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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-26970
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 36-4069408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
875 N. MICHIGAN AVENUE, SUITE 3000 60611
CHICAGO, ILLINOIS (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 255-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $.001 PER SHARE
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 1, 1997, there were 6,669,179 shares of Class A Common Stock
and 4,917,622 shares of Class B Common Stock of the Registrant outstanding. The
aggregate market value on such date of the voting stock of the Registrant
held by non-affiliates was an estimated $70 million based upon the closing
price of $10.75 per share on May 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
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In order that the information required by Part III hereof be included in the
Form 10-K rather than being incorporated by reference from Registrant's
Definitive Proxy Statement, Diamond Technology Partners Incorporated, the
undersigned Registrant (the "Company"), hereby amends its Annual Report on Form
10-K for the fiscal year ended March 31, 1997 as follows:
1. The foregoing cover page to the Form 10-K is hereby amended to delete the
entry under "Documents Incorporated by Reference" and to replace it with
the word "NONE."
2. The box following the text "Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K." is not
checked.
3. Part III of the Form 10-K is hereby amended to add the information
required under Items 10, 11, 12, and 13 to read in its entirety as
follows:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the executive officers of the Company is included as
Item 4A of Part I of this Form 10-K as permitted by Instruction 3 to Item
401(b) of Regulation S-K.
The directors of the Company are as follows:
NAME AGE POSITION(S)
- ---- --- -----------
MELVYN E. BERGSTEIN(2) 55 CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
CHRISTOPHER J. MOFFITT(3)(5) 42 SENIOR VICE PRESIDENT, SECRETARY AND DIRECTOR
MICHAEL E. MIKOLAJCZYK(1) 45 SENIOR VICE PRESIDENT, CHIEF FINANCIAL AND
ADMINISTRATIVE OFFICER, TREASURER AND
DIRECTOR
JAMES C. SPIRA(3)(4) 54 SENIOR VICE PRESIDENT AND DIRECTOR
DONALD R. CALDWELL(1)(4)(5) 51 DIRECTOR
EDWARD R. ANDERSON(3)(5) 50 DIRECTOR
JOHN D. LOEWENBERG(2)(4) 57 DIRECTOR
ALAN KAY(1) 57 DIRECTOR
- ---------------
(1) Term expires as of the 1997 Annual Meeting of Stockholders
(2) Term expires as of the 1998 Annual Meeting of Stockholders
(3) Term expires as of the 1999 Annual Meeting of Stockholders
(4) Member of the Audit Committee
(5) Member of the Compensation Committee
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
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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 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), Safeguard
Scientifics, Inc., Compucom Systems, Inc. and Quaker Chemical Corp. 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.
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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 Corporation. 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, is
currently managing partner and a consultant with JDL Enterprises, a consulting
firm. Previously, Mr. Loewenberg 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 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 Company's By-laws provide
that a majority of the Compensation Committee shall consist of members of the
Board of Directors who are not officers or employees of the Company or any
subsidiary of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
During fiscal year 1997, one report on behalf of Mr. Loewenberg (reporting two
transactions) under Section 16(a) of the Securities Exchange Act of 1934 was
filed late.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid or accrued in fiscal 1997 with respect to the Company's Chief Executive
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Officer and all of its other executive officers at March 31, 1997
(collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM
------------------------- COMPENSATION
AWARDS--
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS COMPENSATION
- --------------------- ------ ----------- ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
MELVYN E. BERGSTEIN 1997 $503,125 -- -- $8,550(2)
CHAIRMAN, CHIEF EXECUTIVE 1996 480,000 127,207(3) -- 5,472(2)
OFFICER, AND PRESIDENT
CHRISTOPHER J. MOFFITT 1997 431,250 -- -- 1,938(2)
SENIOR VICE PRESIDENT, 1996 400,000 105,630(4) -- 1,938(2)
AND SECRETARY
MICHAEL E. MIKOLAJCZYK 1997 383,333 -- 37,529 3,306(2)
SENIOR VICE PRESIDENT, 1996 360,000 92,548(5) 16,500 1,938(2)
CHIEF FINANCIAL AND
ADMINISTRATIVE OFFICER
AND TREASURER
JAMES C. SPIRA 1997 479,169 -- -- 5,472(2)
SENIOR VICE PRESIDENT 1996 208,789(6) -- 74,250 456(2)
</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 the fiscal
year.
(2) Represents excess group life insurance premiums paid.
(3) 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.
(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 a partial year as Mr. Spira joined the Company in November
1995.
