<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1997
REGISTRATION NO. 333-17785
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 2
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)
DELAWARE 8742 36-4069408
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NO.)
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:
JAMES A. N. JEFFREY KLAUDER, MARK L. GORDON, ROBERT H. STROUSE,
OUNSWORTH, ESQ. ESQ. MORGAN, LEWIS & ESQ. ESQ.
SAFEGUARD BOCKIUS LLP 2000 ONE SCOTT L. GLICKSON, DRINKER BIDDLE &
SCIENTIFICS, LOGAN SQUARE ESQ. REATH
INC. PHILADELPHIA, GORDON & GLICKSON 1000 WESTLAKES
800 THE PENNSYLVANIA 19103- P.C. DRIVE
SAFEGUARD 6993 444 NORTH MICHIGAN SUITE 300
BUILDING (215) 963-5694 AVENUE BERWYN,
435 DEVON PARK SUITE 3600 PENNSYLVANIA 19312-
DRIVE CHICAGO, ILLINOIS 2409
WAYNE, 60611-3903 (610) 993-2213
PENNSYLVANIA (312) 321-1700
19087 (610) 293-
0600
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 FEBRUARY 12, 1997
PROSPECTUS
3,255,000 SHARES
[LOGO OF DIAMOND TECHNOLOGY PARTNERS APPEARS HERE]
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
(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 8 TO 13.
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 UNDERWRITING THE COMPANY SELLING
OFFERING PRICE 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 shares of
Common Stock are sold in the Offering. 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 2,509,000 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)
("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."
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 sold
pursuant to the exercise of Rights, shares sold to the Direct Purchasers and
Unsubscribed Shares sold to the Other Purchasers will be sold first from the
shares being issued by the Company, and thereafter from the shares being sold
by the Selling Stockholders. 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, by the Company at the Exercise Price
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 "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
2
<PAGE>
common stock are entitled to five votes per share. Accordingly, while the
Class A common stock will represent 53.0% of the outstanding Common Stock upon
completion of the Offering, such Shares will possess only 18.4% 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."
There is no minimum number of shares that must be sold in the Offering. 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.
3
<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.
4
<PAGE>
THE OFFERING
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 , 1997 at 5:00 p.m., Eastern Standard
Rights..................... 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 1,550,000 shares
Stockholders.............
Common Stock to be
Outstanding After the
Rights Offering............ 11,266,301 shares (representing 5,976,439 shares
of Class A common stock and 5,289,862 shares of
Class B common stock) (1)
Voting Rights and Shares of Class A common stock are entitled to
Conversion................. 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."
5
<PAGE>
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)
- --------
(1) Excludes as of February 10, 1997 (i) 3,074,536 shares of Common Stock
issuable upon the exercise of options (of which options to purchase 79,448
shares were exercisable at February 10, 1997) at a weighted average
exercise price of $2.50 per share and (ii) 526,597 shares of Common Stock
issuable upon the exercise of warrants (all of which were exercisable as of
February 10, 1997) at an exercise price of $5.50 per share. See
"MANAGEMENT--Stock Options" and "CERTAIN TRANSACTIONS."
6
<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..................... 2,511 8,272 9,824 9,762 10,439
</TABLE>
<TABLE>
<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(1) AS ADJUSTED(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."
7
<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
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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 5,289,862 shares of Class B common stock and 107,663 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 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
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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 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."
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DILUTION. The average price per share paid upon the issuance by the Company
of Common Stock prior to the Offering was $1.03. 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
as of December 31, 1996 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."
Safeguard beneficially owns approximately 2.4 million shares of the
Company's Common Stock, which it purchased at prices that were significantly
below the Exercise Price. Safeguard is selling approximately 845,000 shares in
the Offering. Therefore, by exercising their Rights, Safeguard shareholders
will be purchasing shares of the Company's Common Stock, which they already
indirectly own through their ownership of Safeguard Common Shares, at a
purchase price significantly higher than the price at which they were
originally purchased by Safeguard.
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
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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 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 11,266,301 (11,576,301 if the Underwriters' over-allotment option is
exercised in full) shares of Common Stock outstanding, excluding 3,074,536
shares of Common Stock issuable upon the exercise of stock options and 526,597
shares of Common Stock issuable upon the exercise of warrants outstanding as
of February 10, 1997 and excluding any stock options granted by the Company
after February 10, 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 8,011,301 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) 2,350,770 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."
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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."
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 81.6% 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.
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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.
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.
15
<PAGE>
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 Services,
Reorganization Department 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
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
16
<PAGE>
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.
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
17
<PAGE>
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. In the event that the Rights Offering is cancelled, the
Company and the Selling Stockholders will not have any obligations with
respect to the Rights except to promptly return, without interest, any payment
received in respect of the Exercise Price. In order to fulfill their
obligations, the Company and Safeguard have established an escrow account with
the Rights Agent to hold funds received prior to the Closing Date. 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:
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
18
<PAGE>
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.
19
<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.
20
<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 $8.1
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
-----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Long-term debt, including current portion(3)........... $ 2,177 $ 177
------- -------
Stockholders' equity:
Preferred Stock, $1.00 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 February 10, 1997 (i) 3,074,536 shares of Common Stock
issuable upon the exercise of options (of which options to purchase 79,448
shares were exercisable at February 10, 1997) at a weighted average
exercise price of $2.50 per share and (ii) 526,597 shares of Common Stock
issuable upon the exercise of warrants (all of which were exercisable as
of February 10, 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."
21
<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 February 10,
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>
SHARES TOTAL
PURCHASED(1) CONSIDERATION(2)(3) AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE(2)
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Existing shares...... 9,561,301 84.9% $ 9,809,631 51.1% $1.03
New shares........... 1,705,000 15.1 9,377,500 48.9 5.50
---------- ----- ----------- -----
Total.............. 11,266,301 100.0% $19,187,131 100.0% 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
8,011,301 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
February 10, 1997, there were outstanding options to purchase an aggregate of
3,074,536 shares of Common Stock (of which 79,448 were exercisable at February
10, 1997) at a weighted average exercise price of $2.50 per share and excludes
526,597 shares of Common Stock issuable upon the exercise of warrants at an
exercise price of $5.50 per share. As of February 10, 1997, the Company had an
additional 399,164 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.
22
<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)..................... 2,511 8,272 9,824 9,762 10,439
</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 regardless of the
dilutive effect (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.
23
<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.
24
<PAGE>
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
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
25
<PAGE>
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>
YEAR ENDED NINE MONTHS 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>
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.
26
<PAGE>
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. For the year ended March 31, 1996, $6.9
million of revenue was derived from services delivered to new clients and
$19.4 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 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 115 at
March 31, 1996. 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.
27
<PAGE>
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
-------- --------- -------- -------- -------- --------- -------- ------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
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
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
28
<PAGE>
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 526,597 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.
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.
29
<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 is also, however, creating new
competitors, eliminating established sales and
30
<PAGE>
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.
31
<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 incorporates IT. This is fundamentally
different than the traditional, sequential approach that addresses strategy
first, followed by development of new or revised IT solutions.
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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.
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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 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.
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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 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
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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.
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 environment
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).
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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 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 .
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.
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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.
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
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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 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
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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 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:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Melvyn E. Bergstein(2).............. 54 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)......... 50 Director
Edward R. Anderson(3)(5)............ 50 Director
John D. Loewenberg(2)(4)............ 56 Director
Alan Kay(1)......................... 56 Director
</TABLE>
- --------
(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 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
41
<PAGE>
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 Board of Directors has an Audit Committee, which reviews and
recommends to the Board internal accounting and financial controls for the
Company and accounting
42
<PAGE>
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.
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.
43
<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
ANNUAL COMPENSATION(1) 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..... 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 partial year as Mr. Weyl left the Company in January 1996.
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
44
<PAGE>
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 February 10, 1997, the Company
has granted options under the Stock Option Plan to purchase in the aggregate
3,074,536 shares of Common Stock (net of any expired or terminated options) at
a weighted average exercise price of $2.50 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
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
805,200 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 1,199,559
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 491,341 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 578,436 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.
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<PAGE>
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 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 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(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.
46
<PAGE>
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.. -- -- -- 16,500 -- $ 70,785
James C. Spira.......... -- -- -- 74,250 -- 273,240
Alan J. Weyl............ -- -- -- -- -- --
</TABLE>
- --------
(1) Assumes, for presentation purposes only, a per share fair market value of
$5.50.
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 13.0%, 10.9% and 2.0%, 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
47
<PAGE>
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 526,597 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
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."
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.
48
<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>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
--------------------------- NUMBER OF SHARES -------------------------
NUMBER OF TO BE SOLD IN NUMBER OF
NAME AND ADDRESS(2) SHARES PERCENTAGE THE OFFERING SHARES PERCENTAGE
- ------------------- -------------- ------------ ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Melvyn E. Bergstein(3)..... 5,397,525 56.5% -- 5,397,525 47.9%
(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)
Safeguard Scientifics,
Inc.(4)................... 2,393,058 24.4 899,390 1,493,668 13.0
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders(5)...... 1,753,683 17.9 503,994 1,249,689 10.9
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)........... 319,232 3.3 91,635 227,597 2.0
Cambridge Technology
Partners.................. 165,000 1.7 54,981 110,019 1.0
(Massachusetts), Inc.(9)
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).............. 5,414,850 56.6 -- 5,414,850 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 9,561,301 shares of Common Stock were outstanding as of the
date of this Prospectus, (ii) assumes 11,266,301 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
49
<PAGE>
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.
(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 5,289,862 shares of Class B common stock
and 107,663 shares of Class A common stock and together represent 81.9% of
the aggregate voting rights of the Common Stock. Includes 4,495,799 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 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 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. 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 3.9% 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. 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. CIP's total includes a warrant
which is presently exercisable for 44,233 shares of Class A common stock.
(10) The shares of Common Stock represent less than 1.0% of the aggregate
voting rights of the Common Stock. Excludes approximately 250 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 20,101 shares of
Common Stock purchasable upon the exercise of Company Rights.
50
<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 $1.00 per share.
COMMON STOCK
As of February 10, 1997, there were 9,561,301 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 11,266,301 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 5,289,862 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
51
<PAGE>
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.
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.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 11,266,301,
(11,576,301 if the Underwriters' over-allotment option is exercised in full)
shares of Common Stock outstanding, excluding 3,074,536 shares of Common Stock
subject to stock options and 526,597 warrants outstanding as of February 10,
1997 and any stock options or warrants granted by the Company after February
10, 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 8,011,301 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) 2,350,770 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 February 10, 1997, there were outstanding (i) options to purchase an
aggregate of 3,074,536 shares of Common Stock (of which 79,448 were
exercisable at February 10, 1997) and (ii) a presently exercisable warrant to
purchase an aggregate of 526,597 shares of Common Stock. The holders of
options to purchase a total of 1,275,583 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 399,164 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
53
<PAGE>
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 3,074,536 shares of
Common Stock subject 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 7,880,538 shares of Common Stock after the completion of the
Offering and will be deemed to beneficially own an additional 569,910 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.
54
<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
55
<PAGE>
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.
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 7,880,538 shares of Common Stock after the
completion of the Offering
56
<PAGE>
and will be deemed to beneficially own an additional 569,910 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."
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.
57
<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-7
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1996......................... F-13
Consolidated Statements of Operations for nine-month periods ended
December 31, 1995 and 1996............................................. F-14
Consolidated Statements of Cash Flows for nine-month periods ended
December 31, 1995 and 1996............................................. F-15
Notes to Unaudited Consolidated Financial Statements.................... F-16
</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 February , 1997.
