the Underwriters will not be required
to purchase any shares of Common Stock.
<TABLE>
<CAPTION>
Underwriters % of Underwriter Shares
------------ -----------------------
<S> <C>
Tucker Anthony Incorporated................ 50%
Robert W. Baird & Co. Incorporated......... 50%
</TABLE>
The Underwriters have agreed, subject to the condition that the Company
and the Selling Stockholders comply with their respective obligations under
the Standby Underwriting Agreement and subject to the Underwriters' right to
terminate their obligations under the Standby Underwriting Agreement (as
specified below), to purchase all of the Excess Unsubscribed Shares. The
Company will pay the Underwriters the Financial Advisory Fee equal to 3%
of the Exercise Price for each share of Class A common stock included in the
Offering. The Financial Advisory Fee is for services and advice rendered in
connection with the structuring of the Offering, valuation of the business of
the Company, and financial advice to the Company before and during the Offering.
An additional fee of 4% of the Exercise Price will be paid to the Underwriters
(i) for each share of Class A common stock purchased by the Underwriters
pursuant to the Standby Underwriting Agreement and (ii) for each share of Class
A common stock purchased upon the Underwriters' exercise of Rights if such
Rights were purchased by the Underwriters at a time when the Class A common
stock was trading (on a "when issued" basis) at a per share price of less than
120% of the Exercise Price or if the Underwriters purchase such Rights with
Safeguard's prior acknowledgment that it would be entitled to receive the
Underwriting Discount for Class A common stock purchased pursuant to the
exercise of such Rights. In addition, the Company has agreed to pay the
Underwriters a non-accountable expense allowance in the aggregate amount of
$125,000, provided, however, such non-accountable expense allowance shall be
reduced to $50,000 or zero if, on the Expiration Date, the closing price for the
Class A common stock traded on a "when issued" basis is at least $10.00 per
share or greater than $12.00 per share, respectively. The Company has granted to
the Underwriters a 20-day option commencing on the Expiration Date to purchase a
maximum of 310,000 additional shares of Class A common stock at a per share
price equal to the Exercise Price less the Financial Advisory Fee and the
Underwriting Discount. The Underwriters may exercise such option in whole or in
part only to cover over-allotments made in connection with the sale of shares of
Class A common stock by the Underwriters.
Prior to the Expiration Date, the Underwriters may offer shares of Class A
common stock on a when-issued basis, including shares to be acquired through
the purchase and exercise of Rights, at prices set from time to time by the
Underwriters. Each such price when set will not exceed, if applicable, the
highest price at which a dealer not participating in the distribution is then
offering the Class A common stock to other dealers, plus an amount equal to a
dealer's concession, and an offering price set on any calendar day will not be
increased more than once during such day. After the Expiration Date, the
Underwriters may offer shares of Class A common stock, whether acquired pursuant
to the Standby Underwriting Agreement, the exercise of the Rights or the
purchase of Class A common stock in the market, to the public at a price or
prices to be determined. The Underwriters may thus realize profits or losses
independent of the Underwriting Discount and the Financial Advisory Fee. Shares
of Class A common stock subject to the Standby Underwriting Agreement will be
offered by the Underwriters when, as and if sold to, and accepted by, the
Underwriters and will be subject to their right to reject orders in whole or in
part.
Prior to the Offering, there has been no public market for the Common Stock
or the Rights. Consequently, the Exercise Price was determined by negotiations
among the Company, the Selling Stockholders and the Underwriters. In determining
the Exercise Price, the Underwriters, the Board of Directors of the Company and
the Selling Stockholders considered such factors as the future prospects and
historical growth rate in revenues and earnings of the Company, its industry in
general and the Company's position in its industry; revenues, earnings and
certain other financial and operating information of the Company in recent
periods; market valuations of the securities of companies engaged in activities
similar to those of the Company; the management of the Company; and, with
respect to the Company, the advice of the Underwriters.
In connection with the solicitation of Rights exercises, unless the
Underwriters are granted an exemption by the Commission from Rule 10b-6, the
Underwriters will be prohibited from engaging in any market making activities
with respect to the Company's when-issued Class A common stock and Class A
common stock until the Underwriters have completed their participation in the
distribution of shares offered hereby. As a result, the Underwriters may be
unable to provide a market for the Company's when-issued Class A common stock
and Class A common stock should it desire to do so, during certain periods while
the Rights are exercisable.
52
<PAGE>
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities arising out of or based upon
misstatements or omissions in this Prospectus or the Registration Statement of
which this Prospectus is a part and certain other liabilities, including
liabilities under the Act, and to contribute to certain payments that the
Underwriters may be required to make.
The Underwriters may terminate their obligations under the Standby
Underwriting Agreement (i) if any calamitous domestic or international event or
act or occurrence has disrupted or, in the Underwriters' opinion, will in the
immediate future materially disrupt, the general securities market in the United
States; (ii) if trading in the Common Stock (on a when-issued basis) shall have
been suspended by the Commission or Nasdaq; (iii) if trading on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market or in
the over-the-counter market shall have been suspended, or minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the over-the-counter market by the NASD
or by order of the Commission or any other government authority having
jurisdiction; (iv) if the United States shall have become involved in a war or
major hostilities which, in the Underwriters' opinion, will affect the general
securities market in the United States; (v) if a banking moratorium has been
declared by a New York, Massachusetts, Pennsylvania, Illinois or federal
authority; (vi) if a moratorium in foreign exchange trading has been declared;
(vii) if the Company shall have sustained a loss material to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act, whether or not such loss shall have been insured, or from any
labor dispute or any legal or governmental proceeding; (viii) if there shall be
such material adverse market conditions (whether occurring suddenly or gradually
between the date of this Prospectus and the closing of the Offering) affecting
markets generally or technology issues particularly as in the Underwriters'
reasonable judgment would make it inadvisable to proceed with the offering, sale
or delivery of the shares of Class A common stock offered hereby; (ix) if there
shall have been such material adverse change, or any development involving a
prospective material adverse change (including a change in management or control
of the Company), in the condition (financial or otherwise), business prospects,
net worth or results of operations of the Company since March 31, 1996 or (x)
the Other Purchasers fail to purchase their aggregate allotment of Unsubscribed
Shares, which in no event will involve more than 300,000 shares of Class A
common stock. The Underwriters, however, may elect to purchase all, but not less
than all, Unsubscribed Shares in the event the Other Purchasers fail to purchase
any of the Unsubscribed Shares which they are obligated to purchase.
The Company has agreed that, without the prior written consent of the
Underwriters, it will not offer, sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock (or securities convertible into
shares of Common Stock) (collectively, the "Securities") acquired in the Rights
Offering or held by it as of the date hereof until after the Lock-Up Expiry
Date, other than (i) Common Stock to be sold in the Offering, and (ii) Company
option issuances and sales of Common Stock pursuant to the Stock Option Plan and
(iii) Securities issued as consideration for an acquisition if the party being
issued the Securities agrees not to transfer, sell, offer for sale, contract or
otherwise dispose of such Securities until after the Lock-Up Expiry Date. The
Selling Stockholders, each Partner of the Company, each director of the Company,
and certain other stockholders, who will in the aggregate own approximately
7,872,288 shares of Common Stock after the completion of the Offering and will
be deemed to beneficially own an additional 551,348 shares of Common Stock, have
agreed with the Underwriters that they will not sell or otherwise dispose of any
shares of Common Stock (other than shares of Common Stock sold in the Offering)
until after the Lock-Up Expiry Date without the prior written consent of the
Underwriters. In addition, Warren V. Musser has agreed that he and/or his
assignees will not sell or otherwise dispose of 157,000 shares of Common Stock
without the prior written consent of the Underwriters. See "MANAGEMENT--Stock
Options" and "SHARES ELIGIBLE FOR FUTURE SALE."
53
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gordon & Glickson P.C., Chicago, Illinois. Certain legal
matters in connection with the Offering are being passed upon for the
Underwriters by Drinker Biddle & Reath, Philadelphia, Pennsylvania. Certain
legal matters in connection with the Offering are being passed upon for
Safeguard by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Gordon &
Glickson P.C., general counsel to the Company, was granted by the Company on
November 18, 1996, a fully vested option to acquire 13,035 shares of Common
Stock, at an exercise price of $3.18 per share.
EXPERTS
The financial statements and schedule of Diamond Technology Partners
Incorporated as of March 31, 1995 and 1996 and for the period from January 28,
1994 (inception) through March 31, 1994 and for the years ended March 31, 1995
and 1996 have been included herein and in the registration statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing herein, and elsewhere in the Registration Statement, and
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock and Rights offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock and Rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549,
and the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and copies of all or any part thereof may be
obtained from the reference section of the Commission, Washington, D.C. 20549,
upon payment of the prescribed fees. In addition, the Commission maintains a
site on the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission.
54
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Financial Statements:
Independent Auditors' Report................................................................................ F-2
Balance Sheets at March 31, 1995 and 1996 .................................................................. F-3
Statements of Operations for the period from January 28, 1994 (inception) through March 31, 1994
and years ended March 31, 1995 and 1996..................................................................... F-4
Statements of Stockholders' Equity for the period from January 28, 1994 (inception) through
March 31, 1994 and years ended March 31, 1995 and 1996...................................................... F-5
Statements of Cash Flows for the period from January 28, 1994 (inception) through March 31, 1994
and years ended March 31, 1995 and 1996..................................................................... F-6
Notes to Financial Statements............................................................................... F-8
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1996............................................................ F-15
Consolidated Statements of Operations for nine month periods ended December 31, 1995
and 1996................................................................................................... F-16
Consolidated Statements of Cash Flows for nine month periods ended December 31, 1995
and 1996................................................................................................... F-17
Notes to Unaudited Consolidated Financial Statements....................................................... F-19
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
When the transactions referred to in the first two paragraphs of Note 7 to the
financial statements have been consummated, we will be in a position to render
the following report.
KPMG Peat Marwick LLP
The Board of Directors
Diamond Technology Partners Incorporated:
We have audited the accompanying balance sheets of Diamond Technology Partners
Incorporated as of March 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period from January 28,
1994 (inception) through March 31, 1994 and for the years ended March 31, 1995
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diamond Technology Partners
Incorporated as of March 31, 1995 and 1996, and the results of its operations
and its cash flows for the period from January 28, 1994 (inception) through
March 31, 1994 and for the years ended March 31, 1995 and 1996 in conformity
with generally accepted accounting principles.
Chicago, Illinois
April 19, 1996, except for the first two
paragraphs of Note 7 which are as of
- ----------------.
F-2
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Balance Sheets
March 31, 1995 and 1996
<TABLE>
<CAPTION>
==========================================================================================================
1995 1996
- -----------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,690,260 $ 4,634,594
Accounts receivable, net of allowance of $512,000
and $269,812 as of March 31, 1995 and 1996, respectively 1,435,432 3,304,255
Prepaid expenses 319,899 1,179,988
Note receivable from stockholder - 225,819
Deferred income taxes 119,276 98,725
- -----------------------------------------------------------------------------------------------------------
Total current assets 6,564,867 9,443,381
Computers, equipment, and training software, net 573,413 2,010,424
Note receivable from stockholder 162,943 -
Deferred organization costs, net 211,889 161,216
- -----------------------------------------------------------------------------------------------------------
Total assets $ 7,513,112 $ 11,615,021
===========================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 150,000 $ 125,000
Accounts payable 556,969 1,155,002
Accrued compensation 159,844 1,089,000
Deferred compensation 621,991 1,452,022
Income taxes payable 119,276 82,641
Other accrued liabilities 611,860 1,143,308
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 2,219,940 5,046,973
Notes payable 106,364 -
- -----------------------------------------------------------------------------------------------------------
Total liabilities 2,326,304 5,046,973
- -----------------------------------------------------------------------------------------------------------
Commitments
- -----------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred Stock, $.001 par value, 2,000,000 shares authorized,
no shares issued - -
Class A common stock, $.001 par value, 40,000,000 shares
authorized, 3,320,625 issued in 1995 and 3,370,125 issued in 1996 3,321 3,371
Class B common stock, $.001 par value; 20,000,000 shares
authorized, 4,392,092 issued in 1995 and 4,505,119 issued in 1996 4,392 4,505
Additional paid-in capital 6,532,635 6,843,972
Notes receivable from sale of common stock (90,957) (257,323)
Accumulated deficit (1,262,583) (26,477)
- -----------------------------------------------------------------------------------------------------------
Total stockholders' equity 5,186,808 6,568,048
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 7,513,112 $ 11,615,021
- -----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
F-3
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Statements of Operations
Period from January 28, 1994 (inception) through March 31, 1994 and years ended
March 31, 1995 and 1996
<TABLE>
<CAPTION>
============================================================================================================
1994 1995 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 261,166 $ 12,842,670 $ 26,338,732
- ------------------------------------------------------------------------------------------------------------
Operating expenses:
Project personnel and related expenses 633,405 8,351,461 15,312,436
Professional development and recruiting 105,767 1,394,432 4,586,682
Marketing and sales 94,186 450,848 605,639
Management and administrative support 317,135 3,108,314 4,459,820
------------------------------------------------------------------------------------------------------------
Total operating expenses 1,150,493 13,305,055 24,964,577
- ------------------------------------------------------------------------------------------------------------
Income (loss) from operations (889,327) (462,385) 1,374,155
Interest income 3,285 136,940 251,084
Interest expense - (51,096) (87,403)
- ------------------------------------------------------------------------------------------------------------
Income (loss) before taxes (886,042) (376,541) 1,537,836
Income taxes - - (301,730)
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $ (886,042) $ (376,541) $ 1,236,106
- ------------------------------------------------------------------------------------------------------------
Pro forma net income (loss) per share of Common Stock $ (0.35) $ (0.05) $ 0.13
Shares used in computing pro forma net income (loss) per share
of Common Stock 2,508,997 8,269,794 9,821,152
- ------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
</TABLE>
F-4
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Statements of Stockholders' Equity
Period from January 28, 1994 (inception) through March 31, 1994 and years ended
March 31, 1995 and 1996
<TABLE>
<CAPTION>
===============================================================================
Class A Class B
Class A Class B Common Common
Shares Shares Stock Stock
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of stock 1,100,000 825,000 $ 1,100 $ 825
Net loss - - -
- -------------------------------------------------------------------------------
Balance at March 31, 1994 1,100,000 825,000 1,100 825
Issuance of stock 2,220,625 3,608,342 2,221 3,608
Purchase of stock - (41,250) - (41)
Net loss - - - -
- -------------------------------------------------------------------------------
Balance at March 31, 1995 3,320,625 4,392,092 3,321 4,392
Issuance of stock - 746,627 - 747
Purchase of stock - (584,100) - (584)
Conversion to Class A 49,500 (49,500) 50 (50)
Repayment of notes - - - -
Net income - - - -
- -------------------------------------------------------------------------------
Balance at March 31, 1996 3,370,125 4,505,119 $ 3,371 $ 4,505
- -------------------------------------------------------------------------------
<CAPTION>
=============================================================================================
Notes
Additional Receivable Total
Paid-in From Sale of Accumulated Stockholders
Capital Common Stock Deficit Equity
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of stock $ 1,649,986 $ - $ - $ 1,651,911
Net loss - - (886,042) (886,042)
- ---------------------------------------------------------------------------------------------
Balance at March 31, 1994 1,649,986 - (886,042) 765,869
Issuance of stock 4,920,108 (90,957) - 4,834,980
Purchase of stock (37,459) - - (37,500)
Net loss - - (376,541) (376,541)
- ---------------------------------------------------------------------------------------------
Balance at March 31, 1995 6,532,635 (90,957) (1,262,583) 5,186,808
Issuance of stock 866,753 (257,323) - 610,177
Purchase of stock (555,416) - - (556,000)
Conversion to Class A - - - -
Repayment of notes - 90,957 - 90,957
Net income - - 1,236,106 1,236,106
- ---------------------------------------------------------------------------------------------
Balance at March 31, 1996 $6,843,972 $ (257,323) $ (26,477) $ 6,568,048
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Statements of Cash Flows
Period from January 28, 1994 (inception) through March 31, 1994 and years ended
March 31, 1995 and 1996
<TABLE>
<CAPTION>
================================================================================================
1994 1995 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (886,042) $ (376,541) $ 1,236,106
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 7,238 74,486 367,365
Deferred compensation 136,279 1,704,169 830,031
Deferred income taxes - (119,276) 20,551
Changes in assets and liabilities:
Accounts receivable (68,550) (1,366,882) (1,868,823)
Prepaid expenses (30,977) (288,922) (860,089)
Accounts payable 440,565 116,404 598,033
Accrued compensation 23,047 136,797 929,156
Income taxes payable - 119,276 (36,635)
Other accrued liabilities 90,386 321,474 531,448
- ------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (288,054) 320,985 1,747,143
- ------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (15,062) (600,335) (1,753,703)
Organization costs (200,454) (51,175) -
Notes receivable - (162,943) (62,876)
- ------------------------------------------------------------------------------------------------
Cash flows used in investing activities (215,516) (814,453) (1,816,579)
- ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable - 300,000 175,000
Repayment of notes payable - (43,636) (306,364)
Stock issuance costs (98,089) (173,125) -
Issuance of common stock 1,750,000 3,989,648 701,134
Repurchase of common stock - (37,500) (556,000)
- ------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,651,911 4,035,387 13,770
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,148,341 3,541,919 (55,666)
Cash and cash equivalents at beginning of period - 1,148,341 4,690,260
- ------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,148,341 $ 4,690,260 $ 4,634,594
================================================================================================
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Statements of Cash Flows, Continued
Period from January 28, 1994 (inception) through March 31, 1994 and years ended
March 31, 1995 and 1996
<TABLE>
<CAPTION>
==========================================================================================================================
1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ - $ 51,096 $ 54,753
Cash paid during the year for income taxes - - 317,814
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure for noncash investing and
financing activities:
Issuance of common stock for notes $ - $ 90,957 $ 257,323
Deferred and incentive compensation applied to
payment for common stock - 1,218,457 -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(1) Description of Business
Diamond is a management consulting firm that devises business strategies
enabled by information technology ("IT") and manages the implementation of
those strategies. The Company's clients are generally located throughout
the United States.
(2) Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenues on contracts as work is performed, net of
provisions for estimated uncollectible amounts. Actual uncollectible
amounts are charged against this reserve when they become known. Out-of-
pocket expenses are reimbursed by clients and are offset against expenses
incurred.
Computers, Equipment and Training Software
Computers, equipment and training software are stated at cost less
accumulated depreciation. Depreciation is based on the estimated useful
lives of the assets (generally three years) and is computed using the
straight-line method. Costs capitalized for internally developed software
include external consulting fees and employee salaries. Depreciation and
amortization expense was $1,408 for the period from January 28, 1994
(inception) through March 31, 1994 and $40,576 and $316,692 for the years
ended March 31, 1995 and 1996, respectively.
Organization Costs
Organization costs consist of legal fees related to the start-up of the
Company. They are being amortized using the straight-line method over five
years. Accumulated amortization at March 31, 1995 and 1996 was $39,740 and
$90,413, respectively.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with original maturities of
three months or less and are stated at cost, which approximates fair value.
Cash equivalents consist of money market funds and demand deposits.
Significant Customers
The Company had four customers which individually accounted for more than
10% of accounts receivable and revenues as of and for the year ended March
31, 1995. Collectively, these customers accounted for approximately 68% of
accounts receivable and 65% of revenues as of and for the year ended March
31, 1995. The Company had three customers which individually accounted for
more than 10% of accounts receivable and revenues as of and for the year
ended March 31, 1996. Collectively, these customers accounted for 56% of
accounts receivable and 51% of revenues as of and for the year ended March
31, 1996.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires the use of the liability method in accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be reversed or settled.
F-8
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed using the weighted
average number of shares of common and common equivalent shares (stock
options and warrants) outstanding unless anti-dilutive. As required by
Staff Accounting Bulletin No. 83 issued by the Securities and Exchange
Commission, common and common equivalent shares issued by the Company
during the twelve-month period preceding the initial filing of the
Registration Statement for the Offering have been included in the
calculation as if they were outstanding for all periods presented (using
the treasury stock method and assuming the initial public offering price).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial Instruments
The fair value of the Company's financial instruments approximates their
carrying value.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), was issued in October 1995. SFAS
123 gives companies the option to adopt the fair value method for expense
recognition of employee stock options and stock based awards or to continue
to account for such items using the intrinsic value method as outlined
under Accounting Principles Board Opinion No. 25, "Accounting for Stock
issued to Employees" ("APB 25"), with pro forma disclosures of net income
and net income per share as if the fair value method had been applied. The
Company intends to continue to apply APB 25 for future stock options and
stock based awards, and accordingly, does not anticipate that the adoption
of SFAS 123 will have a material impact on its results of operations or
financial position.
Long-lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" ("SFAS 121") was issued
in March 1995. SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company anticipates
the adoption of SFAS 121 will not have a material impact on its results of
operation or financial position.
F-9
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(3) Computers, Equipment and Training Software
Computers, equipment and training software at March 31, 1995 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computers and equipment $480,431 $1,131,540
Training software 134,966 1,237,560
- ------------------------------------------------------------------------------------------------------
615,397 2,369,100
Less accumulated depreciation and amortization (41,984) (358,676)
- ------------------------------------------------------------------------------------------------------
$573,413 $2,010,424
- ------------------------------------------------------------------------------------------------------
</TABLE>
(4) Note Receivable from Stockholder
The Company has advanced money to an officer under a note arrangement that
allows for advances up to $500,000 bearing interest at a floating rate
based on the applicable federal rate under the Internal Revenue Code of
1986. Current settlement discussions in connection with certain litigation
involving the Stockholder have caused this note to become repayable
on demand, accordingly, such amounts have been classified as current at
March 31, 1996. The note and accumulated interest totaled $162,943 and
$225,819 at March 31, 1995 and 1996, respectively.
(5) Commitments
The Company leases office space and equipment under various operating
leases. As of March 31, 1996, the minimum future lease payments under
operating leases with noncancelable terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year ending March 31, Amount
- -------------------------------------------------------------------------------
<S> <C>
1997 $ 515,316
1998 432,957
1999 318,802
2000 297,571
2001 212,822
Thereafter 299,248
- -------------------------------------------------------------------------------
$2,076,716
- -------------------------------------------------------------------------------
</TABLE>
Rent expense under operating leases amounted to $21,015 for the period from
January 28, 1994 (inception) through March 31, 1994 and for the years ended
March 31, 1995 and 1996 amounted to $140,426 and $477,930, respectively.
The Company is party to a standby letter of credit with a bank in support
of the minimum future lease payments under the lease for permanent office
space dated March 31, 1995 in the amount of $917,908, declining annually
during the lease term. This letter is guaranteed by Safeguard Scientifics,
Inc. ("Safeguard")
F-10
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
until the effective date of the Registration Statement filed in connection
with the initial public offering of the shares of the Company.
(6) Notes Payable and Line of Credit
Notes payable at March 31, 1995 consisted of two term loans in the amount
of $180,000 (10.10%) and $76,364 (10.05%) payable in monthly installments
including interest, maturing January 1, 1997. These notes were repaid in
November 1995.
Notes payable at March 31, 1996 consisted of an 8.4% term loan in the
amount of $125,000, payable in monthly installments, including interest,
that matures on December 31, 1996.
The Company has an available line of credit of $3,000,000 with a commercial
bank, which has been reduced by letters of credit of $322,590 to account
for letters of credit and other contingent obligations of the Company
currently outstanding. At March 31, 1996, all remaining amounts under this
line of credit were available to the Company at the bank's prime rate. Any
borrowings against this line will be secured by all the assets of the
Company. The line of credit expires July 31, 1997 unless renewed.
(7) Stockholders' Equity
Stock Split, Stock Recapitalization and Initial Public Offering
On December 7, 1996, the Board of Directors authorized a 1.65 to 1 stock
split. All references in the Financial Statements to share and per share
data have been adjusted to effect this stock split. Concurrent with this
split, the Company will divide its stock into two classes, Class A and
Class B. Class A common stock is entitled to one vote per share and Class B
common stock is entitled to five votes per share on all matters submitted
to the vote of holders of Common Stock. Class B common stock may be owned
beneficially or of record by employees of the Company or by the Company.
Also, the Board of Directors authorized 2,000,000 shares of Preferred
Stock, par value $.001 per share, the terms of which may be determined by
the Board.
On December 7, 1996, the Company's Board of Directors authorized the filing
of a Registration Statement on Form S-1 covering 3,255,000 shares of Class
A common stock to be sold in the initial public offering transaction. The
majority of shares (1,705,000) are being offered by the Company and the
remainder (1,550,000) by selling stockholders. This offering will be
conducted as a rights offering to Safeguard's stockholders, pursuant to
Safeguard's right to do so as described below.
Warrants
In March 1994, the Company granted warrants to Safeguard. The warrants
permit the holder to purchase up to 825,000 shares of stock at an exercise
price of $1.21 per share and expires on March 22, 2001. Safeguard
subsequently transferred 330,000 of these warrants to certain of its
affiliates. The Company has the right to require the warrant holders to
exercise the warrants at any time following the completion of the Company's
first full fiscal year of profitability. The Company has satisfied this
requirement during the fiscal year ended March 31, 1996 and intends to
exercise this right subsequent to fiscal year end by issuing 825,000 shares
of Class A common stock in exchange for $1,000,000 pursuant to the
provision of the warrants.
Safeguard also has the right, under certain conditions and with the
Company's consent, to conduct an offering of the Company's Class A common
stock to Safeguard stockholders. One-half of the shares of the Company's
common stock to be offered shall be new shares, and one-half shall be
shares held by Safeguard.
F-11
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- -----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
Stock Options
Under the Company's 1994 Stock Option Plan (the Plan), the Company may
grant qualified incentive stock options to officers and employees of the
Company. Options granted to officers vest ratably at the end of each of the
three years following the date of grant and options granted to employees
other than officers fully vest three years following the date of grant.
Vested options expire five years from the date of grant. The Plan provides
that options may not be granted at less than the fair market value of the
Company's common stock at the date of grant. Effective April 1, 1996, the
Plan was amended, for a change in the vesting schedule for options granted
to officers to provide for vesting at the end of each of the five years
following the date of grant. The expiration of these officers' vested
options was also changed to seven years from the date of grant to reflect
this change in the vesting schedule.
- --------------------------------------------------------------------------------
The following table summarizes the transactions pursuant to the Plan.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Shares Under Range of
Option Prices
- -------------------------------------------------------------------------------
<S> <C> <C>
Fiscal Year 1994
Granted 138,600 $1.21
Exercised - -
Canceled - -
- -------------------------------------------------------------------------------
Balances, March 31, 1994 138,600 1.21
Granted 371,250 1.21
Exercised - -
Canceled - -
- -------------------------------------------------------------------------------
Balances, March 31, 1995 509,850 1.21
Granted 474,375 1.21 to 1.82
Exercised - -
Canceled 42,900 1.21
- -------------------------------------------------------------------------------
Balances, March 31, 1996 941,325 $1.21 to 1.82
- -------------------------------------------------------------------------------
</TABLE>
At March 31, 1996 , there were 8,250 exercisable options under the Plan, as
amended. During 1996, the Company also issued 174,900 non-qualified stock
options. 82,500 of these options, at an exercise price of $1.82, vest
ratably at the end of each year over the five year period beginning March
31, 1996. The remaining 92,400, at an exercise price of $1.82, vest in
January, 1999. None of these non-qualified stock options have been canceled
or are exercisable at March 31, 1996.
F-12
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
(8) Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ 79,276 $156,363
Foreign - - 51,430
State - 40,000 73,386
- -------------------------------------------------------------------------------
119,276 281,179
Deferred taxes - (119,276) 20,551
- -------------------------------------------------------------------------------
$ - $ - $301,730
- -------------------------------------------------------------------------------
</TABLE>
The total tax provision differs from the amount computed by applying the
Federal income tax rate of 34 percent to income (loss) before income taxes
for the following reasons:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1994 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at statutory rate $(301,254) $(128,024) $522,864
Effect of permanent differences 3,875 63,490 90,785
State income taxes, net of federal benefit - 26,400 48,435
Effect of deferred tax benefits 297,379 73,996 (371,375)
Other - (35,862) 11,021
- -------------------------------------------------------------------------------------------
$ - $ - $301,730
- ----------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- ----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
The tax effects of the temporary differences that give rise to the deferred
tax assets and liabilities at March 31, 1995 and 1996 are presented below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 211,477 $ 580,809
Other accruals 306,824 372,556
- -------------------------------------------------------------------------------
Total gross deferred tax assets 518,301 953,365
Less valuation allowance (371,375) -
- -------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance 146,926 953,365
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Accelerated depreciation 27,650 45,290
Capitalized assets - 412,078
Accrued bonuses - 340,741
Other accruals - 56,531
- -------------------------------------------------------------------------------
Deferred tax liabilities 27,650 854,640
- -------------------------------------------------------------------------------
Net deferred income taxes $ 119,276 $ 98,725
- -------------------------------------------------------------------------------
</TABLE>
Management believes it is more likely than not that the deferred tax assets
will be realized in the future.
(9) Benefit Plans
Deferred Compensation
Certain officers of the Company previously agreed to defer a portion of
their annual compensation under a deferred compensation program. The
program provided that amounts deferred cannot be distributed prior to March
31, 1996 without approval by the Board of Directors. Amounts deferred under
this program accrue interest at rates available to the Company from its
bank and are immediately vested. Effective April 1, 1996, the Board of
Directors elected to discontinue this program. This liability will be paid
over a period up to three years.
401(k) Plan
The Company has a noncontributory defined contribution plan covering
substantially all of its employees. This plan is qualified under Section
401(k) of the Internal Revenue Code of 1986. The Company may elect to make
contributions to this plan but to date has not done so.
F-14
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
- ----------------------------------------
Consolidated Balance Sheet
December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
============================================================================================
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 7,131,621
Accounts receivable, net of allowance of $829,093 3,127,136
Prepaid expenses 809,378
Accrued and prepaid income taxes 322,817
Deferred income taxes 98,725
- --------------------------------------------------------------------------------------------
Total current assets 11,489,677
Computers, equipment, and training software, net 2,315,461
Deferred organization costs, net 123,127
- --------------------------------------------------------------------------------------------
Total assets $13,928,265
============================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 2,177,083
Accounts payable 1,179,912
Deferred compensation 579,464
Other accrued liabilities 1,241,035
- --------------------------------------------------------------------------------------------
Total current liabilities 5,177,494
- --------------------------------------------------------------------------------------------
Commitments
- --------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock $.001 par value, 2,000,000 shares authorized, no shares -
issued.
Class A common stock, $.001 par value, 40,000,000 shares authorized,
4,271,439 issued 4,271
Class B common stock, $.001 par value: 20,000,000 shares authorized,
5,281,612 issued. 5,282
Additional paid-in capital 9,293,863
Notes receivable from sale of common stock (146,619)
Accumulated deficit (406,026)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 8,750,771
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $13,928,265
============================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-15
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Consolidated Statements of Operations
Nine month periods ended December 31, 1995 and 1996
(unaudited)
<TABLE>
<CAPTION>
=======================================================================================================================
1995 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $18,755,666 $26,244,969
- -----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Project personnel and related expenses 10,710,258 16,306,849
Professional development and recruiting 3,507,390 4,478,104
Marketing and sales 430,216 1,188,490
Management and administrative support 3,162,553 4,840,359
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 17,810,417 26,813,802
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 945,249 (568,833)
Interest income 182,143 121,629
Interest expense (63,853) (39,348)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 1,063,539 (486,552)
Income taxes (209,000) 107,004
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 854,539 $ (379,548)
=======================================================================================================================
Pro forma net income (loss) per share of common stock $ 0.09 $ (0.04)
Shares used in computing pro forma net income (loss) per share of common stock 9,759,102 10,436,818
=======================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-16
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Consolidated Statements of Cash Flows
Nine month periods ended December 31, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
======================================================================================================================
1995 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 854,539 $ (379,548)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 207,454 883,896
Deferred compensation 584,290 (709,174)
Cancellation of note receivable - 225,819
Changes in assets and liabilities:
Accounts receivable (857,035) 143,735
Prepaid expenses and other (396,440) 370,610
Accounts payable 270,044 24,910
Accrued compensation 559,395 (1,089,000)
Income taxes (82,237) (405,458)
Other accrued liabilities 742,101 97,727
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,882,111 (836,483)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,411,642) (1,150,845)
Note receivable from stockholder (5,193) -
- ----------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities (1,416,835) (1,150,845)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 175,000 2,250,000
Repayment of notes payable (277,228) (197,917)
Repurchase of Common Stock (453,000) -
Issuance of Common Stock 236,832 2,432,272
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (318,396) 4,484,355
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents 146,880 2,497,027
Cash and cash equivalents at beginning of period 4,690,260 4,634,594
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,837,140 $ 7,131,621
======================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-17
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Consolidated Statements of Cash Flows, Continued
Nine month periods ended December 31, 1995 and 1996
(unaudited)
<TABLE>
<CAPTION>
======================================================================================================================
1995 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 37,878 $ 42,676
Cash paid during the year for income taxes 213,176 298,454
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing and
financing activities:
Issuance of common stock for notes $ 275,668 $ 201,413
Deferred and incentive compensation applied to payment
for common stock 1,218,457 130,000
======================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-18
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) Basis of Presentation
The consolidated balance sheet as of December 31, 1996 and the
consolidated statements of operations and cash flows for the six months
ended December 31, 1995 and 1996 contained herein, which are unaudited,
include the accounts of the Company and its wholly owned subsidiary. All
significant intercompany accounts have been eliminated in consolidation. In
the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included. Adjustments
consist only of normal recurring items. The results of operations for the
nine months ended December 31, 1995 and 1996 are not necessarily
indicative of the results to be expected for the full fiscal year.
The consolidated financial statements do not include all information and
footnotes necessary for a complete presentation of financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles. Reference is made to the Company's 1995 and 1996
audited financial statements and related notes which provide additional
disclosure and a further description of accounting policies.
(2) Subsequent Events
On December 7, 1996, the Board of Directors authorized a 1.65 to 1 stock
split. All references in the financial statements to share and per share
data have been adjusted to reflect this split. Concurrent with this split,
the Company will divide its stock into two classes, Class A and Class B.
Class A common stock is entitled to one vote per share and Class B common
stock is entitled to five votes per share on all matters submitted to vote
by holders of Common Stock. Class B common stock may be owned by employees
of the Company or by the Company. Also, the Board of Directors authorized
2,000,000 shares of Preferred Stock, par value $.001 per share, the terms
of which may be determined by the Board.
On December 7, 1996, the Company's Board of Directors authorized the filing
of a Registration Statement on Form S-1 covering 3,255,000 shares of Class
A common stock to be sold in an initial public offering. The majority of
shares (1,705,000) are being offered by the Company and the remainder
(1,550,000) by selling stockholders. This offering will be conducted as a
rights offering to Safeguard's stockholders.
(3) Debt
The Company entered into a $2.0 million subordinated loan agreement with
Safeguard on November 8, 1996 for general working capital purposes. In
connection with this loan, the Company issued warrants to Safeguard for the
purchase of 526,598 shares of the Company's Class A Common Stock at $5.50
per share. The loan has a maturity date of November 1, 2001 but must be
repaid in full upon the consummation of an initial public offering and
bears interest at rates which escalate 1% annually, starting at 6% in the
initial year. The Company anticipates repayment of this loan from the
proceeds of this Offering and accordingly is recognizing interest expense
on the basis of 6% annually.
F-19
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company, the Selling Stockholders or any Underwriter. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof or that the information contained herein is
correct as of any time subsequent to its date. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the securities to which it relates. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy such securities
in any state in which such offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Offering............................................................. 11
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................... 20
Business................................................................. 26
Management............................................................... 38
Certain Transactions..................................................... 44
Principal and Selling Stockholders....................................... 46
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 54
Experts.................................................................. 54
Additional Information................................................... 54
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Until , 1997 (25 days after the expiration date of the Offering),
all dealers effecting transactions in Class A common stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement 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.
================================================================================
================================================================================
3,255,000 Shares
[LOGO]
DIAMOND TECHNOLOGY PARTNERS
INCORPORATED
Class A Common Stock
------------
PROSPECTUS
------------
, 1997
Tucker Anthony
Incorporated
Robert W. Baird & Co.
Incorporated
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses (other than underwriting discounts and commissions and
underwriters' non-accountable expense allowance) payable in connection with the
offering of the Rights and the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 6,482
NASD filing fee.................................................. 2,639
Nasdaq filing fee................................................ *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky fees and expenses (including legal fees)................ *
Transfer agent and rights agent and registrar fees and expenses.. *
Miscellaneous.................................................... -------
Total............................................................ 700,000
=======
</TABLE>
- ----------------
* To be filed by amendment
The foregoing, except for the Securities and Exchange Commission
registration fee, the NASD filing fee, and the Nasdaq filing fee, are estimates.
All of the foregoing expenses will be borne by the Registrant.
Item 14. Indemnification of Directors and Officers
The Registrant's By-laws require the Registrant to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed proceeding by reason of the fact that he is or was a
director or officer of the Registrant or is or was serving at the request of the
Registrant as a director, officer, employee, fiduciary or agent of another
corporation, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such proceeding if he acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Registrant, and, with respect to any such criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Such
indemnification as to expenses is mandatory to the extent the individual is
successful on the merits of the matter. Delaware law permits the Registrant to
provide similar indemnification to employees and agents who are not directors or
officers. The determination of whether an individual meets the applicable
standard of conduct may be made by the disinterested directors, independent
legal counsel or the stockholders. Delaware law also permits indemnification in
connection with a proceeding brought by or in the right of the Registrant to
procure a judgment in its favor. Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Act") may be
permitted to directors, officers, or persons controlling the Registrant pursuant
to the foregoing provisions, the Registrant has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is therefore unenforceable.
The Registrant expects to obtain a directors and officers liability insurance
policy prior to the effective date of this Registration Statement.
The Standby Underwriting Agreement provides that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Act. Reference is made to Section 8 of the form of
Standby Underwriting Agreement which will be filed by amendment as Exhibit 1.1
hereto.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement,
the Registrant has issued the following securities that were not registered
under the Act (the following information reflects the 1.65 for 1 stock
split described in the Prospectus):
Since its inception on January 28, 1994 and through January 28, 1997,
the Company has sold to its Partners, certain of its other employees, certain
persons who are not employees and certain non-employee members of the Board of
Directors, 5,428,050 shares of its Common Stock. The initial price per share was
$0.91 and has since increased, in several increments, to $4.24. All such sales
were made under the exemption from registration provided under Section 4(2) of
the Securities Act of 1933 (the "Act").
In a series of three connected sales occurring in March, May and
July, 1994, the Company sold 1,512,501 shares of its Common Stock to Safeguard
Scientifics, Inc. ("Safeguard"), 706,187 shares of its Common Stock to Techno-
logy Leaders, L.P., 806,314 shares of its Common Stock to Technology Leaders
Offshore C.V., and 274,999 shares of its Common Stock to CIP, L.P., for a total
of 3,300,001 shares. The shares were sold at $0.91 per share under the exemption
from registration provided by Section 4(2) of the Act.
Coincident with its sales to Safeguard of 1,512,501 shares in 1994, the
Company issued to Safeguard a warrant for the purchase of 825,000 shares of
Common Stock for $1.21 per share. Safeguard subsequently transferred to Compu-
Com, Inc. its right to purchase 165,000 shares pursuant to the warrant and
transferred to Cambridge Technology Partners (Massachusetts), Inc. its right to
purchase 165,000 shares pursuant to the warrant. Safeguard, CompuCom and
Cambridge each exercised its respective warrant in May, 1996, and the Company
sold to them 495,000 shares, 165,000 shares and 165,000 shares, respectively at
the exercise price of $1.21 per share. These sales were made under the exemption
from registration provided under Section 4(2) of the Act.
On November 8, 1996, the Company issued to Safeguard a warrant to
purchase 526,598 shares of Common Stock at an exercise price of $5.50 per share.
In addition, on November 18, 1996, the Company issued to Gordon & Glickson P.C.
an option to purchase 13,035 shares of Common Stock at an exercise price of
$3.18 per share. In issuing such warrant and option and selling the underlying
securities upon exercise, Registrant is relying on an exemption from
registration under Section 4(2) of the Act.
Pursuant to Registrant's Stock Option Plan, Registrant has granted
options to purchase a total of 2,762,240 shares of Common Stock to its employees
and directors during the past three fiscal years at exercise prices ranging from
$1.21 to $5.45 per share. For a more detailed description of the Plan, see
"MANAGEMENT--Stock Options" in this Registration Statement. In granting the
options and selling the underlying securities upon option exercise, Registrant
is relying on exemptions from registration set forth in Rule 701 under, and
Section 4(2) of, the Act.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
1.1# Form of Standby Underwriting Agreement.
3.1* Form of Restated Certificate of Incorporation of
the Company.
3.2* Form of Amended and Restated By-laws of the Company.
5.1# Opinion of Gordon & Glickson P.C.
8.1* Opinion of Morgan, Lewis & Bockius LLP regarding
tax matters.
10.1* Amended and Restated Diamond Technology Partners
Incorporated 1994 Stock Option Plan, as amended.
10.2* Employment Agreement between Melvyn E. Bergstein and
the Company, dated February 1, 1994, as amended.
10.3* Employment Agreement between Michael E. Mikolajczyk and
the Company, dated April 18, 1994, as amended.
10.4* Employment Agreement between James C. Spira and
the Company, dated Novemeber 1, 1995, as amended.
10.5* Employment Agreement between Christopher J. Moffitt and
the Company, dated February 1, 1994, as amended.
10.6* Stock Purchase Agreement dated as of March 22, 1994 among
the Company, Melvyn E. Bergstein, Christopher J. Moffitt,
Safeguard Scientifics, Inc.and certain other investors, as
amended.
10.7** Amended and Restated Voting and Stock Restriction
Agreement dated as of April 1, 1996 among the Company,
Technology Leaders L.P., Technology Leaders Offshore C.V.,
CIP Capital L.P., Safeguard Scientifics (Delaware), Inc.
and certain of the shareholders of the Company.
10.8** Amended and Restated Partners Operating Agreement dated as
of April 1, 1996 among the Company and the Partners of the
Company.
10.9* Loan Agreement dated as of November 8, 1996 among the
Company and Safeguard Scientifics (Delaware), Inc.
10.10* Amended and Restated Warrant Certificate to Purchase
Common Stock dated as of November 8, 1996 among the
Company and Safeguard Scientifics (Delaware), Inc.
10.11* Rights Agent Agreement among the Company, Safeguard
Scientifics, Inc., Technology Leaders, CIP Capital L.P.,
Cambridge Technology Partners (Massachusetts), Inc.,
CompuCom Systems, Inc., Chase/Mellon Shareholder Services,
L.L.C. and Mellon Bank, N.A.
11.1* Statement Regarding Computation of Earnings Per
Share.
21.1** Subsidiaries of the Registrant.
23.1# Consent of KPMG Peat Marwick LLP.
23.2# Consent of Gordon & Glickson P.C. (to be
included in Exhibit 5.1).
23.3* Consent of Morgan, Lewis & Bockius LLP (to be
included in Exhibit 8.1).
24.1** Power of Attorney (included on signature page).
27.1* Financial Data Schedule.
</TABLE>
- -------------------
* Filed herewith.
# To be filed by amendment.
** Previously filed.
(b) Schedule II - Valuation and Qualifying Accounts
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; and
(iv) To reflect the results of the Offering.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
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 Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in Chicago, Illinois, on January 28,
1997.