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
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this agreement these Partners forgave prior years' deferred compensation
totaling approximately $485,000 during each of the third and fourth quarters of
fiscal 1997. The Company recognized these amounts as reductions in operating
expenses in the respective periods.
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
$450,000. As a result of the losses sustained by the Company in the first two
quarters of fiscal 1997, each of these Partners agreed to an 8.3% salary
reduction for the twelve month period ending September 30, 1997.
STOCK OPTIONS
The Company's Amended and Restated 1994 Stock Option Plan (the "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 Plan, the
Company may grant options to purchase in the aggregate 8,910,000 shares of
Common Stock, less (at the time of the grant of any option) all shares of
Common Stock (i) theretofore issued, and all shares subject to options
theretofore granted, to any party other than Safeguard Scientifics (Delaware),
Inc., Technology Leaders Offshore C.V., CIP Capital L.P., Technology Leaders
L.P., or any member thereof or transferee therefrom (collectively, the
"Investor Group"), and (ii) all shares subject to any option granted pursuant
to the Plan. In general, options granted under the Plan will be exercisable
for Class B Common Stock. Optionees who exercise after termination of their
employment, however, will receive Class A Common Stock and any shares of Class
B Common Stock held by an optionee will become Class A Common Stock if the
optionee ceases to be a permitted holder of Class A Common Stock. As of June
1, 1997, there were 3,541,348 shares of Class B Common Stock that may be issued
under the Plan; shares previously issued to any party other than the Investor
Group that are repurchased by the Company may increase this amount. To the
extent an outstanding option expires or terminates unexercised or is canceled
or forfeited, the shares of Common Stock subject to the unexercised, canceled
or forfeited portion of such option shall again be available for issuance under
the Plan. As of June 1, 1997, the Company had outstanding options to purchase
in the aggregate 3,159,112 shares of Common Stock (net of any expired or
terminated options) at a weighted average exercise price of $2.67 per share.
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
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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
895,950 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 1,190,204 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
481,322 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 591,636 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."
The following table provides information on stock options granted by the
Company in fiscal 1997 to the Named Officers. All Company option grants
depicted below were made pursuant to the Stock Option Plan.
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF REALIZABLE POTENTIAL
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATE OF STOCK
SHARES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---------------------- ---------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
MELVYN E. BERGSTEIN -- -- -- -- -- --
CHRISTOPHER J. MOFFITT -- -- -- -- -- --
MICHAEL E. MIKOLAJCZYK 16,500 1% $1.82 3/31/03 $12,225 $28,490
6,397 -- $3.18 10/31/03 $ 8,281 $19,299
14,632 1% $2.27 10/31/03 $13,522 $31,511
JAMES C. SPIRA -- -- -- -- -- --
</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.
The following table sets forth information concerning options exercised
during fiscal 1997 and the number and the hypothetical value of certain
unexercised options of the Company held by the Named Officers as of March 31,
1997. 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.
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AGGREGATED OPTION EXERCISES AND
LAST FISCAL YEAR-END OPTION VALUES
<TABLE>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
SHARES MARCH 31, 1997 MARCH 31, 1997
ACQUIRED VALUE -------------------------- ------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- ----------- -------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MELVYN E. BERGSTEIN -- -- -- -- -- --
CHRISTOPHER J. MOFFITT -- -- -- -- -- --
MICHAEL E. MIKOLAJCZYK -- -- 1,650 52,379 6,897 213,725
JAMES C. SPIRA -- -- 7,425 66,825 31,037 279,329
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Company's Initial Public Offering on February 24, 1997 (the
"IPO"), 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 (which was established
concurrent with the IPO) 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of June 1, 1997, (i) each person who is known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each Named Officer, and
(iv) 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.
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BENEFICIAL OWNERSHIP(1)
------------------------------
NUMBER OF SHARES PERCENTAGE
---------------- ----------
NAME AND ADDRESS(2)
- -------------------
Melvyn E. Bergstein(3).......................... 5,064,573 43.7%
(Includes 4,431,202 shares reflected solely as
a result of Mr. Bergstein's right to vote such
shares and 633,371 shares owned by Mr.
Bergstein) 1,443,668 12.2
Safeguard Scientifics, Inc.(4)..................
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087 1,249,689 10.6
Technology Leaders(5)...........................