F-2
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
BALANCE SHEETS
MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
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
----------- -----------
Stockholders' equity:
Preferred Stock, $1.00 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
=========== ===========
</TABLE>
See accompanying notes to financial statements
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 ex-
penses.............................. 633,405 8,351,461 15,312,436
Professional development and recruit-
ing................................. 105,767 1,394,432 4,586,682
Marketing and sales.................. 94,186 450,848 605,639
Management and administrative sup-
port................................ 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................................. 2,511,408 8,272,205 9,823,563
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
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>
NOTES TOTAL
CLASS A CLASS B ADDITIONAL RECEIVABLE ACCU- STOCK-
CLASS A CLASS B COMMON COMMON PAID-IN FROM SALE OF MULATED HOLDERS
SHARES SHARES STOCK STOCK CAPITAL COMMON STOCK DEFICIT EQUITY
--------- --------- ------- ------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock....... 1,100,000 825,000 $1,100 $ 825 $1,649,986 $ -- $ -- $1,651,911
Net loss................ -- -- -- -- -- -- (886,042) (886,042)
--------- --------- ------ ------ ---------- --------- ----------- ----------
Balance at March 31,
1994................... 1,100,000 825,000 1,100 825 1,649,986 -- (886,042) 765,869
Issuance of stock....... 2,220,625 3,608,342 2,221 3,608 4,920,108 (90,957) -- 4,834,980
Purchase of stock....... -- (41,250) -- (41) (37,459) -- -- (37,500)
Net loss................ -- -- -- -- -- -- (376,541) (376,541)
--------- --------- ------ ------ ---------- --------- ----------- ----------
Balance at March 31,
1995................... 3,320,625 4,392,092 3,321 4,392 6,532,635 (90,957) (1,262,583) 5,186,808
Issuance of stock....... -- 746,627 -- 747 866,753 (257,323) -- 610,177
Purchase of stock....... -- (584,100) -- (584) (555,416) -- -- (556,000)
Conversion to Class A... 49,500 (49,500) 50 (50) -- -- -- --
Repayment of notes...... -- -- -- -- -- 90,957 -- 90,957
Net income.............. -- -- -- -- -- -- 1,236,106 1,236,106
--------- --------- ------ ------ ---------- --------- ----------- ----------
Balance at March 31,
1996................... 3,370,125 4,505,119 $3,371 $4,505 $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 activi-
ties................................... (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 activi-
ties................................... 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
=========== =========== ===========
Supplemental disclosure of cash flow in-
formation:
Cash paid during the year for inter-
est.................................. $ -- $ 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-6
<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.
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
F-7
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
(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.
F-8
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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") 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. Additionally, in February 1997
the Company amended its certificate of incorporation to divide its common
stock into two classes, Class A and Class B, and authorized 2,000,000 shares
of Preferred Stock, par value $1.00 per share, the terms of which may be
determined by the Board. 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.
F-9
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-10
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
(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 dif-
ferences............... 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>
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.
F-11
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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-12
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
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
-----------
Stockholders' equity:
Preferred stock $1.00 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-13
<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.......................... 9,761,514 10,439,495
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-14
<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
=========== ===========
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-15
<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 nine 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. Additionally, in February 1997 the
Company amended its certificate of incorporation to divide its common stock
into two classes, Class A and Class B, and the Board of Directors authorized
2,000,000 shares of Preferred Stock, par value $1.00 per share, the terms of
which may be determined by the Board. 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.
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 526,597 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-16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
The Offering............................................................. 14
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 30
Management............................................................... 41
Certain Transactions..................................................... 47
Principal and Selling Stockholders....................................... 49
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 53
Underwriting............................................................. 55
Legal Matters............................................................ 57
Experts.................................................................. 57
Additional Information................................................... 57
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS 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 SUB-
SEQUENT 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 SOLICITA-
TION OF AN OFFER TO BUY SUCH SECURITIES IN ANY STATE IN WHICH SUCH OFFER OR SO-
LICITATION IS UNLAWFUL.
UNTIL , 1997 (25 DAYS AFTER THE EXPIRATION DATE OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN CLASS A COMMON STOCK, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DE-
LIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,255,000 SHARES
[LOGO OF DIAMOND TECHNOLOGY PARTNERS APPEARS HERE]
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>
<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.
II-1
<PAGE>
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 February 10, 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, 5,436,300 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
Technology 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
CompuCom, 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
526,597 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 3,074,536 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
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
theshareholders 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.
10.12* Warrant Certificate to Purchase Common Stock dated as of
January 31, 1997 between Safeguard Scientifics (Delaware),
Inc. and the Company. (Supersedes Exhibit 10.10)
10.13* Warrant Certificate to Purchase Common Stock dated as of
January 31, 1997 between CIP Capital, L.P. and the Company.
10.14* Warrant Certificate to Purchase Common Stock dated as of
January 31, 1997 between Technology Leaders FR Corp. and the
Company.
10.15* Warrant Certificate to Purchase Common Stock dated as of
January 31, 1997 between Technology Leaders, L.P. and the
Company.
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:
II-3
<PAGE>
(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.
(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-4
<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 FEBRUARY 12, 1997.
Diamond Technology Partners
Incorporated
/s/ Melvyn E. Bergstein
By: _________________________________
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>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Melvyn E. Bergstein Chief Executive February 12, 1997
- ---------------------------------
MELVYN E. BERGSTEIN Officer, President
(Principal Executive
Officer) and Chairman
/s/ Michael E. Mikolajczyk Senior Vice February 12, 1997
- ---------------------------------
MICHAEL E. MIKOLAJCZYK President, Chief
Financial Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
and Director
* Director February 12, 1997
- ---------------------------------
CHRISTOPHER J. MOFFITT
* Director February 12, 1997
- ---------------------------------
DONALD R. CALDWELL
* Director February 12, 1997
- ---------------------------------
EDWARD R. ANDERSON
* Director February 12, 1997
- ---------------------------------
ALAN KAY
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
<S> <C> <C>
* Director February 12, 1997
- -------------------------------------
JAMES C. SPIRA
* Director February 12, 1997
- -------------------------------------
JOHN D. LOEWENBERG
/s/ Michael E. Mikolajczyk February 12, 1997
- -------------------------------------
MICHAEL E. MIKOLAJCZYK
AS ATTORNEY-IN-FACT
</TABLE>
II-6
<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.
-------------- ----------- --------
<C> <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
theshareholders 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.
10.12* Warrant Certificate to Purchase Common Stock dated
as of January 31, 1997 between Safeguard
Scientifics (Delaware), Inc. and the Company.
(Supersedes Exhibit 10.10)
10.13* Warrant Certificate to Purchase Common Stock dated
as of January 31, 1997 between CIP Capital, L.P.
and the Company.
10.14* Warrant Certificate to Purchase Common Stock dated
as of January 31, 1997 between Technology Leaders
FR Corp. and the Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
-------------- ----------- --------
<C> <S> <C>
10.15* Warrant Certificate to Purchase Common Stock dated
as of January 31, 1997 between Technology Leaders,
L.P. and the Company.
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 1.1
Draft Dated 2/11/97
Diamond Technology Partners Incorporated
3,255,000 Shares of
Class A Common Stock
($.001 Par Value Per Share)
Standby Underwriting Agreement
------------------------------
February __, 1997
Tucker Anthony Incorporated
One Beacon Street
Boston, Massachusetts 02108
Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5391
Ladies and Gentlemen:
Diamond Technology Partners Incorporated, a Delaware corporation (the
"Company"), Technology Leaders L.P., a Delaware limited partnership, ("TL"),
Technology Leaders Offshore C.V., a Netherlands Antilles corporation
("Technology C.V." and, together with TL, "Technology Leaders"), CIP Capital
L.P., a Delaware limited partnership ("CIP"), CompuCom Systems, Inc., a Delaware
corporation ("CompuCom"), Cambridge Technology Partners (Massachusetts) Inc., a
Delaware corporation ("Cambridge"), and Safeguard Scientifics, Inc., a
Pennsylvania corporation ("Safeguard" and together with TL, CIP, CompuCom and
Cambridge, the "Selling Stockholders"), hereby confirm their respective
agreements with you with respect to:
(i) the proposed distribution by the Company to the Safeguard
Shareholders of up to an aggregate of 3,100,000 rights (the "Company Rights")
(which represent an aggregate of 1,550,000 shares of the Company's Class A
common stock, par value $.001 per share (the "Class A Common Stock") to be sold
by the Company upon the exercise of 1,550,000 such Company Rights and an
aggregate of 1,550,000 shares of Class A Common Stock to be sold by the Selling
Stockholders upon the exercise of 1,550,000 such Company Rights with 844,409,
503,994, 91,635, 54,981, and 54,981 shares of Class A Common Stock being sold by
Safeguard, Technology Leaders, CIP, CompuCom and Cambridge, respectively), with
(A) each Company Right entitling the holder thereof to purchase at any time
prior to the Expiration Date at a subscription price of $_____ per share, one
share of Class A Common Stock of the Company, and (B) Company Rights being
distributed on the basis of one Company Right for each
<PAGE>
ten (10) shares of Safeguard Stock held (with the holder of shares of Safeguard
Stock not evenly divisible by ten entitled to receive the next higher whole
number of Company Rights);
(ii) the proposed sale of all Unsubscribed Shares by the Company and
the Selling Stockholders, acting severally and not jointly, with:
(A) Other Purchasers Standby Shares being deemed to be Company
Unsubscribed Shares to be sold pursuant to the Other Purchasers
Standby Purchase Agreements; and
(B) all Excess Unsubscribed Shares to be sold to and purchased by
the Underwriters, severally and not jointly, in accordance with the
terms and conditions of this Agreement; and
(iii) the grant by the Company to the Other Purchasers of the
Undistributed Rights; and
(iv) the grant by the Company to the Underwriters of the option
described in Section 3(b) hereof to purchase additional shares of Class A Common
Stock for the purpose of covering over-allotments, if any.
The parties acknowledge that concurrently with the Offering of the
Company Rights, the Company is offering to the Direct Purchasers the Direct
Rights with each Direct Right entitling the holder thereof to purchase at a
subscription price of $_____ per share at any time prior to the Expiration Date
one share of Class A Common Stock. The parties also acknowledge that, except as
set forth in Section 7, the shares issuable upon exercise of the Direct Rights
shall not be deemed to be Shares for purposes of this Agreement and are not
otherwise a part of this Agreement.
-2-
<PAGE>
1. Certain Definitions. The following terms shall, when used in this
-------------------
agreement, have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"Adverse Claim" means the term as used in Section 8-302 of the Delaware
Uniform Commercial Code.
"Application" means the application described in Section 9(a)(i)(B) hereof.
"Associated Person Lock-Ups" means the agreements, acceptable in form and
substance to the Underwriters, pursuant to which each of the Company's officers,
partners (as this term is internally designated for use by the Company),
directors and principal stockholders listed in Schedule A attached hereto has
agreed not to, without the prior written consent of the Underwriters, transfer,
sell, offer for sale, contract to sell or otherwise dispose of any shares of
Common Stock or any securities exercisable or exchangeable for or convertible
into Common Stock owned by such person or with respect to which such person has
the power of disposition during a period commencing on the date the Registration
Statement is declared effective by the Commission and ending 180 days following
the Expiration Date, except as otherwise permitted in the Associated Person
Lock-Ups.
"Bona Fide Purchaser" means the term as defined in Section 8-302 of the
Delaware Uniform Commercial Code.
"Class A Common Stock" means the Company's Class A common stock, par value
$.001 per share.
"Class B Common Stock" means the Company's Class B common stock, par value
$.001 per share.
"Closing" means 10:00 a.m., New York City Time on the sixth business day
after the Expiration Date (or the first business day thereafter), or at such
other time on the same or such other date, not later than ___________________,
1997, as shall be agreed to by the Selling Stockholders, the Company and the
Underwriters.