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
By: /s/ Melvyn E. Bergstein
-----------------------------------------
Melvyn E. Bergstein
Chairman, Chief Executive Officer,
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title(s) Date
- ---------- -------- ----
<S> <C> <C>
/s/ Melvyn E. Bergstein Chief Executive Officer,
- -------------------------- President (Principal Executive January 28, 1997
Melvyn E. Bergstein Officer) and Chairman
/s/ Michael E. Mikolajczyk Senior Vice President,
- -------------------------- Chief Financial January 28, 1997
Michael E. Mikolajczyk Officer and Treasurer
(Principal Financial and
Accounting Officer) and
Director
* Director
- -------------------------- January 28, 1997
Christopher J. Moffitt
* Director
- -------------------------- January 28, 1997
Donald R. Caldwell
* Director
- -------------------------- January 28, 1997
Edward R. Anderson
* Director
- -------------------------- January 28, 1997
Alan Kay
* Director
- -------------------------- January 28, 1997
James C. Spira
* Director
- -------------------------- January 28, 1997
John D. Loewenberg
/s/ Michael E. Mikolajczyk
*--------------------------- January 28, 1997
Michael E. Mikolajczyk
as attorney-in-fact
</TABLE>
II-4
<PAGE>
Independent Auditors' Report
When the transactions referred to in the first two paragraphs of Note 7 to the
financial statements have been consummated, we will be in a position to render
the following report.
KPMG Peat Marwick LLP
The Board of Directors
Diamond Technology Partners Incorporated
We have audited the accompanying balance sheets of Diamond Technology Partners
Incorporated as of March 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period from January 28,
1994 (inception) through March 31, 1994 and for the years ended March 31, 1995
and 1996. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedule. This
financial statement schedule is the responsibility 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 financial statements taken as a whole, present fairly in all
material respects, the information set forth therein.
Chicago, Illinois
April 19, 1996, except for the first two
paragraphs of Note 7 which are as of
- ------------------------
S-1
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------
Balance at Charged to Balance at
Beginning costs and end of
Description of Period expenses Deduction Period
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Year Ended March 31, 1996
Deducted from accounts receivable:
For uncollectible accounts: $512,000 $654,840 $897,028 $269,812
For the Year Ended March 31, 1995
Deducted from accounts receivable:
For uncollectible accounts: - 512,000 - 512,000
For the Period from January 28, 1994 (inception)
through March 31, 1994
Deducted from accounts receivable: - - - -
For uncollectible accounts:
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
- -------------- ----------- -------
<S> <C>
1.1# Form of Standby Underwriting Agreement.
3.1* Form of Restated Certificate of Incorporation of the
Company.
3.2* Form of Amended and Restated By-Laws of the Company.
5.1# Opinion of Gordon & Glickson P.C.
8.1* Opinion of Morgan, Lewis & Bockius LLP regarding
tax matters.
10.1* Amended and Restated Diamond Technology Partners
Incorporated 1994 Stock Option Plan, as amended.
10.2* Employment Agreement between Melvyn E. Bergstein and the
Company, dated February 1, 1994, as amended.
10.3* Employment Agreement between Michael E. Mikolajczyk and
the Company, dated April 18, 1994, as amended.
10.4* Employment Agreement between James C. Spira and the
Company, dated November 1, 1995, as amended.
10.5* Employment Agreement between Christopher J. Moffitt and
the Company, dated February 1, 1994, as amended.
10.6* Stock Purchase Agreement dated as of March 22, 1994 among
the Company, Melvyn E. Bergstein, Christopher J. Moffitt,
Safeguard Scientifics, Inc.and certain other investors, as
amended.
10.7** Amended and Restated Voting and Stock Restriction
Agreement dated as of April 1, 1996 among the Company,
Technology Leaders L.P., Technology Leaders Offshore C.V.,
CIP Capital L.P., Safeguard Scientifics (Delaware), Inc.
and certain of the shareholders of the Company.
10.8** Amended and Restated Partners Operating Agreement dated as
of April 1, 1996 among the Company and the Partners of the
Company.
10.9* Loan Agreement dated as of November 8, 1996 among the
Company and Safeguard Scientifics (Delaware), Inc.
10.10* Amended and Restated Warrant Certificate to Purchase
Common Stock dated as of November 8, 1996 among the
Company and Safeguard Scientifics (Delaware), Inc.
10.11* Rights Agent Agreement among the Company, Safeguard
Scientifics, Inc., Technology Leaders, CIP Capital L.P.,
Cambridge Technology Partners (Massachusetts), Inc.,
CompuCom Systems, Inc., Chase/Mellon Shareholder Services,
L.L.C. and Mellon Bank, N.A.
11.1* Statement Regarding Computation of Earnings Per
Share.
21.1** Subsidiaries of the Registrant.
23.1# Consent of KPMG Peat Marwick LLP.
23.2# Consent of Gordon & Glickson P.C. (to be
included in Exhibit 5.1).
23.3* Consent of Morgan, Lewis & Bockius LLP (to be
included in Exhibit 8.1).
24.1** Power of Attorney (included on signature page).
27.1* Financial Data Schedule.
</TABLE>
- -------------------
* Filed herewith.
# To be filed by amendment.
** Previously filed
<PAGE>
EXHIBIT 3.1
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Diamond Technology Partners Incorporated, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
-----------
hereby certify:
FIRST: That the present name of the Corporation is Diamond Technology
Partners Incorporated and its original Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on March 11, 1996 (the
"Original Certificate of Incorporation").
- --------------------------------------
SECOND: That, by written consent in lieu of a meeting of the Board of
Directors of said Corporation pursuant to Section 141(f) of the General
--------------
Corporation Law of the State of Delaware (the "Delaware General Corporation
----------------------------
Law"), resolutions were duly adopted setting forth a proposed restated
- ---
certificate of incorporation of said Corporation (the "Restated Certificate of
-----------------------
Incorporation") and recommending that such Restated Certificate of Incorporation
- -------------
be approved by the stockholders of said Corporation.
THIRD: That thereafter, by written consent in lieu of a special
meeting of the stockholders of the Corporation pursuant to Section 228(a) of the
--------------
Delaware General Corporation Law, the stockholders of the Corporation adopted a
resolution approving the Restated Certificate of Incorporation.
FOURTH: That this Restated Certificate of Incorporation restates and
amends the Original Certificate of Incorporation and has been duly adopted in
accordance with Sections 242 and 245 of the Delaware General Corporation Law.
--------------------
FIFTH: That the text of the Original Certificate of Incorporation is
hereby restated and amended to read in its entirety as follows:
ARTICLE 1
NAME
The name of the corporation is
DIAMOND TECHNOLOGY PARTNERS INCORPORATED (the "Corporation").
-----------
ARTICLE 2
REGISTERED OFFICE AND AGENT
<PAGE>
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
State of Delaware 19805. The name of its registered agent at such address is The
Prentice Hall Corporation System, Inc.
ARTICLE 3
PURPOSE AND POWERS
The purpose of the Corporation is to engage in any and all lawful acts
or activities for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
----------------------------
Law"). The Corporation shall have all power necessary or convenient to the
- ----
conduct, promotion or attainment of such acts and activities.
ARTICLE 4
CAPITAL STOCK
4.1 AUTHORIZED SHARES.
-----------------
The total number of shares of all classes of capital stock that
the Corporation shall have authority to issue is Sixty-two Million (62,000,000)
of which (i) Forty Million (40,000,000) shall be Class A Common Stock, par value
--------------------
$0.001 per share (the "Class A Common Stock"), (ii) Twenty Million (20,000,000)
--------------------
shall be Class B Common Stock, par value $0.001 per share (the "Class B Common
Stock") (the Class A Common Stock and the Class B Common Stock are collectively
referred to herein as the "Common Stock"), and Two Million (2,000,000) shall be
------------
Preferred Stock, par value $1.00 per share (the "Preferred Stock").
---------------
4.2 COMMON STOCK.
------------
4.2.1 Relative Rights. The Common Stock shall be subject to all of
---------------
the rights, privileges, preferences and priorities of the Preferred Stock as set
forth in the certificate(s) of designations filed to establish the respective
classes or series of Preferred Stock.
4.2.2 Voting Rights. Holders of Class A Common Stock are entitled to
-------------
one (1) vote for each share of such stock held, and holders of Class B Common
Stock are entitled to five (5) votes for each share of such stock held, with
respect to all matters properly submitted for the vote of holders of Common
Stock. Except as otherwise provided by law, the holders of Common Stock will
vote together as a single class on all matters properly submitted for their
vote, including, without limitation, any amendment to this Restated Certificate
of Incorporation which would increase or decrease the number of authorized
shares of Class A Common Stock or Class B Common Stock.
<PAGE>
4.2.3 Dividends and Other Distributions.
---------------------------------
(a) Except as otherwise provided herein, each share of Common Stock
issued and outstanding shall be identical in all respects, and no dividend shall
be paid on any share of Common Stock unless the same dividend is paid on all
shares of Common Stock outstanding at the time of such payment. Except for and
subject to those special voting rights expressly granted herein to the holders
of the Class B Common Stock and subject to the powers, rights, privileges,
preferences and priorities of the Preferred Stock, the holders of Common Stock
shall have exclusively all other rights of stockholders, including, without
limitation, (i) the right to receive dividends, when, as and if declared by the
Board of Directors out of funds legally available therefor, and (ii) in the
event of any distribution of assets upon liquidation, dissolution or winding up
of the Corporation or otherwise, the right to receive ratably all of the assets
and funds of the Corporation remaining after the payment to the creditors of the
Corporation.
(b) Dividends and distributions payable in shares of Class A Common
Stock may not be made on or to shares of Class B Common Stock and dividends and
distributions payable in shares of Class B Common Stock may not be made on or to
shares of any class of the Corporation's capital stock other than the Class B
Common Stock. If a dividend or distribution payable in shares of Class A Common
Stock shall be made on the shares of Class A Common Stock, a dividend or
distribution payable in shares of Class B Common Stock shall be made
simultaneously on the shares of Class B Common Stock, and the number of shares
of Class B Common Stock payable on each share of Class B Common Stock pursuant
to such dividend or distribution shall be equal to the number of shares of Class
A Common Stock payable on each share of Class A Common Stock pursuant to such
dividend or distribution. If a dividend or distribution payable in shares of
Class B Common Stock shall be made on the shares of Class B Common Stock, a
dividend or distribution payable in shares of Class A Common Stock shall be made
simultaneously on the shares of Class A Common Stock, and the number of shares
of Class A Common Stock pursuant to such dividend or distribution shall be equal
to the number of shares of Class B Common Stock payable on each share of Class B
Common Stock pursuant to such dividend or distribution.
(c) If the Corporation shall in any manner subdivide (by stock split,
reclassification,
-3-
<PAGE>
stock dividend, recapitalization, or otherwise) or combine (by reverse stock
split or otherwise) the outstanding shares of Class A Common Stock or Class B
Common Stock, then the outstanding shares of each other class of Common Stock
shall be subdivided or combined, as the case may be, to the same extent, on an
equal share basis.
4.2.4 Conversion of Class B Common Stock.
----------------------------------
(a) In the event that (i) a share of Class B Common Stock is neither
owned beneficially nor owned of record by a Permitted Holder (as defined below)
or (ii) if a beneficial or record owner of a share of Class B Common Stock
ceases to be a Permitted Holder, each such share of Class B Common Stock shall
at that time be automatically and immediately converted to one (1) fully paid
and non-assessable share of Class A Common Stock.
(b) Upon a conversion of a share or shares of Class B Common Stock
into a share or shares of Class A Common Stock as provided in paragraph (a)
above, the certificate representing such former share or shares of Class B
Common Stock shall immediately and thereafter represent the right to receive a
certificate representing the share or shares of Class A Common Stock into which
such share or shares of Class B Common Stock have been converted. Such
certificate shall be surrendered at the office of the Corporation or of any
transfer agent for the Common Stock, and a new certificate representing the
number of share or shares of Class A Common Stock into which the former share or
shares of Class B Common Stock have been converted shall be issued to the holder
of such share or shares. The Corporation or the transfer agent may require such
proof of transfer or conversion as may be satisfactory to them in connection
with the issuance of such new certificate.
A "Permitted Holder" is:
(i) a person who is an employee of the Corporation or any of its
majority-owned subsidiaries; or
(ii) the Corporation
-4-
<PAGE>
provided, however, that such person described in (i) above shall cease to be a
Permitted Holder on the date that such person ceases to be an employee of the
Corporation or any of its majority-owned subsidiaries and that the Corporation
shall not be entitled to vote any shares of Class B Common Stock held by it.
Beneficial ownership of shares of Class B Common Stock shall be determined as
set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
or any successor thereto.
(c) Shares of Class A Common Stock may not be converted into shares
of Class B Common Stock.
(d) The Corporation hereby reserves and shall at all times reserve
and keep available, out of its authorized and unissued Class A Common Stock, for
the purpose of effecting the conversions provided for herein, a sufficient
number of shares of Class A Common Stock to effect the conversion of all
outstanding shares of Class B Common Stock. All of the Class A Common Stock so
issuable shall, when issued, be duly and validly issued, fully paid and non-
assessable, and free from liens and charges with respect to the issue. The
Corporation will take such action as may be necessary to ensure that all such
Class A Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any stock exchange or market on which any
shares of the Class A Common Stock are listed or quoted.
(e) In any merger, consolidation or business combination, the
consideration to be received per share by the holders of Class A Common Stock
and Class B Common Stock shall be identical for each class of stock, except that
in any such transaction in which shares of Common Stock are to be distributed,
such shares may differ as to voting rights to the extent that voting rights
differ among Class A Common Stock and Class B Common Stock as provided herein.
-5-
<PAGE>
4.2.5 Reissuance of Class B Common Stock. In the event that the
----------------------------------
Corporation reacquires any issued and outstanding shares of Common Stock, the
Corporation may only reissue shares of Class B Common Stock to Permitted
Holders.
4.3 PREFERRED STOCK.
---------------
The Board of Directors is authorized, subject to limitations
prescribed by the Delaware General Corporation Law and the provisions of this
Restated Certificate of Incorporation, to provide, by resolution or resolutions
from time to time and by filing a certificate(s) pursuant to the Delaware
General Corporation Law, for the issuance of the shares of Preferred Stock in
one or more classes or series, to establish from time to time the number of
shares to be included in each such class or series, to fix the voting powers,
designations, preferences and relative, participating, optional, or other
special rights of the shares of each such class or series and to fix the
qualifications, limitations, or restrictions thereof. Each share of each such
class or series of Preferred Stock shall have the same relative rights as and be
identical in all respects to all other shares of the same class or series.
ARTICLE 5
BOARD OF DIRECTORS
5.1 NUMBER; ELECTION; AND CLASSIFICATION.
------------------------------------
The number of directors of the Corporation shall be not less than five
nor more than fifteen, the exact number of directors to be fixed from time to
time by or in the manner provided in the By-laws of the Corporation. The Board
of Directors of the Corporation shall be divided into three classes, each class
consisting of approximately one-third of the total number of directors. The term
of office of each class shall be three years and shall expire in successive
years at the time of the annual meeting of stockholders. The initial classes of
directors are as follows:
-6-
<PAGE>
Class I (terms of office expiring at the 1997 annual meeting of
stockholders) - Michael E. Mikolajczyk, Donald R. Caldwell and Alan
Kay;
Class II (terms of office expiring at the 1998 annual meeting of
stockholders) - Melvyn E. Bergstein and John D. Loewenberg; and
Class III (terms of office expiring at the 1999 annual meeting of
stockholders) -- Christopher J. Moffitt, James C. Spira and Edward R.
Anderson.
At each annual meeting of stockholders, the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting and until their successors shall be
elected and qualified. Unless and except to the extent that the By-laws of the
Corporation shall otherwise require, the election of directors of the
Corporation need not be by written ballot.
Any vacancy occurring in the Board of Directors, including any vacancy
created by an increase in the number of directors, shall be filled for the
unexpired term by the vote of a majority of the directors then in office,
whether or not a quorum, or by a sole remaining director, and any director so
chosen shall hold office for the remainder of the full term of the class in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified. No director may be
removed except for cause and then only by an affirmative vote of the holders of
at least a majority of the outstanding shares of stock of the Corporation
entitled to vote thereon at a duly constituted meeting of stockholders called
for such purpose. At least thirty days prior to such meeting of stockholders,
written notice shall be sent to the director or directors whose removal shall be
considered at such meeting.
5.2 MANAGEMENT OF BUSINESS AND AFFAIRS OF THE CORPORATION.
-----------
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors.
5.3 LIMITATION OF LIABILITY.
-----------------------
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
-7-
<PAGE>
provided that this provision shall not eliminate or limit the liability of a
director (a) for any breach of the director's duty of loyalty to the Corporation
or its stockholders, (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (c) under Section
-------
174 of the Delaware General Corporation Law, or (d) for any transaction from
- ---
which the director derived an improper personal benefit. Any repeal or
modification of this Article 5.3 shall be prospective only and shall not
-----------
adversely affect any right or protection of, or any limitation on the liability
of, a director of the Corporation existing at, or arising out of facts or
incidents occurring prior to, the effective date of such repeal or modification.
ARTICLE 6
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or any creditor or stockholder thereof, or on the application of any
receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
- -----------
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
-----------
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE 7
AMENDMENT OF BY-LAWS
The Board of Directors or the stockholders may from time to time adopt,
amend or repeal the By-laws of the Corporation. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at a duly constituted meeting of the Board of Directors called for
such purpose. Such action by the stockholders shall require the affirmative vote
of the holders of
-8-
<PAGE>
at least a majority of the outstanding shares of stock of the Corporation
entitled to vote thereon at a duly constituted meeting of stockholders called
for such purpose.
ARTICLE 8
RESERVATION OF RIGHT TO AMEND
RESTATED CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time to time, to
amend, alter, change, or repeal any provision contained in this Restated
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences, and privileges
of any nature conferred upon stockholders, directors, or any other persons by
and pursuant to this Restated Certificate of Incorporation in its present form
or as hereafter amended are granted subject to the rights reserved in this
Article 8.
- ---------
ARTICLE 9
STOCKHOLDER MATTERS
9.1 CONSENT IN LIEU OF MEETING.
--------------------------
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders,
unless such consent is signed by the holders of at least a majority of the
outstanding shares of stock of the Corporation entitled to vote on such action
at a duly constituted meeting of stockholders called for such purpose.
9.2 CALL OF SPECIAL MEETINGS.
------------------------
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the Chairman of the Board, or
the Secretary at the request of the Board of Directors, and shall be called by
the Chairman of the Board or the Secretary at the request in writing of
stockholders possessing at least 30% of the voting power of the issued and
outstanding voting stock of the Corporation entitled to vote generally for the
election of directors. Such request shall include a statement of the purpose or
purposes of the proposed meeting.
ARTICLE 10
EXEMPTION FROM DELAWARE BUSINESS COMBINATION STATUTE
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<PAGE>
Unless this Restated Certificate of Incorporation is amended or
repealed with respect to this Article 10 or unless the By-laws of the
----------
Corporation designate otherwise, the Corporation expressly elects not to be
governed by Section 203 of the Delaware General Corporation Law.
ARTICLE 11
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
Except as set forth in this Article 11 or as otherwise specifically
----------
required by law, no amendment of any provision of this Restated Certificate
of Incorporation shall be made unless such amendment has been first
proposed by the Board of Directors of the Corporation upon the affirmative
vote of at least a majority of the directors then in office at a duly
constituted meeting of the Board of Directors called for such purpose and
thereafter approved by stockholders of the Corporation by the affirmative
vote of the holders of at least a majority of the outstanding shares of
stock of the Corporation entitled to vote thereon.
SIXTH: 1. That each share of common stock, $0.001 par value per
share, outstanding immediately prior to the time the Restated Certificate of
Incorporation becomes effective under the Delaware General Corporation Law (the
"Outstanding Common Stock") shall be reclassified and exchanged as follows:
------------------------
(a) Each share of Outstanding Common Stock held by a
stockholder other than a Permitted Holder (as defined in paragraph FIFTH hereof)
shall automatically and immediately become one (1) fully paid and non-assessable
share of Class A Common Stock, $0.001 par value per share, without the surrender
of stock certificates or any other action by the holder of such shares or any
other person;
(b) Each share of Outstanding Common Stock held by a
Permitted Holder shall automatically and immediately become one (1) fully paid
and non-assessable share of Class B Common Stock, $0.001 par value par share,
without the surrender of stock certificates or any other action by the holder of
such shares or any other person; and
(c) Notwithstanding the foregoing, no fractional
shares shall be issued but rather the shares issuable to any holder shall be
rounded to the nearest full number of shares.
2. The capital of the Corporation on account of the Class
A Common Stock and the Class B Common Stock issued pursuant to the foregoing
paragraph 1 shall equal the par value of the shares so issued and the balance,
if any, of the capital of the Corporation on account of the Outstanding Common
Stock shall be transferred to surplus.
-10-
<PAGE>
3. All of the outstanding certificates which represented
shares of Outstanding Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of Class A Common Stock and
Class B Common Stock issuable pursuant to paragraph 1, as applicable. Such
outstanding certificates shall be exchanged for new certificates as soon as
practicable.
IN WITNESS WHEREOF, Diamond Technology Partners Incorporated has
caused this Restated Certificate of Incorporation to be signed by its duly
authorized officer, as of the _____ day of _______________, 1997.
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
By:
Name:
Title:
-11-
<PAGE>
EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED BY-LAWS
OF
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
ARTICLE 1
OFFICES
1.1 REGISTERED OFFICE.
-----------------
The registered office of Diamond Technology Partners Incorporated (the
"Corporation") in the State of Delaware shall be located at 1013 Centre Road,
-----------
City of Wilmington, Delaware, County of New Castle. The name of the
Corporation's registered agent at such address shall be The Prentice Hall
Corporation System, Inc. The registered office and/or registered agent of the
Corporation may be changed from time to time by action of the Board of
Directors.
1.2 OTHER OFFICES.
-------------
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may from
time to time determine are required by the business of the Corporation.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
2.1 TIME OF MEETINGS.
----------------
An annual meeting of the stockholders shall be held on a date not
later than the end of the sixth calendar month after the conclusion of the
Company's fiscal year, unless such day should fall on a legal holiday, in which
event the meeting shall be held on the next succeeding business day that is not
a legal holiday for the purpose of electing directors and conducting such other
proper business as may come before the meeting.
2.2 SPECIAL MEETINGS.
----------------
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Chairman of the
Board, or the Secretary at the request of the Board of Directors, and shall be
called by the Chairman of the Board or the Secretary at the request in writing
of stockholders possessing at least 30% of the voting power of the issued and
outstanding voting stock of the Corporation entitled to vote generally for the
election of directors. Such request shall include a statement of the purpose or
purposes of the proposed meeting.
1
<PAGE>
2.3 PLACE OF MEETINGS.
-----------------
The Board of Directors may designate any place, either within or
without the State of Delaware, as the place of meeting for any annual meeting or
for any special meeting of the stockholders of the Corporation. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal executive office of the Corporation.
2.4 NOTICE OF MEETINGS.
------------------
Unless otherwise provided by statute or the Corporation's Restated
Certificate of Incorporation, whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes of such
meeting shall be given to each stockholder entitled to vote at such meeting not
less than 10 days nor more than 60 days before the date of the meeting. All
such notices shall be delivered, either personally or by mail, by or at the
direction of the Board of Directors, the Chairman of the Board or the Secretary
of the Corporation, and if mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation.
2.5 WAIVER OF NOTICE.
----------------
Whenever the giving of any notice is required by statute, the
Corporation's Restated Certificate of Incorporation or these By-laws, a waiver
thereof, in writing and delivered to the Corporation, signed by the person or
persons entitled to said notice, whether before or after the event as to which
such notice is required, shall be deemed equivalent to notice. Attendance of a
stockholder at a meeting shall constitute a waiver of notice (a) of such
meeting, except when the stockholder objects at the beginning of the meeting to
holding the meeting or transacting business at the meeting, and (b) (if it is a
special meeting) of consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, except when
the stockholder objects at the beginning of the meeting to considering the
matter at the meeting.
2.6 FIXING A RECORD DATE FOR STOCKHOLDER MEETINGS.
---------------------------------------------
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than 60 days
nor less than 10 days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be the close
of business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned
2
<PAGE>
meeting.
2.7 FIXING A RECORD DATE FOR ACTION BY WRITTEN CONSENT.
--------------------------------------------------
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by statute, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book or books in which proceedings of meetings of stockholders
are recorded. Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. If no record
date has been fixed by the Board of Directors and prior action by the Board of
Directors is required by statute, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the board of directors adopts the
resolution taking such prior action.
2.8 FIXING A RECORD DATE FOR OTHER PURPOSES.
---------------------------------------
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment or any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purposes of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
2.9 STOCKHOLDERS LIST.
-----------------
The officer having charge of the stock ledger of the Corporation shall
make, at least 10 days before every meeting of the stockholders, a complete list
of the stockholders entitled to vote at such meeting arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
<PAGE>
2.10 QUORUM.
------
Unless otherwise provided by statute or the Corporation's Restated
Certificate of Incorporation, the holders of the outstanding shares of capital
stock representing a majority of the votes entitled to vote at a meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at all meetings of the stockholders. If a quorum is not
present, the holders of a majority of the shares present in person or
represented by proxy at the meeting, and entitled to vote at the meeting, may
adjourn the meeting to another time and/or place. When a specified item of
business requires a vote by a class or series (if the Corporation shall then
have outstanding shares of more than one class or series) entitled to vote on
the matter at hand as a single class, the holders of a majority of the shares of
such class or series shall constitute a quorum (as to such class or series) for
the transaction of such item of business. When a quorum is once present to
commence a meeting of stockholders, it is not broken by the subsequent
withdrawal of any stockholders or their proxies.
2.11 ADVANCE NOTICE OF BUSINESS AT ANNUAL MEETINGS.
---------------------------------------------
At any annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be brought
properly before an annual meeting, business must be either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, the Chairman of the Board or the Secretary of the
Corporation, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, the Chairman of the Board or the Secretary
of the Corporation, or (c) properly brought before the meeting by a stockholder.
In addition to any other applicable requirements, for business to be brought
properly before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Chairman of the Board or the
Secretary. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive office of the Corporation not less than
45 days before the meeting; provided, however, that if less than 60 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of the Corporation that are beneficially owned by the stockholder and
(iv) any material interest of the stockholder in such business.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.11; provided, however, that nothing in
------------
this Section 2.11 shall be deemed to preclude discussion by any stockholder of
------------
any business properly brought before the annual meeting in accordance with said
procedure.
<PAGE>
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the foregoing procedure, and if the
chairman should so determine, he or she shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
2.12 ADJOURNED MEETINGS.
------------------
Any meeting of the stockholders, annual, regular or special, may be
adjourned from time to time to reconvene at the same or some other place.
Notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than 30
days or, if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.13 VOTE REQUIRED.
-------------
When a quorum is present, the affirmative vote of the majority of
shares present in person or represented by proxy at the meeting and entitled to
vote on the subject matter shall be the act of the stockholders, unless the
question is one upon which by express provisions of an applicable law or of the
Corporation's Restated Certificate of Incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Voting on any question or in any election need not
be by written ballot. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class.
2.14 VOTING RIGHTS.
-------------
Except as otherwise provided by the General Corporation Law of the
State of Delaware, the Corporation's Restated Certificate of Incorporation or
any amendments thereto and subject to Section 6.3 hereof, every stockholder
-----------
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of capital stock held by such stockholder.
2.15 PROXIES.
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an
<PAGE>
interest in the Corporation generally.
Any proxy is suspended when the person executing the proxy is present
at a meeting of stockholders and elects to vote, except that when such proxy is
coupled with an interest and the fact of the interest appears on the face of the
proxy, the agent named in the proxy shall have all voting and other rights
referred to in the proxy, notwithstanding the presence of the person executing
the proxy. At each meeting of the stockholders, and before any voting
commences, all proxies filed at or before the meeting shall be submitted to and
examined by the Secretary of the Corporation or a person designated by the
Secretary, and no shares may be represented or voted under a proxy that has been
found to be invalid or irregular.
2.16 ACTION BY WRITTEN CONSENT.
-------------------------
Unless otherwise provided in the Corporation's Restated Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken and bearing the dates of signature of the
stockholders who signed the consent or consents, shall be signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Corporation by delivery to its registered office in the State of Delaware, the
Corporation's principal place of business, or an officer or agent of the
Corporation having custody of the book or books in which proceedings of meetings
of the stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. All consents properly delivered in accordance with this Section 2.16
------------
shall be deemed to be recorded when so delivered. No written consent shall be
effective to take the corporate action referred to therein unless, within 60
days of the earliest dated consent delivered to the Corporation as required by
this Section 2.16, written consents signed by the holders of a sufficient number
------------
of shares to take such corporate action are so recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Any action taken pursuant to such written consent or consents of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
ARTICLE 3
DIRECTORS
3.1 GENERAL POWERS.
--------------
Unless otherwise provided by statute or the Corporation's Restated
Certificate of Incorporation, the business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors.
3.2 NUMBER, CLASSES, ELECTION AND TERM OF OFFICE.
--------------------------------------------
<PAGE>
As of the closing of the Corporation's initial public offering of
equity securities under the Securities Act of 1933, as amended, the total number
of directors which shall constitute the entire board of directors shall be
eight. The term "entire Board of Directors" as used herein shall mean the total
number of directors constituting the entire Board of Directors irrespective of
the number of directors then in office or vacancies. Thereafter, the total
number of directors constituting the entire board of directors shall be
determined by resolution of the board of directors passed by the affirmative
vote of a majority of the directors then in office, provided that such number
shall be consistent with the minimum and maximum number of directors set forth
in the Corporation's Restated Certificate of Incorporation. The Board of
Directors shall be divided into three classes, each class consisting of
approximately one-third of the total number of directors, as provided in the
Corporation's Restated Certificate of Incorporation. At the 1997 annual meeting
of stockholders and at each subsequent annual meeting of stockholders, directors
elected to succeed those whose terms are expiring shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders and when
their respective successors are duly elected and qualified. Directors shall be
elected at annual meetings of the stockholders, except as provided in Section
-------
3.4 hereof, and each director elected shall hold office until his successor is
- ---
elected and qualified or until his earlier death, resignation or removal.
Directors need not be stockholders.
3.3 REMOVAL AND RESIGNATION.
-----------------------
Unless otherwise provided in the Corporation's Restated Certificate of
Incorporation, any director or the entire Board of Directors may be removed for
cause, by the holders of the outstanding shares of capital stock representing a
majority of the votes entitled to vote at the election for that director. Any
director may resign at any time upon written notice to the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein, no acceptance of such resignation shall be
necessary to make it effective.
3.4 VACANCIES.
---------
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the directors
then in office, although fewer than a quorum, or by a sole remaining director.
Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the provisions of the Corporation's
Restated Certificate of Incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by the
sole remaining director so elected. Each director so chosen shall hold office
until the next election of the class for which such director shall have been
chosen, and until such director's successor is elected and qualified, or until
the director's earlier death, resignation or removal. In the event that one or
more directors resigns from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take
<PAGE>
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office until the next election of the class for
which such director shall have been chosen, and until such director's successor
is elected and qualified, or until the director's earlier death, resignation or
removal.
3.5 ANNUAL MEETINGS.
---------------
The annual meeting of each newly elected Board of Directors shall be
held without other notice than this by-law immediately after, and at the same
place as, the annual meeting of stockholders of the Corporation.
3.6. OTHER MEETINGS AND NOTICE.
-------------------------
Regular meetings, other than the annual meeting, of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors, provided that any
director who is absent when such determination is made, shall be given notice or
a copy of a resolution setting such regular meeting date. Special meetings of
the Board of Directors may be called by or at the request of the Chief Executive
Officer, any Senior Vice President or any director on at least 24 hours notice
to each director, either personally, by telephone, by mail, by telegram, by
telex, or by facsimile, and shall be deemed to have been given when communicated
by telephone, when deposited in the United States mail, when delivered to the
telegraph company or transmitted by telex or facsimile, as the case may be.
3.7 QUORUM, REQUIRED VOTE AND ADJOURNMENT.
-------------------------------------
A majority of the total number of directors shall constitute a quorum
for the transaction of business. The vote of a majority of directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
3.8 COMMITTEES.
----------
(a) The Board of Directors may, by resolution passed by a majority of
the entire Board of Directors or pursuant to these By-laws, designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have and may exercise the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more directors as alternate members
of any such committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors of the Corporation when required or as
requested.
<PAGE>
(b) Audit Committee. The audit committee shall consist of not fewer
---------------
than two members of the Board of Directors as shall from time to time be
appointed by resolution of the Board of Directors. A majority of the audit
committee shall consist of members of the Board of Directors who are not
officers and/or employees of the Corporation or any subsidiary of the
Corporation. The audit committee shall review and, as it shall deem
appropriate, recommend to the Board of Directors internal accounting and
financial controls for the Corporation and accounting principles and auditing
practices and procedures to be employed in the preparation and review of
financial statements of the Corporation. The audit committee shall make
recommendations to the Board of Directors concerning the engagement of
independent public accountants to audit the annual financial statements of the
Corporation and the scope of the audit to be undertaken by such accountants.
(c) Compensation Committee. The compensation committee shall consist
----------------------
of not fewer than two members of the Board of Directors as shall from time to
time be appointed by resolution of the Board of Directors. A majority of the
compensation committee shall consist of members of the Board of Directors who
are not officers and/or employees of the Corporation or any subsidiary of the
Corporation. The compensation committee shall review and, as it shall deem
appropriate, recommend to the Chief Executive Officer and the Board of Directors
policies, practices and procedures relating to the compensation of managerial
employees and the establishment and administration of employee benefit plans,
except for any stock option plan(s), which shall be established and administered
by the Board of Directors of the Corporation. The compensation committee shall
advise and consult with the officers of the Corporation, as may be requested,
regarding managerial personnel policies.
3.9 COMMUNICATIONS EQUIPMENT.
------------------------
Members of the Board of Directors or any committee thereof may
participate in and act at any meeting of such board or committee through the use
of a conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in the meeting pursuant to this Section 3.9 shall constitute presence in person
-----------
at such meeting.
3.10 WAIVER OF NOTICE AND PRESUMPTION OF ASSENT.
------------------------------------------
Any member of the Board of Directors or any committee thereof who is
present at a meeting shall be conclusively presumed to have waived notice of
such meeting except when such member attends for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Such member shall be
conclusively presumed to have assented to any action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless his or her
written dissent to such action shall be filed with the person acting as the
secretary of the meeting before the adjournment thereof or shall be forwarded by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to any member
who voted in favor of such action.
<PAGE>
3.11 ACTION BY WRITTEN CONSENT.
-------------------------
Unless otherwise restricted by the Corporation's Restated Certificate
of Incorporation, any action required or permitted to be taken at any meeting of
the Board of Directors or a committee thereof may be taken without a meeting if
all members of the Board of Directors or a committee thereof, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or a committee thereof.
3.12 COMPENSATION OF DIRECTORS.
-------------------------
Unless otherwise provided by the Corporation's Restated Certificate of
Incorporation, the Board of Directors shall have the authority to fix the
compensation of directors, which compensation may include the reimbursement of
expenses incurred in connection with meetings of the Board of Directors or a
committee thereof.
3.13 INTERESTED DIRECTORS, OFFICERS; QUORUM.
--------------------------------------
No contract or transaction between the Corporation and one or more of
its directors or officers, or between the Corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or a committee thereof which authorizes the contract or transaction,
or solely because his, her or their votes are counted for such purpose, if: (a)
the material facts as to his, her or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors are less
than a quorum; (b) the material facts as to his, her or their relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or a
committee thereof which authorizes the contract or transaction.
3.14 NOMINEES.
--------
Only persons who are nominated in accordance with the procedures set
forth in this Section 3.14 shall be eligible for election as directors.
------------
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with notice procedures set
forth in this
<PAGE>
Section 3.14. Such nominations, other than those made by or at the direction
- ------------
of the direction of the Board of Directors, shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
stockholder notice shall be delivered to or mailed and received at the principal
executive office of the Corporation not less than 45 days prior to the meeting;
provided, however, that in the event that less than 60 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address, and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
the Corporation's capital stock which are beneficially owned by such person, and
(iv) any other information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including, without limitation, such person's written
consent to be named in the proxy statement as a nominee and to serve as a
director if elected), and (b) as to the stockholder giving the notice, (i) the
name and address, as they appear on the Corporation's books, of such
stockholder, and (ii) the class and number of shares of the Corporation's
capital stock which are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary of the Corporation that
information required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No later than the 10th day following the date of
receipt of a stockholder nomination submitted pursuant to this Section 3.14, the
------------
Chairman of the Board of the Corporation shall, if the facts warrant, determine
and notify in writing the stockholder making such nomination that such
nomination was not made in accordance with the time limits and/or other
procedures described by these By-laws. If no such notification is mailed to such
stockholder within such ten-day period, such nomination shall be deemed to have
been made in accordance with the provisions of this Section 3.14. No person
------------
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this Section 3.14.
------------
ARTICLE 4
OFFICERS
4.1 POSITIONS.
---------
The officers of the Corporation shall be elected by the Board of
Directors and shall consist of a Chief Executive Officer, a Chief Operating
Officer, a Chairman of the Board, a President, a Secretary, a Treasurer, and
such other officers and assistant officers as may be deemed necessary or
desirable by the Board of Directors. Any number of offices may be held by the
same person. In its discretion, the Board of Directors may choose not to fill
any office for any period as it may deem advisable, except that the offices of
president and secretary shall be filled as expeditiously as possible.
4.2 ELECTION AND TERM OF OFFICE.
---------------------------
<PAGE>
The officers of the Corporation shall be elected annually by the Board
of Directors at its first meeting held after the annual meeting of stockholders.
Vacancies may be filled or new offices created and filled at any meeting of the
Board of Directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
4.3 REMOVAL AND RESIGNATION.
-----------------------
Any officer or agent elected by the Board of Directors may be removed
by the Board of Directors whenever in its judgment the best interests of the
Corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. The election of an
officer or agent shall not of itself create any contractual rights. Any officer
may resign at any time upon written notice to the Corporation, such resignation
shall take effect at the time specified therein, and unless otherwise specified
therein, no acceptance of such resignation shall be necessary to make it
effective.
4.4 VACANCIES.
---------
Any vacancy occurring in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term by the Board of Directors then in office.
4.5 COMPENSATION.
------------
Compensation of all officers shall be fixed by the Board of Directors,
and no officer shall be prevented from receiving such compensation by virtue of
his or her also being a director of the Corporation.
4.6 POWERS AND DUTIES OF OFFICERS.
-----------------------------
The officers of the Corporation shall have such powers and duties as
shall be stated in these By-laws or in a resolution of the Board of Directors
which is not inconsistent with these By-laws and, to the extent not so stated,
as generally pertain to their respective office or offices, subject to the
control of the Board of Directors.
4.7 CHIEF EXECUTIVE OFFICER.
-----------------------
The Board of Directors, at the time of election of officers or from
time to time thereafter, may designate whether the Chairman of the Board, if one
shall have been chosen, or the President shall be the Chief Executive Officer of
the Corporation. If a Chairman of the Board has not been chosen, or if one has
been chosen but not designated Chief Executive Officer, then the President shall
be the Chief Executive Officer of the Corporation. The Chief Executive Officer
shall be the principal executive officer of the Corporation and shall in general
supervise
<PAGE>
and control all of the business and affairs of the Corporation, subject to the
direction of the Board of Directors. He shall see that orders and resolutions of
the Board of Directors are carried into effect. He shall have general powers of
supervision and shall be the final arbiter of all differences between officers
of the Corporation and his decision as to any matter affecting the Corporation
shall be final and binding as between the officers of the Corporation subject
only to its Board of Directors.
4.8 CHIEF OPERATING OFFICER.
-----------------------
If the Chairman of the Board has been designated Chief Executive
Officer of the Corporation, the Board of Directors, at the time of election of
officers or at any other time, may designate the President as the Chief
Operating Officer. The Chief Operating Officer, if any, shall in general
supervise and control all of the operational aspects of the business of the
Corporation, subject to the direction of the Chief Executive Officer and the
Board of Directors. He shall be present at all meetings of the stockholders and
the Board of Directors and shall see that orders and resolutions of the Board of
Directors are carried into effect.
4.9 CHAIRMAN OF THE BOARD.
---------------------
The Chairman of the Board, if one is chosen, shall be chosen from
among the members of the Board of Directors. The Chairman of the Board shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. If the Chairman of the Board has been designated Chief Executive
Officer, he shall have the duties thereof, if not so designated, he shall have
no other duties.
4.10 PRESIDENT.
---------
If the Chairman of the Board has been designated Chief Executive
Officer, and the President has been designated Chief Operating Officer, the
President shall have the duties of the Chief Operating Officer. If the Chairman
of the Board has not been designated Chief Executive Officer, the President
shall have the duties of the Chief Executive Officer. In the absence of the
Chairman of the Board or in the event of his inability to act, the President
shall perform the duties of the Chairman of the Board and when so acting, shall
have all of the powers of, and be subject to all of the restrictions upon, the
Chairman of the Board.
4.11 VICE-PRESIDENTS.
---------------
The Vice-President, or if there shall be more than one, the Vice-
Presidents in the order determined by the Board of Directors, shall, in the
absence or disability of the President, act with all of the powers and be
subject to all the restrictions of the President. The Vice-Presidents shall
also perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or these By-laws may, from time to time,
prescribe.
<PAGE>
4.12 SECRETARY AND ASSISTANT SECRETARIES.
-----------------------------------
The Secretary shall attend all meetings of the Board of Directors, all
meetings of the committees thereof and all meetings of the stockholders and
record all the proceedings of the meetings in a book or books to be kept for
that purpose. Under the President's supervision, the Secretary shall give, or
cause to be given, all notices required to be given by these By-laws or by law;
shall have such powers and perform such duties as the Board of Directors, the
Chief Executive Officer or these By-laws may, from time to time, prescribe; and
shall have custody of the corporate seal of the Corporation. The Secretary, or
an Assistant Secretary, shall have authority to affix the corporate seal to any
instrument requiring it and when so affixed, it may be attested to by his
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature. The Assistant
Secretary, or if there be more than one, the Assistant Secretaries in the order
determined by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors,
the Chief Executive Officer or these By-laws may, from time to time, prescribe.
4.13 TREASURER AND ASSISTANT TREASURERS.
----------------------------------
The Treasurer shall have the custody of the corporate funds and
securities; shall keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation; shall deposit all monies and other
valuable effects in the name of and to the credit of the Corporation as may be
designated by the Board of Directors; shall cause the funds of the Corporation
to be disbursed when such disbursements have been duly authorized, taking proper
vouchers for such disbursements; and shall render to the President and the Board
of Directors, at its regular meeting or when the Board of Directors so requires,
an account of the Corporation; shall have such powers and perform such duties as
the Board of Directors, the Chief Executive Officer or these By-laws may, from
time to time, prescribe. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond (which shall be rendered every six years) in
such sums and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of the office of
Treasurer and for the restoration to the Corporation, in case of death,
resignation, retirement, or removal from office, of all books, papers, vouchers,
money, and other property of whatever kind in the possession of or under the
control of the Treasurer belonging to the Corporation. The Assistant Treasurer,
or if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors, shall in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer. The
Assistant Treasurers shall perform such other duties and have such other powers
as the Board of Directors, the Chief Executive Officer or these By-laws may,
from time to time, prescribe.
4.14 OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS.
---------------------------------------------
Officers, assistant officers and agents, if any, other than those
whose duties are provided for in these By-laws, shall have such authority and
perform such duties as may from time
<PAGE>
to time be prescribed by resolution of the Board of Directors.
4.15 ABSENCE OR DISABILITY OF OFFICERS.
---------------------------------
In the case of the absence or disability of any officer of the
Corporation and of any person hereby authorized to act in such officer's place
during such officer's absence or disability, the Board of Directors may by
resolution delegate the powers and duties of such officer to any other officer
or to any director, or to any other person whom it may select.
ARTICLE 5
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
5.1. NATURE OF INDEMNITY.
-------------------
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) (hereinafter a "proceeding"), by reason of the fact
----------
that he or she, or a person for whom he or she is the legal representative, is
or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee, or
agent of another corporation or a partnership, joint venture, trust or other
enterprise, shall be indemnified and held harmless by the Corporation to the
fullest extent which it is empowered to do so by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment) against all
expense, liability and loss (including attorneys' fees actually and reasonably
incurred by such person in connection with such proceeding) and such
indemnification shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board of Directors of the
Corporation.