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Christopher J. Moffitt(6)....................... 663,870 5.7
Michael E. Mikolajczyk(7)....................... 526,846 5.5
James C. Spira(8)............................... 235,013 2.0
John D. Loewenberg.............................. 13,500 *
Alan Kay(9)..................................... 22,000 *
Donald R. Caldwell(10).......................... 14,467 *
Edward R. Anderson.............................. 15,740 *
All executive officers and directors as a group
(8 persons)(11)................................ 5,207,126 44.8
- ---------------
* 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 as of June 1, 1997 (i)
assumes 11,586,801 shares of Common Stock were outstanding as of such
date, and (ii) 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 June 1, 1997 ("presently exercisable
options"), as set forth below.
(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 4,917,622 shares of Class B common
stock and 146,951 shares of Class A common stock and together represent
79.1% of the aggregate voting rights of the Common Stock. Includes
4,323,539 shares of Class B common stock and 107,663 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 594,083 shares of Class B common
stock and 39,288 shares of Class A common stock. Excludes 199,880 Shares
of Class A Common Stock held in trust for certain members of the Bergstein
family.
(4) The shares are Class A common stock and represent 4.6% of the aggregate
voting rights of the Common Stock. Includes a warrant which is presently
exercisable for 241,182 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. 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.
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(5) The shares are Class A common stock and represent 4.0% of the aggregate
voting rights of the Common Stock. Includes warrants issued to Technology
Leaders L.P. and Technology Leaders FR Corp., which are presently
exercisable for 241,182 shares of Class A common stock.
(6) The shares include 623,600 shares of Class B common stock and 40,270
shares of Class A common stock. Mr. Moffitt has granted Mr. Bergstein all
voting rights with respect to these shares pursuant to an irrevocable
proxy. Excludes 84,250 Shares of Class A Common Stock held in trust for
certain members of the Moffitt family.
(7) The shares include 517,283 shares of Class B common stock and 3,788
shares of Class A common stock. Mr. Mikolajczyk has granted Mr. Bergstein
all voting rights with respect to these shares pursuant to an irrevocable
proxy. Includes 5,775 shares of Common Stock issuable pursuant to
presently exercisable options. Excludes 41,250 shares of Class A Common
Stock held in trust for certain members of the Mikolajczyk family.
(8) The shares include 198,000 shares of Class B common stock and 29,588
shares of Class A common stock. 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) Consists of 22,000 shares of Common Stock issuable pursuant to presently
exercisable options.
(10) Excludes all shares of Common Stock beneficially owned by Safeguard. Mr.
Caldwell serves as president and chief operating officer of Safeguard. 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.
(11) Includes, in the aggregate, 35,200 shares of Common Stock issuable
pursuant to presently exercisable option.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 Annual Report on Form 10K 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
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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.
In 1994, 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.
As of June 1, 1997, Safeguard, Technology Leaders and CIP beneficially owned
approximately 12.2%, 10.6% and 2.0%, respectively, of the Company's outstanding
Common Stock and CompuCom and Cambridge each beneficially own approximately
0.9% of the Company's outstanding Common Stock.
In December 1996, the Company adopted an Agreement and Plan of
Recapitalization. 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.
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 was required to repay the loan from Safeguard upon the closing of the
Initial Public Offering. Accordingly, this loan was repaid in full on April
10, 1997. As a condition to the making of the loan, the Company also granted
Safeguard a warrant to purchase 526,597 shares of Common Stock at an exercise
price of $5.50 per share. On January 31, 1997, Safeguard transferred warrants
to purchase 241,182 shares of Common Stock to Technology Leaders L.P. and
Technology Leaders FR Corp., and warrants to purchase 44,233 shares of Common
Stock to CIP. The rights granted under the warrants 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
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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.
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.
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 Stockholders (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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
BY:/s/ Melvyn E. Bergstein
------------------------------------
Melvyn E. Bergstein
Chairman, Chief Executive Officer,
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/Melvyn E. Bergstein Chief Executive Officer, President July 29, 1997
- ---------------------- (Principal Executive Officer),
Melvyn E. Bergstein Chairman and Director
/s/ Michael E. Mikolajczyk Senior Vice President, Chief July 29, 1997
- -------------------------- Financial Officer and Treasurer
Michael E. Mikolajczyk (Principal Financial and Accounting
Officer) and Director
/s/Christopher J. Moffitt
- ------------------------- Director July 29, 1997
Christopher J. Moffit
/s/Donald R. Caldwell Director July 29, 1997
- ------------------------
Donald R. Caldwell
/s/Edward R. Anderson Director July 29, 1997
- ---------------------
Edward R. Anderson
Director July 29, 1997
- ---------------------
Alan Kay
/s/ James C. Spira Director July 29, 1997
- ------------------
James C. Spira
/s/John D. Loewenberg Director July 29, 1997
- -----------------------
John D. Loewenberg
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