"Closing Date" means the time and date of payment for and delivery of the
Excess Unsubscribed Shares.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A Common Stock together with the Class B
Common Stock.
-3-
<PAGE>
"Company Unsubscribed Shares" means the shares of Class A Common Stock
which had been offered by the Company pursuant to the Company Rights but which
were not acquired through the exercise of Company Rights on or prior to the
Expiration Date (after taking into account the agreement of the Company and the
Selling Stockholders that the 291,000 shares of Class A Common Stock that are
expected to be sold to Warren V. Musser upon exercise of the Musser Rights shall
be deemed to be sold by the Company).
"Controlling Person" means a person who controls the Underwriters, the
Company or the Selling Stockholders within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act.
"Direct Purchasers" means the certain persons selected by the Company to
whom the Direct Rights are being granted.
"Direct Rights" means the offering to the Direct Purchasers of up to
155,000 rights, which represent the right to purchase 155,000 shares of the
Class A Common Stock upon the exercise of such Direct Rights.
"Disagreement" means the term as used in Item 304 of Regulation S-K of the
Rules and Regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means the escrow agent named in the Rights Agent Agreement.
"Excess Unsubscribed Shares" means all of the Unsubscribed Shares other
than the Other Purchasers Standby Shares.
"Exercise Price" means the subscription price of $_____ per share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" means 5:00 p.m., New York City time, on ________ __, 1997
or such later date as may be agreed upon by the Underwriters and the Company.
"Intellectual Property" means all patents, trademarks, service marks, trade
names, copyrights, inventions, trade secrets, proprietary techniques, including,
without limitation, all software service codes, processes and substances,
technology and know-how necessary to conduct (or used to conduct) the business
now operated or proposed to be operated by the Company and each of its
subsidiaries as described in the Prospectus.
-4-
<PAGE>
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Material Adverse Effect" means a material adverse effect on the condition,
financial or otherwise, or on the earnings, business affairs, financial
position, value, operations, properties, results of operation or business of the
Company and its subsidiaries, taken as a whole.
"Musser Group" means Warren V. Musser and/or his assignees.
"Musser Lock-Up" means the agreement of the Musser Group not to, without
the prior written consent of the Underwriters, transfer, sell, offer for sale,
contract to sell or otherwise dispose of Class A Common Stock acquired by the
Musser Group upon exercise of the Musser Rights or any securities exercisable or
exchangeable for or convertible into Common Stock (including the Musser Rights)
owned on the date hereof or acquired through the rights offering or with respect
to which the Musser Group has the power of disposition during a period
commencing on the date the Registration Statement is declared effective and
ending 180 days after the Expiration Date; provided, however, that the Musser
Group may transfer, sell, offer for sale, contract to sell or otherwise dispose
of up to 134,000 shares of Class A Common Stock without the prior written
consent of the Underwriters so long as the Musser Group notifies the
Underwriters of any such transaction at least one business day before such
transfer, sale, offer or disposition.
"Musser Rights" means all Rights granted to the Musser Group as a
stockholder of Safeguard.
"NASD" means the National Association of Securities Dealers, Inc.
"Offering" means the public offering of the Excess Unsubscribed Shares as
set forth in the Prospectus; provided that Offering shall also include the Other
Purchasers Standby Shares purchased by the Underwriters, if any, pursuant to
Section 8 hereof.
"Option Closing Date" means the time of delivery of any of the Option
Shares."
"Option Shares" means any and all shares of Class A Common Stock to be
purchased by the Underwriters pursuant to the option described in Section 3(b)
of this Agreement.
"Other Purchasers" means certain persons selected by the Company.
"Other Purchasers Standby Purchase Agreement" means the agreements between
the Company and the Other Purchasers to be
-5-
<PAGE>
entered into after the date hereof and obligating the Other Purchasers to
purchase from the Company on the Closing Date at a price of $_____ per share the
Other Purchasers Standby Shares.
"Other Purchasers Standby Shares" means the first 300,000 Unsubscribed
Shares.
"Peat Marwick" means KPMG Peat Marwick LLP.
"Preliminary Prospectus" means each prospectus subject to completion filed
with the Registration Statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration Statement
or any amendment thereto at the time of the Registration Statement was or is
declared effective).
"Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act, or, if no prospectus is required to be filed
pursuant to said Rule 424(b), the prospectus included in the Registration
Statement. For purposes of Sections 2 and 8(d)(v) hereof, all references to the
"Prospectus" are deemed to include, in the alternative, the most recent
Preliminary Prospectus if the Prospectus is not in existence.
"Provided Information" means the statements made in the second paragraph
preceding the stabilization legend on the inside of the front cover page, the
stabilization legend on the inside of the front cover page and the third
paragraph under the heading "UNDERWRITING" in the Prospectus (and the same
paragraphs and stabilization legend in any Preliminary Prospectus).
"Registration Statement" means the registration statement, as described in
Section 2(a)(i) hereof.
"Reportable Event" means the term as used in Item 304 of Regulation S-K of
the Rules and Regulations.
"Rights" means the Direct Rights, the Company Rights and the Undistributed
Rights.
"Rights Agent" means ChaseMellon Shareholder Services, L.L.C.
"Rights Agent Agreement" means the agreement in the form previously
approved by the Underwriters, dated the date hereof, by and among the Company,
the Escrow Agent and ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
"Rules and Regulations" means the rules and regulations adopted by the
Commission under either the Act or the Exchange Act.
-6-
<PAGE>
"Safeguard Shareholders" means the holders of record of Safeguard Stock as
of ____________ __, 1997.
"Safeguard Stock" means the common stock, $.10 par value per share, of
Safeguard.
"Selling Stockholders Unsubscribed Shares" means the shares of Class A
Common Stock which had been offered by the Selling Stockholders pursuant to the
Company Rights but which were not acquired through exercise of the Company
Rights on or prior to the Expiration Date (after taking into account the
agreement of the Company and the Selling Stockholders that the 291,000 shares of
Class A Common Stock that are expected to be sold to Warren V. Musser upon
exercise of the Musser Rights shall be deemed to be sold by the Company).
"Shares" means the Option Shares, the Excess Unsubscribed Shares to be
purchased by the Underwriters and the Other Purchasers Standby Shares purchased
by the Underwriters pursuant to Section 8 hereof, if any.
"Significant Subsidiary" means the term as defined in Rule 405 of the Rules
and Regulations.
"Transfer Agent and Registrar" means the transfer agent and registrar
described in Section 6(a)(ix) hereof.
"Underwriters" means Tucker Anthony Incorporated and Robert W. Baird & Co.
Incorporated.
"Underwriters' Counsel" means Drinker Biddle & Reath.
"Undistributed Rights" means the undistributed Company Rights in the event
that Company Rights to purchase fewer than 3,100,000 shares of Class A Common
Stock are granted to holders of the Safeguard Stock.
"Unsubscribed Shares" means the Selling Stockholders Unsubscribed Shares
together with the Company Unsubscribed Shares.
2. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Stockholders.
- ------------
(a) The Company, represents and warrants to, and agrees with, the
Underwriters as follows:
(i) The Company has filed with the Commission a registration
statement on Form S-1 (No. 333-17785), including a prospectus subject to
completion, for the registration of the Rights, the shares of Class A
Common Stock subject to the Rights, and the Option Shares under the Act,
and have filed with the Commission one or more amendments thereto. After
the
-7-
<PAGE>
execution of this Agreement, the Company will file with the Commission
either (A) if such registration statement, as it may have been amended, has
been declared by the Commission to be effective under the Act as of the
time of effectiveness of this Agreement, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no
such amendment shall have been filed, in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act and as have been provided to and
approved by the Underwriters prior to the execution of this Agreement, or
(B) if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act as of the
time of effectiveness of this Agreement, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has
been furnished to and approved by the Underwriters prior to the execution
of this Agreement;
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or any part thereof and,
to the best knowledge of the Company, no proceedings for a stop order have
been instituted or are pending or threatened. When any Preliminary
Prospectus was filed with the Commission, it contained all statements
required to be stated therein in accordance with, and complied in all
material respects with the requirements of, the Act and the Rules and
Regulations except to the extent that such Preliminary Prospectus did not
contain any such required statements, or did not so comply, in a manner
corrected in the Prospectus. When the Registration Statement or any
amendment thereto was (or is) declared effective, it (A) contained (or will
contain) all statements required to be stated therein in accordance with,
and complied in all material respects (or will comply in all material
respects) with the requirements of, the Act and the Rules and Regulations
and (B) did not or will not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein
not misleading. When the Prospectus or any amendment or supplement thereto
is filed pursuant to Rule 424(b) (or, if the Prospectus or such amendment
or supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or supplement
to the Prospectus was or is declared effective) and on the Closing Date and
any Option Closing Date, the Prospectus, as amended or supplemented at any
such time, (A) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the Rules and
Regulations and (B) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements
-8-
<PAGE>
therein, in the light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (ii) do not apply
to the Provided Information;
(iii) The Company and each of its subsidiaries (as defined in
Rule 405 of the Rules and Regulations) are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation, are duly qualified to transact business and
are in good standing as foreign corporations in each jurisdiction in which
their respective ownership or leasing of any properties or the character or
conduct of their respective operations requires such qualification, except
where failures to be so qualified, individually or in the aggregate, would
not result in a Material Adverse Effect. The Company does not own any
stock of or other equity in, or otherwise control directly or indirectly,
any corporation, firm, partnership, trust, joint venture or other business
entity, except as disclosed in the Prospectus. None of the subsidiaries of
the Company is a Significant Subsidiary, other than Diamond Partners
Incorporated, an Illinois corporation.