5.2 ARTICLE NOT EXCLUSIVE.
---------------------
The rights to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article 5 shall not be exclusive of any other right which any person may have or
- ---------
hereafter acquire under any statute, provision of the Corporation's Restated
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
5.3 INSURANCE.
---------
The Corporation may purchase and maintain insurance on its own behalf
and on
<PAGE>
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity, whether or not the Corporation
would have the power to indemnify such person against such liability under this
Article 5.
- ---------
5.4 EXPENSES.
--------
Expenses incurred by any person described in Section 5.1 hereof in
-----------
defending a proceeding shall be paid by the Corporation in advance of such
proceeding's final disposition, unless otherwise determined by the Board of
Directors in the specific case, upon receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
5.5 CONTRACT RIGHTS.
---------------
The provisions of this Article 5 shall be deemed to be a contract
---------
right between the Corporation and each director or officer who serves in any
such capacity at any time while this Article 5 and the relevant provisions of
---------
the General Corporation Law of the State of Delaware or other applicable law are
in effect, and any repeal or modification of this Article 5 or any such law
---------
shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then or heretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon such state of facts.
5.6. MERGER OR CONSOLIDATION.
-----------------------
For purposes of this Article 5, references to "the Corporation" shall
---------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article 5 with respect to the resulting or surviving
---------
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
5.7 OTHER TERMS DEFINED.
-------------------
For purposes of this Article 5, references to "other expenses" shall
---------
include employee benefit plans, references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan, and
references to "serving at the request of the
<PAGE>
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries, and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article 5.
---------
ARTICLE 6
CERTIFICATES OF STOCK; REGISTRATION; SUBSCRIPTIONS
6.1 FORM.
----
Every holder of capital stock in the Corporation shall be entitled to
have a certificate, signed by, or in the name of the Corporation by the
President or a Vice-President and the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by such holder in the
Corporation. If such a certificate is countersigned (i) by a transfer agent or
an assistant transfer agent other than the Corporation or its employee or (ii)
by a registrar, other than the Corporation or its employee, the signature of any
such President, Vice-President, Secretary, or Assistant Secretary may be a
facsimile. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates,
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may
nevertheless be issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
Corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the Corporation. Shares of capital stock of the
Corporation shall only be transferred on the books of the Corporation by the
holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the Corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization, and
other matters as the Corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The Board of Directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the Corporation.
6.2 LOST CERTIFICATES.
-----------------
The Corporation may issue a new certificate or certificates to be
issued in place of any certificate or certificates previously issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of capital
stock to be lost, stolen, or destroyed. When authorizing such issue of a new
<PAGE>
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen, or destroyed certificate or certificates, or his or her legal
representative, to give the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against the Corporation on
account of the loss, theft or destruction of any such certificate or the
issuance of such new certificate.
6.3 REGISTERED STOCKHOLDERS.
-----------------------
Prior to the surrender to the Corporation of the certificate or
certificates for a share or shares of capital stock with a request to record the
transfer of such share or shares, the Corporation may treat the registered owner
as the person entitled to receive dividends, to vote, to receive notifications,
and otherwise to exercise all the rights and powers of an owner.
ARTICLE 7
GENERAL PROVISIONS
7.1. DIVIDENDS.
---------
Dividends upon the capital stock of the Corporation, subject to the
provisions of the Corporation's Restated Certificate of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Corporation's Restated
Certificate of Incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.
7.2 CHECKS, DRAFTS, OR ORDERS.
-------------------------
All checks, drafts, or other orders for the payment of money by or to
the Corporation and all notes and other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner, as shall be determined by
resolution of the Board of Directors or a duly authorized committee thereof.
7.3 CONTRACTS.
---------
The Board of Directors may authorize any officer or officers, or any
agent or agents, of the Corporation to enter into any contract or to execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
7.4 LOANS.
-----
<PAGE>
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
capital stock of the Corporation. Nothing in this section contained shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
Corporation at common law or under any statute.
7.5 FISCAL YEAR.
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
7.6 CORPORATE SEAL.
--------------
The Board of Directors may provide a corporate seal which shall be in
the form of a circle and shall have inscribed thereon the name of the
Corporation and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
7.7 VOTING SECURITIES OWNED BY CORPORATION.
--------------------------------------
Voting securities in any other corporation held by the Corporation
shall be voted by the President, unless the Board of Directors specifically
confers authority to vote with respect thereto, which authority may be general
or confined to specific instances, upon some other person or officer. Any
person authorized to vote securities shall have the power to appoint proxies,
with general power of substitution.
7.8 SECTION HEADINGS.
----------------
Section headings in these By-laws are for convenience of reference
only and shall not be given any substantive effect in limiting or otherwise
construing any provision herein.
7.9 INCONSISTENT PROVISIONS.
-----------------------
In the event that any provision of these By-laws is or becomes
inconsistent with any provision of the Corporation's Restated Certificate of
Incorporation, the General Corporation Law of the State of Delaware or any other
applicable law, the provision of these By-laws shall not be given any effect to
the extent of such inconsistency but shall otherwise be given full force and
effect.
7.10 AMENDMENTS.
----------
<PAGE>
The Board of Directors or the stockholders may from time to time
adopt, amend or repeal these By-laws of the Corporation. Such action by the
Board of Directors shall require the affirmative vote of at least a majority of
the directors then in office at a duly constituted meeting of the Board of
Directors called for such purpose. Such action by the stockholders shall
require the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the Corporation entitled to vote thereon
at a duly constituted meeting of stockholders called for such purpose.
<PAGE>
[LETTERHEAD OF MORGAN, LEWIS & BOCKIUS LLP APPEARS HERE]
EXHIBIT 8.1
December 12, 1996
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Re: Offering of Rights to Purchase Shares of Common Stock of
Diamond Technology Partners Incorporated
----------------------------------------
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax aspects
of the grant by Diamond Technology Partners Incorporated (the "Company") of
rights (the "Rights") to purchase shares of the Company's Common Stock (the
"Offering"), all as described in the Registration Statement on Form S-1 (File
No.333-17785), as amended, filed with the Securities and Exchange Commission on
the date hereof (the "Registration Statement"). This opinion is based upon our
review of the Registration Statement and our assumption that the Offering will
take place in accordance with the description included in the Registration
Statement.
Opinion
-------
Based on the foregoing and on the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date of this
letter, it is our opinion that the statements of law and conclusions of law
included in the Registration Statement under the heading "The Offering--Federal
Income Tax Consequences" are, in all material respects, true, correct and
complete. No opinion is expressed regarding any statements, assumptions or
opinions regarding factual matters (including, without limitation, the value of
the Rights) contained in the Registration Statement.
Should any of the facts, assumptions or understandings referred to above
prove incorrect, please let us know so that we may consider the effect, if any,
on our opinion. No assurances can be given that any of the foregoing
authorities will not be modified, revoked, supplemented, revised, reversed or
overruled or that any such modification, renovation,
<PAGE>
[LOGO OF MORGAN, LEWIS
& BOCKIUS LLP APPEARS HERE]
Safeguard Scientifics, Inc.
December 12, 1996
Page 2
supplementation, revision, reversal or overruling will not adversely affect the
opinion set forth above.
We understand that this opinion is to be used in connection with the
registration of the Rights and the Company's Common Stock pursuant to the
Securities Act of 1933, as amended. We consent to the filing of this opinion in
connection with and as a part of the Registration Statement on Form S-1 and
amendments thereto. We also hereby consent to the reference to our firm under
the caption "Legal Matters" in the Registration Statement. In giving such
consents, however, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 10.1
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
1994 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF OCTOBER 21, 1996/1/
----------------------------------------------
1. Purpose
-------
The purpose of the Plan is to benefit the Company and its shareholders by
having the Company offer certain Employees a favorable opportunity to acquire
shares of Stock over a period of years, thereby giving such Employees a
permanent stake in the growth and prosperity of the Company, encouraging such
Employees to continue their service with the Company, and motivating such
Employees to devote their best efforts to the business and profitability of the
Company. The Plan is not intended to qualify as an "employee stock purchase
plan" within the meaning of Code Section 423.
2. Definitions
-----------
As used herein, the following definitions shall apply.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Company's Management Committee, as
constituted from time to time, responsible for administering the Plan as set
forth in Section 6 hereof, or any other committee of the Company that succeeds
to the responsibilities of administering this Plan.
(d) "Company" shall mean Diamond Technology Partners Incorporated, a
Delaware corporation.
(e) "Date of Grant" shall mean the day and year first written in the
Option Agreement relating to such Option.
(f) "Director" shall mean any duly elected and qualified member of the
Board.
(g) "Disability" shall mean any medically determinable physical or mental
impairment that, in the opinion of the Committee, based upon medical reports and
other evidence satisfactory to the Committee, can reasonably be expected to
prevent an Employee from performing substantially all of his customary duties of
employment for a continuous period of not less than twelve (12) months.
- -----------------------
/1/ The Plan was first amended by resolution of the Board of Directors of the
Company effective April 27, 1995; subsequently amended by resolution of the
Board of Directors on February 20, 1996 and approved by the shareholders of the
Company effective as of March 28, 1996; and subsequently amended by resolution
of the Board of Directors and consent of the shareholders of the Company on
October 21, 1996.
<PAGE>
(h) "Employee" shall mean any salaried employee of the Company or of any
"Parent" or "Subsidiary" of the Company (as such terms are defined in Section
424 of the Code); any references to employment with the Company, shall be deemed
to include the Company and any Parent or Subsidiary of the Company, as the
context may require.
(i) "Exercise Price" shall mean the purchase price for shares of Stock
purchased pursuant to the exercise or partial exercise of an Option.
(j) "Fair Market Value" shall mean, with respect to the valuation of any
shares of Stock, (i) if the Stock is publicly traded, the average of the closing
price of the Stock for the ten (10) trading days immediately preceding the
business day during which the shares of Stock are to be valued pursuant hereto,
and (ii) if the Stock is not publicly traded, the fair market value of the
shares of Stock as reasonably determined by the Board consistent with past
practice.
(k) "Investor Group" shall mean Safeguard Scientifics (Delaware), Inc.,
Technology Leaders Offshore C.V., CIP Capital L.P., and Technology Leaders L.P.
(l) "IPO" shall mean the closing of an initial public offering of the
common stock of the Company registered under the Securities Act.
(m) "Option" shall mean any right to purchase Stock which has been granted
by the Committee pursuant to the Plan.
(n) "Option Agreement" shall mean an agreement executed by an officer of
the Company and an Employee evidencing the grant of an Option.
(o) "Option Shares" shall mean the shares of Stock transferred pursuant to
the exercise of an Option.
(p) "Optionee" shall mean any Employee who receives an Option pursuant to
the Plan.
(q) "Plan" shall mean the Diamond Technology Partners Incorporated 1994
Stock Option Plan.
(r) "Securities Act" shall mean the Securities Act of 1933, as amended.
(s) "Shareholders Agreement" shall mean that certain Amended and Restated
Voting and Stock Restriction Agreement dated as of the 1st day of April, 1996,
among the Company, the Investor Group and certain other shareholders of the
Company, as amended.
(t) "Stock" shall mean the $0.001 par value common stock of the Company
or, in the event that the Company becomes a wholly-owned subsidiary of another
corporation, the common stock of that entity.
(u) "Stock Purchase Agreement" shall mean that certain Stock Purchase
Agreement dated as of March 22, 1994, by and among the Company and the Investor
Group, as amended.
2
<PAGE>
(v) "Warrant" shall mean that certain Warrant to Purchase Shares of Common
Stock of the Company dated March 22, 1994 and issued to Safeguard Scientifics,
Inc.
3. Shares Subject to the Plan
--------------------------
Except as provided in Section 4(a) hereof, the aggregate amount of Stock
for which Options may be granted shall not exceed 5,300,000 shares less (at the
time of the grant of any Option) all shares (i) theretofore issued to any party
other than the Investor Group or any member thereof or transferee therefrom or
(ii) subject to any option.
Any shares subject to unexercised portions of Options which shall have
terminated, been cancelled, or expired may again be subject to Options. In
addition, shares that have been repurchased by the Company may be subject to
Options.
4. Adjustment
----------
(a) The number of shares subject to the Plan and to Options shall be
adjusted as follows: (i) in the event that the number of shares of outstanding
Stock is changed by reason of a stock dividend, stock split, recapitalization or
combination of shares, the number of shares of Stock subject to the Plan and to
Options shall be proportionately adjusted; or (ii) in the event of any merger,
consolidation or reorganization of the Company with any other corporation or
corporations pursuant to which the holders of shares of Stock surrender shares
of Stock in exchange for other shares of stock or securities, there shall be
substituted for each share of Stock then subject to the Plan and to Options the
number and kind of shares of stock or other securities which the holders of
shares of Stock are entitled to receive for each share of Stock surrendered
pursuant to the transaction and the Exercise Price shall be proportionately
adjusted.
(b) The number of shares subject to the Plan and Options shall not be
adjusted as a result of (i) the issuance of shares of Stock to the Investor
Group, any member thereof or transferee therefrom pursuant to the exercise of
any rights under the Stock Purchase Agreement or any agreement or investment
provided for thereunder, or (ii) any other issuance of Stock by the Company
(other than an issuance described in subsection (a) of this Section 4), it being
understood that, upon such an issuance of shares of Stock pursuant to the
exercise of the Warrant or otherwise, holders of Options and holders of Option
Shares will suffer a corresponding dilution of their proportionate interests in
the Stock.
5. Administration of the Plan
--------------------------
The following provisions shall govern the administration of the Plan:
(a) The Plan shall be administered by the Committee.
(b) The Committee is authorized (but only to the extent not contrary to
the express provisions of the Plan) to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan and to the Options, to
determine the form and content of Options (except to the extent the form and
content of the Options are specified herein), and to make such other
determinations and exercise such other powers and authority as may be necessary
or advisable for
3
<PAGE>
the administration of the Plan. Each Option granted shall be evidenced by an
Option Agreement is such form as may be determined by the Committee.
(c) A majority of the members of the Committee eligible to act shall
constitute a quorum for purposes of acting with respect to the Plan, and the
action of a majority of the members present who are eligible to act at any
meeting at which a quorum is present shall be deemed the action of the
Committee.
(d) All decisions, determinations and interpretations of the Committee
made in good faith with respect to the Plan and Option Agreements shall be final
and conclusive on all persons affected thereby.
(e) Neither the Committee nor any member thereof shall be liable for any
act, omission, interpretation, construction or determination made in connection
with the Plan in good faith, and the members of the Committee shall be entitled
to indemnification and reimbursement by the Company in respect of any claim,
loss, damage or expense (including counsel fees) arising therefrom to the full
extent permitted by law. The members of the Committee shall be named as insureds
under any directors and officers liability insurance coverage that may be in
effect from time to time.
(f) To the extent that the aggregate Fair Market Value (as of the Date of
Grant) of the Option Shares issuable under Options granted to an individual
which are exercisable for the first time by such individual during any calendar
year exceeds $100,000, such Options shall be treated as options that are not
"incentive stock options" under the Code.
6. Eligibility
-----------
The Committee is authorized to select Employees to receive Options
depending on the availability of shares of Stock for which Options may be
granted pursuant to the terms of the Plan. In the event Options are granted
pursuant to the Plan, the Committee is authorized to select the particular
Employees who will receive such Options and the number of shares of Stock under
each such Option. In granting Options, the Committee shall take into
consideration the contribution an Employee has made or may make to the success
of the Company and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from the Nominations Committee, the Compensation Committee,
Directors and Employees with regard to these matters. In no event shall any
Employee or his legal representatives, heirs, legatees, distributees or
successors have any right to participate in the Plan except to such extent, if
any, as the Committee shall determine. No Options will be granted to any
Employee who owns stock representing more than ten percent of the voting power
of all classes of stock of the Company or any parent or subsidiary corporation
unless the Exercise Price is at least 110% of the Fair Market Value at the Date
of Grant.
7. Term of the Plan
----------------
The Plan shall continue in effect until terminated pursuant to Section 21
hereof; or until there is no more stock as to which an Option may be granted and
no Options are outstanding;
4
<PAGE>
provided, however, that all Options must be granted within 10 years from the
effective date of the Plan.
8. Restrictions on Transfers
-------------------------
The Options may not be transferred, assigned, pledged or hypothecated in
any way, other than be reason of death of the Optionee, and will not be subject
to execution, attachment or similar process, except as may be provided by this
Plan. The Option Shares may be transferred, assigned, pledged or hypothecated,
voluntarily, involuntarily or by operation of law, only as provided by the
Shareholders Agreement.
An Option will terminate immediately upon any attempted transfer,
assignment, pledge or hypothecation of such Option in violation of this
Section 8, and any attempted transfer, assignment, pledge or hypothecation of
any Option Shares in violation of this Section 8 will be void without further
action by the Company and have no effect.
The Options and the Option Shares shall be subject to the terms and
conditions of the Shareholders Agreements applicable to the Optionee and, as a
condition to the exercise of an Option, the Optionee shall execute the
Shareholders Agreement or an agreement (in such form as is required by the
Company) under which the Optionee adopts and agrees to be bound by the
Shareholders Agreement.
9. Restrictions on Voting
----------------------
As provided in the Shareholders Agreement, until the occurrence of an IPO,
Option Shares will be voted by the then Chief Executive Officer of the Company,
pursuant to irrevocable proxies, executed by the Optionee upon the exercise of
an Option.
10. Vesting of Options
------------------
Options are exercisable only upon and after vesting. Except as provided in
Section 11 hereof and except as otherwise may be specifically provided in an
Option Agreement, Options granted to Partners (as defined in the Shareholders
Agreement) shall vest according to the following schedule:
(a) one-third on the first anniversary of the Date of Grant;
(b) an additional one-third on the second anniversary of the Date of
Grant; and
(c) the remaining one-third on the third anniversary of the Date of Grant.
Except as provided in Section 11 hereof and except as may be specifically
provided in an Option Agreement, Options granted to Employees other than
Partners shall fully vest upon the third anniversary of the Date of Grant.
The above vesting schedules assume the Optionee's continuous employment
with the Company. Except as provided in Section 11 hereof, no Option shall vest
after the date the
5
<PAGE>
Optionee ceases to be an Employee for any reason, and any unvested portion of an
Option theretofore held by such an Optionee shall terminate as of that date.
11. Special Vesting Rules
---------------------
Notwithstanding anything to the contrary in Section 10 hereof, if an
Optionee dies or suffers a Disability during the vesting period described in
Section 10 hereof and the Optionee was an Employee at the time of such death or
Disability, the unvested portion of any Option held by such Employee shall
automatically vest on the date of death or Disability.
Notwithstanding anything to the contrary in Section 10 hereof and except as
may be specifically provided in an Option Agreement, the vesting period
described in Section 10 hereof will be suspended during the pendency of any bona
fide leave of absence approved by the Company and the vesting period will be
increased by the length of time of such leave of absence. Notwithstanding the
foregoing or anything in this Plan to the contrary, any Option which would, by
the operation of this paragraph, vest after the tenth anniversary of its
original Date of Grant shall terminate on the tenth anniversary of its original
Date of Grant and in no event shall an Optionee be permitted to exercise any
Option after the tenth anniversary of the original Date of Grant. For all
purposes of this Plan other than this paragraph, the "Date of Grant" and the
anniversaries thereof will be adjusted with respect to any such Options as
necessary to give effect to this paragraph. This paragraph shall have no effect
on Options which, by their terms, are vested prior to the first day of an
Optionee's leave of absence.
12. When Options May Be Exercised
-----------------------------
(a) Except as provided in subsections (b) and (c) of this Section 12, a
vested Option or the vested portion of any Option, shall be exercised, if at
all, by the Optionee at any time before: (i) with respect to an Optionee who was
a Partner on the Date of Grant, the seventh anniversary of its Date of Grant,
and (ii) with respect to an Optionee who was not a Partner on the Date of Grant,
the fifth anniversary of the Date of Grant.
(b) If an Optionee ceases to be an Employee for any reason, such
Optionee's vested Options must be exercised, if at all, not later than 90 days
following the date such Optionee ceases to be an Employee. Any unvested portion
of an Option terminates immediately upon the cessation of employment of the
Optionee holding the Option.
(c) The Company shall notify all Optionees of any transaction involving
the sale of all the Stock; such notice to be given at such time as the Company
determines under the circumstances, provided that the Optionee shall have a
reasonable time to consider and effect the Optionee's choices. With respect to
any Optionee who desires to exercise the vested portion or his or her Option
prior to such sale and who has so notified the Company, the Company may instead
pay such Optionee the excess of the amount received or to be received for the
subject shares over the amount that would have been received from such Optionee
upon the exercise of the vested portion of such Option. Vested Options or parts
thereof shall not be exercisable after the closing of such sale and Options,
vested or unvested, which are not exercised as provided above shall terminate
upon the closing of such sale.
6
<PAGE>
13. Exercise Price
--------------
The Exercise Price shall be (i) $2.00 per share for Options granted on or
before January 1, 1995, and (ii) an amount per share determined by the Board for
Options granted on or after January 2, 1995, until the earlier of an IPO or a
change directed by the Board. As of the Date of Grant, the Exercise Price shall
be equal to or greater than the Fair Market Value.
14. Exercise of Option
------------------
During the Optionee's lifetime, Options shall be exercisable only by the
Optionee or his legal representative or guardian. Options shall not be
exercisable by the spouse of any Optionee during such Optionee's lifetime,
unless such spouse is acting in his or her capacity as the legal representative
or guardian of the Optionee. In the event of the Optionee's death, the Option
shall be exercisable by the person or entity (including the Optionee's estate)
that has obtained the Optionee's rights under the Option by will or under the
laws of descent and distribution.
Options shall be exercised if at all, by submitting to the Company (a) a
Notice of Exercise in the form attached hereto as Exhibit A, (b) any other
written representations, covenants, and undertakings that the Company may
prescribe pursuant to the Shareholders Agreement or to satisfy securities laws
and regulations or other requirements, and (c) a certified or bank cashier's
check payable to the order of the Company in an amount equal to the full
purchase price of the shares to be purchased.
Upon receipt of the Notice of Exercise (subject to Sections 15, 16, and 17
of this Agreement), the Company shall issue a new certificate or certificates to
the holder of the Option. The certificate or certificates for the shares as to
which the Option shall have been exercised shall be registered in the name of
the holder of the Option and shall be delivered to or upon the written order of
the holder of the Option. The shares shall bear a legend substantially in the
following form:
"THE SHARES SUBJECT TO THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND VOTING
RESTRICTIONS SET FORTH IN [THE SHAREHOLDERS AGREEMENT]. COPIES OF [THE
SHAREHOLDERS AGREEMENT] ARE ON FILE IN THE OFFICE OF THE SECRETARY OF THE
CORPORATION. BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY THIS
CERTIFICATE, THE HOLDER AGREES TO BE BOUND BY EACH OF THE FOREGOING
AGREEMENTS AS IT MAY BE AMENDED FROM TIME TO TIME, AND BY ANY NEW
AGREEMENTS ENTERED INTO BY THE CORPORATION, WHICH COVER SOME OR ALL OF THE
MATTERS COVERED BY THE EXISTING AGREEMENTS AND WHICH SPECIFICALLY PROVIDE
THAT THEY SUPERSEDE ANY OR ALL OF THE EXISTING AGREEMENTS."
7
<PAGE>
15. Securities Law Restrictions
---------------------------
The Company shall not be obligated to issue any stock certificates
evidencing a transfer upon exercise of an Option, until, in the opinion of the
Company and its counsel, such transfer and issuance of stock certificates will
not involve any violation of applicable federal and state securities laws, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the Stock may then be listed. Acceptance of an Option by an
Optionee shall constitute the Optionee's agreement (binding on any person who
succeeds to the Optionee's rights and obligations under the Option Agreement by
reason of the Optionee's death) that, if the Stock is not publicly traded as of
the date the Option is exercised, any shares of Stock purchased upon the
exercise of the Option shall be acquired for the Optionee's own account and not
with a view to distribution and that each notice of the exercise of any portion
of the Option shall be accompanied by a written representation and covenant
signed by the Optionee, in such form as may be specified by the Company,
confirming such agreement and containing such other provisions as may be
prescribed by the Company. The Company may, at its election, release an Optionee
from the Optionee's agreement to take for the Optionee's own account and not
with a view to distribution of the shares of Stock purchased upon exercise of an
Option if, in the opinion of the Company, such covenant ceases to be necessary
for compliance with the applicable federal and state securities laws (including
the rules and regulations promulgated thereunder) and the requirements of any
stock exchange upon which the Stock may then be listed.
If the shares purchased upon exercise of an Option are not covered by an
effective registration statement under the Securities Act, the Company may place
the following legend (or a legend which is substantially similar to the
following legend) upon, and issue appropriate stock transfer instructions with
respect to, the certificate or certificates representing the shares transferred
upon exercise of the Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS (THE "STATE LAWS"), AND SUCH SHARES MAY
NOT BE TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND APPLICABLE STATE LAWS COVERING SUCH TRANSFER IS THEN IN EFFECT; OR
(B) AN OPINION OF COUNSEL, SATISFACTORY TO THE CORPORATION, HAS BEEN
FURNISHED STATING THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE LAWS."
16. Listing or Registration of Stock
--------------------------------
Each Option is subject to the requirement that, if at any time the
Committee shall determine, in its discretion, that the listing, registration or
qualification of the shares of Stock subject to the Option upon any securities
exchange or under any state or federal law, or the consent or approval of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting or exercise of the Option or the issuance or
purchase of
8
<PAGE>
shares under the Option, the Option may not be exercised in whole or in part
until such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Board.
The Company shall be under no obligation to effect or obtain any such listing,
registration, qualification, consent or approval if the Board shall determine,
in its discretion, that such action would not be in the best interests of the
Company. The Company shall not be liable for damages due to a delay in the
delivery or issuance of any stock certificates for any reason whatsoever,
including, but not limited to, a delay caused by listing, registration or
qualification of the shares of Stock subject to an Option under any securities
exchange or under any federal or state law, or by the effecting or obtaining of
any consent or approval of any governmental body with respect to the granting or
exercise if the Option or the issue or purchase of shares under the Option.
17. Withholding of Taxes
--------------------
The Committee shall make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of any taxes which the Company
is required by any law or regulation of any governmental authority, whether
federal, state or local, domestic or foreign, to withhold in connection with any
Option, including, but not limited to, the withholding of the issuance of all or
any portion of the shares of Stock subject to the Option until the holder of the
Option reimburses the Company for the amount required to be withheld with
respect to such taxes, cancelling any portion of the issuance of the shares of
Stock subject to the Option in an amount sufficient to reimburse the Company for
such amount, deducting from the Optionee's wages an amount sufficient to
reimburse the Company for such amount, or taking any other action reasonably
required to satisfy the withholding obligation of the Company.
18. Repurchase Option
-----------------
The Options and Option Shares are subject to the rights of the Company
and/or certain of the Employees to repurchase or acquire the Option Shares upon
the occurrence of certain events as prescribed in the Shareholders Agreement,
including but not limited to death or disability of the Optionee; cessation of
employment with the Company for any reason; or a transfer of the Option or
Option Shares, voluntarily, involuntarily or by operation of law.
19. IPO
---
Optionees shall cooperate in all respects with the Company in connection
with any proposed IPO or other registration of the Stock.
20. Modification of Options
-----------------------
At any time and from time to time the Committee may execute an
instrument providing for modification, extension, or renewal of any outstanding
Option, provided that no such modification, extension or renewal shall impair
the Option in any respect without the consent of the holder of the Option.
9
<PAGE>
21. Amendment and Termination of the Plan
-------------------------------------
The Committee may alter, suspend or discontinue the Plan, except that no
such action may increase the benefits accruing to Employees under the Plan,
increase (other than as provided in Section 4(a) hereof) the maximum number of
shares permitted to be issued upon the exercise of Options, or materially modify
the requirements as to eligibility for participation in the Plan unless such
action is subject to approval by the shareholders of the Company.
22. Shareholder Rights
------------------
A holder of an Option shall have none of the rights of a shareholder with
respect to the shares of Stock subject to the Option until the transfer of such
shares to him or her has been duly recorded on the stock transfer books of the
Company upon the exercise of the Option.
23. Continued Employment Not Presumed
---------------------------------
Nothing in the Plan or any document describing it nor the grant of and
Option shall give any Optionee the right to continue in employment with the
Company or affect the right of the Company to terminate the employment of any
Optionee with or without cause.
24. Effective Date
--------------
The foregoing Diamond Technology Partners, Inc. 1994 Stock Option Plan is
hereby adopted by the Company as of June 23, 1994.
Diamond Technology Partners Incorporated
By:
---------------------------------------
Melvyn E. Bergstein,
Chief Executive Officer and President
10
<PAGE>
EXHIBIT A
TO
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
1994 STOCK OPTION PLAN
(as amended and restated as of October 21, 1996)
NOTICE OF EXERCISE
(to be executed only upon exercise of the Option)
Reference is made to the Diamond Technology Partners Incorporated Option
Agreement, dated as of __________ ____, 1994 (the "Option Agreement"), between
Diamond Technology Partners Incorporated, a Delaware corporation (the
"Company");________________________ (the "Optionee"). Capitalized terms used
herein and otherwise defined have the meanings assigned to such terms in the
Option Agreement.
(a) The Optionee hereby irrevocably exercises the option for and Purchases
______________ shares of Stock.
(b) The full purchase price for the shares of Stock being purchased
hereunder, calculated in accordance with the Option Agreement, is $____________,
and the Optionee is delivering to the Company simultaneously with the delivery
of this Notice of Exercise a certified or bank cashier's check payable to the
order of the Company in such amount.
(c) The shares of Stock being purchased hereunder are being acquired for
the Optionee's own account and not with a view to distribution thereof in
violation of applicable Federal or state securities laws.
(d) The Optionee hereby agrees to be bound, with respect to the shares of
Stock being purchased hereunder, by the Shareholders Agreement and agrees to
execute or adopt such Shareholders Agreement as prescribed by the Company, as a
condition to receipt of the Stock.
(e) The Optionee requests that certificates for the shares of Stock being
purchased hereunder be issued in the name of and delivered to the Optionee at
the following address:
---------------------------
---------------------------
---------------------------
---------------------------
Dated as of
------------------ ----------------------------------
(Signature)
----------------------------------
(Name)
----------------------------------
(Signature of Spouse)
----------------------------------
(Name)
<PAGE>
AMENDMENT NUMBER ONE
TO
AMENDED AND RESTATED
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
1994 STOCK OPTION PLAN
1. Reference to Plan
-----------------
Reference is hereby made to that certain Amended and Restated Diamond
Technology Partners, Inc. 1994 Stock Option Plan (the "Plan"); as used herein,
the term Plan shall refer to the Plan as amended hereby. The terms used herein
which are defined in the Plan shall have the meanings provided for in the Plan,
unless otherwise defined herein. Except as expressly modified hereby, all of the
terms and provisions of the Plan shall continue in full force and effect.
2. Governance of Plan by Board
---------------------------
Subsection (c) of Section 2 of the Plan is hereby amended so as to read as
follows:
(c) "Committee" shall mean the Board, as constituted from time to
time, which is responsible for administering the Plan as set forth in
Section 6 hereof, or any committee designated by resolution of the Board
which shall succeed to the responsibility of administering the Plan.
3. Shares Subject to the Plan
--------------------------
The first paragraph of Section 3 of the Plan is hereby amended so as to
read in its entirety as follows:
Except as provided in Section 4(a) hereof, the aggregate amount of
Stock for which Options may be granted shall not exceed ____________ shares
less (at the time of the grant of any Option): (i) all shares theretofore
issued, and all shares subject to options theretofore granted, to any party
other than the Investor Group or any member thereof or transferee
therefrom; and (ii) all other shares subject to any Option.
4. Effective Date
--------------
This Amendment to the Plan is hereby adopted by the Board of Directors, as
of the 28th day of January, 1997.
Diamond Technology Partners Incorporated
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
Diamond Technology Partners, Inc. ("Diamond Technology") and Melvin E.
Bergstein ("Employee") enter into this Employment Agreement ("Agreement") dated
February 1, 1994 (the "Effective Date").
In consideration of the agreements and covenants contained in the
Agreement, Diamond Technology and Employee agree as follows:
1. Employment Duties. Diamond Technology shall employ Employee as an
-----------------
officer of Diamond Technology and be identified within the organization as a
"Partner." Employee shall have such responsibilities, duties and authority,
consistent with those of an executive employee, as may be assigned to him/her by
Diamond Technology's management, officers and partners ("Management") and agrees
to perform such duties as Diamond Technology may from time-to-time request. In
addition, Employee shall, at the direction of Management, participate in the
administration and execution of Diamond Technology's policies, business affairs,
and operations. Employee shall perform faithfully the duties assigned to him/her
and shall devote his/her full and undivided time and attention and his/her best
efforts to the business of Diamond Technology.
2. Salary. As compensation for Employee's services, Diamond Technology
------
shall initially credit to Employee a level of base compensation at the annual
rate listed in Exhibit A to this Agreement: a portion of the Employee's base
compensation will be paid to him/her at Diamond Technology's regular executive
payroll intervals, and the balance will be deferred and the payment thereof will
be subject to various qualifications and conditions as set forth in the Diamond
Technology's Partners' Operation Agreement dated March 22, 1994 ("the Partners'
Operating Agreement"). Employee's base compensation shall be subject to annual
review and may, in accordance with the Partner's Operating Agreement be adjusted
at the time of such reviews or at any other time or times according to
Employee's responsibilities, capabilities and performance.
3. Bonus. Diamond Technology may elect to pay annual bonuses. It is
-----
presently contemplated that Partners subject to a deferral of a portion of
salary will not be eligible to earn bonuses. The decision to pay any bonuses and
the actual payment of such bonuses, if any, shall be at the sole discretion of
Diamond Technology.
4. Employee Benefits. During the period of his/her employment, Employee
-----------------
shall be entitled to participate in such employee benefit plans, including group
pension, life and health insurance and other medical benefits, and shall receive
such other fringe benefits, as Diamond Technology may make available generally
to Partners.
<PAGE>
5. Business Expenses. Diamond Technology shall reimburse Employee for
-----------------
all reasonable and necessary business expenses incurred by Employee in
performing his/her duties. Employee shall provide Diamond Technology with
supporting documentation sufficient to satisfy reporting requirements of the
Internal Revenue Service and Diamond Technology. Diamond Technology's
determination as to reasonableness and necessity shall be final.
6. Non-Disclosure and Non-Competition. Employee acknowledges that the
----------------------------------
successful marketing and development of Diamond Technology's professional
services and products requires substantial time and expense. Such efforts
utilize and generate valuable confidential and proprietary information, of which
Employee will obtain knowledge. As used herein, "Confidential Information"
means any information of Diamond Technology that Diamond Technology considers to
be proprietary and treats as confidential or information of any third party that
Diamond Technology is under an obligation to keep confidential, including, but
not limited to, the following: inventions, products, business strategies,
plans, proposals, deliverables, prospect and customer lists, methodologies,
training materials, computer software, documents, models, source code, designs,
know how, techniques, systems, processes, works of authorship, projects, plans,
proposals and flow charts, and listings of any or all of the foregoing. All
Confidential Information is and shall at all times remain the exclusive property
of Diamond Technology. Confidential Information does not include: (i)
information that at the time of disclosure is in the public domain through no
fault of Employee's; (ii) information received from a third party outside of
Diamond Technology that was disclosed without a breach of any confidentiality
obligation; (iii) information approved for release by written authorization of
Diamond Technology; or (iv) information that may be required by law or an order
of any court, agency or proceeding to be disclosed. Employee agrees to
undertake the following obligations, which he/she acknowledges to be reasonably
designed to protect Diamond Technology's legitimate business interests without
unnecessarily or unreasonably restricting Employee's post-employment
opportunities:
(a) Employee agrees that he/she will not at any time, whether
during or after the cessation of his/her employment, reveal to any person or any
entity any of the Confidential Information, except, and only to the extent, as
may be required in the ordinary course of performing Employee's assigned duties
as an employee of Diamond Technology, and Employee agrees to keep secret, and
take all necessary precautions against disclosure of, all Confidential
Information and all matters entrusted to him/her and not to use or attempt to
use any Confidential Information in any manner that may cause injury or loss, or
may be calculated to cause injury or loss, whether directly or indirectly, to
the Company or its clients;
(b) Employee agrees that during his/her employment he/she shall not
take, use or permit to be used any notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other materials of any nature relating to any matter within the scope of the
business of Diamond Technology or
-2-
<PAGE>
concerning any of its dealings or affairs otherwise than for the benefit of
Diamond Technology;
(c) Upon cessation of his/her employment relationship with
Diamond Technology, Employee shall deliver to Diamond Technology all
Confidential Information and other materials in his/her possession or delivered
to him/her by Diamond Technology, including but not limited to computer
programs, files, notes, records, memoranda, reports, lists, drawings, sketches,
specifications, data, charts and other documents, materials and things
("Materials"), whether or not containing Confidential Information, prepared by
Employee in connection with his/her employment by Diamond Technology, it being
agreed that all Materials shall be and remain the sole and exclusive property of
Diamond Technology;
(d) Without limiting the obligations of paragraph 6(c), Employee
agrees that while Employee is employed by Diamond Technology and for a period of
eighteen months following cessation of his/her employment relationship with
Diamond Technology, he/she will not, whether alone or as owner, partner,
officer, director, consultant, agent, employee independent contractor, or
stockholder of any firm, corporation or other commercial enterprise, directly or
indirectly solicit engagements with: (i) any client of Diamond Technology for
whom Diamond Technology performed services within the one year period preceding
his/her cessation of employment, or (ii) any current client prospect of Diamond
Technology for whom Employee directly or indirectly assisted in the preparation
or submission of a proposal made by Diamond Technology to such client prospect
during the one year period preceding his/her cessation of employment, unless
Diamond Technology acknowledges in writing its intent not to further pursue such
client prospect; Employee shall, however, be permitted to own securities of any
public company not in excess of five percent (5%) of any class of such
securities and to own stock, partnership interests or other securities of any
non-public entity not in excess of five percent (5%) of any class of such
securities, and such ownership shall not be considered to be in competition with
Diamond Technology;
(e) While employed and during the eighteen month period
immediately following cessation of Employee's employment relationship with
Diamond Technology for any reason, Employee shall not, directly or indirectly,
solicit any employee of Diamond Technology to work for any person, partnership
or entity other than Diamond Technology, or engage in any activity that would
cause any employee to violate any agreement with Diamond Technology, or
dissuade, or attempt to dissuade, any such employee from faithfully discharging
such employee's contractual and fiduciary obligations to serve Diamond
Technology's interests with undivided loyalty.
(7) Remedies. Employee recognizes and agrees that a breach of any or
--------
all of the provisions of paragraph 6 will constitute immediate and irreparable
harm to Diamond Technology of which damages cannot be readily calculated and for
which damages are an inadequate remedy. Accordingly, Employee acknowledges that
in addition to any and all
-3-
<PAGE>
remedies at law, Diamond Technology shall be entitled to specific performance or
injunctive or other equitable relief to prevent the violation of Employee's
obligations under this Agreement.
8. Intellectual Property. During the employment period, Employee shall
---------------------
disclose immediately to Diamond Technology all ideas, inventions and business
plans that he/she makes, conceives, discovers or develops during the course of
his/her employment with Diamond Technology, including but not limited to any
inventions, modifications, discoveries, developments, improvements, computer
programs, processes, products or procedures (whether or not protectable upon
application by copyright, patent trademark, trade secret or other proprietary
rights) ("Work Product") that: (i) relate to the business of Diamond Technology
or any customer or supplier to Diamond Technology or any of the products or
services being developed, manufactured, sold or otherwise provided by Diamond
Technology or that may be used in relation therewith; or (ii) result from tasks
assigned to Employee by Diamond Technology; or (iii) result from the use of the
premises or personal property (whether tangible or intangible) owned, leased or
contracted for by Diamond Technology. Employee agrees that any Work Product
shall be the property or Diamond Technology and, if subject to copyright, shall
be considered a "work made for hire" within the meaning of the Copyright Act of
1976, as amended (the "Act"). If and to the extent that any such Work Product is
found as a matter of law not be a "work made for hire" within the meaning of the
Act, Employee expressly assigns to Diamond Technology all right, title and
interest in and to the Work Product, and all copies thereof, and the copyright,
patent, trademark, trade secret and all their proprietary rights in the Work
Product, without further consideration, free from any claim, lien for balance
due or rights of retention thereto on the part of Employee.
Employee agrees that upon disclosure of Work Product to Diamond
Technology, Employee will, during his/her employment and at any time thereafter,
at the request and cost of Diamond Technology, execute all such documents and
perform all such acts as Diamond Technology or its duly authorized agents may
reasonably require: (i) to apply for, obtain and vest in the name of Diamond
Technology alone (unless Diamond Technology otherwise directs) letters patent,
copyrights or other analogous protection in any country throughout the world,
and when so obtained or vested to renew and restore the same; and (ii) to defend
any opposition proceedings in respect of such applications and any opposition
proceedings or petitions or applications for revocation of such letters patent,
copyright or other analogous protection.
In the event that Diamond Technology is unable, after reasonable effort,
to secure Employee's signature on any letters patent, copyright or other
analogous protection relating to Work Product, whether because of Employee's
physical or mental incapacity or for any other reason whatsoever, Employee
hereby irrevocably designates and appoints Diamond Technology and its duly
authorized officers and agents as his/her agent and attorney-in-fact, to act for
on his/her behalf to execute and file any such application or applications and
to do all other lawfully permitted acts to further the prosecution and
-4-
<PAGE>
issuance of letters patent, copyright and other analogous protection with the
same legal force and effect as if personally executed by Employee.
9. Costs and Expenses of Enforcement. Employee agrees to reimburse
---------------------------------
Diamond Technology for all costs and expenses, including reasonable attorney's
fees, incurred by Diamond Technology in connection with the enforcement of its
rights under any provision of this Agreement; provided, however, that Diamond
Technology agrees to seek reimbursement only for matters, including acts or
omissions (whether direct or indirect), done knowingly, willfully or
intentionally in disregard of Employee's obligations under this Agreement.
10. Indemnity. Provided that Employee performs all of his duties and
---------
obligations under this Agreement, Diamond Technology agrees to defend, indemnify
and hold Employee harmless from and against all damages, liability and expenses,
including reasonable attorney's fees, arising as a result of claims brought
against Employee by his/her latest employer preceding his/her employment with
Diamond Technology ("Previous Employer"): (i) alleging any breach, for the
benefit of Diamond Technology, of Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous Employer;
(ii) based upon Diamond Technology's hiring of Employee; or (iii) that are
deemed by Diamond Technology, in its sole discretion, to be frivolous or
harassing. Notwithstanding the foregoing, Diamond Technology shall have no
indemnification obligations under this Agreement or otherwise in respect of any
willful or intentional breach of the Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous Employer.
11. Assignment. Employee acknowledges that the services to be
----------
rendered pursuant to this Agreement are unique and personal. Accordingly,
Employee may not assign any of his/her rights or delegate any of his/her duties
or obligations under this Agreement. Diamond Technology may assign its this
agreement to its successors or assigns, or to a subsidiary or to a purchaser or
transferee of all, or substantially all, of the assets of Diamond Technology,
and all covenants and agreements of Employee under this Agreement shall inure to
the benefit of and be enforceable by such successors, assigns, subsidiaries,
purchasers or transferees.
12. Notices. All notices hereunder shall be in writing. Notices
-------
intended for Diamond Technology shall be sent by registered or certified mail
addressed to Diamond Technology at 444 North Michigan Avenue, Suite 3600,
Chicago, Illinois 60611, or its current principal office, and notices intended
for Employee shall be either delivered personally to him/her or sent by
registered or certified mail addressed to his/her last known address.
13. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between Diamond Technology and Employee with respect to the subject
matter hereof and supersedes any and all other prior or contemporary oral or
written representations or
-5-
<PAGE>
agreements between the parties regarding such subject matter; however, it is
mutually acknowledged that the parties may enter into a Partners' Operating
Agreement governing the relationships among the Partners, including certain
matters relating to compensation and to the payment of the deferred portion of
base compensation. Subsequent to the Effective Date, this Agreement specifically
supersedes any prior non-disclosure agreement executed by Employee; provided,
however, that the terms and conditions of any such prior agreement remain in
full force and effect for the period between execution of such agreement and the
Effective Date of this Agreement. Neither Employee nor Diamond Technology may
modify this Agreement by oral agreements, promises or representations. The
parties may modify this Agreement only by a written instrument executed by both
parties.
14. Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of Illinois. Diamond
Technology and Employee consent to jurisdiction and venue only in the Circuit
Court of Cook County, Illinois, or the Federal District Court for the Northern
District of Illinois.
15. Severability. Employee acknowledges that the type and periods
------------
of restriction imposed in the provisions of this Agreement are fair and
reasonable and are reasonably required for the protection of Diamond Technology
and the goodwill associated with the business of Diamond Technology. Each
provision herein shall be treated as a separate and independent clause, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses herein. If any provision contained in this Agreement
shall for any reason be held to be prohibited by, or invalid under, applicable
law, or to be excessively broad as to scope, activity or subject so as to be
unenforceable at law, such provision shall be construed to be ineffective only
to the extent of such prohibition without invalidating the remainder of such
provision or the remaining provisions of this Agreement or, in the case of a
provision found to be excessively broad, by limiting and reducing such provision
so as to permit such provision to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear.
16. Waiver. The failure of Diamond Technology to exercise any right
------
hereunder shall not operate or be construed as a waiver of any right hereunder.
Employee's obligations under this Agreement shall survive the cessation of
employment regardless of the manner of such termination and shall be binding on
Employee's heirs, executors, administrators and legal representatives.
17. No Term of Employment. As revised, nothing in this Agreement
---------------------
shall be deemed to create any term of employment, it being expressly understood
and agreed that Employee's employment is at will and that either party may
terminate such employment at any time.
-6-
<PAGE>
18. Acknowledgment. Employee acknowledges that he/she has read and
--------------
understood, and accepts, the provisions of this Agreement.
EMPLOYEE
/s/ Melvyn E. Bergstein
---------------------------
Melvyn E. Bergstein
DIAMOND TECHNOLOGY PARTNERS, INC.
By: /s/ Melvyn E. Bergstein
-----------------------
-7-
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BASE SALARY: $600,000; subject to paragraph D of the Partners'
Operating Agreement incorporated herein by this reference.
-8-
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
BY AND BETWEEN
DIAMOND TECHNOLOGY PARTNERS, INC.
AND EMPLOYEE
Diamond Technology Partners, Inc. ("Diamond Technology") and Melvyn E.
Bergstein ("Employee") enter into this Amendment to Employment Agreement
("Amendment").
In consideration of the agreements and covenants contained in the
Employment Agreement and this Amendment, and to effect Diamond Technology's
indemnification of Employee as herein set forth, Diamond Technology and Employee
agree as follows:
1. Paragraph 10 of the Agreement, entitled "Indemnity" is hereby
stricken and the following language is hereby substituted in its
stead:
Indemnity. Provided that Employee performs all of his duties and
---------
obligations under this Agreement, Diamond Technology agrees to
defend, indemnify and hold Employee harmless from and against all
damages, liability and expenses, including reasonable attorney's
fees, arising as a result of: (a) claims brought against Employee by
his/her latest Employee preceding his/her employment with Diamond
Technology ("Previous Employer") (i) alleging any breach, for the
benefit of Diamond Technology, of Employee's obligations to the
Previous Employer with respect to Confidential Information of the
Previous Employer, (ii) based upon Diamond Technology's hiring of
Employee; or (iii) that are deemed by Diamond Technology, in its sole
discretion, to be frivolous or harassing; or (b) claims brought by
any client of Diamond Technology alleging the breach of any duty owed
by Diamond Technology or Employee to such client. Notwithstanding the
foregoing, Diamond Technology shall have no indemnification
obligations: (x) under clause (a) of the preceding sentence of this
Paragraph 10, or otherwise in respect of any willful or intentional
misconduct or breach of the Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous
Employer; or (y) under clause (b) of the preceding sentence of this
Paragraph 10, or otherwise, in respect of any willful or intentional
misconduct or breach by the Employee of the Employee's obligations to
Diamond Technology; or (z) arising from or relating to any Employee
action that is outside the scope of his/her employment.
<PAGE>
2. Acknowledgment. Employee acknowledges that he/she has read and
--------------
understood, and accepts, the provisions of this Amendment.
Dated: August 19, 1994
EMPLOYEE
/s/ Melvyn E. Bergstein
--------------------------------
Melvyn E. Bergstein
DIAMOND TECHNOLOGY PARTNERS, INC.
By: /s/ Melvyn E. Bergstein
-----------------------------
Melvyn E. Bergstein
<PAGE>
AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT
BY AND BETWEEN
DIAMOND TECHNOLOGY PARTNERS, INC.
AND EMPLOYEE
This is an amendment ("Amendment"), dated as of November 30, 1994, to a
certain Employment Agreement dated February 1, 1994, between Diamond Technology
Partners, Inc. ("Diamond Technology") and Melvyn E. Bergstein ("Employee"), as
previously amended (the "Employment Agreement").
In consideration of the agreements and covenants contained in the
Employment Agreement and this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Diamond Technology and Employee agree as follows:
1. The Employment Agreement is hereby amended by adding thereto a
new paragraph 18, which shall read as follows:
"18. Charitable Contributions.
------------------------
(a) Effective April 1, 1995, Employee will contribute
in each calendar year during his/her employment with Diamond Technology,
at least two percent (2%) of Employee's gross base compensation in
effect for the then current calendar year, to charities approved by the
Operations Committee (as defined in the Partners' Operating Agreement).
All such contributions will be made pursuant to policies established
from time to time by the Operations Committee. Employee authorizes
Diamond Technology to make any deductions, including, without
limitation, periodic deductions, from base compensation payable to
Employee, in accordance with such policies.
(b) The Operations Committee will approve charities on
an ongoing basis from time to time and will publish the list of approved
charities. Employee may request approval for charities not already on
the list of approved charities from the Operations Committee no later
than thirty (30) days prior to the end of any calendar year for
contributions made during that year.
(c) Diamond Technology will match, up to two percent
(2%) of Employee's gross base compensation, the amount of any
contributions made by, or directed to be made on behalf of, the Employee
to any colleges or universities where Diamond Technology recruits or
intends to recruit for new employees. The Operations Committee will
maintain and publish a list of such colleges and universities. The
Operations Committee may from time to time limit or eliminate Diamond
Technology's matching contribution obligation if it determines that to
do so would be in the best business interests of Diamond Technology.
<PAGE>
2. Acknowledgement. Employee acknowledges that he/she has read and
---------------
understood, and accepts, the provisions of this Amendment.
IN WITNESS WHEREOF, the undersigned have executed this Amendment Number
Two to Employment Agreement by and between Diamond Technology Partners, Inc. and
Employment as of the date first written above.
EMPLOYEE
[SIGNATURE APPEARS HERE]
---------------------------------
DIAMOND TECHNOLOGY PARTNERS, INC.
By: [SIGNATURE APPEARS HERE]
-----------------------------
As its:
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
Diamond Technology Partners, Inc. ("Diamond Technology") and Michael
Mikolajczyk ("Employee") enter into this Employment Agreement ("Agreement")
dated April 18, 1994 (the "Effective Date").
In consideration of the agreements and covenants contained in the
Agreement, Diamond Technology and Employee agree as follows:
1. Employment Duties. Diamond Technology shall employ Employee as an
-----------------
officer of Diamond Technology and be identified within the organization as a
"Partner." Employee shall have such responsibilities, duties and authority,
consistent with those of an executive employee, as may be assigned to him/her by
Diamond Technology's management, officers and partners ("Management") and agrees
to perform such duties as Diamond Technology may from time-to-time request. In
addition, Employee shall, at the direction of Management, participate in the
administration and execution of Diamond Technology's policies, business affairs,
and operations. Employee shall perform faithfully the duties assigned to him/her
and shall devote his/her full and undivided time and attention and his/her best
efforts to the business of Diamond Technology.
2. Salary. As compensation for Employee's services, Diamond Technology
------
shall initially credit to Employee a level of base compensation at the annual
rate listed in Exhibit A to this Agreement: a portion of the Employee's base
compensation will be paid to him/her at Diamond Technology's regular executive
payroll intervals, and the balance will be deferred and the payment thereof will
be subject to various qualifications and conditions as set forth in the Diamond
Technology's Partners' Operation Agreement dated March 22, 1994 ("the Partners'
Operating Agreement"). Employee's base compensation shall be subject to annual
review and may, in accordance with the Partner's Operating Agreement be adjusted
at the time of such reviews or at any other time or times according to
Employee's responsibilities, capabilities and performance.
3. Bonus. Diamond Technology may elect to pay annual bonuses. It is
-----
presently contemplated that Partners subject to a deferral of a portion of
salary will not be eligible to earn bonuses. The decision to pay any bonuses and
the actual payment of such bonuses, if any, shall be at the sole discretion of
Diamond Technology.
4. Employee Benefits. During the period of his/her employment, Employee
-----------------
shall be entitled to participate in such employee benefit plans, including group
pension, life and health insurance and other medical benefits, and shall receive
such other fringe benefits, as Diamond Technology may make available generally
to Partners.
<PAGE>
5. Business Expenses. Diamond Technology shall reimburse Employee for
-----------------
all reasonable and necessary business expenses incurred by Employee in
performing his/her duties. Employee shall provide Diamond Technology with
supporting documentation sufficient to satisfy reporting requirements of the
Internal Revenue Service and Diamond Technology. Diamond Technology's
determination as to reasonableness and necessity shall be final.
6. Non-Disclosure and Non-Competition. Employee acknowledges that the
----------------------------------
successful marketing and development of Diamond Technology's professional
services and products requires substantial time and expense. Such efforts
utilize and generate valuable confidential and proprietary information, of which
Employee will obtain knowledge. As used herein, "Confidential Information"
means any information of Diamond Technology that Diamond Technology considers to
be proprietary and treats as confidential or information of any third party that
Diamond Technology is under an obligation to keep confidential, including, but
not limited to, the following: inventions, products, business strategies,
plans, proposals, deliverables, prospect and customer lists, methodologies,
training materials, computer software, documents, models, source code, designs,
know how, techniques, systems, processes, works of authorship, projects, plans,
proposals and flow charts, and listings of any or all of the foregoing. All
Confidential Information is and shall at all times remain the exclusive property
of Diamond Technology. Confidential Information does not include: (i)
information that at the time of disclosure is in the public domain through no
fault of Employee's; (ii) information received from a third party outside of
Diamond Technology that was disclosed without a breach of any confidentiality
obligation; (iii) information approved for release by written authorization of
Diamond Technology; or (iv) information that may be required by law or an order
of any court, agency or proceeding to be disclosed. Employee agrees to undertake
the following obligations, which he/she acknowledges to be reasonably designed
to protect Diamond Technology's legitimate business interest without
unnecessarily or unreasonably restricting Employee's post-employment
opportunities:
(a) Employee agrees that he/she will not at any time, whether during
or after the cessation of his/her employment, reveal to any person or any entity
any of the Confidential Information, except, and only to the extent, as may be
required in the ordinary course of performing Employee's assigned duties as an
employee of Diamond Technology, and Employee agrees to keep secret, and take all
necessary precautions against disclosure of, all Confidential Information and
all matters entrusted to him/her and not to use or attempt to use any
Confidential Information in any manner that may cause injury or loss, or may be
calculated to cause injury or loss, whether directly or indirectly, to the
Company or its clients;
(b) Employee agrees that during his/her employment he/she shall not
take, use or permit to be used any notes, memoranda, reports, lists, records,
drawings, sketches, specifications, software programs, data, documentation or
other materials of any nature relating to any matter within the scope of the
business of Diamond Technology or
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<PAGE>
concerning any of its dealings or affairs otherwise than for the benefit of
Diamond Technology;
(c) Upon cessation of his/her employment relationship with
Diamond Technology, Employee shall deliver to Diamond Technology all
Confidential Information and other materials in his/her possession or delivered
to him/her by Diamond Technology, including but not limited to computer
programs, files, notes, records, memoranda, reports, lists, drawings, sketches,
specifications, data, charts, and other documents, materials and things
("Materials"), whether or not containing Confidential Information, prepared by
Employee in connection with his/her employment by Diamond Technology, it being
agreed that all Materials shall be and remain the sole and exclusive property of
Diamond Technology;
(d) Without limiting the obligations of paragraph 6(c), Employee
agrees that while Employee is employed by Diamond Technology and for a period of
eighteen months following cessation of his/her employment relationship with
Diamond Technology, he/she will not, whether alone or as owner, partner,
officer, director, consultant, agent, employee independent contractor, or
stockholder of any firm, corporation or other commercial enterprise, directly or
indirectly solicit engagements with: (i) any client of Diamond Technology for
whom Diamond Technology performed services within the one year period preceding
his/her cessation of employment, or (ii) any current client prospect of Diamond
Technology for whom Employee directly or indirectly assisted in the preparation
or submission of a proposal made by Diamond Technology to such client prospect
during the one year period preceding his/her cessation of employment, unless
Diamond Technology acknowledges in writing its intent not to further pursue such
client prospect; Employee shall however, be permitted to own securities of any
public company not in excess of five percent (5%) of any class of such
securities and to own stock, partnership interests or other securities of any
non-public entity not in excess of five percent (5%) of any class of such
securities, and such ownership shall not be considered to be in competition with
Diamond Technology;
(c) While employed and during the eighteen month period
immediately following cessation of Employee's employment relationship with
Diamond Technology for any reason, Employee shall not, directly or indirectly,
solicit any employee of Diamond Technology to work for any person, partnership
or entity other than Diamond Technology, or engage in any activity that would
cause any employee to violate any agreement with Diamond Technology, or
dissuade, or attempt to dissuade, any such employee from faithfully discharging
such employee's contractual and fiduciary obligations to serve Diamond
Technology's interests with undivided loyalty.
7. Remedies. Employee recognizes and agrees that a breach of any
--------
or all of the provisions of paragraph 6 will constitute immediate and
irreparable harm to Diamond Technology for which damages cannot be readily
calculated and for which damages are an inadequate remedy. Accordingly,
Employee acknowledges that in addition to any and all
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remedies at law, Diamond Technology shall be entitled to specific performance or
injunctive or other equitable relief to prevent the violation of Employee's
obligations under this Agreement.
8. Intellectual Property. During the employment period, Employee shall
---------------------
disclose immediately to Diamond Technology all ideas, inventions and business
plans that he/she makes, conceives, discovers or develops during the course of
his/her employment with Diamond Technology, including but not limited to any
inventions, modifications, discoveries, developments, improvements, computer
programs, processes, products or procedures (whether or not protectable upon
application by copyright trademark, trade secret or other proprietary rights)
("Work Product") that: (i) relate to the business of Diamond Technology or any
customer or supplier to Diamond Technology or any of the products or services
being developed, manufactured, sold or otherwise provided by Diamond Technology
or that may be used in relation therewith; or (ii) result from tasks assigned to
Employee by Diamond Technology; or (iii) result from the use of the premises or
personal property (whether tangible or intangible) owned, leased or contracted
for by Diamond Technology. Employee agrees that any Work Product shall be the
property of Diamond Technology and, if subject to copyright, shall be considered
a "work made for hire" within the meaning of the Copyright Act of 1976, as
amended (the "Act"). If and to the extent that any such Work Product is found as
a matter of law not to be a "work made for hire" within the meaning of the Act,
Employee expressly assigns to Diamond Technology all right, title and interest
in and to the Work Product, and all copies thereof, and the copyright, patent,
trademark, trade secret and all their proprietary rights in the Work Product,
without further consideration, free from any claim, lien for balance due or
rights of retention thereto on the part of Employee.
Employee agrees that upon disclosure of Work Product to Diamond
Technology, Employee will, during his/her employment and at any time thereafter,
at the request and cost of Diamond Technology, execute all such documents and
perform all such acts as Diamond Technology or its duly authorized agents may
reasonably require: (i) to apply for, obtain and vest in the name of Diamond
Technology alone (unless Diamond Technology otherwise directs) letters patent,
copyrights or other analogous protection in any country throughout the world,
and when so obtained or vested to renew and restore the same; and (ii) to defend
any opposition proceedings in respect of such applications and any opposition
proceedings or petitions or applications for revocation of such letters patent,
copyright or other analogous protection.
In the event that Diamond Technology is unable, after reasonable effort,
to secure Employee's signature on any letters patent, copyright or other
analogous protection relating to Work Product, whether because of Employee's
physical or mental incapacity or for any other reason whatsoever, Employee
hereby irrevocably designates and appoints Diamond Technology and its duly
authorized officers and agents as his/her agent and attorney-in-fact, to act for
and on his/her behalf to execute and file any such application or applications
and to do all other lawfully permitted acts to further the prosecution and
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<PAGE>
issuance of letters patent, copyright and other analogous protection with the
same legal force and effect as if personally executed by Employee.
9. Costs and Expenses of Enforcement. Employee agrees to reimburse
---------------------------------
Diamond Technology for all costs and expenses, including reasonable attorneys'
fees, incurred by Diamond Technology in connection with the enforcement of its
rights under any provision of this Agreement; provided, however, that Diamond
Technology agrees to seek reimbursement only for matters, including acts or
omissions (whether direct or indirect), done knowingly, willfully or
intentionally in disregard of Employee's obligations under this Agreement.
10. Indemnity. Provided that Employee performs all of his duties and
---------
obligations under this Agreement, Diamond Technology agrees to defend, indemnify
and hold Employee harmless from and against all damages, liability and expenses,
including reasonable attorney's fees, arising as a result of claims brought
against Employee by his/her latest employer preceding his/her employment with
Diamond Technology ("Previous Employer"): (i) alleging any breach, for the
benefit of Diamond Technology, of Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous Employer; (ii)
based upon Diamond Technology's hiring of Employee; or (iii) that are deemed by
Diamond Technology, in its sole discretion, to be frivolous or harassing.
Notwithstanding the foregoing, Diamond Technology shall have no indemnification
obligations under this Agreement or otherwise in respect of any willful or
intentional breach of the Employee's obligations to the Previous Employer with
respect to Confidential Information of the Previous Employer.
11. Assignment. Employee acknowledges that the services to be rendered
----------
pursuant to this Agreement are unique and personal. Accordingly, Employee may
not assign any of his/her rights or delegate any of his/her duties or
obligations under this Agreement. Diamond Technology may assign its this
Agreement to its successors or assigns, or to a subsidiary or to a purchaser or
transferee of all, or substantially all, of the assets of Diamond Technology,
and all covenants and agreements of Employee under this Agreement shall inure to
the benefit of and be enforceable by such successors, assigns, subsidiaries,
purchasers or transferees.
12. Notices. All notices hereunder shall be in writing. Notices
-------
intended for Diamond Technology shall be sent by registered or certified mail
addressed to Diamond Technology at 444 North Michigan Avenue, Suite 3600,
Chicago, Illinois 60611, or its current principal office, and notices intended
for Employee shall be either delivered personally to him/her or sent by
registered or certified mail addressed to his/her last known address.
13. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Diamond Technology and Employee with respect to the subject matter
hereof and supersedes any and all other prior or contemporary oral or written
representations or
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<PAGE>
agreements between the parties regarding such subject matter; however, it is
mutually acknowledged that the parties may enter into a Partners' Operating
Agreement governing the relationships among the Partners, including certain
matters relating to compensation and to the payment of the deferred portion of
base compensation. Subsequent to the Effective Date, this Agreement
specifically supersedes any prior non-disclosure agreement executed by Employee;
provided, however, that the terms and conditions of any such prior agreement
remain in full force and effect for the period between execution of such
agreement and the Effective Date of this Agreement. Neither Employee nor
Diamond Technology may modify this Agreement by oral agreements, promises or
representations. The parties may modify this Agreement only by a written
instrument executed by both parties.
14. Applicable Law. This Agreement shall be governed by, and construed
--------------
in accordance with, the laws of the State of Illinois. Diamond Technology and
Employee consent to jurisdiction and venue only in the Circuit Court of Cook
County, Illinois, or the Federal District Court for the Northern District of
Illinois.
15. Severability. Employee acknowledges that the type and periods of
------------
restriction imposed in the provisions of this Agreement are fair and reasonable
and are reasonably required for the protection of Diamond Technology and the
goodwill associated with the business of Diamond Technology. Each provision
herein shall be treated as a separate and independent clause, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses herein. If any provision contained in this Agreement
shall for any reason be held to be prohibited by, or invalid under, applicable
law, or to be excessively broad as to scope, activity or subject so as to be
unenforceable at law, such provision shall be construed to be ineffective only
to the extent of such prohibition without invalidating the remainder of such
provision or the remaining provisions of this Agreement or, in the case of a
provision found to be excessively broad, by limiting and reducing such provision
so as to permit such provision to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear.
16. Waiver. The failure of Diamond Technology to exercise any right
------
hereunder shall not operate or be construed as a waiver of any right hereunder.
Employee's obligations under this Agreement shall survive the cessation of
employment regardless of the manner of such termination and shall be binding on
Employee's heirs, executors administrators and legal representatives.
17. No Term of Employment. As revised, nothing in this Agreement shall
---------------------
be deemed to create any term of employment, it being expressly understood and
agreed that Employee's employment is at will and that either party may terminate
such employment at any time.
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18. Acknowledgment. Employee acknowledges that he/she has read and
---------------
understood, and accepts, the provisions of this Agreement.
EMPLOYEE
/s/ Michael Mikolajczyk
--------------------------------------
Michael Mikolajczyk
DIAMOND TECHNOLOGY PARTNERS, INC.
By: [SIGNATURE APPEARS HERE]
-----------------------------------
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<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BASE SALARY: $400,000; subject to paragraph D of the Partners'
Operating Agreement incorporated herein by this reference.
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<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
BY AND BETWEEN
DIAMOND TECHNOLOGY PARTNERS, INC.
AND EMPLOYEE
Diamond Technology Partners, Inc. ("Diamond Technology") and Michael E.
Mikolajczyk ("Employee") enter into this Amendment to Employment Agreement
("Amendment").
In consideration of the agreements and covenants contained in the
Employment Agreement and this Amendment, and to effect Diamond Technology's
indemnification of Employee as herein set forth, Diamond Technology and Employee
agree as follows:
1. Paragraph 10 of the Agreement, entitled "Indemnity" is hereby
stricken and the following language is hereby substituted in its
stead:
Indemnity. Provided that Employee performs all of his duties and
---------
obligations under this Agreement, Diamond Technology agrees to
defend, indemnify and hold Employee harmless from and against all
damages, liability and expenses, including reasonable attorney's
fees, arising as a result of: (a) claims brought against Employee by
his/her latest Employer preceding his/her employment with Diamond
Technology ("Previous Employer") (i) alleging any breach, for the
benefit of Diamond Technology, of Employee's obligations to the
Previous Employer with respect to Confidential Information of the
Previous Employer; (ii) based upon Diamond Technology's hiring of
Employee; or (iii) that are deemed by Diamond Technology, in its sole
discretion, to be frivolous or harassing; or (b) claims brought by
any client of Diamond Technology alleging the breach of any duty owed
by Diamond Technology or Employee to such client. Notwithstanding
the foregoing, Diamond Technology shall have no indemnification
obligations: (x) under clause (a) of the preceding sentence of this
Paragraph 10, or otherwise, in respect of any willful or intentional
misconduct or breach of the Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous
Employer; or (y) under clause (b) of the preceding sentence of this
Paragraph 10, or otherwise, in respect of any willful or intentional
misconduct or breach by the Employee of the Employee's obligations to
Diamond Technology; or (z) arising from or relating to any Employee
action that is outside the scope of his/her employment.
<PAGE>
2. Acknowledgement. Employee acknowledges that he/she has read and
---------------
understood, and accepts, the provisions of this Amendment.
Dated: August 19, 1994
EMPLOYEE
/s/ Michael E. Mikolajczyk
------------------------------
Michael E. Mikolajczyk
DIAMOND TECHNOLOGY PARTNERS, INC.
By: /s/ Melvyn E. Bergstein
---------------------------
Melvyn E. Bergstein
<PAGE>
AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT
BY AND BETWEEN
DIAMOND TECHNOLOGY PARTNERS, INC.
AND EMPLOYEE
This is an amendment ("Amendment"), dated as of November 30, 1994, to a
certain Employment Agreement dated April 18, 1994, between Diamond Technology
Partners, Inc. ("Diamond Technology") and Michael E. Mikolajczyk ("Employee"),
as previously amended (the "Employment Agreement").
In consideration of the agreements and covenants contained in the
Employment Agreement and this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Diamond Technology and Employee agree as follows:
1. The Employment Agreement is hereby amended by adding thereto a new
paragraph 18, which shall read as follows:
"18. Charitable Contributions.
------------------------
(a) Effective April 1, 1995, Employee will contribute in each
calendar year during his/her employment with Diamond Technology, at least
two percent (2%) of Employee's gross base compensation in effect for the
then current calendar year, to charities approved by the Operations
Committee (as defined in the Partners' Operating Agreement). All such
contributions will be made pursuant to policies established from time to
time by the Operations Committee. Employee authorizes Diamond Technology to
make any deductions, including, without limitation, periodic deductions,
from base compensation payable to Employee, in accordance with such
policies.
(b) The Operations Committee will approve charities on an
ongoing basis from time to time and will publish the list of approved
charities. Employee may request approval for charities not already on the
list of approved charities from the Operations Committee no later than
thirty (30) days prior to the end of any calendar year for contributions
made during that year.
(c) Diamond Technology will match, up to two percent (2%) of
Employee's gross base compensation, the amount of any contributions made
by, or directed to be made on behalf of, the Employee to any colleges or
universities where Diamond Technology recruits or intends to recruit for
new employees. The Operations Committee will maintain and publish a list of
such colleges and universities. The Operations Committee may from time to
time limit or eliminate Diamond Technology's matching contribution
obligation if it determines that to do so would be in the best business
interests of Diamond Technology.
<PAGE>
2. Acknowledgement. Employee acknowledges that he/she has read and
---------------
understood, and accepts, the provisions of this Amendment.
IN WITNESS WHEREOF, the undersigned have executed this Amendment Number
Two to Employment Agreement by and between Diamond Technology Partners, Inc. and
Employee as of the date first written above.
EMPLOYEE
------------------------------------
DIAMOND TECHNOLOGY PARTNERS, INC.
By:
---------------------------------
As its:
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
Diamond Technology Partners, Inc. ("Diamond Technology") and James C.
Spira ("Employee") enter into this Employment Agreement ("Agreement") dated
November 1, 1995 (the "Effective Date").
In consideration of the agreements and covenants contained in the
Agreement, Diamond Technology and Employee agree as follows:
1. Employment Duties. Diamond Technology shall employ Employee,
-----------------
commencing on the Effective Date, as an officer of Diamond Technology and be
identified within the organization as a "Partner." Employee shall have such
responsibilities, duties and authority, consistent with those of an executive
employee, as may be assigned to him/her by Diamond Technology's management,
officers and partners ("Management") and agrees to perform such duties as
Diamond Technology may from time-to-time request. In addition, Employee shall,
at the direction of Management, participate in the administration and execution
of Diamond Technology's policies, business affairs, and operations. Employee
shall perform faithfully the duties assigned to him/her and shall devote his/her
full and undivided time and attention and his/her best efforts to the business
of Diamond Technology.
2. Salary. As compensation for Employee's services, Diamond
------
Technology shall initially credit to Employee a level of base compensation at
the annual rate of Five Hundred Thousand Dollars ($500,000): all or a portion
of the Employee's base compensation will be paid to him/her at Diamond
Technology's regular executive payroll intervals, and the balance, if any, will
be deferred subject to various qualifications and conditions as set forth in the
Diamond Technology's Partners' Operating Agreement dated March 22, 1994, as
amended (the "Partners' Operating Agreement"). Employee's base compensation
shall be subject to annual review and may, in accordance with the Partners'
Operating Agreement be adjusted at the time of such reviews or at any other time
or times according to Employee's responsibilities, capabilities and performance.
3. Bonus. Diamond Technology may elect to pay annual bonuses. It
-----
is presently contemplated that Partners subject to a deferral of a portion of
salary will not be eligible to earn bonuses. The decision to pay any bonuses
and the actual payment of such bonuses, if any, shall be at the sole discretion
of Diamond Technology.
4. Employee Benefits. During the period of his/her employment,
-----------------
Employee shall be entitled to participate in such employee benefit plans,
including group pension, life and health insurance and other medical benefits,
and shall receive such other fringe benefits, as Diamond Technology may make
available generally to Partners.
5. Business Expenses. Diamond Technology shall reimburse Employee
-----------------
for all reasonable and necessary business expenses incurred by Employee in
performing his/her duties.
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Employee shall provide Diamond Technology with supporting documentation
sufficient to satisfy reporting requirements of the Internal Revenue Service and
Diamond Technology. Diamond Technology's determination as to reasonableness and
necessity shall be final.
6. Non-Disclosure and Non-Competition. Employee acknowledges that
----------------------------------
the successful marketing and development of Diamond Technology's professional
services and products requires substantial time and expense. Such efforts
utilize and generate valuable confidential and proprietary information, of which
Employee will obtain knowledge. As used herein, "Confidential Information"
means any information of Diamond Technology that Diamond Technology considers to
be proprietary and treats as confidential or information of any third party that
Diamond Technology is under an obligation to keep confidential, including, but
not limited to, the following: inventions, products, business strategies, plans,
proposals, deliverables, prospect and customer lists, methodologies, training
materials, computer software, documents, models, source code, designs, know how,
techniques, systems, processes, works of authorship, projects, plans, proposals
and flow charts, and listings of any or all of the foregoing. All Confidential
Information is and shall at all times remain the exclusive property of Diamond
Technology. Confidential Information does not include: (i) information that at
the time of disclosure is in the public domain through no fault of Employee's;
(ii) information received from a third party outside of Diamond Technology that
was disclosed without a breach of any confidentiality obligation; (iii)
information approved for release by written authorization of Diamond Technology;
or (iv) information that may be required by law or an order of any court, agency
or proceeding to be disclosed. Employee agrees to undertake the following
obligations, which he/she acknowledges to be reasonably designed to protect
Diamond Technology's legitimate business interests without unnecessarily or
unreasonably restricting Employee's post-employment opportunities:
(a) Employee agrees that he/she will not at any time, whether
during or after the cessation of his/her employment, reveal to any person or any
entity any of the Confidential Information, except, and only to the extent, as
may be required in the ordinary course of performing Employee's assigned duties
as an employee of Diamond Technology, and Employee agrees to keep secret, and
take all necessary precautions against disclosure of, all Confidential
Information and all matters entrusted to him/her and not to use or attempt to
use any Confidential Information in any manner that may cause injury or loss, or
may be calculated to cause injury or loss, whether directly or indirectly, to
the Company or its clients;
(b) Employee agrees that during his/her employment he/she shall
not take, use or permit to be used any notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials of any nature relating to any matter within the
scope of the business of Diamond Technology or concerning any of its dealings or
affairs otherwise than for the benefit of Diamond Technology;
(c) Upon cessation of his/her employment relationship with
Diamond Technology, Employee shall deliver to Diamond Technology all
Confidential Information and other materials in his/her possession or delivered
to him/her by Diamond Technology, including but not limited to computer
programs, files, notes, records, memoranda, reports, lists, drawings, sketches,
specifications, data, charts, and other documents, materials and things
("Materials"), whether or not
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<PAGE>
containing Confidential Information, prepared by Employee in connection with
his/her employment by Diamond Technology, it being agreed that all Materials
shall be and remain the sole and exclusive property of Diamond Technology;
(d) Without limiting the obligations of paragraph 6(c), Employee
agrees that while Employee is employed by Diamond Technology and for a period of
eighteen months following cessation of his/her employment relationship with
Diamond Technology, he/she will not, whether alone or as owner, partner,
officer, director, consultant, agent, employee independent contractor, or
stockholder of any firm, corporation or other commercial enterprise, directly or
indirectly solicit engagements with: (i) any client of Diamond Technology for
whom Diamond Technology performed services within the one year period preceding
his/her cessation of employment, or (ii) any current client prospect of Diamond
Technology for whom Employee directly or indirectly assisted in the preparation
or submission of a proposal made by Diamond Technology to such client prospect
during the one year period preceding his/her cessation of employment, unless
Diamond Technology acknowledges in writing its intent not to further pursue such
client prospect; Employee shall, however, be permitted to own securities of any
public company not in excess of five percent (5%) of any class of such
securities and to own stock, partnership interests or other securities of any
non-public entity not in excess of five percent (5%) of any class of such
securities, and such ownership shall not be considered to be in competition with
Diamond Technology;
(e) While employed and during the eighteen month period
immediately following cessation of Employee's employment relationship with
Diamond Technology for any reason, Employee shall not, directly or indirectly,
solicit any employee of Diamond Technology to work for any person, partnership
or entity other than Diamond Technology, or engage in any activity that would
cause any employee to violate any agreement with Diamond Technology, or
dissuade, or attempt to dissuade, any such employee from faithfully discharging
such employee's contractual and fiduciary obligations to serve Diamond
Technology's interests with undivided loyalty.
7. Remedies. Employee recognizes and agrees that a breach of any or
--------
all of the provisions of paragraph 6 will constitute immediate and irreparable
harm to Diamond Technology for which damages cannot be readily calculated and
for which damages are an inadequate remedy. Accordingly, Employee acknowledges
that in addition to any and all remedies at law, Diamond Technology shall be
entitled to specific performance or injunctive or other equitable relief to
prevent the violation of Employee's obligations under this Agreement.
8. Intellectual Property. During the employment period, Employee
---------------------
shall disclose immediately to Diamond Technology all ideas, inventions and
business plans that he/she makes, conceives, discovers or develops during the
course of his/her employment with Diamond Technology, including but not limited
to any inventions, modifications, discoveries, developments, improvements,
computer programs, processes, products or procedures (whether or not protectable
upon application by copyright, patent trademark, trade secret or other
proprietary rights) ("Work Product") that: (i) relate to the business of
Diamond Technology or any customer or supplier to Diamond Technology or any of
the products or services being developed, manufactured, sold or otherwise
provided by Diamond Technology or that may be used in relation therewith; or
(ii) result from tasks assigned to
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Employee by Diamond Technology; or (iii) result from the use of the premises or
personal property (whether tangible or intangible) owned, leased or contracted
for by Diamond Technology. Employee agrees that any Work Product shall be the
property of Diamond Technology and, if subject to copyright, shall be considered
a "work made for hire" within the meaning of the Copyright Act of 1976, as
amended (the "Act"). If and to the extent that any such Work Product is found as
a matter of law not to be a "work made for hire" within the meaning of the Act,
Employee expressly assigns to Diamond Technology all right, title and interest
in and to the Work Product, and all copies thereof, and the copyright, patent,
trademark, trade secret and all their proprietary rights in the Work Product,
without further consideration, free from any claim, lien for balance due or
rights of retention thereto on the part of Employee.
Employee agrees that upon disclosure of Work Product to Diamond
Technology, Employee will, during his/her employment and at any time thereafter,
at the request and cost of Diamond Technology, execute all such documents and
perform all such acts as Diamond Technology or its duly authorized agents may
reasonably require: (i) to apply for, obtain and vest in the name of Diamond
Technology alone (unless Diamond Technology otherwise directs) letters patent,
copyrights or other analogous protection in any country throughout the world,
and when so obtained or vested to renew and restore the same; and (ii) to defend
any opposition proceedings in respect of such applications and any opposition
proceedings or petitions or applications for revocation of such letters patent,
copyright or other analogous protection.
In the event that Diamond Technology is unable, after reasonable
effort, to secure Employee's signature on any letters patent, copyright or other
analogous protection relating to Work Product, whether because of Employee's
physical or mental incapacity or for any other reason whatsoever, Employee
hereby irrevocably designates and appoints Diamond Technology and its duly
authorized officers and agents as his/her agent and attorney-in-fact, to act for
and on his/her behalf to execute and file any such application or applications
and to do all other lawfully permitted acts to further the prosecution and
issuance of letters patent, copyright and other analogous protection with the
same legal force and effect as if personally executed by Employee.
9. Costs and Expenses of Enforcement. Employee agrees to reimburse
---------------------------------
Diamond Technology for all costs and expenses, including reasonable attorneys'
fees, incurred by Diamond Technology in connection with the enforcement of its
rights under any provision of this Agreement; provided, however, that Diamond
Technology agrees to seek reimbursement only for matters, including acts or
omissions (whether direct or indirect), done knowingly, willfully or
intentionally in disregard of Employee's obligations under this Agreement.
10. Indemnity. Provided that Employee performs all of his duties and
---------
obligations under this Agreement, Diamond Technology agrees to defend, indemnify
and hold Employee harmless from and against all damages, liability and expenses,
including reasonable attorney's fees, arising as a result of: (a) claims
brought against Employee by his/her latest Employer preceding his/her employment
with Diamond Technology ("Previous Employer") (i) alleging any breach, for the
benefit of Diamond Technology, of Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous Employer;
(ii) based upon Diamond Technology's hiring of
-4-
<PAGE>
Employee; or (iii) that are deemed by Diamond Technology, in its sole
discretion, to be frivolous or harassing; or (b) claims brought by any client of
Diamond Technology alleging the breach of any duty owed by Diamond Technology or
Employee to such client. Notwithstanding the foregoing, Diamond Technology shall
have no indemnification obligations: (x) under clause (a) of the preceding
sentence of this Paragraph 10, or otherwise, in respect of any willful or
intentional misconduct or breach of the Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous Employer; or
(y) under clause (b) of the preceding sentence of this Paragraph 10, or
otherwise, in respect of any willful or intentional misconduct or breach by the
Employee of the Employee's obligations to Diamond Technology; or (z) arising
from or relating to any Employee action that is outside the scope of his/her
employment.
11. Assignment. Employee acknowledges that the services to be
----------
rendered pursuant to this Agreement are unique and personal. Accordingly,
Employee may not assign any of his/her rights or delegate any of his/her duties
or obligations under this Agreement. Diamond Technology may assign its this
Agreement to its successors or assigns, or to a subsidiary or to a purchaser or
transferee of all, or substantially all, of the assets of Diamond Technology,
and all covenants and agreements of Employee under this Agreement shall inure to
the benefit of and be enforceable by such successors, assigns, subsidiaries,
purchasers or transferees.
12. Notices. All notices hereunder shall be in writing. Notices
-------
intended for Diamond Technology shall be sent by registered or certified mail
addressed to Diamond Technology at 444 North Michigan Avenue, Suite 3600,
Chicago, Illinois 60611, or its current principal office, and notices intended
for Employee shall be either delivered personally to him/her or sent by
registered or certified mail addressed to his/her last known address.
13. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between Diamond Technology and Employee with respect to the subject
matter hereof and supersedes any and all other prior or contemporary oral or
written representations or agreements between the parties regarding such subject
matter; however, it is mutually acknowledged that the parties may enter into a
Partners' Operating Agreement governing the relationships among the Partners,
including certain matters relating to compensation and to the payment of the
deferred portion of base compensation. Subsequent to the Effective Date, this
Agreement specifically supersedes any prior non-disclosure agreement executed by
Employee; provided, however, that the terms and conditions of any such prior
agreement remain in full force and effect for the period between execution of
such agreement and the Effective Date of this Agreement. Neither Employee nor
Diamond Technology may modify this Agreement by oral agreements, promises or
representations. The parties may modify this Agreement only by a written
instrument executed by both parties.
14. Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of Illinois. Diamond
Technology and Employee consent to jurisdiction and venue only in the Circuit
Court of Cook County, Illinois, or the Federal District Court for the Northern
District of Illinois.
-5-
<PAGE>
15. Severability. Employee acknowledges that the type and periods of
------------
restriction imposed in the provisions of this Agreement are fair and reasonable
and are reasonably required for the protection of Diamond Technology and the
goodwill associated with the business of Diamond Technology. Each provision
herein shall be treated as a separate and independent clause, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses herein. If any provision contained in this Agreement
shall for any reason be held to be prohibited by, or invalid under, applicable
law, or to be excessively broad as to scope, activity or subject so as to be
unenforceable at law, such provision shall be construed to be ineffective only
to the extent of such prohibition without invalidating the remainder of such
provision or the remaining provisions of this Agreement or, in the case of a
provision found to be excessively broad, by limiting and reducing such provision
so as to permit such provision to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear.
16. Waiver. The failure of Diamond Technology to exercise any right
------
hereunder shall not operate or be construed as a waiver of any right hereunder.
Employee's obligations under this Agreement shall survive the cessation of
employment regardless of the manner of such termination and shall be binding on
Employee's heirs, executors, administrators and legal representatives.
17. No Term of Employment. As revised, nothing in this Agreement
---------------------
shall be deemed to create any term of employment, it being expressly understood
and agreed that Employee's employment is at will and that either party may
terminate such employment at any time.
18. Charitable Contributions.
------------------------
(a) Effective April 1, 1995, Employee will contribute in each
calendar year during his/her employment with Diamond Technology, at least two
percent (2%) of Employee's gross base compensation in effect for the then
current calendar year, to charities approved by the Operations Committee (as
defined in the Partners' Operating Agreement). All such contributions will be
made pursuant to policies established from time to time by the Operations
Committee. Employee authorizes Diamond Technology to make any deductions,
including, without limitation, periodic deductions, from base compensation
payable to Employee, in accordance with such policies.
(b) The Operations Committee will approve charities on an ongoing
basis from time to time and will publish the list of approved charities.
Employee may request approval for charities not already on the list of approved
charities from the Operations Committee no later than thirty (30) days prior to
the end of any calendar year for contributions made during that year.
(c) Diamond Technology will match, up to two percent (2%) of
Employee's gross base compensation, the amount of any contributions made by, or
directed to be made on behalf of, the Employee to any colleges or universities
where Diamond Technology recruits or intends to recruit for new employees. The
Operations Committee will maintain and publish a list of such colleges and
universities. The Operations Committee may from time to time limit or eliminate
Diamond Technology's matching contribution obligation if it determines that to
do so would be in the best business interests of Diamond Technology.
-6-
<PAGE>
19. Acknowledgment. Employee acknowledges that he/she has read and
--------------
understood, and accepts, the provisions of this Agreement.
EMPLOYEE
/s/ James C. Spira
------------------------------------------------
James C. Spira
Date: November 1, 1995
-------------------------------------------
DIAMOND TECHNOLOGY PARTNERS, INC.
By: /s/ Michael Mikolajczyk
---------------------------------------------
Date: February 14, 1996
-------------------------------------------
-7-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
Diamond Technology Partners, Inc. ("Diamond Technology") and Christopher
J. Moffitt ("Employee") enter into this Employment Agreement ("Agreement") dated
February 1, 1994 (the "Effective Date").
In consideration of the agreements and covenants contained in the
Agreement, Diamond Technology and Employee agree as follows:
1. Employment Duties. Diamond Technology shall employ Employee as
-----------------
an officer of Diamond Technology and be identified within the organization as a
"Partner." Employee shall have such responsibilities, duties and authority,
consistent with those of an executive employee, as may be assigned to him/her by
Diamond Technology's management, officers and partners ("Management") and agrees
to perform such duties as Diamond Technology may from time-to-time request. In
addition, Employee shall, at the direction of Management, participate in the
administration and execution of Diamond Technology's policies, business affairs,
and operations. Employee shall perform faithfully the duties assigned to him/her
and shall devote his/her full and undivided time and attention and his/her best
efforts to the business of Diamond Technology.