(iv) The Company and each of its subsidiaries have all requisite
power and authority (corporate and other), and have obtained and currently
maintain in full force and effect and are operating in compliance with any
and all authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials
and bodies (including those having jurisdiction over environmental or
similar matters) necessary or required to own or lease their respective
properties and conduct their respective business as described in the
Registration Statement, the Prospectus and any amendment or supplement
thereto, except where the failure to so maintain or operate would not
result in a Material Adverse Effect. The Company and each of its
subsidiaries are and have been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and all federal, state, local and foreign laws, rules and
regulations (including without limitation those relating to employment
matters and the payment of taxes) except as disclosed in the Prospectus and
except where failures to be in compliance, individually or in the
aggregate, would not result in a Material Adverse Effect. Neither the
Company nor any of its subsidiaries has received any notice or notices of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise or permit
that if the subject of unfavorable decisions, rulings or findings, would,
individually or in the aggregate, result in a Material Adverse Effect;
-9-
<PAGE>
(v) The Company has duly executed and delivered the Rights
Agent Agreement. The shares of Class A Common Stock to be sold by the
Company and the Selling Stockholders hereunder and upon the exercise of the
Rights are subject to the rights and interests of the Underwriters and the
Rights Agent hereunder and under the Rights Agent Agreement. Except to the
extent otherwise provided therein, the arrangements for custody or
reservation and delivery of the certificates for such shares, made by the
Company hereunder and under the Rights Agent Agreement, are irrevocable,
and are not subject to termination by any acts of the Company, the Selling
Stockholders, or by operation of law;
(vi) The Company has all requisite power and authority
(corporate and other) to enter into this Agreement, the Other Purchasers
Standby Purchase Agreements and the Rights Agent Agreement, and to
consummate the transactions provided for herein and therein; and this
Agreement, the Other Purchasers Standby Purchase Agreements and the Rights
Agent Agreement have each been duly authorized by the Company and each of
this Agreement and the Rights Agent Agreement have been and the Other
Purchasers Standby Purchase Agreements will be prior to the Closing Date
duly executed and delivered by the Company. Each of this Agreement and the
Rights Agent Agreement constitutes and the Other Purchasers Standby
Purchase Agreements will constitute prior to the Closing Date, assuming due
authorization, execution and delivery by the other parties to such
agreements, the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with their respective terms,
subject to the effect of general principles of equity (including standards
of materiality, good faith, fair dealing and reasonableness) whether
applied by a court of law or equity, and except as rights to indemnity and
contribution hereunder may be limited by applicable law, statutory duties
or public policy. The Company's execution and delivery of this Agreement,
the Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement, its performance of its obligations hereunder and thereunder, the
consummation of the transactions contemplated hereby and thereby by it, and
its conduct of its business as described in the Registration Statement, the
Prospectus and any amendment or supplement thereto, will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
material liens, charges, claims, encumbrances, pledges, security interests,
defects or other like restrictions or material equities of any kind
whatsoever upon, any right, property or assets (tangible or intangible) of
the Company or any of its subsidiaries pursuant to the terms of (A) the
charter or bylaws, each as amended to date, of the Company or any of its
subsidiaries, (B) any lease, license, permit, contract, indenture,
mortgage, deed of trust,
-10-
<PAGE>
voting trust agreement, stockholders agreement, note, loan or credit
agreement (including any related to indebtedness) or any other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which any of them is or may be bound or to which any of their respective
properties or assets (tangible or intangible) is or may be subject, except
to the extent that any such conflict, breach, violation or default,
individually or in the aggregate, does not and would not result in a
Material Adverse Effect and does not and would not interfere with the
Offering or (C) any statute, judgment, decree, order, rule or regulation
applicable to the Company or any of its subsidiaries or any of their
respective activities or properties adopted or issued by an arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body (including those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the Company
or any of its subsidiaries or any of their respective activities or
properties (other than such as may be required under state securities or
"Blue Sky" laws and such as may be required by the by-laws and rules of the
NASD in connection with the purchase and distribution of the Shares by the
Underwriters);
(vii) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required in
connection with the offer, issuance and sale of the shares of Class A
Common Stock to be sold by the Company hereunder or upon exercise of the
Rights, the Company's performance of its obligations hereunder, or the
consummation by the Company of the other transactions contemplated hereby,
except (A) such as may be required under the state securities or "Blue Sky"
laws of any jurisdiction or as may be required by the by-laws and rules of
the NASD in connection with the purchase and distribution of the Shares by
the Underwriters, (B) any filing of the Prospectus pursuant to Rule 424(b)
or 430A of the Rules and Regulations and, if the Registration Statement has
not been declared effective, an order of the Commission declaring the
Registration Statement effective under the Act, and (C) such other
approvals as have been obtained and remain in full force and effect;
(viii) The authorized, issued and outstanding capital stock of
the Company is set forth and conforms to the description thereof, contained
in the Registration Statement, the Prospectus, and any amendment or
supplement thereto. All of the issued shares of capital stock of the
Company, including the shares to be sold by the Selling Stockholders, have
been duly authorized and validly issued, and are fully paid and
nonassessable; the holders thereof have no rights of rescission against the
Company with respect thereto and are not subject to personal liabilities
solely by reason of being such holders (except to the extent that as a
result of
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<PAGE>
acquiring a substantial number of shares of Common Stock a holder may be
subject to claims of personal liability as an affiliate or control person
of the Company, as to which no representation is made hereby); and none of
such shares have been issued in violation of the preemptive rights of any
security holders of the Company arising as a matter of law or under or
pursuant to the Company's Certificate of Incorporation, as amended, the
Company's By-Laws, as amended, or any agreement or instrument to which the
Company is a party or by which it is bound. The shares of Class A Common
Stock offered by the Company and to be sold upon the exercise of the Rights
or pursuant to this Agreement and the Other Purchasers Standby Purchase
Agreements have been duly authorized and at the Closing Date, after payment
therefor in accordance herewith or in accordance with the terms and
conditions of the Rights (as the case may be), will be validly issued,
fully paid and nonassessable and not subject to any Adverse Claim, with no
personal liability attaching to the holder solely as a result of the
ownership thereof (except to the extent that as a result of acquiring a
substantial number of shares of Common Stock a holder may be subject to
claims of personal liability as an affiliate or control person of the
Company, as to which no representation is made hereby). Upon the issuance
and delivery pursuant to this Agreement and the Rights Agent Agreement of
the Shares to be sold by the Company, assuming that each of the
Underwriters is a Bona Fide Purchaser, the Underwriters will acquire good
and marketable title to the Shares free and clear of any liens, charges,
claims, preemptive rights, encumbrances, pledges, security interests,
defects or other like restrictions or like material equity of any kind
whatsoever. The shares of Class A Common Stock offered by the Company and
to be sold upon the exercise of the Rights or pursuant to this Agreement or
the Other Purchasers Standby Purchase Agreements will conform to the
description thereof contained in the Prospectus. There are no preemptive
or other rights to subscribe for or to purchase nor any restriction upon
the voting or transfer of, any Common Stock pursuant to the Company's
Certificate of Incorporation or By-Laws, as each amended to date, or
pursuant to any agreement among stockholders to which the Company is a
party, by which it is bound or of which it has knowledge, and the Shares to
be sold by the Company are not otherwise subject to any preemptive or other
similar rights of any security holder except as disclosed in the
Prospectus. The Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement
and as described in the Prospectus. Except as described in the Prospectus
with respect to Common Stock that may be registered by the Company in a
registration statement on Form S-8, no holders of any securities of the
Company have the right to include any securities issued by the Company in
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the Registration Statement or any registration statement to be filed by the
Company during a period commencing on the date the Registration Statement
is declared effective by the Commission and ending 180 days following the
Expiration Date or to require the Company to file a registration statement
under the Act during such period. All of the (i) Rights and (ii)
outstanding shares of Class A Common Stock and all of the shares of Class A
Common Stock to be issued by the Company as contemplated herein have been
approved for quotation upon notice of issuance on the Nasdaq National
Market of the Nasdaq Stock Market;
(ix) The consolidated financial statements and schedules of the
Company included in the Registration Statement, the Prospectus and any
amendment or supplement thereto fairly present the consolidated financial
position and results of operations of the Company as of the dates and for
the periods therein specified. Such financial statements and schedules
have been prepared in accordance with generally accepted accounting
principles, as in effect in the United States and as consistently applied
throughout the periods involved and in accordance with the Rules and
Regulations. The selected consolidated financial data set forth under the
caption "SELECTED CONSOLIDATED FINANCIAL DATA" in the Prospectus fairly
present, on the basis stated therein, the information included therein.
The Company maintains a system of internal accounting controls sufficient
to provide reasonable assurance that (A) transactions are executed in
accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset accountability; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company's internal accounting controls are designed to
cause the Company to comply in all material respects with the Foreign
Corrupt Practices Act of 1977, as amended. Peat Marwick, whose reports are
filed with the Commission as a part of the Registration Statement, are
independent auditors as required by the Act and the Rules and Regulations.
Since January 28, 1994, Peat Marwick has been the only public accountants
engaged by the Company, and the Company has not had any Disagreement with
Peat Marwick and has not experienced any Reportable Event since that date;
(x) The Company and each of its subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be filed
by them or have duly requested extensions thereof, except in any case in
which the failure so
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to file, individually or in the aggregate, would not have a Material
Adverse Effect. The Company and each of its subsidiaries have paid all
taxes required to be paid by them and all other assessments, fines or
penalties, if any, levied against any of them, to the extent that any of
the foregoing are due and payable, except for (A) any such assessment, fine
or penalty that is currently being contested in good faith or (B) any case
in which the failure so to pay, individually or in the aggregate, would not
have a Material Adverse Effect;
(xi) No transfer tax, stamp duty or other similar tax is payable
by or on behalf of the Underwriters in connection with the issuance by the
Company, or the purchase by the Underwriters, of the Shares to be sold by
the Company or any resales of such Shares by the Underwriters;
(xii) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, defects
or other like restrictions or like equities of any kind whatsoever, other
than (A) liens for taxes not yet due and payable, (B) liens as described or
referred to in the Prospectus and (C) liens that are not material in amount
in relation to the business of the Company and which do not interfere with
the Offering;
(xiii) Except as disclosed in the Prospectus, the Company and
each of its subsidiaries own or possess adequate licenses or other rights,
in each case free of fees, charges or royalties payable after the date
hereof, to use the Intellectual Property, except where the lack thereof
would not result in a Material Adverse Effect. Neither the Company nor any
of its subsidiaries has received any notice of infringement of or conflict
with (and does not know of any such infringement of or conflict with)
rights or claims of others with respect to the Intellectual Property, any
of the activities engaged in, or proposed to be engaged in, by the Company
or any of its subsidiaries or any challenge to the ownership or right of
the Company or any of its subsidiaries with respect to the Intellectual
Property which could result in a Material Adverse Effect or which could
have a material adverse effect on the development, marketing or sale of any
of the Company's existing or contemplated products, services or processes
as described in the Prospectus. None of the products, services or
processes of the Company or any of its subsidiaries referred to in such
Prospectus and relating to the business of the Company or any of its
subsidiaries now operated or proposed to be operated by any of them as
described in such Prospectus infringes or conflicts with any right or
patent, or with any discovery, invention, product or
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<PAGE>
process which is the subject of any patent application known to the
Company, in a manner which would result in a Material Adverse Effect;
(xiv) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the business in
which they are engaged, and the Company has no reason to believe that it or
any of its subsidiaries will not be able to renew its respective existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
respective business at a cost that would not result in a Material Adverse
Effect;
(xv) Neither the Company nor any of its subsidiaries is in
breach of, or in default under, any term, covenant or provision of any
license, permit, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to
which it is a party or by which it may be bound or to which any of its
property or assets (tangible or intangible) is subject or affected, except
as disclosed in the Registration Statement and Prospectus and except as to
defaults that (A) individually or in the aggregate would not have a
Material Adverse Effect and (B) would not interfere with the Offering.
Neither the Company nor any of its subsidiaries is in violation of any term
or provision of its charter or bylaws, each as amended to date;
(xvi) Other than as disclosed in the Prospectus, there is not
pending or, to the Company's knowledge, threatened against the Company or
any of its subsidiaries or involving the properties or business of the
Company or any of its subsidiaries, (or, to the Company's knowledge, any
circumstances that may give rise to the same), any action, suit,
proceeding, investigation, litigation or governmental proceeding (including
those having jurisdiction over environmental or similar matters), domestic
or foreign, that (A) is required to be disclosed in the Registration
Statement and is not so disclosed, (B) questions the validity of the
capital stock of the Company or the validity or enforceability of this
Agreement, (C) questions the validity of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement, or (D) could
materially adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement or result in a
Material Adverse Effect. Any such proceedings
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<PAGE>
summarized in the Prospectus are accurately summarized in all material
respects;
(xvii) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus, and
except as may otherwise be indicated or contemplated herein or therein,
neither the Company nor any of its subsidiaries has (A) issued any
securities other than the Rights, the shares of Class A Common Stock to be
sold by the Company upon the exercise of the Rights, the Shares to be sold
by the Company pursuant to this Agreement and shares of Common Stock
issuable upon the exercise of stock options disclosed in the Prospectus as
outstanding as of the date hereof, (B) incurred any liability or
obligation, direct or contingent, for borrowed money, (C) entered into any
transaction other than in the ordinary course of business, (D) declared or
paid any dividend or made any other distribution on or in respect of its
capital stock, or (E) entered into any transactions with any affiliate,
including, without limitation, the Selling Stockholders or their respective
affiliates;
(xviii) The Company and each of its subsidiaries have
satisfactory employer-employee relationships with their respective
employees. No labor or other dispute with the employees of the Company or
any of its subsidiaries as a group exists, or, to the best knowledge of the
Company, is imminent;
(xix) Except as disclosed in the Registration Statement or the
Prospectus, each employee benefit plan, within the meaning of Section 3(3)
of ERISA that is maintained, administered or contributed to by the Company
or any of its affiliates for employees or former employees of the Company
and its affiliates has been maintained in compliance with its terms and the
requirements of any applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Code; no prohibited transaction,
within the meaning of Section 406 of ERISA or Section 4975 of the Code has
occurred with respect to any such plan excluding transactions effected
pursuant to a statutory or administrative exemption; and for each such plan
which is subject to the funding rules of Section 412 of the Code or Section
302 of ERISA no "accumulated funding deficiency" as defined in Section 412
of the Code has been incurred, whether or not waived, and the fair market
value of the assets of each such plan (excluding for these purposes accrued
but unpaid contributions) exceeded the present value of all benefits
accrued under such plan determined using reasonable actuarial assumptions;
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<PAGE>
(xx) The minutes books of the Company and each of its
subsidiaries made available to Underwriters' Counsel, (A) contain minutes
and consents from all meetings and actions of the Company's and each such
subsidiary's stockholders, board of directors, and the committees of such
board since the respective dates of organization of the Company and each of
its subsidiaries and (B) reflect all transactions referred to in such
minutes accurately in all material respects;
(xxi) All agreements filed as exhibits to the Registration
Statement to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries may be bound or to which any
of their respective assets, properties or businesses may be subject have
been duly and validly authorized, executed and delivered by the Company or
such subsidiary, as appropriate, and constitute the legal, valid and
binding agreements of the Company, or such subsidiary, as appropriate,
enforceable in accordance with their respective terms, subject in each case
to the effect of general principles of equity (including standards of
materiality, good faith, fair dealing and reasonableness) whether applied
by a court of law or equity and except as rights to indemnity and
contribution under this Agreement may be limited by applicable law,
statutory duties or public policy. The descriptions in the Registration
Statement, the Prospectus and any amendment or supplement thereto, of
agreements, whether written or oral, and of other documents are accurate
and fairly present the information required to be shown with respect
thereto by Form S-1 under the Act. There are no agreements, whether written
or oral, or other documents that are required by the Act or the Rules and
Regulations to be described in the Registration Statement or filed as
exhibits to the Registration Statement that are not described or filed as
required;
(xxii) Neither the Company nor any of its officers, directors,
partners, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or
that has constituted or that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common Stock or
the Rights in violation of Rules 10b-6 or 10b-7 (or, any successor
provisions, including Regulation M) under the Exchange Act;
(xxiii) There are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's, advisory or
origination fee or otherwise, either with respect to the sale of the shares
of Class A Common Stock to be sold by the Company upon exercise of the
Rights, the sale of the Shares hereunder or with respect to the proceeds
received by the Company from such sales. Other than as
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reflected in this Agreement, there are no other arrangements, agreements,
understandings, payments or issuances with respect to the Company or, to
the Company's knowledge, any of its officers, directors, partners, or
affiliates that may constitute "underwriter's compensation," as determined
by the NASD;
(xxiv) The Company has delivered or caused to be delivered to
the Underwriters the Associated Person Lock-Ups;
(xxv) All of the Rights have been duly authorized, and, when
issued and distributed as set forth in the Prospectus, will be legally
issued and valid and binding obligations of the Company having the rights
summarized in the Prospectus; and none of such Rights will have been issued
in violation of the preemptive rights of any security holders of the
Company arising as a matter of law or under or pursuant to the Company's
Certificate of Incorporation, as amended, the Company's By-Laws, as
amended, or any agreement or instrument to which the Company is a party or
by which it is bound;
(xxvi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been
any material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, business,
prospects, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus;
(xxvii) No relationship, direct or indirect, exists between or
among the Company or any of its subsidiaries on the one hand, and the
directors, officers, partners, stockholders, customers or suppliers of the
Company or any of its subsidiaries on the other hand, which is required by
the Act to be described in the Registration Statement and the Prospectus
which is not so described;
(xxviii) The Company is not and, after giving effect to the
Offering, will not be an "investment company" or entity "controlled" by an
"investment company," as such terms are defined in the Investment Company
Act;
(xxix) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida) relating to
doing business with the Government of Cuba or with any person or affiliate
located in Cuba;
(b) Each of the Selling Stockholders represent and warrant to and
agree with the Underwriters as follows:
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(i) The Selling Stockholder has delivered certificates in
negotiable form for the shares of Class A Common Stock to be sold by it
upon the exercise of the Rights and pursuant to this Agreement to the
Company to be placed in custody for delivery pursuant to the terms of the
Rights Agent Agreement and this Agreement. The shares represented by the
certificates so held in custody for the Selling Stockholder are subject to
the interests hereunder of the Underwriters, the Company and the Rights
Agent under the Rights Agent Agreement. The arrangements for custody and
delivery of such certificates are, to the extent provided hereunder,
irrevocable, and are not subject to termination by any acts of the Selling
Stockholder, or by operation of law;
(ii) The Selling Stockholder has the legal right and power to
enter into this Agreement and to sell, transfer and deliver the Shares
proposed to be sold by it hereunder and the shares of Class A Common Stock
to be sold by it upon the exercise of the Rights. This Agreement has been
duly authorized, executed and delivered by the Selling Stockholder and,
assuming due execution and delivery by the other respective parties hereto,
constitutes the legal, valid and binding obligation of the Selling
Stockholder enforceable against the Selling Stockholder in accordance with
its terms, subject to the effect of general principles of equity (including
standards of materiality, good faith, fair dealing and reasonableness)
whether applied by a court of law or equity, and except as rights of
indemnity and contribution hereunder may be limited by applicable law,
statutory duties or public policy;
(iii) The execution and delivery of this Agreement and the
performance by the Selling Stockholder of its obligations hereunder will
not conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under (A) any charter documents,
including articles or certificate of incorporation or by-laws, of the
Selling Stockholder, as amended to date, (B) any lease, permit, license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Selling Stockholder is a party or by
which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, except
to the extent that any such conflict, breach, violation or default,
individually or in the aggregate, does not and would not result in a
material adverse effect on the condition, financial or otherwise, or on the
earnings, business affairs, financial position, prospects, value,
operation, properties, results of operation or business of the Selling
Stockholder and does not and would not interfere with the Offering, or (C)
any statute, judgment, decree, order, rule or regulation
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applicable to the Selling Stockholder or any of its activities or
properties adopted or issued by any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Selling Stockholder or any of its
activities or properties. No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court is required
for the consummation by the Selling Stockholder of the transactions
contemplated herein, except (A) such as may be required under the state
securities or "Blue Sky" laws of any jurisdiction or as may be required by
the by-laws of the NASD in connection with the purchase and distribution of
the Shares by the Underwriters, (B) any filing of the Prospectus pursuant
to Rule 424(b) or 430A of the Rules and Regulations and, if the
Registration Statement has not been declared effective, an order of the
Commission declaring the Registration Statement effective under the Act,
and (C) such other approvals as have been obtained and remain in full force
and effect;
(iv) The Selling Stockholder has, and on the Closing Date will
have, good and marketable title to the Shares proposed to be sold by the
Selling Stockholder hereunder and the shares of Class A Common Stock to be
sold upon the exercise of the Rights, and none of such shares will be
subject to any Adverse Claim. Upon delivery of and payment for the Shares
to be sold by the Selling Stockholder hereunder, assuming that each of the
Underwriters is a Bona Fide Purchaser, the Underwriters will acquire good
and marketable title thereto free and clear of any liens, charges, claims,
preemptive rights, encumbrances, pledges, security interests, voting
trusts, defects or other like restrictions or other like material equity of
any kind whatsoever;
(v) To the best knowledge of the Selling Stockholder, the
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus or any part thereof and, to the best knowledge of
the Selling Stockholder, no proceedings for a stop order have been
instituted or are pending or threatened. When any Preliminary Prospectus
was filed with the Commission, it contained all statements required to be
stated therein in accordance with, and complied in all material respects
with the requirements of, the Act and the Rules and Regulations except to
the extent that such Preliminary Prospectus did not contain any such
required statements, or did not so comply, in a manner corrected in the
Prospectus. To the best knowledge of the Selling Stockholder, when the
Registration Statement (or any amendment thereto) was (or is) declared
effective, it (A) contained (or will contain) all statements required to be
stated therein in accordance with, and complied in all
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material respects (or will comply in all material respects) with the
requirements of, the Act and the Rules and Regulations and (B) did not or
will not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading.
To the best knowledge of the Selling Stockholder, when the Prospectus or
any amendment or supplement thereto is filed pursuant to Rule 424(b) (or,
if the Prospectus or such amendment or supplement is not required to be so
filed, when the Registration Statement or the amendment thereto containing
such amendment or supplement to the Prospectus was or is declared
effective) and on the Closing Date and any Option Closing Date, the
Prospectus, as amended or supplemented at any such time, (A) contained or
will contain all statements required to be stated therein in accordance
with, and complied or will comply in all material respects with the
requirements of, the Act and the Rules and Regulations and (B) did not or
will not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (v) do not apply to the Provided
Information;
(vi) To the best knowledge of the Selling Stockholder, the
descriptions in the Registration Statement, the Prospectus and any
amendment or supplement thereto of agreements, whether written or oral, and
of other documents are accurate and fairly present the information required
to be shown with respect thereto by Form S-1 under the Act. To the best
knowledge of the Selling Stockholder, there are no agreements, whether
written or oral, or other documents that are required by the Act or the
Rules and Regulations to be described in the Registration Statement or
filed as exhibits to the Registration Statement that are not described or
filed as required; and
(vii) Neither the Selling Stockholder nor any of its officers,
directors, or affiliates (within the meaning of the Rules and Regulations)
has (a) made or caused to be effected any transaction, directly or
indirectly, designed to or that has constituted or that might reasonably be
expected to cause or result in stabilization of the price of the Class A
Common Stock or the Rights, (b) taken or will take, directly or indirectly,
any action designed to or that has constituted or that might reasonably be
expected to cause or result in manipulation of the price of the Class A
Common Stock or the Rights in violation of Rules 10b-6 or 10b-7 (or, any
successor provision, including Regulation M) under the Exchange Act, or (c)
failed to comply with the Act or the Rules and Regulations in order to
effect the transactions contemplated hereby.
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3. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to issue and the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and the
Underwriters agree severally and not jointly to purchase in the percentages set
forth in Schedule B hereto, all of the Excess Unsubscribed Shares at a price of
$_____ per share.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained and upon not less than two business
days' notice from the Underwriters, for a period of 20 days after the Expiration
Date, the Company agrees to sell to the Underwriters all or part of up to
310,000 Option Shares at a purchase price of $_____ per share for the sole
purpose of covering over-allotments that may be made in connection with the
offering and distribution of the shares of Class A Common Stock and/or Excess
Unsubscribed Shares. The Underwriters may exercise their option to purchase all
or any portion of the Option Shares from the Company up to two times, provided
--------
that the aggregate number of Option Shares purchased by the Underwriters shall
not exceed 310,000. Delivery of the Option Shares shall be made concurrently
with payment therefor. Option Shares may be purchased by the Underwriters only
for the purpose of covering over-allotments that may be made in connection with
the offering and distribution of the shares of Class A Common Stock and/or the
Excess Unsubscribed Shares. No Option Shares shall be delivered unless the
Excess Unsubscribed Shares (if any are purchased by the Underwriters) shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) Payment of the respective aggregate purchase prices of the Excess
Unsubscribed Shares purchased from the Company and the Selling Stockholders
shall be made by the Underwriters on the Closing Date by wire transfer in same
day funds, payable to or upon the order of the Company and the Selling
Stockholders at the offices of Tucker Anthony Incorporated, One Beacon Street,
Boston, Massachusetts 02108, or at such other place as shall be agreed upon by
the Underwriters and the Company, upon delivery of certificates (in form and
substance satisfactory to the Underwriters) representing the Excess Unsubscribed
Shares to the Underwriters. Delivery and payment for the Excess Unsubscribed
Shares shall be made at the Closing. In addition, in the event that any or all
of the Option Shares are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option Shares shall be made at
the above mentioned office or at such other place as shall be agreed upon by the
Underwriters and the Company, on each Option Closing Date as specified in the
notice from the Underwriters to the Company. Certificates for the Excess
Unsubscribed Shares and the Option Shares, if any, shall be in
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definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriters may
request in writing at least two business days prior to the Closing Date or the
relevant Option Closing Date, as the case may be. The certificates for the
Excess Unsubscribed Shares and the Option Shares, if any, shall be made
available to the Underwriters at such office or such other place as the
Underwriters may designate for inspection, checking and packaging not later than
9:30 a.m., New York City time, on the last business day prior to the Closing
Date or the relevant Option Closing Date, as the case may be.