2. Salary. As compensation for Employee's services, Diamond
------
Technology shall initially credit to Employee a level of base compensation at
the annual rate listed in Exhibit A to this Agreement: a portion of the
Employee's base compensation will be paid to him/her at Diamond Technology's
regular executive payroll intervals, and the balance will be deferred and the
payment thereof will be subject to various qualifications and conditions as set
forth in the Diamond Technology's Partners' Operating Agreement dated March 22,
1994 ("the Partners' Operating Agreement"). Employee's base compensation shall
be subject to annual review and may, in accordance with the Partners' Operating
Agreement be adjusted at the time of such reviews or at any other time or times
according to Employee's responsibilities, capabilities and performance.
3. Bonus. Diamond Technology may elect to pay annual bonuses. It
-----
is presently contemplated that Partners subject to a deferral of a portion of
salary will not be eligible to earn bonuses. The decision to pay any bonuses
and the actual payment of such bonuses, if any, shall be at the sole discretion
of Diamond Technology.
4. Employee Benefits. During the period of his/her employment,
-----------------
Employee shall be entitled to participate in such employee benefit plans,
including group pension, life and health insurance and other medical benefits,
and shall receive such other fringe benefits, as Diamond Technology may make
available generally to Partners.
<PAGE>
5. Business Expenses. Diamond Technology shall reimburse Employee
-----------------
for all reasonable and necessary business expenses incurred by Employee in
performing his/her duties. Employee shall provide Diamond Technology with
supporting documentation sufficient to satisfy reporting requirements of the
Internal Revenue Service and Diamond Technology. Diamond Technology's
determination as to reasonableness and necessity shall be final.
6. Non-Disclosure and Non-Competition. Employee acknowledges that
----------------------------------
the successful marketing and development of Diamond Technology's professional
services and products requires substantial time and expense. Such efforts
utilize and generate valuable confidential and proprietary information, of which
Employee will obtain knowledge. As used herein, "Confidential Information"
means any information of Diamond Technology that Diamond Technology considers to
be proprietary and treats as confidential or information of any third party that
Diamond Technology is under an obligation to keep confidential, including, but
not limited to, the following: inventions, products, business strategies,
plans, proposals, deliverables, prospect and customer lists, methodologies,
training materials, computer software, documents, models, source code, designs,
know how, techniques, systems, processes, works of authorship, projects, plans,
proposals and flow charts, and listings of any or all of the foregoing. All
Confidential Information is and shall at all times remain the exclusive property
of Diamond Technology. Confidential Information does not include: (i) inform-
ation that at the time of disclosure is in the public domain through no fault
of Employee's; (ii) information received from a third party outside of Diamond
Technology that was disclosed without a breach of any confidentiality
obligation; (iii) information approved for release by written authorization of
Diamond Technology; or (iv) information that may be required by law or an order
of any court, agency or proceeding to be disclosed. Employee agrees to undertake
the following obligations, which he/she acknowledges to be reasonably designed
to protect Diamond Technology's legitimate business interests without
unnecessarily or unreasonably restricting Employee's post-employment
opportunities:
(a) Employee agrees that he/she will not at any time, whether
during or after the cessation of his/her employment, reveal to any person or any
entity any of the Confidential Information, except, and only to the extent, as
may be required in the ordinary course of performing Employee's assigned duties
as an employee of Diamond Technology, and Employee agrees to keep secret, and
take all necessary precautions against disclosure of, all Confidential
Information and all matters entrusted to him/her and not to use or attempt to
use any Confidential Information in any manner that may cause injury or loss, or
may be calculated to cause injury or loss, whether directly or indirectly, to
the Company or its clients;
(b) Employee agrees that during his/her employment he/she shall
not take, use or permit to be used any notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials of any nature relating to any matter within the
scope of the business of Diamond Technology or
-2-
<PAGE>
concerning any of its dealings or affairs otherwise than for the benefit of
Diamond Technology;
(c) Upon cessation of his/her employment relationship with Diamond
Technology, Employee shall deliver to Diamond Technology all Confidential
Information and other materials in his/her possession or delivered to him/her by
Diamond Technology, including but not limited to computer programs, files,
notes, records, memoranda, reports, lists, drawings, sketches, specifications,
data, charts, and other documents, materials and things ("Materials"), whether
or not containing Confidential Information, prepared by Employee in connection
with his/her employment by Diamond Technology, it being agreed that all
Materials shall be and remain the sole and exclusive property of Diamond
Technology;
(d) Without limiting the obligations of paragraph 6(c), Employee
agrees that while Employee is employed by Diamond Technology and for a period of
eighteen months following cessation of his/her employment relationship with
Diamond Technology, he/she will not, whether alone or as owner, partner,
officer, director, consultant, agent, employee independent contractor, or
stockholder of any firm, corporation or other commercial enterprise, directly or
indirectly solicit engagements with: (i) any client of Diamond Technology for
whom Diamond Technology performed services within the one year period preceding
his/her cessation of employment, or (ii) any current client prospect of Diamond
Technology for whom Employee directly or indirectly assisted in the preparation
or submission of a proposal made by Diamond Technology to such client prospect
during the one year period preceding his/her cessation of employment, unless
Diamond Technology acknowledges in writing its intent not to further pursue such
client prospect; Employee shall, however, be permitted to own securities of any
public company not in excess of five percent (5%) of any class of such
securities and to own stock, partnership interests or other securities of any
non-public entity not in excess of five percent (5%) of any class of such
securities, and such ownership shall not be considered to be in competition with
Diamond Technology;
(e) While employed and during the eighteen month period immediately
following cessation of Employee's employment relationship with Diamond
Technology for any reason, Employee shall not, directly or indirectly, solicit
any employee of Diamond Technology to work for any person, partnership or entity
other than Diamond Technology, or engage in any activity that would cause any
employee to violate any agreement with Diamond Technology, or dissuade, or
attempt to dissuade, any such employee from faithfully discharging such
employee's contractual and fiduciary obligations to serve Diamond Technology's
interests with undivided loyalty.
7. Remedies. Employee recognizes and agrees that a breach of any or all
--------
of the provisions of paragraph 6 will constitute immediate and irreparable harm
to Diamond Technology for which damages cannot be readily calculated and for
which damages are an inadequate remedy. Accordingly, Employee acknowledges that
in addition to any an all
-3-
<PAGE>
remedies at law, Diamond Technology shall be entitled to specific performance or
injunctive or other equitable relief to prevent the violation of Employee's
obligations under this Agreement.
8. Intellectual Property. During the employment period, Employee
---------------------
shall disclose immediately to Diamond Technology all ideas, inventions and
business plans that he/she makes, conceives, discovers or develops during the
course of his/her employment with Diamond Technology, including but not limited
to any inventions, modifications, discoveries, developments, improvements,
computer programs, processes, products or procedures (whether or not protectable
upon application by copyright, patent trademark, trade secret or other
proprietary rights)("Work Product") that: (i) relate to the business of Diamond
Technology or any customer or supplier to Diamond Technology or any of the
products or services being developed, manufactured, sold or otherwise provided
by Diamond Technology or that may be used in relation therewith; or (ii) result
from tasks assigned to Employee by Diamond Technology; or (iii) result from the
use of the premises or personal property (whether tangible or intangible) owned,
leased or contracted for by Diamond Technology. Employee agrees that any Work
Product shall be the property of Diamond Technology and, if subject to
copyright, shall be considered a "work made for hire" within the meaning of the
Copyright Act of 1976, as amended (the "Act"). If and to the extent that any
such Work Product is found as a matter of law not to be a "work made for hire"
within the meaning of the Act, Employee expressly assigns to Diamond Technology
all right, title and interest in and to the Work Product, and all copies
thereof, and the copyright, patent, trademark, trade secret and all their
proprietary rights in the Work Product, without further consideration, free from
any claim, lien for balance due or rights of retention thereto on the part of
Employee.
Employee agrees that upon disclosure of Work Product to Diamond
Technology, Employee will, during his/her employment and at any time thereafter,
at the request and cost of Diamond Technology, execute all such documents and
perform all such acts as Diamond Technology or its duly authorized agents may
reasonably require: (i) to apply for, obtain and vest in the name of Diamond
Technology alone (unless Diamond Technology otherwise directs) letters patent,
copyrights or other analogous protection in any country throughout the world,
and when so obtained or vested to renew and restore the same; and (ii) to defend
any opposition proceedings in respect of such applications and any opposition
proceedings or petitions or applications for revocation of such letters patent,
copyright or other analogous protection.
In the event that Diamond Technology is unable, after reasonable effort,
to secure Employee's signature on any letters patent, copyright or other
analogous protection relating to Work Product, whether because of Employee's
physical or mental incapacity or for any other reason whatsoever, Employee
hereby irrevocably designates and appoints Diamond Technology and its duly
authorized officers and agents as his/her agent and attorney-in-fact, to act for
and on his/her behalf to execute and file any such application or applications
and to do all other lawfully permitted acts to further the prosecution and
-4-
<PAGE>
issuance of letters patent, copyright and other analogous protection with the
same legal force and effect as if personally executed by Employee.
9. Costs and Expenses of Enforcement. Employee agrees to reimburse
---------------------------------
Diamond Technology for all costs and expenses, including reasonable attorneys'
fees, incurred by Diamond Technology in connection with the enforcement of its
rights under any provision of this Agreement; provided, however, that Diamond
Technology agrees to seek reimbursement only for matters, including acts or
omissions (whether direct or indirect), done knowingly, willfully or
intentionally in disregard of Employee's obligations under this Agreement.
10. Indemnity. Provided that Employee performs all of his duties and
---------
obligations under this Agreement, Diamond Technology agrees to defend, indemnify
and hold Employee harmless from and against all damages, liability and expenses,
including reasonable attorney's fees, arising as a result of claims brought
against Employee by his/her latest employer preceding his/her employment with
Diamond Technology ("Previous Employer"): (i) alleging any breach, for the
benefit of Diamond Technology, of Employee's obligations to the Previous
Employer with respect to Confidential Information of the Previous Employer; (ii)
based upon Diamond Technology's hiring of Employee; or (iii) that are deemed by
Diamond Technology, in its sole discretion, to be frivolous or harassing.
Notwithstanding the foregoing, Diamond Technology shall have no indemnification
obligations under this Agreement or otherwise in respect of any willful or
intentional breach of the Employee's obligations to the Previous Employer with
respect to Confidential Information of the Previous Employer.
11. Assignment. Employee acknowledges that the services to be rendered
----------
pursuant to this Agreement are unique and personal. Accordingly, Employee may
not assign any of his/her rights or delegate any of his/her duties or
obligations under this Agreement. Diamond Technology may assign its this
Agreement to its successors or assigns, or to a subsidiary or to a purchaser or
transferee of all, or substantially all, of the assets of Diamond Technology,
and all covenants and agreements of Employee under this Agreement shall inure to
the benefit of and be enforceable by such successors, assigns, subsidiaries,
purchasers or transferees.
12. Notices. All notices hereunder shall be in writing. Notices
-------
intended for Diamond Technology shall be sent by registered or certified mail
addressed to Diamond Technology at 444 North Michigan Avenue, Suite 3600,
Chicago, Illinois 60611, or its current principal office, and notices intended
for Employee shall be either delivered personally to him/her or sent by
registered or certified mail addressed to his/her last known address.
13. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Diamond Technology and Employee with respect to the subject matter
hereof and supersedes any and all other prior or contemporary oral or written
representations or
-5-
<PAGE>
agreements between the parties regarding such subject matter; however, it is
mutually acknowledged that the parties may enter into a Partners' Operating
Agreement governing the relationships among the Partners, including certain
matters relating to compensation and to the payment of the deferred portion of
base compensation. Subsequent to the Effective Date, this Agreement specifically
supersedes any prior non-disclosure agreement executed by Employee; provided,
however, that the terms and conditions of any such prior agreement remain in
full force and effect for the period between execution of such agreement and the
Effective Date of this Agreement. Neither Employee nor Diamond Technology may
modify this Agreement by oral agreements, promises or representations. The
parties may modify this Agreement only by a written instrument executed by both
parties.
14. Applicable Law. This Agreement shall be governed by, and construed
--------------
in accordance with, the laws of the State of Illinois. Diamond Technology and
Employee consent to jurisdiction and venue only in the Circuit Court of Cook
County, Illinois, or the Federal District Court for the Northern District of
Illinois.
15. Severability. Employee acknowledges that the type and periods of
------------
restriction imposed in the provisions of this Agreement are fair and reasonable
and are reasonably required for the protection of Diamond Technology and the
goodwill associated with the business of Diamond Technology. Each provision
herein shall be treated as a separate and independent clause, and the
unenforceability of any one clause shall in no way impair the enforceability of
any of the other clauses herein. If any provision contained in this Agreement
shall for any reason be held to be prohibited by, or invalid under, applicable
law, or to be excessively broad as to scope, activity or subject so as to be
unenforceable at law, such provision shall be construed to be ineffective only
to the extent of such prohibition without invalidating the remainder of such
provision or the remaining provisions of this Agreement or, in the case of a
provision found to be excessively broad, by limiting and reducing such provision
so as to permit such provision to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear.
16. Waiver. The failure of Diamond Technology to exercise any right
------
hereunder shall not operate or be construed as a waiver of any right hereunder.
Employee's obligations under this Agreement shall survive the cessation of
employment regardless of the manner of such termination and shall be binding on
Employee's heirs, executors, administrators and legal representatives.
17. No Term of Employment. As revised, nothing in this Agreement shall
---------------------
be deemed to create any term of employment, it being expressly understood and
agreed that Employee's employment is at will and that either party may terminate
such employment at any time.
-6-
<PAGE>
18. Acknowledgement. Employee acknowledges that he/she has read and
---------------
understood, and accepts, the provisions of this Agreement.
EMPLOYEE
/s/ Christopher J. Moffitt
----------------------------------
Christopher J. Moffitt
DIAMOND TECHNOLOGY PARTNERS, INC.
By: [SIGNATURE APPEARS HERE]
-------------------------------
-7-
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
BASE SALARY: $500,000; subject to paragraph D of the Partners'
Operating Agreement incorporated herein by this reference.
-8-
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
BY AND BETWEEN
DIAMOND TECHNOLOGY PARTNERS, INC.
AND EMPLOYEE
Diamond Technology Partners, Inc. ("Diamond Technology") and Christopher
J. Moffitt ("Employee") enter into this Amendment to Employment Agreement
("Amendment").
In consideration of the agreements and covenants contained in the
Employment Agreement and this Amendment, and to effect Diamond Technology's
indemnification of Employee as herein set forth, Diamond Technology and Employee
agree as follows:
1. Paragraph 10 of the Agreement, entitled "Indemnity" is hereby
stricken and the following language is hereby substituted in its
stead:
Indemnity. Provided that Employee performs all of his duties and
----------
obligations under this Agreement, Diamond Technology agrees to
defend, indemnify and hold Employee harmless from and against all
damages, liability and expenses, including reasonable attorney's
fees, arising as a result of: (a) claims brought against Employee by
his/her latest Employer preceding his/her employment with Diamond
Technology ("Previous Employer") (i) alleging any breach, for the
benefit of Diamond Technology, of Employee's obligations to the
Previous Employer with respect to Confidential Information of the
Previous Employer; (ii) based upon Diamond Technology's hiring of
Employee; or (iii) that are deemed by Diamond Technology, in its
sole discretion, to be frivolous or harassing; or (b) claims brought
by any client of Diamond Technology alleging the breach of any duty
owed by Diamond Technology or Employee to such client.
Notwithstanding the foregoing, Diamond Technology shall have no
indemnification obligations: (x) under clause (a) of the preceding
sentence of this Paragraph 10, or otherwise, in respect of any
willful or intentional misconduct or breach of the Employee's
obligations to the Previous Employer with respect to Confidential
Information of the Previous Employer; or (y) under clause (b) of the
preceding sentence of this Paragraph 10, or otherwise, in respect of
any willful or intentional misconduct or breach by the Employee of
the Employee's obligations to Diamond Technology; or (z) arising
from or relating to any Employee action that is outside the scope of
his/her employment.
<PAGE>
2. Acknowledgment. Employee acknowledges that he/she has read and
--------------
understood, and accepts, the provisions of this Amendment.
Dated: August 19, 1994
EMPLOYEE
/s/ Christopher J. Moffitt
---------------------------------
Christopher J. Moffitt
DIAMOND TECHNOLOGY PARTNERS, INC.
By: /s/ Melvyn E. Bergstein
------------------------------
Melvyn E. Bergstein
<PAGE>
AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT
BY AND BETWEEN
DIAMOND TECHNOLOGY PARTNERS, INC.
AND EMPLOYEE
This is an amendment ("Amendment"), dated as of November 30, 1994, to a
certain Employment Agreement dated February 1, 1994, between Diamond Technology
Partners, Inc. ("Diamond Technology") and Christopher J. Moffitt ("Employee"),
as previously amended (the "Employment Agreement").
In consideration of the agreements and covenants contained in the
Employment Agreement and this Amendment and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Diamond Technology and Employee agree as follows:
1. The Employment Agreement is hereby amended by adding thereto a
new paragraph 18, which shall read as follows:
"18. Charitable Contributions.
------------------------
(a) Effective April 1, 1995, Employee will contribute in
each calendar year during his/her employment with Diamond Technology,
at least two percent (2%) of Employee's gross base compensation in
effect for the then current calendar year, to charities approved by
the Operations Committee (as defined in the Partners' Operating
Agreement). All such contributions will be made pursuant to policies
established from time to time by the Operations Committee. Employee
authorizes Diamond Technology to make any deductions, including,
without limitation, periodic deductions, from base compensation
payable to Employee, in accordance with such policies.
(b) The Operations Committee will approve charities on an
ongoing basis from time to time and will publish the list of approved
charities. Employee may request approval for charities not already on
the list of approved charities from the Operations Committee no later
than thirty (30) days prior to the end of any calendar year for
contributions made during that year.
(c) Diamond Technology will match, up to two percent (2%) of
Employee's gross base compensation, the amount of any contributions
made by, or directed to be made on behalf of, the Employee to any
colleges or universities where Diamond Technology recruits or intends
to recruit for new employees. The Operations Committee will maintain
and publish a list of such colleges and universities. The Operations
Committee may from time to time limit or eliminate Diamond
Technology's matching contribution obligation if it determines that
to do so would be in the best business interests of Diamond
Technology.
<PAGE>
2. Acknowledgement. Employee acknowledges that he/she has read and
---------------
understood, and accepts, the provisions of this Amemdment.
IN WITNESS WHEREOF, the undersigned have executed this Amendment Number Two
to Employment Agreement by and between Diamond Technology Partners, Inc. and
Employee as of the date first written above.
EMPLOYEE
-------------------------------------
DIAMOND TECHNOLOGY PARTNERS, INC.
By:
----------------------------------
As its:
-2-
<PAGE>
EXHIBIT 10.6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
relating to 2,000,000 shares of
Common Stock of
Diamond Technology Partners, Inc.
Dated: March 22, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Diamond Technology Partners, Inc.
STOCK PURCHASE AGREEMENT
Table of Contents
-----------------
1. Purchase and Sale of Stock..................................... 1
1.1 Sale and Issuance of Common Stock........................ 1
1.2 Closing.................................................. 2
2. Representations and Warranties of the Company.................. 3
2.1 Organization, Good Standing and Qualification............ 3
2.2 Capitalization and Reservation of Shares................. 3
2.3 Subsidiaries............................................. 4
2.4 Authorization............................................ 4
2.5 Valid Issuance of Warrant and Common Stock............... 4
2.6 Financial Information.................................... 5
2.7 Assumptions or Guarantees of Indebtedness of Other
Persons.................................................. 5
2.8 Investments in Other Persons............................. 5
2.9 Governmental Consents.................................... 5
2.10 Litigation.............................................. 5
2.11 Proprietary Information and Noncompete Agreements....... 6
2.12 Intellectual Property................................... 6
2.13 Compliance with Other Instruments....................... 7
2.14 Agreements.............................................. 7
2.15 Business Plan........................................... 7
2.16 Registration Rights..................................... 7
2.17 Title to Property and Assets............................ 8
2.18 Changes................................................. 8
2.19 Environmental and Safety Laws........................... 9
2.20 Employee Benefit Plans.................................. 9
2.21 Tax Returns, Payments and Elections..................... 9
2.22 Insurance............................................... 9
2.23 Minute Books............................................ 9
2.24 Labor Agreements and Actions............................ 9
2.25 Disclosure.............................................. 10
2.26 Real Property Holding Corporation....................... 10
3. Representations, Warranties and Obligations of the Investors... 10
3.1 Representations and Warranties........................... 10
3.2 Further Limitations on Disposition....................... 12
3.3 Legends.................................................. 12
3.4 Board of Directors....................................... 13
4. Conditions of Each Investor's Obligations at the Initial
Closing....................................................... 13
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<PAGE>
4.1 Representations and Warranties........................... 13
4.2 Performance.............................................. 13
4.3 Compliance Certificate................................... 13
4.4 Proceedings and Documents................................ 13
4.5 Board of Directors....................................... 13
4.6 Management Group......................................... 13
4.7 Certain Ancillary Agreements............................. 13
4.8 Key-Man Insurance........................................ 14
4.9 Opinion of Company Counsel............................... 14
4.10 Securities Law Compliance............................... 14
5. Conditions of the Company's Obligations at Closing............. 14
5.1 Representations and Warranties........................... 14
5.2 Payment of the Purchase Price............................ 14
5.3 Ancillary Agreement...................................... 14
6. Registration Rights Generally.................................. 14
6.1 Definitions.............................................. 14
6.2 Request for Registration................................. 15
6.3 Company Registration..................................... 16
6.4 Obligations of the Company............................... 17
6.5 Furnish Information...................................... 18
6.6 Expenses of Demand Registration.......................... 18
6.7 Expenses of Company Registration......................... 18
6.8 Underwriting Requirements................................ 19
6.9 Delay of Registration.................................... 19
6.10 Indemnification......................................... 19
6.11 Reports Under Securities Exchange Act of 1934........... 22
6.12 Form S-3 Registration................................... 23
6.13 Assignment of Registration Rights....................... 24
6.14 Limitations on Subsequent Registration Rights........... 24
6.15 "Lock-up" Agreement..................................... 25
6.16 Mergers, Etc............................................ 26
6.17 Amendment of Registration Rights........................ 26
7. Special Registration in Connection with Rights Offering........ 27
7.1 Rights Offering.......................................... 27
7.2 Stock Split.............................................. 27
7.3 Rights Registration Statement............................ 28
7.4 Registration Services.................................... 28
7.5 Indemnification.......................................... 28
8 . Covenants of the Company...................................... 31
8.1 Delivery of Financial Statements........................ 31
8.2 Inspection; Observer Rights............................. 32
8.3 Employee Stock Issuances................................ 32
8.4 Right of First Offer.................................... 33
8.5 Insurance............................................... 34
8.6 Board of Directors...................................... 34
8.7 Other Affirmative Covenants............................. 34
8.8 Certain Negative Covenants.............................. 37
8.9 Indemnification......................................... 38
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<PAGE>
8.10 Employees 39
8.11 Termination of Certain Covenants 39
9. Miscellaneous 39
9.1 Survival of Warranties 39
9.2 Successors and Assigns 39
9.3 Governing Law 39
9.4 Counterparts 39
9.5 Titles and Subtitles 39
9.6 Notices 40
9.7 Finder's Fee 40
9.8 Expenses 40
9.9 Amendments and Waivers 40
9.10 Severability 41
9.11 Aggregation of Stock 41
INDEX Index of Defined Terms
SCHEDULE I Schedule of Purchase and Sale by Investors
SCHEDULE II Schedule of Purchase and Sale by Management Group
SCHEDULE III Schedule of Exceptions
EXHIBIT A Articles of Incorporation, as Amended
EXHIBIT B Form of Warrant
EXHIBIT C Form of Guarantee Undertaking
EXHIBIT D Capitalization
EXHIBIT E-1 Form of Partners Employment Agreement
EXHIBIT E-2 Form of Executive Employees Employment Agreement
EXHIBIT E-3 Form of Nondisclosure Agreement
EXHIBIT F Form of Voting and Stock Restriction Agreement
-iii-
<PAGE>
Diamond Technology Partners, Inc.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of March 22, 1994, by and between
Diamond Technology Partners, Inc., an Illinois corporation (the "Company"),
Melvyn E. Bergstein ("Bergstein") Christopher J. Moffitt ("Moffitt"), Safeguard
Scientifics, Inc., a Pennsylvania corporation ("Safeguard"), and the investors
listed on Schedule I hereto (each, an "Investor," and, together with Safeguard,
collectively, the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Common Stock.
---------------------------------
(a) The Company shall adopt and file with the Secretary of State of
the State of Illinois on or before the Closing (as defined below) the Articles
of Incorporation of the Company, as heretofore amended (the "Amended Articles")
in the form attached hereto as Exhibit A.
(b) Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties and covenants contained herein,
at the Initial Closing, the Second Closing and the Third Closing (as such terms
are defined in Section 1.2), each Investor agrees, severally but not jointly, to
purchase, and the Company agrees to sell and issue to each Investor, the number
of shares of the Company's Common Stock, no par value per share (the "Common
Stock"), to be purchased by such Investor on such date, and at the Initial
Closing Safeguard agrees to purchase, and the Company agrees to sell to
Safeguard, the warrant to purchase 500,000 of shares of Common Stock in the form
attached hereto as Exhibit B (the "Warrant"), in each case as set forth on
Schedule I hereto, in exchange for the purchase price to be paid therefor, as
set forth on Schedule I and Exhibit C hereto. Safeguard guarantees the
performance, to the extent required by the terms and conditions hereof, by each
of the other Investors of its obligations hereunder to purchase that number of
shares of Common Stock at each of the First Closing, the Second Closing and the
Third Closing as is set forth opposite such Investor's name on Schedule I
hereto; such guaranty is unconditional, irrevocable, unlimited and continuing.
(c) *
* This paragraph was amended and restated in its entirety pursuant to the First
Amendment to Diamond Technology Partners, Inc. Stock Purchase Purchase
Agreement.
<PAGE>
1.2 Closing.
-------
(a) The purchase and sale of the Common Stock and the Warrant to the
Investors shall be consummated in a series of three closings (collectively, the
"Closing"), the first of which (the "Initial Closing") shall take place at the
offices of Safeguard, 800 The Safeguard Building, 435 Devon Park Drive, Wayne,
Pennsylvania, at 10:00 a.m., on March 22, 1994, or at such other time and place
as the Company and Investors agree upon orally or in writing. At the Initial
Closing the Company shall deliver to each Investor a certificate representing
the Common Stock that such Investor is purchasing at the Initial Closing,
against delivery to the Company by such Investor of the full purchase price
therefor as set forth on Schedule I hereto, by cashier's or certified check
payable to the Company's order or by wire transfer to such account as the
Company shall designate or by conversion of notes issued by the Company to
certain Investors, at the option of such Investor, and the Company shall deliver
to Safeguard the executed Warrant against delivery to the Company of an executed
guarantee undertaking, in the form attached hereto as Exhibit C. No Investor
shall be obligated to purchase any shares of Common Stock or the Warrant at the
Initial Closing unless an aggregate of at least the minimum number of shares of
Common Stock to be sold to the Management Group on such date pursuant to
Schedule II hereto shall have been purchased or are concurrently purchased in
accordance with Schedule II, or arrangements, satisfactory in all respects to
the Investor, shall have been made for the purchase of such shares within 30
days after the Initial Closing.
(b) Subject to the provisions set forth herein, the purchase and sale
of the Common Stock remaining to be purchased by and sold to the Investors
hereunder shall be consummated on each of the date that is 60 days after the
Initial Closing (the "Second Closing") and the date that is 120 days after the
Initial Closing (the "Third Closing"), in each case at the same time and place
as the Initial Closing or at such time and place as the Company and the
Investors shall agree upon orally or in writing. At each of the Second Closing
and the Third Closing, the Company shall deliver to each Investor a certificate
representing the Common Stock that such Investor is purchasing at the Closing
against delivery to the Company by such Investor of the full purchase price
therefor as set forth on Schedule I hereto, by cashier's or certified check
payable to the Company's order or by wire transfer to such account as the
Company shall designate or by conversion of notes issued by the Company to
certain
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<PAGE>
Investors, at the option of such Investor. No Investor shall be obligated to
purchase any shares of Common Stock at the Second Closing or the Third Closing
unless the Management Group (i) shall have purchased the minimum number of
shares of Common Stock to be sold to it prior thereto in accordance with
Schedule II hereto and (ii) concurrently purchases an aggregate of at least the
minimum number of shares of Common Stock to be sold to the Management Group on
such date pursuant to Schedule II, or arrangements, satisfactory in all respects
to the Investor, shall have been made for the purchase of such shares within 30
days after the Second Closing or the Third Closing, as the case may be.
(c) The term "Closing" as hereinafter used in this Agreement shall
refer only to the Initial Closing unless otherwise specified or required by the
context.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions attached as Schedule III hereto, each of which exceptions shall
specifically identify the relevant subparagraph hereof to which it relates and
shall be deemed to be representations and warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of State of Illinois and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted in the
business plan dated November 1993 (the "Business Plan") heretofore furnished to
the Investors. The Company is not qualified to do business in any state other
than the State of Illinois but, when legally required to do so, shall become
duly qualified to transact business in each jurisdiction in which the failure so
to qualify would have a material adverse effect on its business or properties.
2.2 Capitalization and Reservation of Shares. The authorized capital of
----------------------------------------
the Company consists, or will consist at or prior to the Initial Closing, of
7,000,000 shares of Common Stock, of which 100 shares are issued and outstanding
and are owned by the persons and in the amounts specified in Exhibit D hereto.
Except for the shares of Common Stock to be issued pursuant to this Agreement or
upon exercise of the Warrant, the shares of Common Stock that may be issued
pursuant to Section 8.3 hereof and the rights of the Investors and the
Management Group under Section 8.4 hereof, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. The Company has reserved out of the authorized but unissued
capital stock 2,000,000 shares of
-3-
<PAGE>
Common Stock exclusively for issuance to the Investors hereunder, 500,000 shares
of Common Stock exclusively for issuance upon exercise of the Warrant, 1,500,000
shares of Common Stock exclusively for issuance to the Management Group in
accordance with Section 1.1 hereof and Schedule II hereto, and 1,500,000 shares
of Common Stock exclusively for issuance to employees pursuant to Section 8.3
hereof.
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association or
other business entity.
2.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement and the agreements attached hereto as exhibits or
as part of Schedule III (such agreements being herein referred to as the
"Ancillary Agreements"), the performance of all obligations of the Company under
each of the Agreement and the Ancillary Agreements, and the authorization,
issuance (or reservation for issuance) and delivery of the Common Stock being
sold hereunder and the Common Stock issuable upon exercise of the Warrant has
been taken or will be taken prior to the Initial Closing, and this Agreement and
the Ancillary Agreements constitute (or will constitute upon the execution
thereof) the valid and legally binding obligations of the Company and each of
the other parties thereto (other than the Investors), enforceable in accordance
with their respective terms.
2.5 Valid Issuance of Warrant and Common Stock.
------------------------------------------
(a) The Warrant and the Common Stock that are being purchased by the
Investors hereunder, when issued, sold and delivered in accordance with the
terms hereof or thereof, will be duly and validly issued, fully paid and
nonassessable and, assuming the accuracy of the representations of the Investors
in this Agreement, will be issued in compliance with all applicable federal and
state securities laws. The Common Stock issuable upon exercise of the Warrant
purchased under this Agreement has been duly and validly reserved for issuance
and, upon issuance in accordance with the terms of the Amended Articles, shall
be duly and validly issued, fully paid and nonassessable, and issued in
compliance with all applicable securities laws, as presently in effect, of the
United States and each of the states whose securities laws govern the issuance
of any of the Common Stock or the Warrant hereunder.
(b) The outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities laws.
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<PAGE>
2.6 Financial Information. The unaudited balance sheet of the Company as
---------------------
at March 1, 1994 (the "Opening Balance Sheet"), which is attached to the
Schedule of Exceptions, presents fairly the position of the Company as at the
date thereof in accordance with generally accepted accounting principles
("GAAP"). Except as set forth on the Schedule of Exceptions, the Company does
not have any liability, contingent or otherwise, that is not adequately
reflected in or reserved against in the Opening Balance Sheet.
2.7 Assumptions or Guarantees of Indebtedness of Other Persons. The
----------------------------------------------------------
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including without limitation liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in a debtor, or otherwise to assure a
creditor against loss), any indebtedness of any other person.
2.8 Investments in Other Persons. The Company has not made any advances
----------------------------
or loans to any person, nor is it committed or obligated to make any such loan
or advance, nor does the Company own any capital stock, assets comprising the
business of, obligations of, or any interest in, any person.
2.9 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the execution of this Agreement, the Ancillary
Agreements and the consummation of the transactions contemplated hereby or
thereby.
2.10 Litigation. Except as set forth on the Schedule of Exceptions,
----------
there is no action, suit, proceeding or investigation pending or currently
threatened against the Company of any nature whatsoever, including without
limitation any action, suit, proceeding or investigation which questions the
validity of this Agreement or any of the Ancillary Agreements, or the right of
the Company to enter into this Agreement or any of the Ancillary Agreements, or
to consummate the transactions contemplated hereby or thereby, nor is the
Company aware that there is any basis for the foregoing. The foregoing also
includes without limitation actions pending or threatened (or any basis therefor
known to the Company) against the Company or any of its key employees, in each
case involving the prior employment of any of the Company's employees, their use
in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is
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<PAGE>
no action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
2.11 Proprietary Information and Noncompete Agreements. The employees of
-------------------------------------------------
the Company identified on the Schedule of Exceptions constitute all of the
officers and key employees of the Company as of the date hereof, and each such
employee who is a partner has executed an employment agreement in the form
attached hereto as Exhibit E-1, each such employee who is an executive employee
has executed an employment agreement in the form attached hereto as Exhibit E-2,
and each other employee has executed a non-disclosure agreement in the form
attached hereto as Exhibit E-3. The Company, after reasonable investigation, is
not aware that any of its employees is in violation thereof, and the Company
will use its best efforts to prevent any such violation.
2.12 Intellectual Property. The Company has sufficient title and
---------------------
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes (the foregoing,
"Intellectual Property") used in its business as now conducted and as proposed
to be conducted as described in the Business Plan without any conflict with or
infringement of the rights of others. A list of all patents, patent
applications, trademarks, service marks, tradenames, and copyrights owned by the
Company is set forth in the Schedule of Exceptions. There are no outstanding
options, licenses, or agreements of any kind to which the Company is a party or
by which it is bound relating to any Intellectual Property, whether owned by the
Company or another person or entity. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the Intellectual Property or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interests
of the Company or that would conflict with the Company's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
-6-
<PAGE>
2.13 Compliance with Other Instruments. The Company is in compliance
---------------------------------
with each provision of its charter documents and bylaws, and with each judgment,
order, writ or decree, and with each material contract, agreement, instrument
and commitment to which it is a party or by which it is bound (collectively, the
"Material Contracts"), and each statute, rule or regulation applicable to the
Company, its assets or its business, and is not in violation or default of any
of the foregoing. A list of all of the Material Contracts is set forth on the
Schedule of Exceptions. There is no term or provision in any of the Material
Contracts which materially adversely affects the business (as now conducted or
as proposed to be conducted in the Business Plan), assets or financial condition
of the Company. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not result in any
such violation or be in conflict with or constitute, with or without the passage
of time or giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
2.14 Agreements.
----------
(a) Except for agreements explicitly contemplated hereby, there are
no agreements between the Company and any of its officers, directors,
affiliates, employees or shareholders.
(b) Except as set forth on the Schedule of Exceptions, there are no
agreements to which the Company is a party or by which it is bound that involve
obligations of, or payments to, the Company in excess of $10,000.
2.15 Business Plan. The Business Plan has been prepared in good faith by
-------------
the senior management of the Company and does not contain any untrue statement
of a material fact nor does it omit to state a material fact necessary to make
the statements made therein not misleading in light of the circumstances in
which they are made, except that with respect to projections contained in the
Business Plan (and the revisions, with respect to the first two years thereof,
provided by letter dated January 4, 1994 to Mr. Don Caldwell from Moffitt) (the
"Letter Revisions"), the Company represents only that such projections were
prepared in good faith and that the Company reasonably believes the assumptions
upon which such projections are based are reasonably likely to occur.
2.16 Registration Rights. Except as provided in Section 6 of this
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including without limitation piggyback rights, to any person or entity.
-7-
<PAGE>
2.17 Title to Property and Assets. The Company has good and marketable
----------------------------
title to its property and assets free and clear of all mortgages, liens, claims
and encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
or the value of such property or assets. With respect to the property and
assets it leases, the Company is in compliance with such leases, enjoys peaceful
and undisturbed possession thereunder, and, holds a valid leasehold interest
free of any liens, claims or encumbrances.
2.18 Changes. Except as set forth on the Schedule of Exceptions, since
-------
November 1993, there has not been:
(a) any change in the projections contained in the Business Plan
except for the Letter Revisions;
(b) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any capital stock of the Company;
(c) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(d) any waiver by the Company of a valuable right or of a material
debt owed to it;
(e) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(f) any change or amendment to a material contract or arrangement
by which the Company or any of its assets or properties is bound or subject;
(g) any material change in any compensation arrangement or
agreement with any employee; or
(h) to the Company's knowledge, any other event or condition of any
character that might materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company (as such
business is presently conducted and as it is proposed to be conducted).
-8-
<PAGE>
2.19 Environmental and Safety Laws. The Company is not in violation of
-----------------------------
any applicable statute, law or regulation relating to the environment or
occupational safety and health, and no material expenditures will be required in
order to comply with any such statute, law or regulation except in the ordinary
course of doing business.
2.20 Employee Benefit Plans. The Company does not have any employee
----------------------
benefit plan as defined in the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
2.21 Tax Returns, Payments and Elections. The Company has timely filed
-----------------------------------
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due.
2.22 Insurance. The Company has in full force and effect (i) fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and (ii) such other insurance policies as
are listed in the Schedule of Exceptions.
2.23 Minute Books. The minute books of the Company provided to the
------------
Investors contain a complete summary of all meetings of directors and
stockholders or partners since the time of incorporation or creation and reflect
all transactions referred to in such minutes or records accurately in all
material respects.
2.24 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, that could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its employees. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate his, her or its employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing. The employment of each employee of the Company is terminable at the
will of the Company (subject, in certain cases, to 30 days' notice of
termination) without further liability of the Company
-9-
<PAGE>
to such employee except for the payment of such employee's normal salary accrued
but not paid through the date of such termination.
2.25 Disclosure. The Company has fully provided each Investor with all
----------
the information which such Investor has requested in writing from the Company or
the Management Group for deciding whether to purchase the Common Stock and, in
the case of Safeguard, the Warrant. None of this Agreement, any exhibit or
schedule hereto, any certificate furnished in connection herewith or the
Business Plan contains any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact within the knowledge of the Company or
any of its officers which has not been disclosed herein or in writing by them to
the Investors, and that materially adversely affects, or in the future in the
opinion of the Company or its officers may, insofar as they can now foresee,
materially adversely affect the business, properties, assets or condition,
financial or otherwise, of the Company, except for any facts generally available
to the public relating to the future of the consulting industry in general.
2.26 Real Property Holding Corporation. The Company is not and has never
---------------------------------
been a "United States real property holding corporation," (as that term is
defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended
(the "Code") and Treasury Regulation Section 1.897-2(b), and shall timely made
all filings required by Treasury Regulation Section 1.897-2(h)(l). If at any
time in the future the Company shall become a "United States real property
holding corporation," the Company shall, as promptly as practicable, so notify
each foreign investor.
3. Representations, Warranties and Obligations of the Investors.
------------------------------------------------------------
3.1 Representations and Warranties. Each Investor, severally with
------------------------------
respect to such Investor but not jointly nor with respect to any other Investor,
hereby represents and warrants that:
(a) Purchase Entirely for Own Account. This Agreement is made with each
---------------------------------
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Common Stock to be received by such Investor, or the Warrant to be
received by such Investor and, in the case of Safeguard, the Common Stock
issuable upon exercise of the Warrant, as the case may be (collectively, the
"Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing
-10-
<PAGE>
the same, but subject to the ability of such of the Investors as may be
partnerships to distribute its assets to its partners. By executing this
Agreement, each Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant any participation to such person or to any third person, with
respect to any of the Securities. Each Investor represents that it has full
power and authority to enter into this Agreement.
(b) Investment Experience. Each Investor is an investor in securities or
---------------------
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Common Stock and the Warrant. Each
Investor also represents that it is an "accredited investor" as that term is
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended (the "Act") and that it has not been organized for the purpose
of acquiring the Common Stock or the Warrant.
(c) Restricted Securities. It understands that the shares of Common Stock
---------------------
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may not be resold without registration
under the Act, except in certain limited circumstances. In this connection,
each Investor represents that it is familiar with Rules 144 and 144A under the
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
(d) Access. Each Investor represents and warrants that it has requested
------
in writing from the Company all of the information that it has deemed necessary
in order to decide whether to purchase the Common Stock and, in the case of
Safeguard, the Warrant, and that it has received from the Company all of such
information.
(e) Authorization. All actions on the part of such Investor, and of its
-------------
officers, directors and shareholders or its partners, as the case may be, that
are necessary for the authorization, execution, delivery and performance of this
Agreement have been taken, and this Agreement constitutes the valid and legally
binding obligation of such Investor, enforceable in accordance with its terms.
(f) No Conflicts. The execution, delivery and performance of this
------------
Agreement by such Investor and the consummation of the transactions contemplated
hereby will not (and would not, with the passage of time or the giving of
notice) constitute or result
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<PAGE>
in any violation, breach, or default under, or conflict with, any provision of
such Investor's charter documents or bylaws or governing partnership agreement,
or of any judgment, order, writ or decree, or of any material contract,
agreement, instrument or commitment to which it is a party or by which it is
bound, or of any statute, rule or regulation applicable to such Investor.
3.2 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, each Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until:
(a) there is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion reasonably satisfactory to the Company of counsel, reasonably
satisfactory to the Company, that such disposition will not require registration
of such shares under the Act. It is agreed that the Company will not require an
opinion of counsel for any transactions made by an Investor pursuant to Rule 144
or 144A.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by an Investor which is a partnership to a partner of such partnership or a
retired partner of such partnership who retires after the date hereof, or to the
estate of any such partner or retired partner or the transfer by gift, will or
intestate succession of any partner to his spouse or lineal descendants or
ancestors, if the transferee agrees in writing to be subject to the terms hereof
to the same extent as if he were an original Investor hereunder.
3.3 Legends. It is understood that the certificates evidencing the
-------
Common Stock (and the Common Stock issuable upon conversion thereof) shall bear
the following legend:
These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated in
the absence of a registration statement in effect with respect to the
securities under such Act or an opinion of counsel, satisfactory to the
Company, that such registration is not required, or unless sold pursuant
to Rule 144 or 144A under such Act.
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<PAGE>
3.4 Board of Directors. The Investors shall vote their Common Stock in
------------------
accordance with the provisions of the form of Voting and Stock Restriction
Agreement attached hereto as Exhibit F.
4. Conditions of Each Investor's Obligations at the Initial Closing.
The obligations of each Investor under Section 1 of this Agreement are subject
to the fulfillment on or before the Initial Closing of each of the following
conditions, the waiver of which shall not be effective against any Investor that
does not consent in writing thereto:
4.1 Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in Section 2 shall be true on and as of the Initial
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Initial Closing.
4.2 Performance. The Company shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Initial
Closing.
4.3 Compliance Certificate. The President of the Company shall deliver
----------------------
to each Investor at the Initial Closing an accurate certificate certifying that
the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating
that there shall has been no adverse change in the business, affairs, prospects,
operations, properties, assets or condition of the Company since November 1993.
4.4 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Initial Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Investor and Morgan, Lewis & Bockius, and the Investors shall
have received all such counterpart original and certified or other copies of
such documents as they may reasonably request.