(d) Delivery of certificates representing the shares of Class A
Common Stock to be sold pursuant to the exercise of the Rights, and the payment
of the subscription price therefor to the Company and the Selling Stockholders,
shall be made at the Closing on the Closing Date pursuant to the Rights Agent
Agreement, irrespective of whether or not any Excess Unsubscribed Shares are to
be purchased by the Underwriters at such Closing.
4. Public Offering of the Excess Unsubscribed Shares.
-------------------------------------------------
As soon after the Registration Statement becomes effective as the
Underwriters deem advisable, the Underwriters shall make the Offering.
5. Registration of Common Stock in Certain States.
----------------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, but subject to the terms and conditions herein set forth, the
Underwriters will act (or at their expense, will cause another broker-dealer
registered in such state to act) as the agent of the Company and the Selling
Stockholders to effect the offering of the Rights and the sale of the shares of
Class A Common Stock upon exercise thereof or pursuant to the Other Purchasers
Standby Purchase Agreements in the states of Connecticut, Florida, Nebraska,
Nevada, New Hampshire and New York, such states being those states in which
applicable state law requires that a registered broker-dealer effect the
offering of the Rights or the shares of Class A Common Stock purchasable upon
exercise thereof or pursuant to the Other Purchasers Standby Purchase
Agreements. The Underwriters may delegate their obligations under the
immediately preceding sentence through another registered broker-dealer
satisfactory to them in states where the Underwriters are not registered as
such. The Underwriters shall not be liable under this Section 5(a), except for
gross negligence, lack of good faith and for their obligations expressly assumed
hereunder.
(b) The Company will deliver to the Underwriters, on or before the
day the Registration Statement becomes effective, a "Blue Sky Memorandum"
(herein so called), prepared by Morgan, Lewis
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& Bockius LLP relating to the securities or Blue Sky laws of any jurisdictions
in which the transfer of the Rights or the offer and sale of the Class A Common
Stock is required to be qualified or registered, which will set forth the
circumstances under which said transfer or offers and sales may be made and
advising that the appropriate action, if any, will be taken in each of such
jurisdictions so as to permit the transfer of the Rights and the offer and sale
of the Class A Common Stock (whether upon or in connection with the exercise of
Rights, as part of the public offering of the Shares by the Underwriters or
pursuant to the Other Purchasers Standby Purchase Agreements) to the persons
resident in the jurisdictions indicated in such survey. Such Blue Sky
Memorandum may be based upon qualification of the Rights and the Class A Common
Stock as necessary with appropriate persons in such jurisdictions and an
examination of the statutes and regulations, if any, of such jurisdictions as
reported in standard compilations and upon interpretive advice obtained from
representatives of certain securities commissions and such local counsel as may
be necessary. Such Blue Sky Memorandum will be furnished only for the
Underwriters' general information and guidance rather than as an opinion of
counsel with regard to the laws of the jurisdictions referred to therein.
6. Covenants of the Company and the Selling Stockholders.
-----------------------------------------------------
(a) The Company covenants and agrees with the Underwriters as
follows:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. Unless required by law, the Company will not file with the
Commission the prospectus or amendment referred to in the second sentence
of Section 1(a)(i) hereof, any amendment or supplement to such prospectus,
any amendment to the Registration Statement, or any document under the
Exchange Act before termination of the offering of the Shares by the
Underwriters of which the Underwriters shall not previously have been
advised and furnished with a copy, or to which the Underwriters shall have
reasonably objected by notice to the Company in writing after having been
provided a copy thereof, or which is not in compliance with the Act, the
Exchange Act or the Rules and Regulations. During the time when a
prospectus relating to the Shares is required to be delivered under the
Act, the Company will comply with all requirements imposed upon it by the
Act and the Rules and Regulations to the extent necessary to permit the
continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and of the Prospectus, as amended or supplemented. The
Company will prepare and file with the Commission, promptly upon the
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reasonable request by the Underwriters or Underwriters' Counsel, any
amendments to the Registration Statement or amendments or supplements to
the Prospectus that may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters, and will use its best
efforts to cause the same to be filed with the Commission as promptly as
possible;
(ii) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters, with a confirmation in
writing, of (A) the time when the Registration Statement or any amendment
thereto has been filed or declared effective or the Prospectus or any
amendment or supplement thereto has been filed, (B) the issuance by the
Commission of any stop order, or of the initiation or threatening of any
proceeding, suspending the effectiveness of the Registration Statement or
any amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (C) the issuance by any state securities commission of any notice
of any proceedings for the suspension of the qualification of the Shares
for offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose, (D) the receipt of any
comments from the Commission, and (E) any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. The Company will use its
best efforts to prevent the issuance of any such order or the imposition of
any such suspension and, if any such order is issued or suspension is
imposed, to obtain the withdrawal thereof as promptly as possible;
(iii) If required, the Company will file the Prospectus and any
amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) and Rule 430A(a)(3) of the
Rules and Regulations;
(iv) The Company will arrange for the qualification of the
shares of Class A Common Stock for offering and sale under the securities
or "Blue Sky" laws of such jurisdictions in which recipients of Rights and
the Other Purchasers are resident and such jurisdictions as the
Underwriters may reasonably designate and will continue such qualifications
in effect for as long as may be necessary to complete the distribution of
the shares of Class A Common Stock, provided, however, that in connection
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therewith the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction;
(v) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any
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event occurs as a result of which, in the opinion of the Company or counsel
for the Company, the Prospectus, as then amended or supplemented, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is otherwise necessary at any time to amend or
supplement the Prospectus to comply with the Act or the Rules and
Regulations, the Company will promptly notify the Underwriters thereof and,
subject to Section 6(a)(i) hereof, prepare and file with the Commission, at
the Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance. If, at any time when a prospectus
relating to the Shares is required to be delivered under the Act, any event
occurs as a result of which, in the opinion of the Underwriters or
Underwriters' Counsel, the Prospectus, as then amended or supplemented,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, the Underwriters will promptly notify the
Company thereof and the Company will, subject to Section 6(a)(i) hereof,
prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to
the Prospectus that corrects such statement or omission or effects such
compliance. The Company will furnish to the Underwriters and dealers
(whose names and addresses shall be furnished to the Company by the
Underwriters) to which Shares may have been sold on behalf of the
Underwriters and to any other dealers upon request, a reasonable number of
copies of any amendment or supplement prepared pursuant to this paragraph
(v);
(vi) The Company will furnish to each of the Underwriters and to
Underwriters' Counsel, without charge, a signed copy of the registration
statement originally filed with respect to the Shares and each amendment
thereto. So long as the Underwriters or any dealer is required by the Act
or the Rules and Regulations to deliver a prospectus, the Company will also
furnish as many copies of each Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto as the Underwriters may reasonably
request. The Company will provide to the Underwriters a copy of the report
on Form SR filed by the Company pursuant to Rule 463 of the Rules and
Regulations;
(vii) As soon as practicable after the effective date of the
Registration Statement, the Company will make generally available to its
security holders, in the manner specified in Rule 158(b) of the Rules and
Regulations, and to
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the Underwriters an earnings statement that will be in the detail required
by, and will otherwise comply with, the provisions of Section 11(a) of the
Act and Rule 158(a) of the Rules and Regulations;
(viii) For a period of five years following the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and will deliver to the Underwriters unaudited quarterly
reports of earnings (through delivery of the Company's quarterly reports
filed with the Commission on Form 10-Q or Form 10QSB) and the following:
(A) concurrently with furnishing quarterly reports, if any,
to the stockholders, statements of income of the Company for each
quarter in the form furnished to the Company's stockholders;
(B) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders equity, and cash flows of the Company for such fiscal
year, accompanied by a copy of the certificate thereon of independent
public accountants;
(C) as soon as they are available, copies of all reports
(financial or other) mailed to its stockholders;
(D) as soon as they are available, copies of all reports
(other than preliminary proxy materials) and financial statements
furnished to or filed with the Commission, the NASD or Nasdaq which
are available to the public;
(E) as soon as they are available every press release and
every material news item or article of interest to the financial
community in respect of the Company or its affairs that is released or
prepared by the Company; and
(F) any additional information of a public nature
concerning the Company that the Underwriters may reasonably request
from time to time;
(ix) The Company will maintain a Transfer Agent and Registrar
for the Common Stock. Effective as of the Closing Date, the Company will
cause the Transfer Agent for the Common Stock to make appropriate "stop
transfer" restrictions in its records relating to the certificates
representing all shares
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of Common Stock subject to restrictions under the agreements described in
Sections 2(a)(xxiv), 2(b)(i) and 6(b)(i) hereof;
(x) During the period commencing on the date the Registration
Statement is declared effective by the Commission and ending 180 days after
the Expiration Date, the Company, will not, without the prior written
consent of the Underwriters, (A) directly or indirectly, transfer, sell,
offer for sale, contract for sale, grant any option for the sale of, or
otherwise dispose of (or announce any transfer, sale, offer for sale,
contract for sale, grant of any option for sale of, or other disposition
of) any shares of Common Stock, or other securities convertible into, or
exercisable or exchangeable for, shares of Common Stock (except as
contemplated by this Agreement) or (B) file any registration statement
relating to any such securities with the Commission or any other authority
except as contemplated herein, provided, however, that (1) the Company may
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grant or issue securities pursuant to any employee stock option plan or
stock purchase plan or outstanding stock options described in the
Prospectus and, commencing after the Closing Date, may file a registration
statement on Form S-8 with respect to such plans and (2) the Company may
issue Class A Common Stock, or other securities convertible into, or
exercisable or exchangeable for shares of Class A Common Stock, as
consideration for any acquisition by the Company so long as the party being
issued such securities signs an agreement, acceptable in form and substance
to the Underwriters, that such party will not transfer, sell, offer for
sale, contract to sell or otherwise dispose of any shares of Class A Common
Stock or any securities convertible into or exercisable or exchangeable for
shares of Class A Common Stock owned by such party or with respect to which
such party has the power of disposition during a period commencing on the
date of issuance of such securities and ending 180 days following the
Expiration Date;
(xi) The Company will apply the net proceeds from the sale of the
Class A Common Stock sold by it in the manner set forth under "USE OF
PROCEEDS" in the Prospectus. Except as described in the Prospectus, no
portion of the net proceeds will be used directly or indirectly to acquire
any securities issued by the Company;
(xii) The Company will furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two full business days prior
thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in each case shall not be earlier than the
last day of the preceding month, unless such month-end shall be less than
three business days prior to the date such statements are to be delivered)
that have been read by the
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Company's independent public accountants, as stated in their letters to be
furnished pursuant to Section 8(i) hereof;
(xiii) The Company will cause the Shares and the Rights to be
approved for quotation on the Nasdaq National Market and will use its
reasonable efforts to maintain such approvals;
(xiv) The Company will file and cause to become effective prior
to the Closing Date a registration statement with respect to the Class A
Common Stock pursuant to Section 12(g) of the Exchange Act and will use its
best efforts to maintain such registration;
(xv) The Company will apply the net proceeds from the sale of
the shares of Class A Common Stock sold by it and conduct its operations in
a manner that will not subject it to registration as an investment company
under the Investment Company Act of 1940, as amended; and
(xvi) The Company will furnish, without charge, to the
Underwriters and Underwriters' counsel within four months of the Closing
Date such number of closing binders as the Underwriters and Underwriters'
counsel may reasonably request.
(b) Each Selling Stockholder covenants and agrees with the
Underwriters as follows:
(i) During the period commencing on the date the Registration
Statement is declared effective by the Commission and ending 180 days after
the Expiration Date, the Selling Stockholder will not, without the prior
written consent of the Underwriters, directly or indirectly, transfer,
sell, offer for sale, contract for sale, grant any option for the sale of
or otherwise dispose of any shares of Common Stock or other securities
convertible into, or exercisable or exchangeable for, shares of Common
Stock except (A) as contemplated in this Agreement or (B) pursuant to
grants or sales of such shares to employees of the Selling Stockholder or
its subsidiaries, provided that such transferees agree to be bound by the
restrictions contained in this paragraph; and
(ii) The Selling Stockholder will pay all applicable state
transfer taxes, if any, involved in the transfer to the Underwriters of the
Shares to be purchased by the Underwriters from Safeguard.
(c) The Company and the Selling Stockholders covenant and agree with
each other and covenant and agree with the Underwriters that the 300,000 Other
Purchasers Standby Shares to be sold and the 291,000 shares of Class A Common
Stock that are
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expected to be sold to the Musser Group upon exercise of the Musser Rights shall
be deemed to be sold by the Company.
7. Payment of Expenses; Fees.
-------------------------
(a) As compensation to the Underwriters for their services in
connection with the transactions contemplated by this Agreement and their
commitment hereunder, the Company and the Selling Stockholders hereby agree,
jointly and severally, to pay to the Underwriters, by wire transfer, on the
sixth business day following the Expiration Date, an amount equal to the sum of
(i) 3% of the Exercise Price of each share of Class A Common Stock subject to
Rights, and (ii) an additional fee of 4% of the Exercise Price of each share
(other than the Option Shares) purchased by the Underwriters pursuant to Section
3(a) of this Agreement or upon the exercise of Rights by the Underwriters 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
the Exercise Price or with the prior acknowledgement of Safeguard that the
Underwriters would be entitled to receive such compensation pursuant to the
exercise of such Rights. As compensation to the Underwriters for their
commitment hereunder, the Company hereby agrees to pay the Underwriters, by wire
transfer, on each Option Closing Date an amount equal to 7% of the Exercise
Price for each Option Share purchased on such date by the Underwriters. As
additional compensation to the Underwriters for their commitment hereunder, the
Company shall reimburse the Underwriters, by wire transfer on the sixth business
day following the Expiration Date, for a non-accountable expense allowance of
(i) $125,000 if, on the Expiration Date, the closing price for the Class A
Common Stock was trading (on a "when-issued" basis) at a per share price of less
than $10.00, (ii) $50,000 if, on the Expiration Date, the closing price for the
Class A Common Stock was trading (on a "when-issued basis) at a per share price
between $10.00 and $12.00 or (iii) no expense allowance if, on the Expiration
Date, the closing price for the Class A Common Stock was trading (on a "when-
issued" basis) at a per share price greater than $12.00.
(b) The Company hereby agrees to pay all expenses and fees incident to
the performance of the obligations by the Company and the Selling Stockholders
under this Agreement, including all expenses and fees of the Company and the
Selling Stockholders incurred in connection with or by (i) the engagement of
accountants, counsel for the Company, counsel for Safeguard, the Rights Agent
and the Transfer Agent and Registrar for the Common Stock, (ii) preparation,
duplication, printing, filing and distribution of the registration statement
originally filed with respect to the Shares and any amendments thereto, any
Preliminary Prospectus and the Prospectus and any amendments and supplements
thereto and related documents used in connection with the Offering, including in
each case the cost of all copies supplied to the
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Underwriters in quantities as hereinabove stated, (iii) the printing, engraving,
issuance and delivery of certificates representing the Rights and the Shares,
(iv) the qualification of the Shares under state securities or "Blue Sky" laws,
including filing fees, costs of printing and mailing of a "Preliminary Blue Sky
Memorandum" and "Final Blue Sky Memorandum" and disbursements and fees of
Underwriters' Counsel in connection with the review of such materials (which
shall be paid at the Closing), (v) the approval of the Class A Common Stock and
Rights for quotation on the Nasdaq National Market, (vi) the filing fees of the
Underwriters in connection with any filings required to be made with the NASD
and (vii) travel and out of pocket expenses of the Company and Safeguard in
connection with meetings with prospective investors in the Shares (other than
such expenses as shall have been specifically approved in writing by the
Underwriters to be paid for by the Underwriters), and (viii) any expenses
incurred by the Company in connection with a "road show" presentation to
potential investors.
(c) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 8, Sections 12(a)(vii) or (a)(viii), or Section
13, the Company hereby agrees to reimburse and indemnify the Underwriters for
all of their reasonable accountable out-of-pocket expenses, including the
reasonable fees and disbursements of Underwriters' Counsel and any of the state
securities, "Blue Sky" and NASD fees and expenses identified in Sections
7(b)(iv) and 7(b)(vi) above, that shall have been incurred by them in connection
with the proposed purchase and sale of the Shares.
8. Conditions of the Underwriters' Obligations.
-------------------------------------------
The obligations of the Underwriters to purchase and pay for the Shares
shall be subject, in their sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein as of the date hereof and as of the Closing Date, as if they had been
made on and as of the Closing Date, to the accuracy on and as of the Closing
Date of the statements of the officers of the Company and the Selling
Stockholders made in certificates delivered pursuant to the provisions hereof,
to the performance by the Company and the Selling Stockholders on and as of the
Closing Date of their respective covenants and obligations hereunder, and to the
following further conditions:
(a) If the Registration Statement or any amendment thereto filed prior
to the Closing Date has not been declared effective as of the time of execution
hereof, the Registration Statement or such amendment shall have been declared
effective not later than the first full business day next following the date
hereof or such later date and time as shall have been consented to in writing by
the Underwriters. If required, the Prospectus shall
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have been timely filed with the Commission in accordance with Rule 424(b) of the
Rules and Regulations. If required, any amendment or supplement to the
Prospectus shall have been filed in accordance with Rule 424(c) under the Act.
No stop order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued and no proceedings for that purpose
shall have been instituted or, to the knowledge of the Company, the Selling
Stockholders, or the Underwriters, shall be contemplated by the Commission. The
Company shall have complied, to the reasonable satisfaction of the Underwriters
and Underwriters' Counsel, with any request of the Commission for additional
information (to be included in the Registration Statement, the Prospectus or
otherwise).
(b) The Underwriters shall not have advised the Company or the Selling
Stockholders that, in the opinion of the Underwriters or Underwriters' Counsel,
(i) the Registration Statement, or any amendment thereto, includes an untrue
statement of a material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading or (ii) the Prospectus, or any amendment or supplement
thereto, includes an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(c) The Underwriters shall have received from Underwriters' Counsel an
opinion dated the Closing Date, with respect to the issuance and sale of the
Shares, the Registration Statement, the Prospectus and such other related
matters as the Underwriters reasonably may request. Underwriters' Counsel shall
have received from the Company and the Selling Stockholders such papers and
information as they may request to enable them to review or pass upon such
matters or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties, or covenants of the Company or the
Selling Stockholders contained herein.
(d) The Underwriters shall have received from Gordon & Glickson P.C.,
counsel to the Company, an opinion, on or prior to the date Rights certificates
and Prospectuses are first mailed to Safeguard Shareholders and on the Closing
Date, dated the respective dates thereof and in form and substance satisfactory
to Underwriters' Counsel, to the effect that:
(i) The Company and each of its subsidiaries are corporations
duly incorporated, validly existing and in good standing under the laws of
their respective jurisdictions of organization and are duly qualified to
transact business as foreign corporations and are in good standing in each
jurisdiction in which the Company has represented to such counsel that they
conduct business;
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(ii) The Company and each of its subsidiaries have all requisite
corporate power and authority necessary or required to own or lease their
respective properties and conduct their respective businesses as described
in the Registration Statement and the Prospectus;
(iii) The Company has all requisite power and authority
(corporate and other) to enter into this Agreement, the Other Purchasers
Standby Purchase Agreements and the Rights Agent Agreement and to
consummate the transactions provided for herein and therein; and this
Agreement, the Other Purchasers Standby Purchase Agreements and the Rights
Agent Agreement have each been duly authorized, executed and delivered by
the Company. Each of this Agreement, assuming due authorization, execution
and delivery by the Underwriters and the Selling Stockholders, and each of
the Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement, assuming due authorization, execution and delivery by the
parties thereto other than the Company, constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, arrangement or similar
laws affecting creditors' rights generally or by general principles of
equity (including standards of materiality, good faith, fair dealing and
reasonableness) whether applied by a court of law or equity, and except as
rights to indemnity and contribution hereunder may be limited by applicable
law, statutory duties or public policy (provided that as of the first date
of the opinion only, such opinion need not express any opinion set forth
above with respect to the Other Purchaser Standby Purchase Agreements that
have not theretofore been executed and delivered). The Company's execution
and delivery of this Agreement, the Other Purchasers Standby Purchase
Agreements and the Rights Agent Agreement, its performance of its
obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby do not and will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition
of any liens, charges, claims, encumbrances, pledges, security interests,
defects or other like restrictions or equities of any kind whatsoever upon,
any right, property or asset (tangible or intangible) of the Company or any
of its subsidiaries pursuant to the terms of (A) the charter or bylaws,
each as amended through the date of the opinion, of the Company and each of
its subsidiaries, (B) any material lease, permit, license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or
instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which any
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of them is or may be bound or to which any of their respective properties
or assets (tangible or intangible) is or may be subject, or any
indebtedness, except that such counsel need not express an opinion with
respect to any violation based upon any covenant of a financial or
numerical nature or that requires arithmetic computation and such counsel
has not otherwise known of or had reason to expect the occurrence of such
default, or (C) to the knowledge of Company counsel, any statute, rule,
regulation, judgment, decree or order applicable to the Company or any of
its subsidiaries or any of their respective activities or properties
adopted or issued by an arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including those
having jurisdiction over environmental or similar matters), domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or
any of their respective activities or properties (other than such as may be
required under state securities or "Blue Sky" laws and such as may be
required by the by-laws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters);
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or, to such counsel's knowledge, any
court is required in connection with the issuance of the shares of Class A
Common Stock to be sold by the Company, the Company's performance of its
obligations hereunder, the Offering, or the consummation by the Company of
the other transactions contemplated hereby, except such as may be required
under the state securities or "Blue Sky" laws of any jurisdiction or as may
be required by the by-laws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters and except such
other approvals as have been obtained and remain in full force and effect.