4.5 Board of Directors. The directors of the Company shall consist of
------------------
the persons designated in accordance with the provisions of Section 3.4 hereof.
4.6 Management Group. The Management Group shall have purchased, and
----------------
shall purchase concurrently, the minimum number of shares of Common Stock
required to be purchased by it in accordance with Section 1.1 hereof and
Schedule II hereto.
4.7 Certain Ancillary Agreements. A Voting and Stock Restriction
----------------------------
Agreement in the form attached as Exhibit F shall have been executed and
delivered by each member of the Management Group.
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4.8 Key-Man Insurance. The Company shall have obtained, and shall have
-----------------
furnished to the Investors copies of, term insurance (or binders with respect
thereto) on the lives of each of Bergstein and Moffitt, in each case in the
amount of $1.5 million and with the proceeds payable solely to the Company.
4.9 Opinion of Company Counsel. The Investors shall have received from
--------------------------
Gordon & Glickson, P.C., counsel for the Company, an opinion, dated as of the
Closing, in form and substance reasonably acceptable to the Investors.
4.10 Securities Law Compliance. The Company shall have complied with all
-------------------------
requirements of federal and state securities or "blue sky" laws with respect to
the issuance of the Common Stock to the Investors hereunder.
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company under Section 1 of this Agreement are subject to the fulfillment
on or before the Initial Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and warranties
------------------------------
of the Investors contained in Section 3 shall be true on and as of the Initial
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Initial Closing.
5.2 Payment of the Purchase Price. The Investors shall have delivered
-----------------------------
the purchase price to be paid at the Initial Closing in accordance with Section
1.2 hereof and Schedule I hereto.
5.3 Ancillary Agreement. A Voting and Stock Restriction Agreement in the
-------------------
form attached as Exhibit F shall have been executed and delivered on behalf of
each of the Investors.
6. Registration Rights Generally. The Company covenants and agrees as
-----------------------------
follows:
6.1 Definitions. For purposes of this Section 6:
-----------
(a) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(b) The term "Registrable Securities" means (i) the Common Stock
issued to Investors hereunder, (ii) the Common Stock issued to an Investor upon
exercise of the Warrant, (iii) the Common Stock issued to the Management Group
in accordance with Section 1.1 hereof and Schedule II hereto, and (iv) any
Common
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<PAGE>
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Common Stock, excluding in all cases, however, any Registrable Securities sold
by a person in a transaction in which the person's rights under this Section 6
are not assigned.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined based upon the number of (i) outstanding shares of Common
Stock which are Registrable Securities, (ii) Warrant Shares issuable upon
exercise of the Warrant and (iii) shares of Common Stock issuable pursuant to
then exercisable or convertible securities which are Registrable Securities.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities hereunder or any assignee thereof in accordance
with Section 6.13 hereof.
(e) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission ("SEC") which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
6.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of (i)
the fourth anniversary of date of this Agreement or (ii) six months after the
effective date of the first registration statement for a public offering of
securities of the Company, a written request from the Holders of a majority of
the Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of at least 20 percent of the
Registrable Securities then outstanding (or a lesser percent if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $2 million), then the Company shall, within ten days after the receipt
thereof, give written notice of such request to all Holders, and shall, subject
to the limitations of subsection 6.2(b), effect as soon as practicable, and in
any event within 90 days of the receipt of such request, the registration under
the Act of all Registrable Securities which the Holders request to be registered
within 20 days after the mailing of such notice by the Company in accordance
with Section 9.6. Neither the Company nor any person other than the Holders
shall be entitled to include shares in the registrations made under this Section
6.2.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the
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<PAGE>
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 6.2 and the Company shall include such information in the written
notice referred to in Section 6.2(a). In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
(together with the Company as provided in Section 6.4(e)) in customary form with
the underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 6.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the number
of shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating Holders,
in proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder.
(c) The Company is obligated to effect only one registration pursuant
to this Section 6.2.
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 6.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would have a
materially adverse effect upon the Company and its shareholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
of the Initiating Holders; provided, however, that the Company may not utilize
this right more than once in any 12-month period.
6.3 Company Registration. If (but without any obligation to do so) the
--------------------
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its capital stock
or other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, or a registration on
any form which does not include substantially the same information, other than
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<PAGE>
information related to the selling shareholders or their plan of distribution,
as would be required to be included in a registration statement covering the
sale of the Registrable Securities), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written request
of each Holder given within 20 days after mailing of such notice by the Company
in accordance with Section 9.6, the Company shall, subject to the provisions of
Section 6.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
6.4 Obligations of the Company. Whenever required under this Section 6
--------------------------
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 120 days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required to qualify to do business or to
file a general consent to service or process in any such states of
jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
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<PAGE>
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) In the case of an underwritten public offering, furnish, at the
request of any Holder requesting registration of Registrable Securities pursuant
to this Section 6, on the date that such Registrable Securities are delivered to
the underwriters for sale in connection with a registration pursuant to this
Section 6, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters.
6.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 6 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
6.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 6.2, including
without limitation all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company.
6.7 Expenses of Company Registration. The Company shall bear and pay all
--------------------------------
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
6.3 for each Holder (which right may be assigned as provided in Section 6.13),
including without limitation all registration, filing, and qualification fees,
printers and accounting fees relating or allocable thereto and the reasonable
fees and disbursements of one counsel for the selling Holders selected by them,
but
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<PAGE>
excluding underwriting discounts and commissions relating to Registrable
Securities.
6.8 Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of shares being issued by the Company, the Company shall not be
required under Section 6.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall the amount of securities of
the selling Holders included in the offering be reduced below 25 percent of the
total amount of securities included in such offering, unless such offering is
the initial public offering of the Company's securities in which case the
selling Holders may be excluded if the underwriters make the determination
described above and no other shareholder's securities are included. For
purposes of the preceding parenthetical concerning apportionment, for any
selling Holder which is partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder," and
any pro-rata reduction with respect to such "selling shareholder" shall be
based upon the aggregate amount of shares carrying registration rights owned by
all entities and individuals included in such "selling shareholder," as defined
in this sentence.
6.9 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 6.
6.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 6:
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<PAGE>
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus (but only if
such is not corrected in the final prospectus) contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading (but only if such is not corrected in
the final prospectus) or (iii) any violation or alleged violation by the Company
in connection with the registration of Registrable Securities under the Act, the
1934 Act, any state securities law or any rule or regulation promulgated under
the Act, the 1934 Act or any state securities law; and the Company will pay to
each such Holder, underwriter or controlling person, as incurred, any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 6.10(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation
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<PAGE>
occurs in reliance upon and in conformity with written information furnished by
such Holder expressly for use in connection with such registration; and each
such Holder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this Section
6.10(b), in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 6.10(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; provided, that, in no event shall any indemnity under
this Section 6.10(b) exceed the gross proceeds from the offering received by
such Holder.
(c) If the indemnification provided for in this Section 6.10 is
unavailable or insufficient to hold harmless an indemnified party under Section
6.10(a) or (b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities referred to in
Section 6.10(a) or (b) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. Relative fault 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 each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The parties agree that it would not be just and
equitable if contributions pursuant to this Section 6.10(c) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to in the next
preceding sentence. The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this Section 6.10(c) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any loss, claim, damage, liability or
proceeding which is the subject of this Section 6.10(c). 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.
(d) Promptly after receipt by an indemnified party under this Section
6.10 of notice of the commencement of any action (including any governmental
action), such indemnified
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<PAGE>
party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 6.10, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
6.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 6.10.
(e) The obligations of the Company and the Holders under this Section
6.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 6, and otherwise.
6.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rules 144 and 144A promulgated
under the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days following the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public.
(b) Take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective.
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<PAGE>
(c) File with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act.
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company as to
its compliance with the reporting requirements of SEC Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or as to its qualification that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such rule or
regulation.
6.12 Form S-3 Registration. In case the Company shall receive from any
---------------------
Holder or Holders of at least 10 percent of the Registrable Securities then
outstanding a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) Promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders.
(b) As soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 6.12: (i) if Form S-3 is
not available for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that
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in the good faith judgment of the Board of Directors of the Company, it would
have a materially adverse effect on the Company and its shareholders for such
Form S-3 Registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration statement
for a period of not more than 60 days after receipt of the request of the Holder
or Holders under this Section 6.12; provided, however, that the Company shall
not utilize this right more than once in any 12-month period; (iv) if the
Company has, within the 12-month period preceding the date of such request,
already effected one registration on Form S-3 for the Holders pursuant to this
Section 6.12; (v) if the Company has already effected three registrations on
Form S-3 for the Holders pursuant to this Section 6.12; or (vi) in any
particular jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with the registrations
requested pursuant to Section 6.12, including without limitation all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, shall be borne by the Company. Any underwriters'
discounts or commissions associated with Registrable Securities pursuant to
Section 6.12 shall be borne pro rata by the Holder or Holders participating in
the Form S-3 Registration. Registrations effected pursuant to this Section 6.12
shall not be counted as demands for registration or registrations effected
pursuant to Sections 6.2.
6.13 Assignment of Registration Rights. The rights to cause the Company
---------------------------------
to register Registrable Securities pursuant to this Section 6 may be assigned by
a Holder to a transferee or assignee of any Registrable Securities; provided,
however, the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; and provided, further, that such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act; and provided,
further, that registration rights may not be transferred to a competitor of the
Company.
6.14 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of
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<PAGE>
the outstanding Registrable Securities, enter into any agreement with any holder
or prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 6.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of such holder's securities
will not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in Section 6.2(a)(i) or (ii) or within 120 days of the
effective date of any registration effected pursuant to Section 6.2.
6.15 "Lock-up" Agreement.
-------------------
(a) Each Holder agrees, if so requested by the Company or an
underwriter of Common Stock or other securities of the Company, not to sell,
grant any option or right to buy or sell, or otherwise transfer or dispose in
any manner (whether in privately-negotiated or open-market transactions) of any
Common Stock (or other securities) of the Company held by such Holder during the
180-day period following the effective date of the registration statement filed
under the Act in connection with the initial public offering of the Common
Stock, provided that: (i) such agreement shall apply only to the initial public
offering of the Common Stock and (ii) all Holders, any holders of Common Stock
whose securities are included in such registration statement, and all officers,
directors and key employees of the Company shall also enter into, and be bound
by, similar agreements. Such agreement shall be in writing and in a form
satisfactory to the Company and such underwriter, and may be included in the
underwriting agreement. The Company may impose stop-transfer instructions with
respect to the securities subject to the foregoing restriction until the end of
the 180-day period.
No Holder shall be so restricted unless all shareholders are similarly and
proportionally restricted.
(b) Each Holder agrees that if, after its initial registered public
offering of Common Stock, the Company proposes to offer any its Common Stock or
other equity securities for sale to the public and:
(i) if such Holder is an "affiliate" of the Company (e.g.,
because a general partner of the Holder is a director of the Company) or
otherwise holds beneficially or of record ten percent or more of the outstanding
equity securities of the Company;
-25-
<PAGE>
(ii) if so requested by the Company or an underwriter of Common
Stock or other securities of the Company; and
(iii) if all other similarly situated "affiliates" and ten-
percent beneficial holders are requested by the Company and such underwriter to
sign, and actually do sign, a lock-up agreement containing the restrictions
described herein;
then, such Holder will not sell, grant any option or right to buy or sell, or
otherwise transfer or dispose in any manner to the public in open-market
transactions any Common Stock (or other securities) of the Company held by such
Holder during the 90-day period following the effective date of the registration
statement filed under the Act. Such agreement shall be in writing and in form
and substance reasonably satisfactory to the Holder, the Company and such
underwriter. The Company may impose stop-transfer instructions with respect to
the securities subject to the foregoing restriction until the end of the 90-day
period.
6.16 Mergers, Etc. The Company shall not, directly or indirectly, enter
-------------
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Section 6, and for that purpose
references herein to Registrable Shares shall be deemed to be references to the
securities which the Investors would be entitled to receive in exchange for
Registrable Shares under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 6.16 shall not apply in
the event of any merger, consolidation or reorganization in which the Company is
not the surviving corporation if all Holders are entitled to receive in exchange
for their Registrable Shares consideration consisting solely of (a) cash, (b)
securities of the acquiring corporation which may be immediately sold to the
public without registration under the Act or (c) securities of the acquiring
corporation which the acquiring corporation has agreed to register for resale to
the public under the Act within 90 days after completion of the merger,
consolidation or reorganization.
6.17 Amendment of Registration Rights. Any provision of this Section 6
--------------------------------
may be amended or the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities then held by the Investors. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such
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<PAGE>
securities are convertible), each future holder of all such securities, and the
Company.
7. Special Registration in Connection with Rights Offering.
-------------------------------------------------------
7.1 Rights Offering.
---------------
(a) *
(b) Safeguard may initiate the Rights Offering at any time during
the period between the second and eighth anniversaries of the Initial Closing at
such time as the total market value of the Company is at least $30 million,
which determination shall be made in good faith, upon request by Safeguard from
time to time, by the Board of Directors of the Company with the assistance and
advice of such experts or consultants as the Board may choose to retain, if any.
(c) The gross proceeds of the Rights Offering, less the aggregate
amount of the underwriting discounts and commissions paid in respect of all the
Rights, shall be shared equally by the Company and Safeguard.
7.2 Stock Split. After Safeguard has notified the Company of its
-----------
intention to commence the Rights Offering, the Company
-27-
* This paragraph was amended and restated in its entirety pursuant to the First
Amendment to Diamond Technology Partners, Inc. Stock Purchase Agreement.
<PAGE>
shall, prior to the filing of the Rights Registration Statement (or such earlier
date as may be agreed to by the Company and Safeguard), take all such actions as
shall be necessary to cause a split of the Common Stock in such ratio as
Safeguard shall determine. All references to share amounts in this Agreement
other than as specifically noted shall be deemed to refer to share amounts prior
to such split.
7.3 Rights Registration Statement. Upon notice by Safeguard to the
-----------------------------
Company of its intention to commence the Rights Offering, the Company shall
promptly prepare the Rights Registration Statement on Form S-1, or any form then
applicable under the Act, to register under the Act the Rights and the shares of
Common Stock to be issued upon exercise of the Rights (the "Rights Shares").
The Company covenants that the Rights Registration Statement and the prospectus
included therein shall be in form reasonably satisfactory to Safeguard, shall
comply in all respects with the Act and the rules and regulations thereunder,
and shall not 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 light of the circumstances under which they were made,
not misleading.
7.4 Registration Services. The Company shall cause its regular counsel
---------------------
and auditors and the Company's employees to render such assistance in
consummating the Rights Offering, at the Company's expense, as is customary in
the consummation by a company of its initial public offering. Safeguard also
may engage special legal counsel, one or more rights, registrar and transfer
agents, and such other consultants as Safeguard may deem necessary or desirable
in connection with the Rights Offering, the expenses of which shall be paid by
the Company. In addition, Safeguard may require the Company to engage a
registered broker-dealer of Safeguard's designation, subject to the reasonable
approval of the Company, to provide such services in connection with the Rights
Offering as Safeguard may deem reasonably necessary or desirable, including
without limitation to effect or underwrite the offering of the Rights or the
Rights Shares in states in which applicable state laws require that a registered
broker-dealer effect such offering. The Company shall bear and pay all expenses
incurred in connection with the registration, filing or qualification of the
Rights, excluding the underwriting discounts and commissions relating to one-
half of the Rights, which discounts and commissions shall be borne by Safeguard.
7.5 Indemnification.
---------------
(a) To the extent permitted by law, the Company will indemnify and
hold harmless Safeguard, its executive officers, directors, each person who
controls Safeguard within the meaning of the Act, each person who participates
as an underwriter and
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<PAGE>
each person who controls any such participating underwriter against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively, a "Rights Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in the Rights Registration
Statement, including any preliminary prospectus (but only if such is not
corrected in the final prospectus) contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading (but only if such is not corrected in the final
prospectus) or (iii) any violation or alleged violation by the Company in
connection with the registration of the Rights or the Rights Shares under the
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state securities law; and the
Company will pay to each such person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 7.5(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Rights Violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by such person.
(b) To the extent permitted by law, Safeguard will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, each person who participates as an underwriter
and each person who controls any such participating underwriter against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Rights
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by Safeguard expressly for use in connection with the Rights
Registration
-29-
<PAGE>
Statement; and Safeguard will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
Section 7.5(b), in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 7.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Safeguard, which consent shall not
be unreasonably withheld; provided, however, that in no event shall any
indemnity under this Section 7.5(b) exceed the gross proceeds from the offering
received by Safeguard.
(c) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section
7.5(a) or (b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities referred to in
Section 7.5(a) or (b) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. Relative fault 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 each indemnifying party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The parties agree that it would not be just and
equitable if contributions pursuant to this Section 7.5(c) were to be determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in the next preceding
sentence. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities, or actions in respect thereof, referred to in
the first sentence of this Section 7.5(c) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any loss, claim, damage, liability or proceeding
which is the subject of this Section 7.5(c). 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.
(d) Promptly after receipt by an indemnified party under this
Section 7.5 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 7.5, deliver to
the
-30-
<PAGE>
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.5, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 7.5.
(e) The obligations of the Company and Safeguard under this Section
7.5 shall survive the completion of the Rights Offering in a Rights Registration
Statement under this Section 7, and otherwise.
8. Covenants of the Company.
------------------------
8.1 Delivery of Financial Statements. The Company shall deliver to each
--------------------------------
Investor:
(a) As soon as practicable, but in any event within 90 days after
the end of each fiscal year of the Company, the balance sheet of the Company as
of the end of such fiscal year, statements of operations of the Company for such
fiscal year and statements of cash flow of the Company for such fiscal year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with GAAP, and audited and certified by independent public
accountants of nationally recognized standing selected by the Company.
(b) As soon as practicable, but in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the Company,
an unaudited balance sheet of the Company as at the end of such fiscal quarter,
and unaudited statements of operations and statements of cash flow for such
fiscal quarter, in reasonable detail and prepared in accordance with GAAP.
(c) Within 30 days after the end of each month, an unaudited balance
sheet of the Company as at the end of such month, and unaudited statements of
operations and statements of
-31-
<PAGE>
cash flow for such month, in reasonable detail and prepared in accordance with
GAAP, together with an analysis by management of the Company's financial
condition and results of operations during such period and explanation by
management of any differences between such condition or results and the budget
and business plan for such period.
(d) As soon as practicable, but in any event 30 days prior to the
end of each fiscal year, a budget and business plan for the next fiscal year,
prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company.
(e) With respect to the financial statements called for in Section
8.1(b) and (c), an instrument executed by the Chief Financial Officer or
President of the Company and certifying that such financial statements were
prepared in accordance with GAAP consistently applied with prior practice for
earlier periods and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to normal year-end
audit adjustment, and certifying that such officer has reviewed the provisions
of this Agreement and has no knowledge of any default by the Company in the
performance or observance of any of the provisions of this Agreement or, if such
officer has such knowledge, specifying such default and the nature thereof.
(f) Such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor may from
time to time reasonably request.
8.2 Inspection; Observer Rights. The Company shall permit each Investor,
---------------------------
at such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by the Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 8.2 to provide access to any information that
it reasonably considers to be a trade secret or the disclosure of which the
Company reasonably believes may adversely affect its business. The Company will
give each Investor (or any representative designated by such Investor) not less
than two days' prior written notice of each meeting of the Board of Directors of
the Company and of any committee of the Board of Directors, specifying the time
and place of such meeting and, to the extent then known, the matters to be
discussed thereat and inviting each such Investor (or such representative) to
attend and participate therein (without, however, a right to vote thereat in
such capacity).
-32-
<PAGE>
8.3 Employee Stock Issuances. Each of the parties to this Agreement
------------------------
consents and agrees that after the date hereof the Company may issue, or grant
options with respect to, that number of shares of Common Stock (adjusted to
reflect subsequent stock dividends, stock splits or recapitalizations) as shall
be determined pursuant to the next succeeding sentence, to such employees of the
Company, as may be determined and specified from time to time, at any time after
the date of this Agreement, by the Chief Executive Officer of the Company, based
upon such information and committee recommendations as he deems necessary; it is
anticipated that such options will carry five-year, proportional vesting.*
During the first year after the date of this Agreement, the purchase price of
any shares of Common Stock issued, and the exercise price of any options
granted, to employees pursuant to this Section 8.3 shall be equal to $1.50 per
share, or underlying share, of Common Stock, as the case may be. From the first
anniversary of the date of this Agreement until thereafter changed by action of
the Board of Directors, the purchase price of any shares of Common Stock issued,
and the exercise price of any options granted, to employees pursuant to this
Section 8.3 shall be equal to $2.00 per share, or underlying share, of Common
Stock, as the case may be.
8.4 Right of First Offer. Subject to the terms and conditions specified
--------------------
in this paragraph 8.4, the Company hereby grants to each Investor and to each
member of the Management Group (in each case, so long as such person holds at
least 2% of the aggregate number of shares of Common Stock purchased hereunder
by all of the Investors or the Management Group and the Common Stock issued, or
issuable, upon exercise of the Warrant (collectively, the "Eligible
Purchasers"), adjusted to reflect subsequent changes after the date hereof in
the number of shares of Common Stock outstanding by reason of stock dividends,
stock splits or recapitalizations or the like), a right of first offer with
respect to future sales by the Company of its Shares (as hereinafter defined).
Each time the Company proposes to offer any shares of, or securities convertible
into or exercisable for any shares of, any class of its capital stock
("Shares"), the Company shall first make an offering of such Shares to each
Eligible Purchaser in accordance with the following provisions:
(a) The Company shall deliver a notice pursuant to Section 9.6
("Notice") to each of the Eligible Purchasers stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered and
(iii) the price, if any, for which it proposes to offer such Shares.
-33-
* This paragraph was amended and restated in its entirety pursuant to the
Second Amendment to the Stock Purchase Agreement.
<PAGE>
(b) Within 15 calendar days after mailing of the Notice, each
Eligible Purchaser may elect to purchase, at the price and on the terms
specified in the Notice, all but not less than all of such Shares which equals
(such number of Shares, the "First Offer Shares") the proportion that (x) the
number of shares of Common Stock then held, or Warrant Shares issuable upon
exercise of the Warrant, by such Eligible Purchaser bears to (y) the aggregate
number of shares of Common Stock then held by all Eligible Purchasers and
Warrant Shares issuable upon exercise of the Warrant by any Eligible Purchaser.
(c) The Company may, during the 120-day period following the
expiration of the period provided in Section 8.4(b) hereof, offer any Shares
which have not been subscribed for pursuant to Section 8.4(b) to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than, those specified in the Notice. If the Company does not consummate
the proposed sale of the Shares within such period, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
re-offered to the Eligible Purchaser in accordance herewith.
(d) The right of first offer in this Section 8.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) pursuant to Section 8.3 hereof, (ii) to shares issued or issuable by
the Company in connection with any merger or reorganization transaction in which
the Company is the surviving company, (iii) to the Rights Shares, (iv) to the
Warrant Shares or (v) to or after consummation of the Company's sale of its
Common Stock to the public in a bona fide, firm commitment underwriting pursuant
to a registration statement on Form S-1 under the Act (or any equivalent
successor form).
8.5 Insurance. The Company shall maintain term insurance on the lives of
---------
each of Bergstein and Moffitt, in each case in the amount of $1.5 million, with
the proceeds payable solely to the Company.
8.6 Board of Directors. The Company shall use its best efforts to fix
------------------
and maintain the number of directors on the Board of Directors of the Company at
five and to cause and maintain the election to the Board of Directors of the
persons designated from time to time in accordance the provisions of the form of
Voting and Stock Restriction Agreement attached hereto as Exhibit F. The Company
shall promptly reimburse such directors for any expenses incurred by them in
connection with their activities as directors of the Company. The Company shall
indemnify each of such directors against liability to the fullest extent
permitted by applicable law. The Company shall hold meetings of its Board of
Directors not less than once every three months.
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<PAGE>
8.7 Other Affirmative Covenants. Without limiting any other covenants
---------------------------
and provisions hereof, the Company covenants and agrees that it will perform and
observe, and cause each of its subsidiaries in existence from time to time to
observe and perform, the following covenants and provisions, unless, with
respect to a specific transaction, a waiver of certain specified provisions of
this Section 8.7 in connection solely with such transaction is given by the
affirmative vote of the holders of no less than 66-2/3% of the outstanding
shares of Common Stock then held, or Warrant Shares issuable upon exercise of
the Warrant, by any of the Investors:
(a) Payment of Taxes and Trade Debt. Pay and discharge all taxes,
-------------------------------
assessments and governmental charges or levies imposed upon it or upon its
income, profits or business, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the Company,
provided that the Company shall not be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company shall have set aside on its books sufficient
reserves, if any, with respect thereto. Pay, when due, or in conformity with
customary trade terms but not later than 90 days from the due date, all lease
obligations, all trade debt, and all other indebtedness incident to the
operations of the Company, except such as are being contested in good faith and
by proper proceedings if the Company shall have set aside on its books
sufficient reserves, if any, with respect thereto.
(b) Maintenance of Insurance. Maintain insurance with responsible
------------------------
and reputable insurance companies or associations in such amounts and covering
such risks as is customarily carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which the Company
operates, but in any event in amounts sufficient to prevent the Company from
becoming a co-insurer.
(c) Preservation of Corporate Existence. Preserve and maintain its
-----------------------------------
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified as a foreign corporation in
each jurisdiction in which such qualification is necessary or desirable in view
of its business and operations or the ownership or lease of its properties.
Preserve and maintain all licenses and other rights to use Intellectual Property
owned or possessed by it and deemed by the Company to be necessary or useful to
the conduct of its business.
(d) Compliance with Laws. Comply with the requirements of all
--------------------
applicable laws, rules, regulations and orders of any governmental authority,
the non-compliance with
-35-
<PAGE>
which could materially adversely affect its business or condition, financial or
otherwise.
(e) Keeping of Records and Books of Account. Keep adequate records
---------------------------------------
and books of account in which complete entries will be made in accordance with
generally accepted accounting principles consistently applied, reflecting all
financial transactions of the Company and in which, for each fiscal year, all
proper reserves for depreciation, depletion, obsolescence, amortization, taxes,
bad debts and other purposes in connection with its business shall be made.
(f) Maintenance of Properties. Maintain and preserve all of its
-------------------------
properties and assets, necessary or useful in the proper conduct of its
business, in good repair, working order and condition, ordinary wear and tear
excepted.
(g) Compliance with ERISA. Comply with all minimum funding
---------------------
requirements applicable to any pension, employee benefit plans or employee
contribution plans which are subject to ERISA or to the Code, and comply in all
other material respects with the provisions of ERISA and the Code, and the rules
and regulations thereunder, which are applicable to any such plan. The Company
shall not permit any event or condition to exist which could permit any such
plan to be terminated under circumstances which would cause the lien provided
for in Section 4068 of ERISA to attach to the assets of the Company.
(h) Approval of Budgets and Business Plan. Prior to the commencement
-------------------------------------
of each fiscal year commencing after the date hereof, prepare and submit to, and
obtain the approval of the Board of Directors of, monthly capital and operating
expense budgets, cash flow projections, profit and loss projections, and a
revised business plan. The operations of the Company's business shall be
conducted in a manner consistent with the Business Plan, as revised and approved
from time to time by the Board of Directors, including without limitation all
executive compensation and benefits set forth therein. The Company shall not
enter into any activity not envisioned by the budget and business plan as then
approved by the Board of Directors.
(i) Financings. Promptly, fully and in detail, inform the Board of
----------
Directors of any discussions, offers or contracts relating to possible
financings of any nature for the Company, whether initiated by the Company or
any other person, except for minor financings of less than $50,000 which do not
include as a feature thereof any right to acquire any of the equity securities
of the Company.
(j) New Developments. Cause all technological developments,
----------------
inventions, discoveries or improvements by the Company's employees or agents to
be fully documented in
-36-
<PAGE>
accordance with the Company's existing practices, cause all key employees and
consultants of the Company to execute appropriate patent assignment agreements
to the Company and, where possible and appropriate, to file and prosecute United
States and foreign patent applications relating to and protecting such
developments on behalf of the Company.
(k) Compensation. Prepare and submit to, and obtain the approval of,
------------
the Board of Directors of a compensation policy for its officers, which shall
contain guidelines for reasonable levels of salary and other employment
benefits, and which shall be periodically updated, and comply with such
compensation policy in making all compensation offers to new officers and
compensation changes to existing officers, of which all cash compensation and
equity compensation offers or changes shall be subject to the approval of the
Board of Directors.
(l) Employees. *
---------
8.8 Certain Negative Covenants. Without limiting any other covenants and
--------------------------
provisions hereof, the Company covenants and agrees that it will comply with and
observe the following negative covenants and provisions and will not, unless,
with respect to a specific transaction, a waiver of certain specified provisions
of this Section 8.8 in connection solely with such transaction is given by the
affirmative vote of the holders of no less than 66-2/3% of the outstanding
shares of Common Stock then held by, or Warrant Shares issuable upon exercise of
the Warrant by, any of the Investors:
(a) Merger or Sale of Assets. Merge or consolidate with, or sell,
------------------------
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) a material portion
of its assets to any person (whether now owned or hereinafter acquired) or sell,
assign or otherwise dispose of (whether in one transaction or in a series of
transactions) any of its accounts receivable (whether now in existence or
hereinafter created) at a discount or with recourse, to any person, except for
sales or other dispositions of assets in the ordinary course of business.
(b) Dealings with Affiliates. Enter into any transaction, including
------------------------
without limitation any loans or extensions of credit or royalty agreements with
any officer or director of the Company or holder of any class of capital stock
of the
-37-
* This paragraph was amended and restated in its entirety pursuant to the First
Amendment to Diamond Technology Partners, Inc. Stock Purchase Agreement.
<PAGE>
Company, or any member of their respective immediate families or any corporation
or other entity directly or indirectly controlled by one or more of such
officers, directors or stockholders or members of their immediate families
except in the ordinary course of business and on terms not less favorable to the
Company than it would obtain in a transaction between unrelated parties.
(c) Change in Nature of Business. Make, or permit any material
----------------------------
change in the nature of its business as carried on at the date hereof or as
contemplated in the Business Plan prior to the date hereof.
(d) Acquisition of Shares by the Company. Redeem, purchase or
------------------------------------
otherwise acquire for value (or pay into or set aside for a sinking fund for
such purchase), any share or shares of any equity security of the Company,
except for shares of stock that are required or permitted to be purchased by the
Company from employees who are leaving the Company or pursuant to a right of
first refusal, in each case pursuant to any agreement disclosed herein or set
forth as an exhibit hereto.
(e) Amendment to Charter. Make any amendment to its Amended Articles
--------------------
or Bylaws which limits its legal capacity or ability to perform its obligations
under this Agreement, the Ancillary Agreements, the Business Plan, the
memorandum relating to governance matters dated December 1, 1993, as updated
January 7, 1994, or any other instrument or agreement executed or to be executed
pursuant to the provisions hereof or thereof or which may materially adversely
affect the rights of the Investors.
(f) Dividends and Distributions. Declare or pay any dividend or
---------------------------
distribution on its capital stock.
(g) Restriction on Indebtedness. Except in accordance with the
---------------------------
budgets then approved by the Board of Directors pursuant to Section 8.7(h),
incur, create or assume any indebtedness, or incur any guarantee or similar
contingent obligation in respect of the indebtedness of others, whether or not
classified on the Company's balance sheet as a liability, or permit any
subsidiary of the Company to do any of the foregoing.
(h) Restriction on Certain Amendments. Amend the Diamond Technology
---------------------------------
Partners, Inc. Partners' Operating Agreement between the Company and Bergstein,
Moffitt and Michael E. Mikolaiczyk (as the Initial Partners) and Bergstein (as
the CEO), or any of the Diamond Technology Partners' Inc. Employees' Proxy and
Stock Restriction Agreements now or hereafter entered into by and between the
Company, an employee of the Company and the person who is the Chairman of the
Board and Chief Executive Officer of the Company.
-38-
<PAGE>
8.9 Indemnification. The Company shall indemnify and hold harmless each
---------------
Investor, and each of its officers, directors or partners, and agents, from and
against any losses, claims, damages and liabilities, and any reasonable legal or
other expenses incurred by any of them, arising as a result of claims brought
against such person by the previous employer of any employee of the Company, (i)
alleging any breach, for the benefit of the Company, of such employee's
obligations to the previous employer with respect to confidential information of
the previous employer, (ii) based upon the Company's hiring of such employee or
(iii) that are deemed by the Company, in its sole discretion, to be frivolous or
harassing.
8.10 Employees. Except with the approval of the Board of Directors,
---------
employ any key employee who is not a partner.
8.11 Termination of Certain Covenants. The covenants set forth in
--------------------------------
Sections 8.1(c), (d), (e) and (f), and Sections 8.2, 8.3, 8.4, 8.6, 8.7, 8.8 and
8.10 shall terminate and be of no further force or effect upon the consummation
of the first public offering of securities of the Company pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(including without limitation the Rights Offering).
9. Miscellaneous.
-------------
9.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and each
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
9.2 Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the Commonwealth of Pennsylvania as applied to agreements
entered into and to be performed entirely within Pennsylvania.
9.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-39-
<PAGE>
9.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices. Unless otherwise provided, any notice required or permitted
-------
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified, either personally or
by recognized courier service, or upon deposit with the United States Post
Office, by registered or certified mail, in each case with charges prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten days' advance written notice to the other parties.
9.7 Finder's Fee. Each party represents that it neither is nor will be
------------
obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
9.8 Expenses. Irrespective of whether any Closing is effected, each
--------
party shall pay all costs and expenses incurred by it with respect to the
negotiation, execution, delivery and performance of this Agreement, including
without limitation the reasonable fees and expenses of its counsel. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the Amended Articles or any of the Ancillary Agreements, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
9.9 Amendments and Waivers. Except as specified in Section 6.17, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Common Stock held by the Investors or
issuable to an Investor upon exercise of the Warrant. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holders of
any securities purchased under this Agreement at the time outstanding
-40-
<PAGE>
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company; provided, however, that no
condition set forth in Section 4 hereof may be waived with respect to any
Investor who does not consent thereto.
9.10 Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstance is held invalid or unenforceable in any
jurisdiction, the remainder of this Agreement, and the application of such
provision to such person or circumstance in any other jurisdiction or to other
persons or circumstances in any jurisdiction, shall not be affected thereby, and
to this end the provisions of this Agreement shall be severable.
9.11 Aggregation of Stock. All shares of the Common Stock held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
IN WITNESS WHEREOF, the undersigned have executed, or caused to be executed
on their behalf by an agent thereunto duly authorized, this Agreement as of the
date first above written.
The Company: DIAMOND TECHNOLOGY PARTNERS, INC.
By: [SIGNATURE APPEARS HERE]
---------------------------------
Title: Chairman
Address: Chicago, Ill.
The Investors: TECHNOLOGY LEADERS, L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By: [SIGNATURE APPEARS HERE]
---------------------------------
As its: Managing Director
TECHNOLOGY LEADERS OFFSHORE C.V.
By: Technology Leaders Management, Inc.
(General Partner)
By: [SIGNATURE APPEARS HERE]
----------------------------------
As its: Managing Director
(Signatures Continued)
-41-
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
By: [SIGNATURE APPEARS HERE]
--------------------------------------
As its: Ex. V.P.
CIP, L.P.
By:
--------------------------------------
As its:
/s/ Melvyn E. Bergstein
--------------------------------------
Melvyn E. Bergstein
/s/ Christopher J. Moffitt
------------------------------
Christopher J. Moffitt
-42-
<PAGE>
SAFEGUARD SCIENTIFICS, INC.
By: [SIGNATURE APPEARS HERE]
------------------------------
As its:
CIP CAPITAL L.P.
By: [SIGNATURE APPEARS HERE]
------------------------------
As its: President, CIP Capital
Management Inc.
(General Partner)
/s/ Melvyn E. Bergstein
---------------------------------
Melvyn E. Bergstein
/s/ Christopher J. Moffitt
---------------------------------
Christopher J. Moffitt
-42-
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Page
- ------------ ----
<S> <C>
1934 Act............................................................. 20
Act.................................................................. 11
Amended Articles...................................................... 1
Ancillary Agreements.................................................. 4
Bergstein............................................................. 1
Business Plan......................................................... 3
Closing............................................................ 2, 3
Code................................................................. 10
Common Stock.......................................................... 1
Company............................................................... 1
Eligible Purchaser................................................... 33
ERISA................................................................. 9
First Offer Shares................................................... 34
Form S-3............................................................. 15
GAAP.................................................................. 5
Holder............................................................... 15
Initial Closing....................................................... 2
Initiating Holders................................................... 15
Intellectual Property................................................. 6
Investor.............................................................. 1
Investors............................................................. 1
Letter Revisions...................................................... 7
Management Group...................................................... 2
Material Contracts.................................................... 7
Moffitt............................................................... 1
Notice............................................................... 33
Opening Balance Sheet................................................. 5
Register............................................................. 14
Registrable Securities............................................... 14
Registrable Securities then outstanding.............................. 15
Registration......................................................... 14
Rights............................................................... 27
Rights Offering...................................................... 27
Rights Registration Statement........................................ 27
Rights Shares........................................................ 28
Rights Violation..................................................... 29
Safeguard............................................................. 1
SEC.................................................................. 15
Second Closing........................................................ 2
Securities........................................................... 10
Shares............................................................... 33
Third Closing........................................................ 2
TSC.................................................................. 39
Violation............................................................ 20
Warrant............................................................... 1
</TABLE>
<PAGE>
FIRST AMENDMENT TO
DIAMOND TECHNOLOGY PARTNERS, INC
STOCK PURCHASE AGREEMENT
This is an amendment ("Amendment"), dated November ___, 1994, to a certain
Diamond Technology Partners, Inc. Stock Purchase Agreement dated as of March 22,
1994 (the "Stock Purchase Agreement") by and among Diamond Technology Partners,
Inc. (the "Company"), Melvyn E. Bergstein ("Bergstein"), Christopher J. Moffitt
("Moffitt"), Safeguard Scientifics, Inc. ("Safeguard"), and the investors listed
on Schedule I to the Stock Purchase Agreement (each, an "Investor," and,
together with Safeguard, collectively, the "Investors"); this Amendment is made
between the Company and the Investors.
In consideration of the mutual promises set forth in the Stock Purchase
Agreement and of the continuing mutual interests of the Company and the
Investors, the parties, in accordance with paragraph 9.9 of the Stock Purchase
Agreement, hereby amend that agreement as follows:
1. Paragraph 1.1 (c) is hereby amended so as to read, in its entirety, as
follows:
"(c) Except as otherwise provided in Schedule II hereto and Section 1.2(a)
and (b) hereof, concurrently with the purchase and sale by the Investors
under this Agreement at the Initial Closing, the Second Closing and the
Third Closing, a group of the Company's managers including Bergstein and
Moffitt and such additional managers as Bergstein and Moffitt shall have
designated (each of whom, as well as each individual designated by the
Company after the Third Closing as a "Partner", shall (for so long
thereafter as he or she remains a Partner) be deemed a member of the
"Management Group" herein), will purchase from the Company, and the Company
shall sell to the Management Group, the number of shares of Common Stock
set forth on Schedule II hereto, in exchange for the purchase price to be
paid therefor as set forth thereon."
2. Paragraph 7.1(a) is hereby amended so as to read, in its entirety, as
follows:
"(a) In consideration of the purchase of certain Common Stock and
the Warrant by Safeguard subject to the conditions set forth in this
Section 7, the Company hereby grants to Safeguard the right to conduct a
rights offering (the "Rights Offering") to Safeguard's stockholders in
respect of so many shares of Common Stock as Safeguard may specify, and the
Company agrees to register such Rights Offering under the Act in accordance
with Section 7.3 hereof. The rights to be issued in the Rights Offering
(the "Rights") shall be issued pursuant to a registration statement filed
under the Act (the "Rights Registration Statement"), shall be exercisable
for a period of no longer than 45 days after the commencement of the Rights
Offering and shall be transferable by the holder thereof during such
period. One-half of the shares of Common Stock in respect of which the
Rights are to be offered shall be newly authorized shares, and one-half of
such shares shall be shares theretofore held by Safeguard. Prior to the
commencement of the Rights Offering, the Company shall use its best efforts
to cause any holder of more than two
<PAGE>
percent of the Common Stock (or rights to acquire more than two percent of
the Common Stock) to execute and deliver to the underwriter of the Rights
Offering an agreement to withhold such Common Stock from the market for such
period, not to exceed the period commencing 30 days prior to the effective date
of the registration statement for the Rights Offering and ending 90 days
following the closing thereof, or such other period as the underwriter shall
request."
3. Paragraph 8.7(l) is hereby amended so as to read, in its entirety, as
follows:
"(l) Employees. Enter into an agreement in respect of employment and
---------
proprietary information nondisclosure containing provisions substantially in the
form of paragraphs 6, 7 and 8 of Exhibit E-1 attached hereto, in the case of
each new partner, and containing provisions substantially in the form of
paragraphs 6, 7, 8 and 9 of Exhibit E-2 attached hereto, in the case of each
other new executive employee; and enter into an agreement with each other new
employee in respect of proprietary information nondisclosure substantially in
the form attached hereto as Exhibit E-3."
[SIGNATURE PAGE FOLLOWS]
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to
Diamond Technology Partners, Inc. Stock Purchase Agreement on the date first
written above.
DIAMOND TECHNOLOGY PARTNERS, INC.
By:[SIGNATURE APPEARS HERE]
----------------------------------------
As its:
TECHNOLOGY LEADERS, L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By:[SIGNATURE APPEARS HERE]
----------------------------------------
As its:
TECHNOLOGY LEADERS OFFSHORE C.V.
By: Technology Leaders Management, Inc.
(General Partner)
By:[SIGNATURE APPEARS HERE]
----------------------------------------
As its:
SAFEGUARD SCIENTIFICS, INC.
By:[SIGNATURE APPEARS HERE]
----------------------------------------
As its:
CIP, L.P.
By:[SIGNATURE APPEARS HERE]
----------------------------------------
As its:
-3-
<PAGE>
SECOND AMENDMENT TO
DIAMOND TECHNOLOGY PARTNERS, INC.
STOCK PURCHASE AGREEMENT
This is an amendment ("Amendment"), dated as of April 27, 1995, to the
Diamond Technology Partners, Inc. Stock Purchase Agreement dated as of March 22,
1994 (the "Stock Purchase Agreement") by and among Diamond Technology Partners,
Inc. (the "Company"), Melvyn E. Bergstein ("Bergstein"), Christopher J. Moffitt
("Moffitt"), Safeguard Scientifics, Inc. ("Safeguard"), and the investors listed
on Schedule I to the Stock Purchase Agreement (each, an "Investor," and,
together with Safeguard, collectively, the "Investors"), as amended by the First
Amendment to Diamond Technology Partners, Inc. Stock Purchase Agreement dated as
of November 30, 1994.
WHEREAS, in connection with previous amendments to various agreements of
the Company, including the Stock Purchase Agreement and the Articles of
Incorporation of the Company, the authorized number of shares of common stock of
the Company was increased and 1,500,000 shares thereof were reserved for sale or
as option shares to employees of the Company hired on or after January 2, 1995;
and
WHEREAS, the parties desire to further amend the Stock Purchase Agreement
to clarify a provision thereof;
In consideration of the foregoing and the mutual promises set forth in the
Stock Purchase Agreement and of the continuing mutual interests of the Company
and the Investors, and for other good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties, in
accordance with paragraph 9.9 of the Stock Purchase Agreement, hereby agree as
follows:
1. The second sentence of Section 8.3 of the Stock Purchase Agreement is
hereby amended to read, in its entirety, as follows:
"The number of shares of Common Stock that may be issued, or made subject
to options granted, pursuant to this Section 8.3 shall be equal to
4,500,000 minus the number of shares of Common Stock actually purchased by
the Management Group pursuant to Section 1.2 hereof and Schedule II
hereto."
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Second Amendment to
Diamond Technology Partners, Inc. Stock Purchase Agreement on the date first
written above.
DIAMOND TECHNOLOGY PARTNERS, INC.
By: [SIGNATURE APPEARS HERE]
-------------------------------------
As its:
TECHNOLOGY LEADERS, L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By: [SIGNATURE APPEARS HERE]
-------------------------------------
As its:
TECHNOLOGY LEADERS OFFSHORE C.V.
By: Technology Leaders Management, Inc.
(General Partner)
By: [SIGNATURE APPEARS HERE]
-------------------------------------
As its:
SAFEGUARD SCIENTIFICS, INC.
By: [SIGNATURE APPEARS HERE]
-------------------------------------
As its:
CIP CAPITAL L.P. (Formerly, CIP, L.P.)
By: CIP Capital Management Inc.
(General Partner)
By: [SIGNATURE APPEARS HERE]
-------------------------------------
As its:
<PAGE>
THIRD AMENDMENT TO
DIAMOND TECHNOLOGY PARTNERS, INC.
STOCK PURCHASE AGREEMENT
This is an amendment ("Amendment"), dated as of October 21, 1996, to the
Diamond Technology Partners, Inc. Stock Purchase Agreement dated as of March 22,
1994 (the "Stock Purchase Agreement") by and among Diamond Technology Partners
Incorporated, a Delaware corporation and the successor in interest by merger
to Diamond Technology Partners, Inc., an Illinois corporation (the "Company"),
Melvyn E. Bergstein, Christopher J. Moffitt, Safeguard Scientifics, Inc.
("Safeguard"), and the investors listed on Schedule I to the Stock Purchase
Agreement (each, an "Investor," and, together with Safeguard, the "Investors"),
as amended by (i) the First Amendment to Diamond Technology Partners, Inc. Stock
Purchase Agreement dated as of November 30, 1994, and (ii) the Second Amendment
to the Diamond Technology Partners, Inc. Stock Purchase Agreement dated as of
April 27, 1995.
WHEREAS, in connection with the authorization of an initial public
offering of the Company's Common Stock as contemplated by a rights offering to
the shareholders of Safeguard, the Board of Directors agreed with Safeguard that
Safeguard would approve, and seek approval of the other Investors, an increase
of 200,000 shares of Common Stock, as available for issuance by the Company
under Section 8.3 of the Stock Purchase Agreement, and
WHEREAS, the Company intends to (i) offer to its Partners the opportunity
to purchase, and receive options to purchase, additional shares of Common Stock,
and (ii) grant to certain of its other employees options to purchase additional
shares of Common Stock, and in connection therewith, it is necessary and
desirable to further increase, by 600,000 shares, the limit of the number of
shares of Common Stock available for issuance by the Company under Section 8.3,
and
In consideration of the foregoing and the mutual promises set forth in the
Stock Purchase Agreement and of the continuing mutual interests of the Company
and the Investors, and for other good and valuable consideration, the receipt,
sufficiency, and adequacy of which are hereby acknowledged, the parties, in
accordance with paragraph 9.9 of the Stock Purchase Agreement, hereby agree that
the second sentence of Section 8.3 of the Stock Purchase Agreement is hereby
amended to read, in its entirety, as follows:
"The number of shares of Common Stock that may be issued, or made
subject to options granted, pursuant to this Section 8.3 shall be
equal to 5,300,000 minus the number of shares of Common Stock
actually purchased by the Management Group pursuant to Section 1.2
hereof and Schedule II hereto."
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Third Amendment to
Diamond Technology Partners, Inc. Stock Purchase Agreement as of the date first
written above.
DIAMOND TECHNOLOGY PARTNERS
INCORPORATED
By:[SIGNATURE APPEARS HERE]
-------------------------------------
As its:
TECHNOLOGY LEADERS, L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By:[SIGNATURE APPEARS HERE]
-------------------------------------
As its:
TECHNOLOGY LEADERS OFFSHORE C.V.
By: Technology Leaders Management, Inc.
(General Partner)
By: [SIGNATURE APPEARS HERE]
-------------------------------------
As its:
SAFEGUARD SCIENTIFICS, INC.
By:[SIGNATURE APPEARS HERE]
-------------------------------------
As its:
CIP CAPITAL L.P. (Formerly, CIP, L.P.)
By: CIP Capital Management Inc.
(General Partner)
By:[SIGNATURE APPEARS HERE]
-------------------------------------
As its:
2
<PAGE>
FOURTH AMENDMENT TO
DIAMOND TECHNOLOGY PARTNERS, INC.
STOCK PURCHASE AGREEMENT
This is an amendment ("Amendment"), dated as of ___________, 1997, to the
Diamond Technology Partners, Inc. Stock Purchase Agreement dated as of March 22,
1994 (the "Stock Purchase Agreement") by and among Diamond Technology Partners
Incorporated, a Delaware corporation and the successor in interest by merger to
Diamond Technology Partners, Inc., an Illinois corporation (the "Company"),
Melvyn E. Bergstein, Christopher J. Moffitt, Safeguard Scientifics, Inc.
("Safeguard"), and the investors listed on Schedule I to the Stock Purchase
Agreement (each, an "Investor," and, together with Safeguard, the "Investors"),
as amended by (i) the First Amendment to Diamond Technology Partner, Inc. Stock
Purchase Agreement dated as of November 30, 1994; (ii) the Second Amendment to
the Diamond Technology Partners, Inc. Stock Purchase Agreement dated as of April
27, 1995; and (iii) the Third Amendment to the Diamond Technology Partners, Inc.
Stock Purchase Agreement dated as of October 21, 1996.
WHEREAS, the parties to the Stock Purchase Agreement wish to increase the
number of shares of Common Stock available for issuance by the Company under
Section 8.3 of the Stock Purchase Agreement, as more specifically provided
herein.
In consideration of the mutual promises set forth in the Stock Purchase
Agreement and of the continuing mutual interests of the Company and the
Investors, and for other good and valuable consideration, the receipt,
sufficiency, and adequacy of which are hereby acknowledged, the parties, in
accordance with paragraph 9.9 of the Stock Purchase Agreement, hereby agree that
the second sentence of Section 8.3 of the Stock Purchase Agreement is hereby
amended to read, in its entirety, as follows;
"The number of shares of Common Stock that may be issued, or made subject
to options granted, pursuant to this Section 8.3 shall be equal to
____________ minus the number of shares of Common Stock actually purchased
by the Management Group pursuant to Section 1.2 hereof and Schedule II
hereto."
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Fourth Amendment to
Diamond Technology Partners, Inc. Stock Purchase Agreement as of the date first
written above.
DIAMOND TECHNOLOGY PARTNERS
INCORPORATED
By: ____________________________________
As its:
TECHNOLOGY LEADERS, L.P.
By: Technology Leaders Management, Inc.
(General Partner)
By: ____________________________________
As its:
TECHNOLOGY LEADERS, OFFSHORE C.V.
By: Technology Leaders Management, Inc.
(General Partner)
By: ____________________________________
As its:
SAFEGUARD SCIENTIFICS, INC.
By: _____________________________________
As its:
CIP CAPITAL L.P. (Formerly, CIP, L.P.)
By: CIP Capital Management Inc.
(General Partner)
By: ______________________________________
As its:
[ADDITIONAL SIGNATURES TO FOLLOW]
2
<PAGE>
COMPUCOM SYSTEMS, INC.
By: _________________________________
As its:
CAMBRIDGE TECHNOLOGY PARTNERS
(MASSACHUSETTS), INC.
By: __________________________________
As its:
3
<PAGE>
Exhibit 10.9
LOAN AND SECURITY AGREEMENT (this "Agreement"), dated November 8, 1996, by
and among Diamond Technology Partners Incorporated, a Delaware corporation
("Diamond Technology Partners"), and Diamond Partners Incorporated, an Illinois
corporation ('Diamond Partners") and a wholly owned subsidiary of Diamond
Technology Partners Incorporated (collectively, the "Borrower"), and Safeguard
Scientifics (Delaware), Inc. ("Lender"), a Delaware corporation.
BACKGROUND
The Borrower presently has a senior bank credit in the amount of
$3,425,000 (consisting of a $3,000,000 revolving line of credit, a $175,000 term
loan and a $250,000 term loan) (the "Senior Credit") pursuant to Secured Credit
Agreement, dated November 30, 1995 between the American National Bank and Trust
Company of Chicago (the "Bank") and Diamond Technology Partners (as amended to
date, the "Credit Agreement"), a Term Note, Second Term Note, Revolving Note,
Security Agreement, and Trademark Collateral Assignment and Security Agreement
(all as defined in the Credit Agreement), the Modification Agreement dated May
31, 1996 between the Bank and Diamond Technology Partners and Diamond Partners,
the Second Modification Agreement dated November 8, 1996, between the Bank and
Diamond Technology Partners and Diamond Partners (the "Second Modification
Agreement"), the Security Agreement and the Guaranty (all as defined in the
Second Modification Agreement), and wishes to obtain a loan from Lender pursuant
to this Agreement.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
ARTICLE I
THE LOAN
1.1. The Loan. Subject to the terms and conditions hereinafter provided,
--------
Lender shall make the following loans and/or lines of credit (whether one or
more, collectively, the "Loan") available to Borrower, for the purposes
indicated below :
The loan shall be for an aggregate amount of Two Million Dollars
($2,000,000) and shall be used only for working capital purposes, which shall
not include the repayment of any existing indebtedness. The Loan shall be
advanced at one time upon request of the Borrower. The request shall be made
pursuant to a notice from the Borrower to the Lender which certifies the Loan is
to be used for working capital purposes of Diamond Partners, which it is
understood includes the purchase of assets for Diamond Partners, that the
representations and warranties hereunder remain true and correct in all material
respects, and that there is no event of default or event which with the passage
of time or giving of notice or both would cause an event of default hereunder or
a default under the documents in respect of the Senior Credit.
1
<PAGE>
1.2. The Subordinated Note; Repayment. The Loan shall be evidenced by a
--------------------------------
subordinated promissory note from Borrower to Lender (the "Subordinated Note"),
which shall be substantially in the form attached hereto as Exhibit 1.2 . The
-----------
Loan shall be repaid with interest as provided in the Subordinated Note.
ARTICLE II
COLLATERAL
2.1. Collateral. Borrower hereby pledges, assigns and grants to Lender, as
----------
security for the performance of this Agreement and any other agreements executed
in connection herewith, and the repayment of the Loan and the Subordinated Note
and for all other indebtedness, liabilities and obligations of Borrower
(primary, secondary, direct, contingent, related, unrelated, sole, joint or
several) due or to become due to Lender or which may be contracted for or
acquired hereafter (collectively, the "Obligations"), a security interest under
the Uniform Commercial Code in all Accounts, Inventory, General Intangibles,
Chattel Paper, Instruments, Documents and Equipment (whether or not constituting
fixtures) and any other security of the Senior Credit now owned or hereafter
acquired by Borrower, together with all cash and non-cash proceeds (including
without limitation, insurance proceeds), products, distributions, additions,
accessions, substitutions, exchanges and replacements thereof, (collectively,
the "Collateral").
2.2. Further Assurances. Borrower shall from time to time promptly take
------------------
all actions (and execute, deliver and record all instruments and documents)
necessary or reasonably appropriate or requested by Lender, to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Lender to exercise and enforce its rights and remedies hereunder with
respect to any of the Collateral, subject to the Subordination Agreement (the
"Subordination Agreement") dated as of November 8, 1996 between Lender and the
Bank.
2.3. Attorney-In-Fact. Borrower hereby irrevocably appoints Lender as its
----------------
attorney-in-fact, in the name of Borrower or otherwise, from time to time in
Lender's discretion and at Borrower's expense, to take any action and to
execute, deliver and record any instruments or documents which Lender may deem
necessary or advisable in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable Lender to exercise and
enforce its rights and remedies hereunder with respect to any of the Collateral
including, without limitation, financing or continuation statements under the
Uniform Commercial Code, and amendments thereto. Lender shall not, in its
capacity as such attorney-in-fact, be liable for any acts or omissions, nor for
any error of judgment or mistake of fact or law, but only for gross negligence
or willful misconduct.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower hereby makes the following representations and warranties,
which shall be continuing in nature and remain in full force and effect until
the Obligations are satisfied in full:
2
<PAGE>
3.1. Existence and Power. Borrower is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to own
and operate its assets and to conduct its business as now or proposed to be
carried on, and is duly qualified, licensed and in good standing to do business
in all jurisdictions where its ownership of property or the nature of its
business requires such qualification or licensing. Borrower has the full power
and authority to execute, deliver and perform this Agreement, the Subordinated
Note, and all other agreements, instruments, and documents evidencing or
securing the Loan (collectively as "Loan Documents").
3.2. Authorization and Enforceability. Borrower has been duly authorized
--------------------------------
to execute, deliver and perform the Loan Documents by all appropriate action of
its Board of Directors if Borrower is a corporation, all of its general partners
if Borrower is a partnership or otherwise as may be required by law, charter or
other organizational documents or agreements. Each of the Loan Documents, when
executed and delivered by Borrower, will constitute the legal, valid and binding
obligation of Borrower, enforceable in accordance with its respective terms.
3.3. No Defaults or Violations. There does not exist any Event of Default
-------------------------
(as that term is defined in Section 5.1) under this Agreement or any default or
-----------
violation by Borrower of or under any of the terms, conditions or obligations
of: (a) its articles or certificate of incorporation, regulations or bylaws if
Borrower is a corporation, its partnership agreement if Borrower is a
partnership or its other organizational documents as applicable; (b) any
indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or
other instrument to which Borrower is a party or by which it or any of its
properties may be bound, including the documents in respect of the Senior
Credit; or (c) any law, regulation, ruling, order, injunction, decree, condition
or other requirement applicable to or imposed upon Borrower by any law, or by
the action of any court or other governmental authority or agency; and the
execution, delivery and performance of the Loan Documents will not result in any
such default or violation, nor are any approvals, authorizations, licenses,
waivers or consents, governmental (foreign, federal, state or local) or non-
governmental, under the terms of contracts or otherwise, required to be obtained
by Borrower by reason of or in connection with its execution, delivery and
performance of any of the Loan Documents.
3.4. Financial Statements. Borrower has delivered or caused to be
--------------------
delivered to Lender its most recent balance sheet, income statement and
statement of cash flows as of September 30, 1996 (the "Financial Statements").
The Financial Statements are true, accurate and complete in all material
respects and fairly present the financial condition, cash flow and the results
of Borrower's operations as of the respective dates thereof and for the periods
therein referred to, all in accordance with generally accepted accounting
principles in effect from time to time ("GAAP"), consistently applied from
period to period subject in the case of interim statements to normal year-end
adjustments and excluding disclosures normally required by GAPP. Borrower does
not have any liabilities or obligations of any nature (whether or not of the
nature required to be reflected in a balance sheet prepared in accordance with
GAAP) that are not reflected on the Financial Statements (including, without
limitation, any liabilities relating to environmental, occupational and health
matters or ERISA) except for current liabilities (within the meaning of
3
<PAGE>
GAAP) which have been incurred since the date thereof in the ordinary course of
business and consistent in nature and amount with Borrower's operating history.
3.5. No Material Adverse Change. Since the date of its most recent
--------------------------
Financial Statements, Borrower has not suffered any damage, destruction or loss,
and no event or condition has occurred or exists, which has resulted or could
result in a material adverse change in its business, assets, operations,
financial condition or results of operation.
3.6. Title to Assets; Existing Liens. Borrower has good and marketable
-------------------------------
title to its assets, free and clear of all liens and encumbrances, except for
(a) current taxes and assessments not yet due and payable, (b) liens and
encumbrances, if any, reflected or noted in its most recent Financial
Statements, (c) assets disposed of by Borrower since the date of its most recent
Financial Statements in the ordinary course of business, consistent with past
practice, and (d) the liens and encumbrances described on Schedule 3.6.
------------
3.7. Litigation. Except as set forth in Schedule 3.7, there are no
----------
actions, suits, proceedings or governmental investigations pending or, to the
knowledge of Borrower, threatened, against Borrower or any of its properties
which could result in a material adverse change in Borrower's business, assets,
operations, financial condition or results of operations and there is no basis
known to Borrower for any action, suit, proceeding or investigation which could
result in such a material adverse change.
3.8. Tax Returns. Borrower has filed all returns and reports that are
-----------
required to be filed by it in connection with any federal, state or local tax,
duty or charge levied, assessed or imposed upon it or any of its properties or
that it is required to withhold and pay over including, without limitation,
unemployment, social security and similar taxes, and all of such taxes have been
paid or adequate reserves therefor have been set aside or other provisions
therefor have been made.
3.9. Intellectual Property. Borrower owns or is licensed to use all
---------------------
patents, patent rights, trademarks, trade names, service marks, copyrights,
intellectual property, technology, know-how and processes necessary for the
conduct of its business as currently conducted that are material to Borrower's
condition (financial or otherwise), business or operations.
3.10. Solvency. As of the date hereof and after giving effect to the
--------
transactions contemplated by the Loan Documents, (a) the aggregate value of
Borrower's assets exceeds its liabilities (including, without limitation,
contingent, subordinated, unmatured and unliquidated liabilities), (b) Borrower
has sufficient cash flow to enable it to pay its debts as they mature, and (c)
Borrower does not have unreasonably small capital for the business in which it
is engaged.
3.11. Disclosure. None of the Loan Documents contain any untrue statement
----------
of material fact or omit to state a material fact necessary in order to make the
statements contained in the Loan Documents not misleading. There is no fact
known to Borrower which materially and adversely affects or, so far as Borrower
can now foresee, might materially and adversely affect Borrower's business,
assets, operations, financial condition or results of operation and
4
<PAGE>
which has not otherwise been fully set forth in this Agreement
or otherwise disclosed in writing to Lender.
3.12. Places of Business. The locations of Borrower's chief executive
------------------
office and other places of business are shown on Schedule 3.12. Borrower
-------------
covenants not to establish any new, or discontinue any existing, place of
business without giving Lender at least 30 days' prior notice.
3.13. Capital Structure. Schedule 3.13 sets forth the authorized capital
----------------- -------------
stock of Borrower, the issued and outstanding shares of such stock, and the
owners thereof. There are no options, warrants or other rights outstanding to
purchase any such shares except as indicated on Schedule 3.13.
-------------
3.14. Subsidiaries, Affiliates, and Other Investments. Except as shown on
-----------------------------------------------
Schedule 3.14, Borrower has no subsidiaries or affiliates (other than its own
- -------------
shareholders); nor does Borrower have any investment in any other person or
entity.
3.15 Bank Consent. The Bank has consented to this Loan, a copy of such
------------
consent has been delivered to Lender, and the liens in respect of the Collateral
constitute Permitted Liens (as defined in the Credit Agreement).
3.16 Bank Documents. Accurate copies of all of the documents in respect of
--------------
the Senior Credit have been delivered to Lender.
ARTICLE IV
COVENANTS
4.1. Affirmative Covenants. Borrower agrees that from the date of
---------------------
execution of this Agreement until the Obligations are satisfied in full,
Borrower shall (and shall cause each of its majority-owned subsidiaries, if any,
to):
4.1.1. Payments of Taxes and Other Charges. Pay and discharge when
-----------------------------------
due all indebtedness and all taxes, assessments, charges, levies and other
liabilities imposed upon Borrower, its income, profits, properties or business,
except those which currently are being contested in good faith by appropriate
proceedings and for which Borrower shall have set aside adequate reserves or
made other adequate provisions acceptable to Lender in its sole discretion.
4.1.2. Maintenance of Existence, Operation and Assets; Inspection.
----------------------------------------------------------
Do all things necessary to maintain, renew and keep in full force and effect its
organizational existence and all rights, permits and franchises necessary to
enable it to continue its business; continue in operation in substantially the
same manner as at present; conduct business and enter into transactions only in
the ordinary course, consistent with past practice; keep its properties in good
operating condition and repair; make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto; and permit representatives of
Lender to inspect Borrower's
5
<PAGE>
properties and its books and records and to make extracts therefrom at all
reasonable times during normal business hours.
4.1.3. Insurance. Keep its assets insured with responsible insurance
---------
companies against those risks and in such amounts as are commonly insured
against by companies in similar businesses and owning similar assets. At
Lender's request, Borrower shall have Lender named as loss payee on all hazard
insurance policies covering the Collateral and shall have Lender named as an
additional insured on liability policies, subject to the Subordination
Agreement. Borrower shall deliver to Lender such certificates, endorsements, and
other evidence of such insurance as Lender may reasonably request.
4.1.4. Compliance with Laws. Comply with all laws applicable to
--------------------
Borrower and to the operation of its business (including, without limitation,
any statute, rule or regulation relating to employment practices and employee
benefits and to environmental, occupational and health standards and controls).
4.1.5. Financial Reports. Deliver promptly such financial statements
-----------------
and reports as Lender may reasonably request including, without limitation,
annual financial statements audited or reviewed by independent certified public
accountants and interim financial statements prepared by Borrower's management.
All such financial data shall be true, accurate and complete in all material
respects and shall be prepared in accordance with GAAP consistently applied,
subject, in the case of interim statements, to normal year-end adjustments and
excluding disclosures normally required by GAAP.
4.1.6. Additional Reports. Provide prompt notice to Lender of the
------------------
occurrence of any of the following (together with a description of the action
which Borrower proposes to take with respect thereto): (a) any Event of Default
or potential Event of Default hereunder or under any of the agreements in
respect of the Senior Credit, (b) any litigation filed by or against Borrower,
(c) any event which might result in a material adverse change in Borrower's
business, assets, operations, financial condition or results of operation; and
provide to Lender any other reports reasonably requested thereby.
4.1.7. Use of Proceeds. Use of the proceeds of the Loan only for the
---------------
purposes specified in Section 1.1 above.
4.2. Negative Covenants. Borrower covenants and agrees that from the date
------------------
of execution of this Agreement until the Obligations are satisfied in full,
Borrower shall not (and shall cause each of its majority-owned subsidiaries, if
any, not to), without Lender's prior written consent:
4.2.1. Indebtedness. Except as permitted pursuant to Section 6.6 of
------------
the Credit Agreement as now in effect, maintain, create or incur any
indebtedness for borrowed money (including, without limitation, the deferred
purchase price of goods and services) other than (a) the Loan and any subsequent
indebtedness to Lender, and (b) existing or proposed indebtedness disclosed on
the Borrower's most recent Financial Statements or on Schedule 4.2.1.
--------------
6
<PAGE>
4.2.2. Liens and Encumbrances. Except for liens in favor of Lender
----------------------
and for the liens and encumbrances described on Schedule 3.6, create, assume or
------------
permit to exist any mortgage, pledge, encumbrance or other security interest or
lien upon any assets now owned or hereafter acquired by Borrower.
4.2.3. Guarantees. Except as permitted pursuant to Section 6.8 of
----------
the Credit Agreement as now in effect, guarantee, endorse or become contingently
liable for the obligations of any person or entity, except in connection with
the endorsement and deposit of checks in the ordinary course of business for
collection and as permitted under the existing terms of the Credit Agreement.
4.2.4. Merger; Disposition of Assets. Merge or consolidate with or
-----------------------------
into any person or entity or lease, sell, transfer or otherwise dispose of any
material assets, whether now owned or hereafter acquired, other than in the
normal course of business and consistent with past practices.
4.2.5. Change in Business, Management or Ownership. Make or permit
-------------------------------------------
any material change in the nature of Borrower's business as carried on as of the
date hereof.
4.2.6. Dividends and Other Distributions. Except as permitted
---------------------------------
pursuant to Section 6.7 of the Credit Agreement as now in effect, declare or pay
any dividends on or make any distribution with respect to any class of its
capital stock or equity or ownership interest, or repurchase, redeem, retire or
otherwise acquire any of its capital stock or equity.
4.2.7. Investments. Purchase or hold beneficially any stock, other
-----------
securities or evidence of indebtedness or make any loans or advances to, or make
any investment or acquire any interests in, any other person or entity except as
permitted under the existing terms of the Credit Agreement.
7
<PAGE>
4.2.8. Modification of the Senior Credit. Without the written
---------------------------------
consent of lender, Borrowers will not amend or modify any of the agreements,
including the Credit Agreement and the Second Modification Agreement, executed
in connection with the Senior Credit or referred to in the Subordination
Agreement (as hereinafter defined); provided, if any of such agreements referred
to in the Subordination Agreement in respect of the Lease Indebtedness and the
Stockholder Indebtedness (each as defined in the Subordination Agreement) have
not been executed as of the date hereof this restriction shall apply upon such
execution and, in any event, all such agreements shall be reasonably acceptable
to Lender.
4.3. Compliance with Terms of Stock Purchase Agreement
-------------------------------------------------
4.3.1. Covenants. Borrower shall also comply with the covenants set
---------
forth in a certain Stock Purchase Agreement dated as of March 22, 1994, as
amended, among Diamond Technology Partners, Safeguard Scientifics, Inc. and
certain other persons and investors specified therein.
ARTICLE V
DEFAULT
5.1. Events of Default. The occurrence of an event of default as defined
-----------------
in the Subordinated Note or any of the other Loan Documents shall constitute an
"Event of Default" hereunder.
5.2. Remedies on Default: Rights in Collateral. Upon any Event of
------------------------------------------
Default, Lender may, in addition to its other rights at law, in equity, or under
any other agreement, exercise with respect to the Collateral all of the rights
and remedies of a secured party under the Uniform Commercial Code as in effect
in Delaware.
ARTICLE VI
DISPUTE RESOLUTION
6.1. Resolution of Disputes.
----------------------
6.1.1. Good-Faith Negotiations. If any dispute arises under this
-----------------------
Agreement or any of the other Loan Documents that is not settled promptly in the
ordinary course of business, the parties shall seek to resolve any such dispute
between them, first, by negotiating promptly with each other in good faith in
face-to-face negotiations. These face-to-face negotiations shall be conducted by
the respective designated senior management representative of each party. If the
parties are unable to resolve the dispute between them through these face-to-
face negotiations, within 20 business days (or such period as the parties shall
otherwise agree) following the date of notification (the "Notice Date") by one
party to the other(s) of the existence of such dispute, then any such disputes
shall be resolved in the following manner.
8
<PAGE>
6.1.2. Mediation. The parties shall endeavor to resolve any dispute
---------
arising out of or relating to this Agreement by mediation under the CPR
Mediation Procedures for Business Disputes. Unless otherwise agreed, the
parties will select a mediator from the CPR Panels of Neutrals and shall notify
CPR to initiate the selection process.
6.1.3. Resolution of Disputes.
----------------------
(a) Any action, suit or proceeding where the amount in
controversy as to at least one party, exclusive of interest and costs, exceeds
$1,000,000 ("Summary Proceeding"), arising out of or relating to this Agreement,
or any of the other Loan Documents or the breach, termination or validity
thereof which has not been resolved by mediation as provided herein within 90
days of the Notice Date, shall be litigated exclusively in the Superior Court of
the State of Delaware (the "Delaware Superior Court") as a summary proceeding
pursuant to Rules 124-131 of the Delaware Superior Court, or any successor rules
(the "Summary Proceeding Rules"). Each of the parties hereto hereby irrevocably
and unconditionally (A) submits to the jurisdiction of the Delaware Superior
Court for any Summary Proceeding, (B) agrees not to commence any Summary
Proceeding except in the Delaware Superior Court, (C) waives, and agrees not to
plead or to make, any objection to the venue of any Summary Proceeding in the
Delaware Superior Court, (D) waives, and agrees not to plead or to make any
claim that any Summary Proceeding brought in the Delaware Superior Court has
been brought in an improper or otherwise inconvenient forum, (E) waives, and
agrees not to plead or to make, any claim that the Delaware Superior Court lacks
personal jurisdiction over it, (F) waives its right to remove any Summary
Proceeding to the federal courts except where such courts are vested with sole
and exclusive jurisdiction by statute, and (G) understands and agrees that it
shall not seek a jury trial or punitive damages in any Summary Proceeding based
upon or arising out of or otherwise related to this Agreement or any of the
other Loan Documents or the breach, termination or validity thereof, and waives
any and all rights to any such jury trial or to seek punitive damages.
(b) In the event any action, suit or proceeding where the
amount in controversy as to at least one party, exclusive of interest and costs,
does not exceed $1,000,000 (a "Proceeding"), arising out of or relating to this
Agreement or any of the other Loan Documents or the breach, termination or
validity thereof, is brought, the parties to such Proceeding agree to make
application to the Delaware Superior Court to proceed under the Summary
Proceeding Rules. Until such time as such application is rejected, such
Proceeding shall be treated as a Summary Proceeding and all of the foregoing
provisions of this Section relating to Summary Proceedings shall apply to such
Proceeding.
(c) If a Summary Proceeding is not available to resolve any
dispute hereunder, the controversy or claim shall be settled by arbitration
conducted on a confidential basis, under the U.S. Arbitration Act, if
applicable, and the then current Commercial Arbitration Rules of the American
Arbitration Association (the "Association") strictly in accordance with the
terms of this Agreement and the substantive law of the State of Delaware
including law in respect of any statute of limitations. The arbitration shall be
conducted at the Association's regional office located closest to Lender's
principal place of business by a single arbitrator. The
9
<PAGE>
arbitrator is not empowered to award damages in excess of compensating damages
and each party hereby irrevocably waives any right to recover such damages with
respect to any such dispute. Judgment upon the arbitrator's aware may be entered
and enforced in any court of competent jurisdiction.
6.2. Equitable Remedies. Neither party shall be precluded hereby from
------------------
securing equitable remedies in courts of any jurisdiction including, but not
limited to, temporary restraining orders and preliminary injunctions, to protect
its rights and interests, but such shall not be sought as a means to avoid or
stay any of the provisions of this Article VI.
----------
6.3. Performance Pending Resolution. Each party shall be required to
------------------------------
continue to perform its respective obligations under the Loan Documents pending
final resolution of any Dispute, unless to do so would be impossible or
impracticable under the circumstances.
ARTICLE VII
MISCELLANEOUS
7.1. Expenses. Borrower shall pay to Lender, upon execution of this
--------
Agreement, and otherwise on demand, all costs and expenses incurred by Lender in
connection with (a) the preparation, negotiation and closing of this Agreement
and any related documents, and any modifications hereto or thereto, and (b)
instituting, maintaining, preserving, enforcing and foreclosing the security
interest in any of the Collateral, whether through judicial proceedings,
arbitration or otherwise, or in defending or prosecuting any actions,
arbitrations or proceedings arising out of or relating to the Loan Documents
including, without limitation, reasonable fees and expenses of counsel (which
may include costs of in-house counsel), expenses for auditors, appraisers and
environmental consultants, lien searches, recording and filing fees and taxes.
7.2. Amendments, Indulgences, Etc. No amendment or waiver of any
----------------------------
provision of this Agreement nor consent to any departure by Borrower herefrom
shall in any event be effective unless the same shall be in writing and signed
by Lender, and then such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. No failure
or delay on the part of Lender in the exercise of any right, power, or remedy
under this Agreement or any of the other Loan Documents shall under any
circumstances constitute or be deemed to be a waiver thereof, or prevent the
exercise thereof in that or any other instance.
7.3. Notices. All notices given hereunder shall be in writing and deemed
-------
validly given (a) three (3) business days after sent, postage prepaid, by
certified mail, return receipt requested, (b) one (1) business day after sent,
charges paid by the sender, by Federal Express Next Day Delivery or other
guaranteed delivery service, (c) when confirmation of transmission by facsimile
during normal business hours is received, or (d) when delivered by hand, upon
delivery, in each case to the intended recipient at its address shown below or
to such other address, or in care of such other person, as either party shall
hereafter specify to the other from time to time by due notice:
10
<PAGE>
If to Borrower:
Diamond Technology Partners Incorporated
875 North Michigan, Suite 3000
Chicago, IL 60611
Attn: CFO
Fax No.: 312/255-6000
cc: Mark L. Gordon, Esq.
Gordon & Glickson
444 N. Michigan Avenue, Suite 3600
Chicago, IL 60611
If to Lender:
Safeguard Scientifics (Delaware), Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19803
Attn: Senior Vice President, Finance
Fax No.: 610/293-0601
7.4. Interpretation. Except as otherwise indicated, all agreements
--------------
defined herein refer to the same as from time to time amended or supplemented or
the terms thereof waived or modified in accordance herewith and therewith. Any
provision hereof found to be illegal, invalid or unenforceable for any reason
whatsoever shall not affect the legality, validity or enforceability of the
remainder hereof. In this Agreement, in the computation of a period of time from
a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding." Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
7.5. Entire Agreement. This Agreement, and all agreements and instruments
----------------
to be delivered by the parties pursuant hereto or in connection herewith,
represent the entire understanding of the parties with respect to the subject
matter hereof, and supersede all other prior and contemporaneous agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
7.6. Governing Law. This Agreement shall be binding upon and shall inure
-------------
to the benefit of the parties hereto and their respective successors and
assigns, and construed and interpreted according to the laws of the State of
Delaware.
7.7. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one and the same
instrument.
7.8. Joint and Several Obligations. The obligations and liabilities of
-----------------------------
the Borrower hereunder and under any of the other documents excluding the
warrants for 319,150 shares
11
<PAGE>
issued in connection therewith, executed in connection herewith are joint and
several obligations and liabilities, including those in respect of the
representations, warranties, and covenants hereof; provided, however, that the
warrants for 319,150 shares of stock of Diamond Technology Partners are only for
shares thereof and not for shares of Diamond Partners.
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the day and year first above written.
Diamond Technology Partners Incorporated
By:______________________________
Title:_____________________________
Safeguard Scientifics (Delaware), Inc.
By:______________________________
Title:_____________________________
Diamond Partners Incorporated
By: ______________________________
Title: _____________________________
12
<PAGE>
SCHEDULES AND EXHIBITS
----------------------
Exhibit 1.2 Subordinated Note
Schedule 3.6 Liens and Encumbrances
Schedule 3.7 Litigation
Schedule 3.12 Places of Business
Schedule 3.13 Authorized Capital Stock of Borrower
Schedule 3.14 Subsidiaries and Affiliates; Other Investments
Schedule 4.2.1 Existing Indebtedness for Borrowed Money
13
<PAGE>
EXHIBIT 1.2
SUBORDINATED NOTE
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENTDATED AS OF
NOVEMBER 8, 1996 (AS AMENDED, RESTATED, SUPPELEMENTED OR OTHERWISE MODIFIED FROM
TIME TO TIME) BY AND BETWEEN SAFEGUARD SCIENTIFICS (DELAWARE), INC. AND AMERICAN
NATIONAL BANK AND TRUST COMPANY OF CHICAGO
Chicago, Illinois
$2,000,000 November 8, 1996
FOR VALUE RECEIVED, Diamond Technology Partners Incorporated ("DTP or
"Parent"), a Delaware corporation, and Diamond Partners Incorporated, an
Illinois corporation and wholly-owned subsidiary of DTP ("Subsidiary")
(collectively, "Borrower"), each having an office at 875 North Michigan, Suite
3000, Chicago, IL 60611, do hereby jointly and severally unconditionally promise
to pay to the order of Safeguard Scientifics (Delaware), Inc., a Delaware
corporation ("Lender"), at Lender's office located at 435 Devon Park Drive,
Wayne, Pennsylvania 19087 or at such other place as Lender may from time to time
designate in writing, in lawful money of the United States, the principal sum of
TWO MILLION DOLLARS ($2,000,000) (the "Loan"), with interest, all as provided
below.
1. Rate of Interest. Interest on the principal amount outstanding
----------------
under this Note shall accrue at an annual rate equal to 6%. Such interest rate
shall be increased by 1% on each anniversary of the date of the Subordinated
Note so that in the fifth year the rate shall be 10% per annum and such rate
shall thereafter remain at 10% per annum. Interest payable hereunder shall be
calculated for actual days elapsed on the basis of a 360-day year.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by Borrower at any time shall be applied to the unpaid balance of
any outstanding principal of this Note.
2. Maturity Date. The "Maturity Date" shall mean November 1, 2001,
-------------
or such later date as may be designated by Lender in writing.
3. Payment of Interest and Principal.
---------------------------------
(a) Accrued interest shall be due and payable on the first day of
each quarter, beginning January 1, 1997 and on the date of repayment of the Loan
in full. Unless prepaid pursuant to Section 3(b) hereof, the principal of the
Loan shall be repaid on the Maturity Date.
14
<PAGE>
(b) The outstanding principal amount of this Note may be prepaid by
the Borrower upon notice to the Lender in whole at any time or in part from time
to time without any prepayment penalty or premium; provided, that upon such
payment any interest due to the date of such prepayment on such prepaid amount
shall also be paid. In addition, the Borrower shall, without any notice or
demand whatsoever, prepay this Subordinated Note in full upon the consummation
of an initial public offering (which includes a rights offering) of any
securities of the Borrower.
4. Subordination to Bank. Borrower's obligations under this
---------------------
Subordinated Note, regardless of whether demand for payment has been made by
Lender, and the lien and security interest granted pursuant to the Loan
Agreement (as hereinafter defined) are subject and subordinate to Borrower's
obligations to American National Bank and Trust Company of Chicago (the "Bank")
and all liens and security interests granted by Borrower to the Bank in
accordance with a certain Subordination Agreement between the Bank and the
Lender.
5. Other Loan Documents. This Subordinated Note is issued in
--------------------
connection with, and subject to the provisions of, that certain loan and
security agreement, dated the date hereof, by and between Borrower and Lender
(the "Loan Agreement") and is secured by the property described in the Loan
Agreement and by such other collateral as previously may have been or may in the
future be granted to Lender to secure this Subordinated Note.
6. Method and Application of Payments. All amounts payable hereunder
----------------------------------
shall be paid by Borrower in immediately available and freely transferable funds
at the place designated by Lender to Borrower for such payment. All payments
made on this Subordinated Note shall be applied to fees and expenses (including
attorneys' fees), accrued interest and principal in any order Lender may choose,
in its sole discretion.
7. Events of Default. Each of following events shall constitute an event
-----------------
of default (an "Event of Default") hereunder :
a. If Borrower shall fail to pay when due any interest or principal
or any other sum payable to Lender hereunder, and such failure continues
unremedied for five (5) days after the due date thereof.
b. If any representation or warranty made by Borrower to Lender in
any statement, certificate or other document including, but not limited to, the
Loan Agreement or any other documents now or in the future securing the
obligations of Borrower to Lender, is false, erroneous or misleading in any
material respect.
c. If Borrower shall default in the performance of any other
agreement or covenant with Lender contained in any document including, but not
limited to, the Loan Agreement or any other documents now or in the future
securing the obligations of Borrower to Lender, and such default shall continue
uncured for ten (10) days after written notice thereof to Borrower given by
Lender (or, if such default cannot reasonably be cured within such ten (10)
15
<PAGE>
day period and Borrower is proceeding to cure with reasonable diligence, such
period of time as shall be reasonably necessary to cure such default, but in no
event more that thirty (30) days).
d. If Borrower shall become insolvent, bankrupt or shall generally
fail to pay its debts as such debts become due; or if Borrower shall admit in
writing its inability to pay its debts; or if Borrower shall suffer a receiver
or trustee for it or substantially all of its property to be appointed; or if
Borrower makes an assignment for the benefit of creditors; or if proceedings
under any law related to bankruptcy or insolvency or the reorganization or the
release of debtors are instituted against Borrower and are not dismissed or
stayed within sixty (60) days; or if a receiver or trustee for Borrower or
substantially all of its property shall be appointed without Borrower's consent
and such receiver or trustee shall not be discharged within sixty (60) days; or
if proceedings relating to Borrower under any law related to bankruptcy or
insolvency or the reorganization or the release of debtors are instituted or
commenced by Borrower.
e. A Default (as defined in the Credit Agreement as now in
effect) shall have occurred or exist.
8. Remedies. Upon the occurrence of any Event of Default, (a)
--------
Borrower's right to request further advances under the Loan Agreement shall
terminate, (b) interest shall automatically and without notice begin to accrue
on the outstanding balance of this Note at the aforesaid interest rate plus 3%,
(c) the entire unpaid principal amount of this Subordinated Note and all unpaid
interest accrued thereon shall, at the sole option of Lender upon notice to
Borrower, become immediately due and payable, (d) Lender shall have the right to
offset all amounts owed by Borrower hereunder against any amounts owed by Lender
in any capacity to Borrower, whether or not due, and (e) Lender shall thereupon
have the immediate right to exercise from time to time all rights and remedies
available to Lender under the Loan Agreement or now or hereafter available at
law or in equity, including the rights of a secured party under the Uniform
Commercial Code, all of which shall be cumulative in nature.
9. Guarantee. Without limiting the effect of the Subsidiary's joint
---------
and several responsibility with the Parent for all duties, obligations, and
liabilities of the Borrower under this Subordinated Note and the related Loan
Agreement, the Subsidiary, by executing this Subsidiary's Note, also absolutely
and unconditionally guarantees, to and in favor of Lender, the prompt payment
and performance of all principal, interest and other sums due and owing with
respect to this Subordinated Note, when and as the same shall become due and
payable, whether at maturity, by acceleration or otherwise, and the due and
punctual performance of all duties, obligations, and liabilities of the
Borrowers' under this Subordinated Note and the related Loan Agreement and the
documents executed in connection therewith. The Subsidiary hereby agrees that
its obligations hereunder shall be absolute and unconditional, irrespective of,
and shall be unaffected by, any invalidity, irregularity, or unenforceability of
any provision of this Subsidiary's Note or any other loan documents.
10. Miscellaneous. Except as expressly set forth herein, Borrower
-------------
hereby waives presentment, demand, protest and notice of dishonor and protest,
and also waives all other exemptions; and agrees that extension or extensions of
the time of payment of this Note or any
16
<PAGE>
installment or part thereof may be made before, at or after maturity by
agreement by Lender. Borrower shall pay to Lender, upon demand, all costs and
expenses that may be incurred by Lender in connection with the enforcement of
this Subordinated Note including, without limitation, reasonable fees and
expenses of Lender's counsel. Notices required to be given hereunder shall be
given in accordance with the provisions of the Loan Agreement, as amended from
time to time. Any failure by Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Subordinated Note shall be
binding upon Lender unless in writing and signed by it. Any provision hereof
found to be illegal, invalid or unenforceable for any reason whatsoever shall
not affect the legality, validity or enforceability of the remainder hereof.
This Subordinated Note shall apply to and bind the successors of Borrower and
shall inure to the benefit of Lender, its successors and assigns; provided,
however, that Borrower may not assign its rights and obligations under this Note
without the express prior written consent of Lender. The Subordinated Note shall
be governed by and interpreted in accordance with the laws of the State of
Delaware.
IN WITNESS WHEREOF, Borrower, by its duly authorized officer intending to
be legally bound hereby, has duly executed this Subordinated Note as of the date
first written above.
Diamond Technology Partners Incorporated
By:______________________________
Name:____________________________
Title:_____________________________
Diamond Partners Incorporated
By:_____________________________
Name:___________________________
Title:____________________________
17
<PAGE>
EXHIBIT 10.10
W-5A
THIS WARRANT CERTIFICATE AND THE COMMON STOCK FOR WHICH IT MAY BE EXERCISED HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT CERTIFICATE IS BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
APPLICABLE STATE SECURITIES LAWS, AND MAY BE SOLD OR TRANSFERRED ONLY IN
COMPLIANCE WITH THE ACT AND SUCH LAWS.
As of November 8, 1996
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
AMENDED AND RESTATED
WARRANT CERTIFICATE
TO PURCHASE COMMON STOCK
DIAMOND TECHNOLOGY PARTNERS INCORPORATED (the "Company"), hereby grants
to SAFEGUARD SCIENTIFICS (DELAWARE), INC. (the "Warrantholder") the right to
purchase up to Three Hundred Nineteen Thousand One Hundred Fifty (319,150)
shares of the Company's Common Stock, no par value per share (the "Common
Stock"), at the Exercise Price (as hereinafter defined) and subject to the terms
of this Warrant Certificate. This Warrant expires at the earlier to occur of
(i) 5:00 p.m., Eastern Standard Time, on November 1, 2001 and (ii) such time as
there are no shares of Common Stock issued and outstanding.
I. Exercise of Warrant
-------------------
1.1 This Warrant Certificate is exercisable by the
Warrantholder at the Exercise Price per share of Common Stock issuable
hereunder, payable in cash or by certified or official bank check, or by wire
transfer of immediately available funds. Upon surrender of this Warrant with
the annexed Election to Exercise Form duly completed and executed, together
with payment of the Exercise Price for the shares of Common Stock being
purchased, at the Company's principal executive offices presently located at 875
N. Michigan Avenue, Suite 3000, Chicago, Illinois 60611, the Warrantholder shall
be entitled to receive a certificate or certificates for the shares of Common
Stock so purchased.
1.2 The purchase rights represented by this Warrant
Certificate are exercisable at the option of the Warrantholder, in whole or in
part, from time to time prior to the expiration of this Warrant Certificate as
set forth above.
<PAGE>
1.3 In the case of the purchase of less than all the shares of
Common Stock purchasable under this Warrant Certificate, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock purchasable hereunder.
2. Issuance of Stock Certificates
------------------------------
2.1 The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant Certificate shall be made as soon as practicable
thereafter or in any event within 30 days after such issuance without charge to
the Warrantholder, including without limitation any issuance tax that may be
payable in respect thereof, and such certificates shall (subject to the
provisions of Section 3 hereof) be issued in the name of, or in such names as
may be directed by, the Warrantholder, provided, however, that the Company shall
not be required to pay any income tax to which the Warrantholder may be subject
in connection with the issuance of this Warrant Certificate or of shares of
Common Stock upon the exercise of this Warrant Certificate; and provided,
further, that the Company shall not be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the Warrantholder, and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
2.2 All shares of Common Stock issued upon the exercise of this
Warrant Certificate shall be validly issued, fully paid and nonassessable.
2.3 Each person in whose name any such certificate for shares of
Common Stock is issued shall for all purposes be deemed to have become the
holder of record of such shares on the date on which the Warrant Certificate was
surrendered and payment of the Exercise Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
3. Restrictions on Transfer.
------------------------
3.1 Restrictions on Transfer. The Warrantholder, by acceptance
------------------------
hereof, agrees that, absent an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), covering the disposition of the
Warrant Certificate or the shares of Common Stock issued or issuable upon
exercise hereof (the "Warrant Shares"), the Warrantholder will not sell or
transfer any or all such Warrant Certificate or Warrant Shares, as the case may
be, without first obtaining the consent of the Company as provided in Section
9.2 hereof and providing the Company with an opinion of counsel (which may be
counsel for the Company) to the effect that such sale or transfer will be exempt
from the registration and prospectus delivery requirements of the Act. The
Warrantholder consents to the Company making a notation on its records giving
2
<PAGE>
instructions to any transfer agent of the Warrant Certificate or Warrant Shares
in order to implement such restrictions on transferability.
3.2. Transfer Restriction Legend. Each certificate representing
----------------------------
Warrant Shares, unless at the same time of exercise such Warrant Shares are
registered under the Act, shall bear a legend in substantially the following
form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS
AND MAY BE TRANSFERRED OR RESOLD ONLY IN COMPLIANCE WITH SUCH
SECURITIES LAWS.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a certificate issued upon completion of
a distribution under a registration statement covering the securities
represented) shall also bear such legend unless, in the opinion of counsel to
the Company, the securities represented thereby may be transferred as
contemplated by such holder without violation of the registration requirements
agreement of the Act.
4. Exercise Price. The initial Exercise Price of this Warrant
---------------
Certificate shall be $9.08 per share of Common Stock. The adjusted Exercise
Price shall be the price that shall result from time to time from any and all
adjustments of the initial Exercise Price in accordance with the provision of
Section 5 hereof. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price depending upon the context.
5. Adjustment of Exercise Price and Number of Shares.
--------------------------------------------------
5.1. The Exercise Price specified in Section 4 hereof shall be
subject to adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend on
Common Stock in Common Stock, (ii) subdivide its outstanding shares of Common
Stock or (iii) combine its outstanding shares of Common Stock into a smaller
number of shares, then, in such an event the Exercise Price in effect
immediately prior thereto shall be adjusted proportionately so that the adjusted
Exercise Price will bear the same relation to the Exercise Price in effect
immediately prior to any such event as the total number of shares of Common
Stock outstanding immediately prior to any such event shall bear to the total
number of shares of Common Stock outstanding immediately after such event. An
adjustment made pursuant to this subdivision (a) shall become effective
retroactively immediately after the record date in the case of a dividend and
shall become effective immediately after the effective date in the case of a
subdivision or combination. The Exercise Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein.
(b) Except with respect to up to 80,000 shares of Common
Stock to be issued for a price of at least $3.75 per share, in case the Company
shall issue purchase rights, options or warrants with respect to shares of
Common Stock entitling the holders thereof to
3
<PAGE>
subscribe for or purchase shares of Common Stock at a Net Consideration Per
Share (as defined in subdivision (e) below) which is less than the Exercise
Price at the time of such issuance (other than purchase rights, options or
warrants issued to employees of the Company), the Exercise Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of Common Stock
so offered would purchase at such Exercise Price, and of which the denominator
shall be the number of shares of Common Stock outstanding on such record date
plus the number of shares of Common Stock offered for subscription or purchase.
Such adjustment shall be made whenever such purchase rights, options or warrants
are issued and shall become effective retroactively immediately after the record
date for the determination of shareholders entitled to receive such rights or
warrants. In the event the Company shall subsequently cancel or terminate such
purchase rights, options or warrants, or if such rights, options or warrant
expire without having been exercised, the Exercise Price shall be readjusted to
be the same as if the Company had not issued such purchase rights, options or
warrants.
(c) In case the Company shall distribute after the date hereof
to holders of shares of Common Stock shares of its capital stock (other than
Common Stock), evidences of its indebtedness or assets (excluding cash dividends
or distributions) or purchase rights, options or warrants to subscribe for or
purchase such shares, evidences of indebtedness or assets (excluding those
referred to in subdivision (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, of which the numerator shall be
the total number of outstanding shares of Common Stock multiplied by the current
market price per share of Common Stock (as determined in accordance with the
provisions of subdivision (d) below) on the record date mentioned below, less
the fair market value as determined by the Board of Directors (whose
determination shall be conclusive) of the capital stock, assets or evidences of
indebtedness so distributed or of such rights or warrants, and of which the
denominator shall be the total number of outstanding shares of Common Stock
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective retroactively immediately after the record date for the determination
of stockholders entitled to receive such distribution.
(d) For the purpose of any computation under subdivisions (b)
and (c) above, the current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for the 30
consecutive business days commencing 45 business days before the date in
question. The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if not listed or admitted to trading on any
national securities exchange, the average of the closing prices on the NASDAQ
system or any successor system, or the nearest comparable system, or, in the
absence of any of the foregoing, the fair market value as determined by the
Board of Directors (whose determination shall be conclusive).
4
<PAGE>
(e) "Net Consideration Per Share" shall mean the amount equal to
the total amount of consideration received by the Company for the issuance of
such purchase rights, options, warrants or other purchase rights or convertible
or exchangeable securities, plus the minimum amount of consideration, if any,
payable to the Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all such
purchase rights, options, warrants, or other purchase rights were exercised,
exchanged or converted.
(f) No adjustment of the Exercise Price shall be made if the
amount of such adjustment shall be less than $.01 per share, but in such case
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be added at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried forward, shall amount
to not less than $.01 per share. In case the Company shall at any time issue
Common Stock by way of dividend on any stock of the Company or subdivide or
combine the outstanding shares of the Common Stock, said amount of $.01 per
share (as theretofore increased or decreased, if the same amount shall have been
adjusted in accordance with the provisions of this subparagraph) shall forthwith
be proportionately increased in the case of a combination or decreased in the
case of such a subdivision or stock dividend so as appropriately to reflect the
same.
5.2 Upon each adjustment of the Exercise Price pursuant to Section
5.1, the number of shares of Common Stock purchasable upon exercise of this
Warrant Certificate shall be adjusted to the number of shares of Common Stock,
calculated to the nearest one hundredth of a share, obtained by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment upon the exercise of this Warrant Certificate by the Exercise Price
in effect prior to such adjustment and dividing the product so obtained by the
new Exercise Price.
5.3 In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock, or in case of the consolidation of the
Company with or the merger of the Company into any other corporation or entity
(other than a consolidation or merger in which the Company is the continuing
entity) or of the sale of the properties and assets of the Company as, or
substantially as, an entirety to any other entity, this Warrant Certificate
shall be exercisable after such capital reorganization, reclassification,
consolidation, merger or sale upon the terms and conditions specified in this
Warrant Certificate, for the number of shares of stock or other securities,
property or cash of the entity resulting from such consolidation or surviving
such merger or to which such sale shall be made, or any other entity, as the
case may be, which the Common Stock issuable (at the time of such capital
reorganization, reclassification, consolidation, merger or sale) upon exercise
of this Warrant Certificate would have been entitled to receive upon such
capital reorganization, reclassification, consolidation, merger or sale if such
exercise had taken place immediately prior to such action. The subdivision or
combination of shares of Common Stock at any time outstanding into a greater or
lesser number of shares of Common Stock shall not be deemed to be a
reclassification of the Common Stock of the Company for the purposes of this
Section 5.3
5
<PAGE>
5.4 Whenever the Exercise Price is adjusted as herein provided, the
Company shall compute the adjusted Exercise Price in accordance with Section 5.1
and shall prepare a certificate signed by its Chairman of the Board, Vice
Chairman of the Board, President or Vice President and its principal accounting
officer setting forth the adjusted Exercise Price and showing in reasonable
detail the method of such adjustment and the fact requiring the adjustment and
upon which such calculation is based, and such certificate shall forthwith be
forwarded to the Warrantholder.
5.5 In case at any time after the date of this Warrant Certificate:
(a) the Company shall declare a dividend (or any other
distribution) on its shares of Common Stock payable otherwise than in cash out
of funds legally available therefor; or
(b) the Company shall authorize the granting to the holders of
its shares of Common Stock of rights to subscribe for or purchase any shares of
capital stock of any class or of any other rights; or
(c) the Company shall authorize any reclassification of the
shares of its Common Stock (other than a subdivision or combination of its
outstanding shares of Common Stock); or any consolidation, merger, share
exchange or division to which it is a party and for which approval of any
shareholders of the Company is required, or the sale or transfer of all or
substantially all of its assets or all or substantially all of its issued and
outstanding stock; or
(d) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company:
then the Company shall cause notice to be sent to the Warrantholder at least 20
days (or ten days in any case specified in clause (a) or (b) above) prior to the
applicable record date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution or
rights, or, if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined or (y) the date on which such reclassification,
consolidation, merger, share exchange, division, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of shares of Common Stock of record shall be
entitled to exchange their shares for securities or other property deliverable
upon such reclassification, consolidation, merger, share exchange, division,
sale, transfer, dissolution, liquidation or winding up. Failure to give any
such notice of any defect therein shall not affect the validity of the
proceedings referred to in clauses (a)-(d) above. The Warrantholder shall not
be entitled to any dividends that may have accrued with respect to shares of
Common Stock prior to the date of the Warrantholder's purchase thereof.
5.6 The form of this Warrant Certificate need not be changed because
of any change in the Exercise Price pursuant to this Section 5 and any Warrant
Certificate issued after
6
<PAGE>
such change may state the same Exercise Price and the same number of shares of
Common Stock as are stated in this Warrant Certificate as initially issued.
However, the Company may at any time in its sole discretion (which shall be
conclusive) make any change in the form of this Warrant Certificate that it may
deem appropriate and that does not affect the substance thereof; and any Warrant
Certificate thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
6. Exchange and Replacement of Warrant Certificate.
-----------------------------------------------
6.1 On surrender for exchange of this Warrant Certificate, or any
Warrant Certificate or Warrant Certificates issued upon subdivision, exercise or
transfer in whole or in part of this Warrant Certificate, properly endorsed, to
the Company, the Company at its expense will issue and deliver to or on the
order of the holder thereof a new Warrant Certificate or Warrant Certificates or
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct (provided any such holder
has the consent of the Company as provided in Section 9.2 hereof), calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant Certificate or Warrant
Certificates so surrendered.
6.2 In the event this or any subsequently issued Warrant Certificate
is lost, stolen, mutilated or destroyed, the Company may, upon receipt of a
proper affidavit (and surrender or any mutilated Warrant Certificate) and an
indemnity agreement and/or security reasonably satisfactory in form and amount
to the Company, in each instance protecting the Company, issue a new Warrant
Certificate of like denomination, tenor and date as the Warrant Certificate so
lost, stolen, mutilated or destroyed. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at
any time enforceable against anyone.
7. Fractional Interests.
--------------------
In any case where the Warrantholder would be entitled under the terms of
this Warrant Certificate to receive a fraction of a share upon the exercise of
the Warrant Certificate, the Company shall issue the number of shares the
Warrantholder would be entitled to receive, determined in a single calculation,
with any portion of a share equal to .500 or greater rounded up, any portion of
a share equal to less than .500 rounded down, to the nearest whole number.
8. Reservation and Listing of Shares.
---------------------------------
The Company will cause to be reserved and kept available out of its
authorized and unissued shares of Common Stock the number of whole shares of
Common Stock sufficient to permit the exercise in full of this Warrant
Certificate.
7
<PAGE>
9. Rights of Warrantholders.
------------------------
9.1. Nothing contained in this Warrant Certificate shall be construed
as conferring upon the holder hereof any of the rights of a shareholder of the
Company.
9.2. The Company may deem and treat the person in whose name this
Warrant Certificate is registered with it as the absolute owner for all
purposes whatever (notwithstanding any notation of ownership or other writing
thereon made by anyone other than the Company) and the Company shall not be
affected by any notice to the contrary. The terms "Warrantholder" and "holder of
the Warrant Certificate" and all other similar terms used herein shall mean only
such person(s) in whose name(s) this Warrant Certificate is properly registered
on the Company's books. However, notwithstanding the foregoing, no person,
entity or group may become a Warrantholder other than the Warrantholder unless
and until (a) the provisions of Sections 2.1 and 3.1 hereof have been complied
with, (b) the Company has received an assignment, in form satisfactory to the
Company, transferring all right, title and interest in and to this Warrant
Certificate, (c) such person, entity or group represents and warrants in writing
that it will be the sole legal and beneficial owner thereof, and (d) the Company
consents to the transfer, which consent will not be unreasonably withheld.
10. Notices.
-------
Unless otherwise provided herein, any notice required or permitted shall be
given in writing and shall be deemed effectively given upon (a) personal
delivery to the party to be notified, (b) upon deposit with the United States
Post Office, by registered or certified mail, postage prepaid, or (c) the next
business day after deposit with a nationally recognized express courier service,
postage and delivery charges prepaid and, with respect to (b) and (c), addressed
to the party to be notified at the address indicated on the records of the
Company for such party, or at such other address as such party may designate by
ten days' advance written notice to the other parties.
10.1 Notice to the Warrantholder shall be sent to the address for such
holder as shown on the books of the Company.
10.2 Notice to the Company shall be sent to:
Diamond Technology Partners Incorporated
875 N. Michigan Avenue
Suite 3000
Chicago, Illinois 60611
Attention: Chief Financial Officer
8
<PAGE>
11. Successors.
----------
All the covenants, agreements, representations and warranties contained
in this Warrant Certificate shall bind the parties hereto and their respective
distributees, successors and assigns.
12. Headings.
--------
The section headings in this Warrant Certificate have been inserted for
purposes of convenience only and shall have no substantive effect.
13. Governing Law.
-------------
This Warrant Certificate shall be construed and enforced in accordance
with, and governed by, the laws of the State of Delaware.
14. Remedies.
--------
The Company stipulates that the remedies at law of the holder of this
Warrant in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant Certificate
are not and will not be adequate, and that such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise.
WITNESS this signature of the duly authorized officer of the Company.
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
By: [SIGNATURE APPEARS HERE] 1/15/97
-------------------------------------
Title:
9
<PAGE>
ELECTION TO EXERCISE FORM
{To Be Executed By The Warrantholder
In Order to Exercise The Warrant Certificate)
The undersigned hereby irrevocably elects to exercise the right to purchase
_____ shares of Common Stock of Diamond Technology Partners Incorporated covered
by this Warrant Certificate according to the conditions hereof and herewith
makes payment of the Exercise Price of such shares in full.
HOLDER
BY:
--------------------------------------
Title:
Address of Holder:
----------------------------------
----------------------------------
Dated:
----------------------------
10
<PAGE>
Exhibit 10.11
________ ___, 1997
Mr. Martin Curran Mr. Bruce Karhu
ChaseMellon Mellon Bank, N.A.
Shareholder Services, L.L.C. Corporate Trust Group
85 Challenger Road Room 325
Overpeck Centre Two Mellon Bank Center
Ridgefield Park, NJ 07660 Pittsburgh, PA 15259
Dear Messrs. Curran and Karhu:
Safeguard Scientifics, Inc., a Pennsylvania corporation ("Safeguard"),
Diamond Technology Partners, Incorporated, a Delaware corporation ("DIAMOND"),
Technology Leaders ("TL"), CIP Capital L.P ("CIP"), Cambridge Technology
Partners (Massachusetts), Inc. ("Cambridge") and CompuCom Systems, Inc.
("CompuCom") are offering to holders of Safeguard's outstanding common stock,
par value $.10 per share (the "Safeguard Common Shares"), of record at the close
of business on ___, 1997 (the "Record Date"), rights to purchase ("Rights")
approximately 3,100,000 shares of the Class A Common Stock, $.001 par value per
share, of DIAMOND (the "Common Stock") for ____ per share (the "Exercise
Price"), on the basis of one Right for every ten Safeguard Common Shares owned
on the Record Date, upon the terms and subject to the conditions set forth in
the prospectus as hereinafter defined (the "Rights Offering"). Also being
offered to certain persons to be designated by DIAMOND ("Direct Purchasers") are
155,000 additional Rights (the "Direct Rights"). A copy of the prospectus dated
__________________ ("Prospectus") is attached hereto as Exhibit A. Each Right
---------
distributed pursuant to the Rights Offering may be exercised for one share of
Common Stock, subject to the restrictions described in the Prospectus.
Of the shares of Common Stock to be offered pursuant to the Rights Offering
and the Direct Rights, 1,705,000 will be newly issued by DIAMOND, 844,409 will
be sold by Safeguard, 503,994 will be sold by TL, 91,635 will be sold by CIP,
54,981 will be sold by Cambridge and 54,981 will be sold by CompuCom.
The Rights will be evidenced by certificates in the form attached hereto as
Exhibit B (the "Rights Certificates") and will be transferable and exercisable
- ---------
in accordance with the relevant provisions of the Prospectus and the Rights
Certificates. Following the expiration of the Rights Offering and the closing
under the standby underwriting agreement (as described in the Prospectus) among
DIAMOND, Safeguard, TL, CIP, Cambridge and CompuCom, and Tucker Anthony
Incorporated and Robert W. Baird & Co. Incorporated (the "Underwriters"), each
individual who exercised a Right or Rights ("Subscriber") shall receive a
certificate of Common Stock of DIAMOND ("Stock Certificate") representing the
appropriate number of shares.
<PAGE>
Page 2
The terms and conditions contained in the Prospectus, including without
limitation the section entitled "THE OFFERING," are incorporated herein by
reference and made a part hereof and shall control in the event of any conflict
with any other terms of this Agreement.
In connection with the above, Safeguard, Diamond, TL, CIP, Cambridge and
CompuCom hereby agree with ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon") and with Mellon Bank, N.A. ("Mellon") as follows:
1. ChaseMellon is appointed to perform the services of "Rights Agent" in
accordance with the Prospectus and the further instructions of this letter.
Mellon is appointed to perform the services of "Escrow Agent" as described
herein.
2. ChaseMellon will mail within two business days following the Record
Date to each holder of Safeguard Common Shares on the Record Date (regardless of
whether such holder's account has been coded as undeliverable) and to the Direct
Purchasers an envelope, with a return address to ChaseMellon, containing (a) a
Rights Certificate representing the number of Rights to which such holder is
entitled under the Rights Offering, (b) a Prospectus, (c) a return envelope
addressed to ChaseMellon and (d) a Safeguard cover letter. Prior to such
mailing, we will provide ChaseMellon with blank Rights Certificates (on which
you will designate the name of the holder of Safeguard Common Shares and the
appropriate number of Rights), Prospectuses, cover letters in sufficient numbers
to complete the mailing, and the list of names, addresses and Social Security
numbers of the Direct Purchasers who have been designated by DIAMOND to receive
Direct Rights.
To each broker, bank, trust company or other nominee holder of Safeguard
Common Shares, ChaseMellon will mail an envelope containing (a) a Safeguard
cover letter, (b) a Prospectus, and (c) a Rights Certificate or Certificates as
further instructed by Safeguard. Prior to such mailing, we will provide
ChaseMellon with Safeguard cover letters and Prospectuses in sufficient numbers
to complete the mailing.
With respect to the distribution of Rights Certificates to the following
nominees, please proceed as follows:
a. The Depository Trust Company (Cede & Co.) ("DTC") has been requested to
provide directly to ChaseMellon, the day after the Record Date, a listing of the
record positions of their participants on the Record Date. DTC also has been
requested to immediately telecopy the list to:
Safeguard Scientifics, Inc.
Attn: Deirdre Blackburn
Manager, Legal Systems
Telecopier: (610) 293-0601
The distribution of Rights to DTC will be made by ChaseMellon through
the Automated Subscription Offer Program. DTC will handle subscriptions,
transfers and guarantees on behalf of its participants. ChaseMellon will take
whatever action may be required by DTC to be certain that the shares of DIAMOND
common stock are qualified for both certificated FAST issue and DTC
eligibibility so that shares may be delivered through DTC at closing by book
entry without issuance of physical stock certificates.
b. Philadelphia Depository Trust Company ("Philadep") has been requested
to provide directly to ChaseMellon and to Safeguard, the day after the Record
Date, a listing of the record positions of its
<PAGE>
Page 3
participants on the Record Date. Philadep will handle subscriptions, transfers
and guarantees on behalf of its participants and has been requested to provide
ChaseMellon with a breakdown of the Rights Certificates which they require or to
make the appropriate arrangements directly with ChaseMellon for a distribution
of rights in a manner similar to the DTC Automated Subscription Offer Program.
ChaseMellon also will make available a New York processing facility for
the following services during the exercise period: a) acceptance and forwarding
to Ridgefield Park, New Jersey of exercises and transfers of Rights, b)
acceptance and clearance of guarantees of exercise of Rights and c) reissuance
of Rights Certificates, if less than all Rights evidenced by a submitted
certificate are exercised or transferred, within two business days of receipt,
unless received within one business day of the Expiration Date.
3. Promptly after ChaseMellon distributes all Rights in accordance with
Section 2 above, and all brokers, depositories and other nominee holders advise
you of the amount of additional Rights they require for rounding purposes (which
you shall distribute to them), you shall notify Safeguard, DIAMOND and the
Underwriters in writing of the number of Rights you have distributed (the
"Distributed Amount").
4. All questions as to the validity, form, eligibility (including time of
receipt, beneficial ownership and compliance with minimum exercise provisions)
and acceptance of any exercise of Rights except as set forth on Exhibit D will
---------
be communicated by ChaseMellon to Safeguard, which shall provide the final and
binding determination of such questions. Safeguard reserves the right to waive
any defect in exercise of the Rights, and Safeguard's interpretations of the
terms and conditions of the Rights Offering shall be final and binding.
5. If, pursuant to the Rights Offering, Safeguard does not accept a
defective exercise of Rights, or ChaseMellon receives a Rights Certificate which
is defective in some particular and not waived by Safeguard, you shall promptly
notify the person who tendered the same by (a) telephone, if the deficiency and
necessary correction can be thereby adequately explained and a new Rights
Certificate is not needed, or (b) a mailing as soon as practicable, in any other
event, to include the Rights Certificate, a letter explaining why the tendered
Rights Certificate is being returned and directions on how to correct the
deficiency, giving said subscriber five business days from the date of the
letter to correct the deficiency, but in no event later than three business days
after the Expiration Date (as defined below) of the Rights Offering. If any
defective exercise is not waived or timely cured, you shall promptly return to
the subscriber the Rights Certificate (if not previously returned) and the
payment submitted by the subscriber with such exercise.
6. The Rights Offering shall expire at the time and on the date specified
in the Prospectus (the "Expiration Date").
7. Except as set forth below, a Right shall be deemed exercised at the
time a completed and signed subscription form on the appropriate Rights
Certificate, accompanied by payment in full and in the form indicated in the
Prospectus for all shares for which Rights have been exercised, is received by
ChaseMellon on or before the Expiration Date, provided that any check received
in payment of the Exercise Price is cleared no later than three business days
after the Expiration Date. A defective exercise of Rights accompanied by payment
shall be deemed to have been properly made upon receipt if the irregularities
have been subsequently cured within five business days of notice of defect to
the satisfaction of, or waived by, Safeguard, but not later than three business
days after the Expiration Date, and provided that all checks received in payment
of the Exercise Price are cleared no later than three business days after the
Expiration Date. A guaranteed exercise of Rights shall be deemed made at the
time payment in full in the form indicated in the Prospectus for the shares
guaranteed and a Notice
<PAGE>
Page 4
of Guaranteed Delivery, letter or telegraphic notice is received by ChaseMellon
from a bank, trust company or member firm of the New York or American Stock
Exchange as permitted under the terms of the Rights Offering, within the
required period, all as specified in the Prospectus, subject to delivery within
three business days after the Expiration Date of a completed and signed
subscription form for the shares guaranteed.
8. All mailings that contain a Rights Certificate or a Stock Certificate
shall be insured to protect the addressee and ChaseMellon against any liability
arising out of the loss, destruction or non-delivery of such Certificate for any
cause. All Rights Certificates received by ChaseMellon, and in the case of
guaranteed exercises as permitted in the Rights Offering, all letters or
telegraphic notices when received, shall be marked to show the date and hour of
receipt and, if defective, the date and hour of any correction or waiver of the
deficiency. All mailings shall be made by first class mail, postage prepaid,
with your return address in accordance with your mail loss policy procedures and
limitations. All undeliverable mailings shall be so coded on your account
records.
9. With respect to all inquiries regarding loss or nonreceipt of Rights,
Safeguard will instruct individuals reporting a loss or nonreceipt of Rights to
telephone ChaseMellon and speak with the Reorganization Department at 1-800-973-
1028. Upon receipt of such a phone call, ChaseMellon shall immediately put a
stop on the Rights Certificate and within two business days forward to such
individual the affidavit of non-receipt or affidavit of theft, loss or
destruction required to replace the Rights Certificate.
Each of Safeguard and ChaseMellon, in their sole discretion, shall have
the right to require that an individual reporting a loss of Rights provide
ChaseMellon with an indemnity bond prior to a replacement of the Rights
Certificate. In the event that Safeguard determines that such an indemnity bond
is appropriate, Safeguard will provide you with timely notice of its decision.
Further, you will inform the shareholder during the initial phone call
that the offering expires at 5:00 p.m., New York City time, on ________ ___,
1997 and of the following policies as appropriate regarding transmittal of
replacement certificates:
Lost Certificates: A replacement Rights Certificate will be placed in
-----------------
first class mail within two business days of ChaseMellon's receipt of
his/her executed affidavit and indemnity bond. If the holder would like
his/her Rights Certificate returned via overnight mail, he/she should
enclose with the letter a check payable to ChaseMellon to pay the cost
of the return overnight mailing of the replacement Rights Certificate.
Nonreceipt of Certificates: ChaseMellon will mail, within two business
--------------------------
days of receipt of a shareholder affidavit of non-receipt, a
replacement Rights Certificate via first class mail. If the holder
would like his/her Rights Certificate returned via overnight mail,
he/she should enclose with the letter a check payable to ChaseMellon to
pay the cost of the return overnight mailing of the replacement Rights
Certificate. Commencing three business days before the expiration of
the Rights Offering, DIAMOND will pay the expenses of overnight
delivery of replacement Rights Certificates in cases of nonreceipt.
Any shareholder who reports loss or nonreceipt of a Rights Certificate
and who wishes to exercise his/her Rights will be given the option of
--------
delivering to ChaseMellon, along
<PAGE>
Page 5
with the affidavit of non-receipt or loss, a letter indicating his/her
intent to exercise in his/her name and enclosing a check payable to
"Safeguard Escrow Account" for the appropriate subscription. In those
cases, ChaseMellon will not replace the Rights Certificate, but rather
will proceed to process the subscription.
10. ChaseMellon shall notify by FAX at or about the close of each business
day during the pendency of the Rights Offering and for the three business days
After the Expiration Date, (a) Michael E. Mikolajczyk of DIAMOND at (312) 255-
5600 (b) Deirdre Blackburn of Safeguard at (610) 293-0601, (c) William E. Roman
of Tucker Anthony Incorporated at (617) 725-2483, and Dominick P. Zarcone of
Robert W. Baird Incorporated at (414) 765-3912 or their respective designates,
of (i) the number of shares for which Rights were exercised on such day, (ii)
the number of shares for which Rights were subject to guaranteed exercises on
such day, (iii) the number of shares for which Rights were subject to defective
exercises received on such day, (iv) the number of shares for which previously
defective and guaranteed exercises of Rights were cured and delivered on such
day, (v) the number of shares for which checks received with previously
exercised Rights were returned unpaid and which did not clear by the deadline
for such clearance, (vi) the number of shares for which previously defective and
guaranteed exercises of Rights lapsed or failed due to expiration of the
deadline for cure or delivery, and (vii) the cumulative number of shares for
which Rights were properly exercised to date, and furnish each of such persons
with a daily written report containing such information. ChaseMellon also shall
maintain and update a register which shall list holders who have fully or
partially exercised their Rights, holders who have transferred their Rights,
their transferees, and holders who have not exercised their Rights. Subject to
Section 16(h) below, ChaseMellon is also authorized and instructed to provide to
each such person or company such additional information relating to the transfer
or exercise of Rights as may from time to time be requested, provided however
that such information shall be consistent with the information contained in the
Prospectus.
11. ChaseMellon will deposit all checks and money orders received from
exercises of Rights in a segregated account designated as the Safeguard Escrow
Account until the earlier of clearance or two business days of receipt, at which
time the sums represented by such checks and money orders shall be wire
transferred to the Escrow Agent as follows:
Mellon Bank, N.A., Pittsburgh, PA
ABA #043000261
C/A #900-9010
Attn:Delores Kenst
Re: DIAMOND Rights Offering
Cash payments accompanying exercises of Rights will be deposited promptly by you
and wire transferred to the Escrow Agent. The Escrow Agent shall establish an
escrow account entitled "Safeguard Escrow Account" (the "Escrow Account").
Safeguard, DIAMOND, TL, CIP, Cambridge and CompuCom hereby direct the Escrow
Agent to invest such funds as soon as may be practicable and keep such funds
invested during the term hereof in accordance with written directions signed by
each of them, provided that such investment shall be limited to investment
companies registered under the Investment Company Act of 1940 which invest in
obligations, or repurchase agreements secured by such obligations, of the
following types: (a) certificates of deposit, maturing within 90 days from the
date of acquisition thereof, issued by national or state banks located in the
United States of America or in any state or agency thereof; or (b) short-term
obligations of or guaranteed by the United States of America or any state or
agency thereof. These investment companies may include any for which the Escrow
Agent or affiliate perform services for a fee, whether as custodian, transfer
agent, investment advisor or otherwise, and it is
<PAGE>
Page 6
acknowledged that such shares are not obligations of or endorsed by the Escrow
Agent and are not insured by the FDIC. Safeguard, DIAMOND, TL, CIP, Cambridge
and CompuCom hereby direct Escrow Agent to invest in the Dreyfus Institutional
U.S. Treasury Money Market Fund until further written notice is given to Escrow
Agent at the address on page 1, and hereby acknowledge receipt of a prospectus
for such investment. Safeguard, DIAMOND, TL, CIP, Cambridge and CompuCom agree
that neither the Rights Agent nor the Escrow Agent shall be liable for any loss
with respect to investments made in accordance with this Section 11. Escrow
Agent shall wire transfer to the Rights Agent all funds in the Escrow Account
for distribution by the Rights Agent in accordance with Section 13 hereof upon
written notice from the Rights Agent that the Closing (as defined in Section 13)
will occur. If the Escrow Agent receives notice from the Rights Agent that
instead of the Closing, distributions will be made pursuant to Section 14,
Escrow Agent will wire transfer funds to Rights Agent after deducting any unpaid
fees of Escrow Agent.
12. Safeguard, DIAMOND, TL, CIP, Cambridge and CompuCom will give you
notice when the Rights Offering has become effective (the "Effective Date").
Promptly following the Effective Date, each of the selling stockholders will
deposit with you stock certificates endorsed in blank for transfer as follows:
(a) Safeguard shall cause its subsidiary, Safeguard Scientifics
(Delaware), Inc. ("Safeguard Delaware"), to deposit certificates representing an
aggregate of 844,409 shares of Common Stock;
(b) TL will deposit certificates representing an aggregate of 503,994
shares of Common Stock;
(c) CIP will deposit certificates representing an aggregate of 91,635
shares of Common Stock; and
(d) Cambridge will deposit certificates representing an aggregate of
54,981 shares of Common Stock.
(e) CompuCom will deposit certificates representing an aggregate of
54,981 shares of Common Stock.
DIAMOND shall direct you, in your capacity as its transfer agent, to
reserve for issuance an aggregate of 2,015,000 shares of authorized but unissued
Common Stock. The Common Stock to be reserved by you for issuance by DIAMOND
represents 1,550,000 shares of Common Stock being offered pursuant to the Rights
Offering, 155,000 shares of Common Stock being offered pursuant to the Direct
Rights, and 310,000 shares of Common Stock subject to an option which has been
granted to the Underwriters for the purpose of covering overallotments. Such
stock certificates and reserved shares shall be held by you in escrow for
distribution as provided below.
13. The closing of the Rights Offering (the "Closing") will be held at the
time, and subject to the conditions, described in the Prospectus. Safeguard,
DIAMOND, TL, CIP, Cambridge and CompuCom will notify you in writing when the
Closing shall occur. Promptly upon such notification, you shall issue new stock
certificates for delivery at Closing, and/or make book transfers at closing in
the manner requested by the Underwriters prior to Closing, representing shares
of Common Stock as follows:
(i) to the Subscribers for the amount of shares for which they have
exercised their Rights;
(ii) (A) If the number of shares delivered to Subscribers pursuant to
(i) above is less than the Distributed Amount, then to certain persons to be
designated by DIAMOND ("Other Purchasers") for the
<PAGE>
Page 7
number of shares equal in the aggregate to the Distributed Amount minus the
number of shares delivered to Subscribers pursuant to (i) above (the
"Unexercised Amount"), but not more than 300,000 shares;
(B) If the Unexercised Amount is greater than 300,000 shares, then
the excess of such shares (the "Excess Amount") to the Underwriters or their
designees; and
(iv) if Rights to purchase fewer than 3,100,000 shares of Common Stock
were issued to holders of Safeguard Common Shares, then to the Other Purchasers
for the shares of Common Stock subject to such undistributed Rights.
At the Closing, upon the issuance of shares of Common Stock to
Subscribers and Other Purchasers, you shall deliver to DIAMOND the sum of $____
for each of the first 1,705,000 shares issued to Subscribers, and to TL, CIP,
Cambridge, CompuCom and Safeguard Delaware, pro rata, the sum of $________ for
each of the next 1,550,000 shares issued to Subscribers, less such amounts that
TL, CIP, Cambridge, CompuCom, Safeguard Delaware or DIAMOND may advise you to
pay to the Underwriters in accordance with the terms of the standby underwriting
agreement. All income earned on the Money Market Account shall be distributed to
DIAMOND, TL, CIP, Cambridge, CompuCom and Safeguard Delaware pro rata in
accordance with the distribution of principal.
Within 20 days after the Expiration Date, DIAMOND will notify you in
writing whether and for how many shares the Underwriters have exercised their
overallotment option, upon which ChaseMellon shall deliver stock certificates to
the Underwriters for such shares against payment by the Underwriters to DIAMOND
of $________per share.
No fees are payable by Safeguard, DIAMOND, TL, CIP, Cambridge and CompuCom
or the Underwriters to brokers, dealers or others who may have solicited an
exercise or transfer of Rights.
14. If Safeguard, DIAMOND, TL, CIP, Cambridge and CompuCom notify
ChaseMellon, in writing, that the conditions to Closing have not been satisfied
and that the Rights Offering has been canceled, or if you do not receive written
notice of the Closing within 50 days after the Record Date for the Rights
Offering, then (a) you shall promptly return to each Subscriber, by check, the
purchase price, without interest, paid by such Subscriber for the shares of
Common Stock subscribed pursuant to the Rights Offering, (b) you shall promptly
return to Safeguard Delaware, TL, CIP, Cambridge and CompuCom their respective
stock certificates representing the shares of Common Stock held by you in escrow
pending consummation of the Rights Offering, and (c) the reservation of shares
for issuance by DIAMOND and all subscription forms and Rights Certificates will
be canceled and will confer no further rights on any person. In the event of the
cancellation of the Rights Offering, you shall apply all income earned on the
Escrow Account first to the fees and expenses of the Escrow Agent, then to your
fees and expenses, as Rights Agent, and thereafter to DIAMOND.
15. For your services as Rights Agent hereunder you shall be entitled to
the fees set forth in Exhibit C attached hereto, together with reimbursement for
your reasonable out-of-pocket expenses, as described in Exhibit C. The Escrow
Agent shall be entitled to a fee of $1,250, together with out-of-pocket
expenses. Such fees shall be paid by DIAMOND.
16. As Rights Agent and Escrow Agent you:
(a) shall take such additional reasonable actions not hereinabove set
forth as may be requested
<PAGE>
by Safeguard, DIAMOND, TL, CIP, Cambridge and CompuCom to consummate the
distribution of the Rights;
(b) shall have no duties or obligations other than those specifically
set forth herein, or as may subsequently be agreed to by you, Safeguard,
DIAMOND, TL, CIP, Cambridge and CompuCom;
(c) will be regarded as making no representations and having no
responsibilities except to act in good faith and in a careful and prudent
manner, as to the validity, sufficiency, value or genuineness of any
certificates or the shares represented thereby deposited with you hereunder and
will not be required to and will not make any representations as to the
validity, value or genuineness of the Rights Offering;
(d) shall not be obligated to take any legal action hereunder which
might in your judgment involve any expense or liability unless you have been
furnished with reasonable indemnity;
(e) may rely on, and shall be protected in acting upon, any
certificate, instrument, opinion, notice, letter, telegram or other document, or
any security, delivered to you and in good faith believed by you to be genuine
and to have been signed by the proper party or parties;
(f) may rely on and shall be protected in acting upon the oral
instructions, later confirmed in writing, of James Ounsworth, John Wright, or
Deirdre Blackburn of Safeguard, and such additional employees and
representatives of Safeguard as Safeguard may hereinafter designate in writing;
(g) may consult counsel satisfactory to you (including counsel for
DIAMOND and Safeguard), and the opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by you hereunder in good faith and in accordance with the opinion of
such counsel; and
(h) shall not be called upon at any time to, and shall not, advise any
person exercising Rights as to the wisdom of taking such action or as to the
market value or decline or appreciation in market value of the Rights or the
Common Stock.
17. DIAMOND, Safeguard, TL, CIP, Cambridge and CompuCom covenant and agree
to indemnify, jointly and severally, the Rights Agent and the Escrow Agent and
hold the Rights Agent and the Escrow Agent harmless against any loss, liability
or expense incurred without negligence or bad faith on the part of the Rights
Agent or Escrow Agent arising out of or in connection with the administration of
your duties hereunder, including the cost and expenses of defending against any
claim or liability in the premises.
18. This agreement and your respective appointment as Rights Agent and
Escrow Agent shall be construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania. This agreement shall inure to the benefit of, and
the obligation and duties created hereby shall be binding upon, the successors
and assigns of the parties hereto, but this agreement may not be assigned. This
agreement shall also inure to the benefit of the Underwriters as third party
beneficiaries.
19. Notices permitted or required to be given hereunder shall be deemed
given when sent by telecopier, one business day after sent by guaranteed
overnight delivery service or overnight Express Mail, and three business days
after sent, postage prepaid, by certified or registered mail, to the following
addresses or such other address of which such party may give notice to the other
parties hereto:
<PAGE>
Page 9
If to the Rights Agent: To the address on the first page
If to the Escrow Agent: To the address on the first page
If to Safeguard: Safeguard Scientifics, Inc.
Attn: James A. Ounsworth
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Telecopier: (610) 293-0601
If to DIAMOND: Diamond Technology Partners Incorp.
Attn: Michael E. Mikolajczyk
875 North Michigan Ave.
Suite 3000
Chicago, Illinois 60611
Telecopier: (312) 255-6000
<PAGE>
Page 2
If agreed to by you, please confirm acceptance of the arrangements
herein provided by signing and returning two copies of this letter agreement.
Very truly yours,
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
By:
--------------------------------
Michael E. Mikolajczyk
Senior Vice President and
Chief Financial and
Administrative Officer,
Treasurer
SAFEGUARD SCIENTIFICS, INC.
By:
--------------------------------
Gerald M. Wilk
Sr. Vice President-Finance
TECHNOLOGY LEADERS
By:
------------------------------------
CIP CAPITAL L.P.
By:
------------------------------------
Accepted and agreed to as of CAMBRIDGE TECHNOLOGY
the date first above written. PARTNERS (Massachusetts),
CHASEMELLON SHAREHOLDER By:
SERVICES, L.L.C., as Rights Agent -------------------------------------
By:
---------------------------------- COMPUCOM SYSTEMS, INC.
MELLON BANK, N.A., as Escrow Agent By:
------------------------------------
<PAGE>
EXHIBIT 11.1
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
Statement Regarding Computation of Net Income (Loss) per share of Common Stock
<TABLE>
<CAPTION>
Nine Months Ended
Inception Years Ended March 31, December 31,
(June 28, 1994) ---------------------- -----------------
to March 31, 1994 1995 1996 1995 1996
----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss) (886,042) (376,541) (1,236,106) 854,539 (379,548)
- ------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding 310,484 6,071,281 7,619,768 7,560,589 9,177,373
Additional shares pursuant
to SAB83 competition 2,198,513 2,198,513 2,201,384 2,198,513 1,259,445
----------------------------------------------------------------------
Shares used in computing
proforma net income (loss)
per share of Common Stock 2,508,997 8,269,794 9,821,152 9,759,102 10,436,818
----------------------------------------------------------------------
Pro forma net income (loss)
per share of Common Stock (0.35) (0.05) 0.13 0.09 (0.04)
----------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1996
<PERIOD-START> APR-01-1995 APR-01-1996
<PERIOD-END> MAR-31-1996 DEC-31-1996
<CASH> 4,635 7,132
<SECURITIES> 0 0
<RECEIVABLES> 3,574 3,946
<ALLOWANCES> 267 829
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,443 11,490
<PP&E> 2,369 3,307
<DEPRECIATION> 359 991
<TOTAL-ASSETS> 11,615 13,928
<CURRENT-LIABILITIES> 5,047 5,177
<BONDS> 0 0
<COMMON> 8 0
0 0
0 10
<OTHER-SE> 6,560 8,741
<TOTAL-LIABILITY-AND-EQUITY> 11,615 13,928
<SALES> 0 0
<TOTAL-REVENUES> 26,339 26,245
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 24,965 26,814
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (87) (83)
<INCOME-PRETAX> 1,538 (487)
<INCOME-TAX> 302 (107)
<INCOME-CONTINUING> 1,236 (380)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,236 (380)
<EPS-PRIMARY> .13 (.04)
<EPS-DILUTED> .13 (.04)
</TABLE>