Upon the effectiveness of the Registration Statement, the Class A Common
Stock will be registered pursuant to Section 12(g) of the Exchange Act, and
will be included in the Nasdaq National Market;
(v) At the date or dates indicated in the Prospectus, the
authorized, issued and outstanding capital stock of the Company was as set
forth therein, and conformed as to legal matters, to the extent that it
constitutes matters of law or legal conclusions, to the description thereof
contained therein under the captions "CAPITALIZATION" and "DESCRIPTION OF
CAPITAL STOCK." All of the issued shares of Common Stock of the Company
(including the Shares sold by the Selling Stockholders) have been duly
authorized and validly issued, and are fully paid and non-assessable; the
holders thereof are not subject to personal liabilities solely by reason of
holding such shares; and none of such shares have been issued in violation
of the preemptive rights of any security holders of the Company known to
Company counsel. The
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Shares to be sold by the Company have been duly authorized and, when paid
for in accordance herewith, will be validly issued, fully paid and non-
assessable, and with no personal liability resulting solely from the
ownership thereof. Upon the issuance and delivery pursuant to this
Agreement of the Shares to be sold by the Company to the Underwriters,
assuming the Underwriters do not have knowledge of any Adverse Claim, the
Underwriters will acquire good and marketable title to such Shares free and
clear of any liens, charges, claims, encumbrances, pledges, security
interests, defects or other like restrictions or like equities of any kind
whatsoever. Except as described in the Prospectus, there are no preemptive
or other rights to subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any shares of Common Stock pursuant to the
Company's Certificate of Incorporation or By-Laws, each as amended to date,
or pursuant to any agreement among stockholders to which the Company is a
party or of which it has knowledge, and the Shares to be sold by the
Company are not subject to any preemptive or other similar rights of any
security holder. The Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement
and as described in the Prospectus. Except as described in the Prospectus
with respect to stock options (and shares issuable upon exercise thereof)
that may be registered by the Company in a registration statement on Form
S-8, no holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
which are exercisable for or convertible or exchangeable for securities of
the Company have the right (which has not been waived) to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company within the period
commencing on the date the Registration Statement is declared effective by
the Commission and ending 180 days after the Expiration Date or to require
the Company to file a registration statement under the Act during such
period. Based on the form of specimen certificate filed as an exhibit to
the Registration Statement, the certificates representing the Shares are in
due and proper form;
(vi) The Registration Statement has become effective under the
Act. Any required filing of the Prospectus pursuant to Rule 424(b) and
430A(a)(3) of the Rules and Regulations has been made in accordance with
the time period required thereby. To such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are
pending or threatened, by the Commission;
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(vii) At the time the Registration Statement was declared
effective by the Commission, the Registration Statement and the Prospectus
and any amendment or supplement thereto (other than the financial
statements, and notes thereto, the financial schedules, and the other
financial and statistical data included in the Registration Statement or
the Prospectus or omitted therefrom, as to which such counsel need express
no opinion) complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
(viii) Such counsel has reviewed all contracts and other
documents referred to in the Registration Statement and the Prospectus, and
the summaries of and other disclosures regarding such contracts and other
documents included in the Registration Statement and the Prospectus fairly
present the information required to be shown with respect thereto. To such
counsel's knowledge, there are no contracts or other documents of a
character required to be filed as exhibits to the Registration Statement or
required to be described in the Registration Statement or the Prospectus
that were not filed or disclosed as required;
(ix) To such counsel's knowledge, there is not pending or
threatened or contemplated against the Company, or involving the properties
or business of the Company, any action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding (including those
having jurisdiction over environmental or similar matters), domestic or
foreign, that (A) is required to be disclosed in the Registration Statement
and is not so disclosed, (B) questions the validity of the capital stock of
the Company or the validity or enforceability of this Agreement, (C)
questions the validity of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, or (D) could materially
adversely effect the present or prospective ability of the Company to
perform its obligations under this Agreement or result in a Material
Adverse Effect;
(x) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act, nor, by receipt of the proceeds from its sale by it
of the Shares pursuant to this Agreement, will the Company become or be
deemed to be an "investment company" under such Act;
(xi) No transfer taxes are required to be paid in connection
with the sale and delivery of the Class A Common Stock by the Company to
the Underwriters hereunder;
(xii) The certificates evidencing the Rights to be distributed
to the Safeguard Shareholders and the shares of
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Class A Common Stock to be delivered hereunder are in due and proper form
under Delaware law; and
(xiii) All of the Rights have been duly authorized and validly
issued, and, when issued and distributed as set forth in the Prospectus,
will be legally issued and valid and binding obligations of the Company
having the rights summarized in the Prospectus; and none of such Rights
will have been issued in violation of the preemptive rights of any security
holders of the Company arising as a matter of law or under or pursuant to
the Company's Certificate of Incorporation, as amended, the Company's By-
Laws, as amended, or any agreement or instrument to which the Company is a
party or by which it is bound.
In addition, such opinion shall contain statements substantially
to the following effect:
In the course of the preparation by the Company and its
counsel of the Registration Statement and the Prospectus, such
counsel attended conferences with certain of the officers of, and
the independent public accountants for, the Company, at which the
Registration Statement and the Prospectus were discussed (some of
which were attended by representatives of the Underwriters).
Between the date of effectiveness of the Registration Statement
and the Closing Date, such counsel attended (if applicable)
additional conferences with certain of the officers of, and the
independent public accountants for, the Company, at which the
contents of the Registration Statement and the Prospectus were
discussed. Given the limitations inherent in the independent
verification of factual matters and the character of
determinations involved in the registration process, such counsel
is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (other
than as set forth in the first sentence of paragraph (v) and as
set forth in paragraph (viii) above). Subject to the foregoing
and on the basis of the information such counsel gained in the
performance of the services referred to above, including
information obtained from officers and other representatives of
the Company, no facts have come to such counsel's attention that
cause such counsel to believe (except that such counsel need not
express any opinion or belief with respect to the financial
statements, schedule and the notes thereto and other financial
and
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statistical data included therein, or with respect to the tax
opinion of Morgan, Lewis & Bockius, LLP contained in the
Prospectus under the caption "THE OFFERING--Federal Income Tax
Consequences") that (y) the Registration Statement, at the time
it was declared effective by the Commission, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (z) the Prospectus, as of its date or
the Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
In rendering such opinions, such counsel may rely as to matters
of fact, to the extent they deem proper, on certificates and written statements
of the Company or responsible officers of the Company and certificates or other
written statements of officers of departments of various jurisdictions having
custody of docu ments respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
--------
delivered to Underwriters' Counsel if required.
References to the Prospectus and Registration Statement in this
Section 8(d) shall include any amendment or supplement thereto at the date of
such opinion.
(e) The Underwriters shall have received from Morgan, Lewis and
Bockius LLP, counsel to the Selling Stockholders, an opinion, on or prior to the
date Rights certificates and Prospectuses are first mailed to Safeguard
Shareholders and on the Closing Date, dated the respective dates thereof and in
form and substance satisfactory to Underwriters' Counsel, to the effect that:
(i) Each Selling Stockholder has the legal right and power to
enter into this Agreement and to sell, transfer and deliver hereunder the Shares
proposed to be sold by it hereunder. This Agreement has been duly authorized by
each Selling Stockholder, has been duly executed and delivered by or on behalf
of each Selling Stockholder and constitutes the legal, valid, and binding
obligations of each Selling Stockholder enforceable against each Selling
Stockholder in accordance with its respective terms, subject to the effect of
general principles of equity (including standards of materiality, good faith,
fair dealing and reasonableness) whether applied by a court of law or equity and
except as rights to indemnity and contribution hereunder or
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thereunder may be limited by applicable law, statutory duties or public policy;
(ii) The execution and delivery of this Agreement, the
performance by each Selling Stockholder of its obligations hereunder will not
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under (A) the charter documents,
including articles or certificate of incorporation or by-Laws, of any Selling
Stockholder, as amended through the date of the opinion, (B) any lease, permit,
license, contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument, known to such counsel, to which any Selling Stockholder is a party
or by which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, except to
the extent that any such conflict, breach, violation or default, individually or
in the aggregate, does not and would not result in a material adverse effect on
the condition, financial or otherwise, or on the earnings, business affairs,
financial position, prospects, value, operation, properties, results of
operation or business of each Selling Stockholder and does not and would not
interfere with the Offering (as defined in Section 1 hereof), or (C) any
statute, judgment, decree, order, rule or regulation, known to such counsel,
applicable to each Selling Stockholder or any of its activities or properties
adopted or issued by any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including those having jurisdiction
over environmental or similar matters), having jurisdiction over each Selling
Stockholder or any of its activities or properties, in each case except where
such breach, violation or default would not (i) affect the enforceability of
this Agreement, (ii) affect the Offering or the sale of the Class A Common Stock
contemplated hereby, or (iii) have a material impact, financial or otherwise, on
any Selling Stockholder or any of its subsidiaries. To such counsel's knowledge,
no consent, approval, authorization or order of, or filing with, any
governmental agency or body or any court is required for the consummation by any
Selling Stockholder of the transactions contemplated herein, except such as may
be required under the state securities or "Blue Sky" laws of any jurisdiction or
as may be required by the by-laws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters and except such
other approvals as have been obtained and remain in full force and effect;
(iii) To such counsel's knowledge, each Selling Stockholder has
title to the Shares proposed to be sold by each Selling Stockholder hereunder
free of any adverse claims and upon delivery of and payment for such Shares
hereunder, assuming that each Underwriter is a Bona Fide Purchaser, the
Underwriters will acquire title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests, preemptive
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rights, voting trusts, adverse claims or other defects of title whatsoever; and
(iv) The descriptions in the Registration Statement, the
Prospectus and any amendment or supplement thereto of agreements, whether
written or oral, and of other documents to which each Selling Stockholder or any
of its affiliates (other than the Company or any of its subsidiaries) is a
party, are accurate and fairly present the information required to be shown with
respect thereto by Form S-1 under the Act. There are no agreements, whether
written or oral, or other documents to which each Selling Stockholder or any of
its affiliates (other than the Company or any of its subsidiaries) is a party,
which, to the knowledge of such counsel, exist that are required by the Act or
the Rules and Regulations to be described in the Registration Statement or filed
as exhibits to the Registration Statement that are not described or filed as
required.
In addition, such opinion shall contain statements substantially
to the following effect:
In the course of the preparation by the Company and its
counsel of the Registration Statement and the Prospectus, such
counsel attended conferences with certain of the officers of, and
the independent public accountants for, the Company, at which the
Registration Statement and the Prospectus were discussed.
Between the date of effectiveness of the Registration Statement
and the Closing Date, such counsel attended additional
conferences with certain of the officers of, and the independent
public accountants for, the Company, at which the contents of the
Registration Statement and the Prospectus were discussed. Given
the limitations inherent in the independent verification of
factual matters and the character of determinations involved in
the registration process, such counsel is not passing upon and
does not assume any responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration
Statement and the Prospectus. Subject to the foregoing and on
the basis of the information such counsel gained in the
performance of the services referred to above, including
information obtained from officers and other representatives of
the Company and each Selling Stockholder no facts have come to
such counsel's attention that cause such counsel to believe that
(x) the Registration Statement, at the time it was declared
effective by the Commission, contained an untrue statement of a
material fact or omitted to state a material fact relating to
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Safeguard or any of its affiliates (other than the Company)
required to be stated therein or necessary to make the statements
therein not misleading or (y) the Prospectus, as of its date or
the Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact
relating to Safeguard or any of its affiliates (other than the
Company) required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances
under which they were made, not misleading.
The Underwriters are entitled to rely on the opinion of such firm,
filed as an exhibit to the Registration Statement, as to the matters discussed
in the Prospectus under the heading "THE OFFERING -- Federal Income Tax
Consequences" in the Prospectus.
In rendering such opinion, such counsel may rely as to matters of
fact, to the extent they deem proper, on certificates and written statements of
responsible officers of the Company and each Selling Stockholder, as
appropriate, and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of each Selling Stockholder, provided that
--------
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel if requested.
(f) The Underwriters shall have received a certificate, dated the
Closing Date, of the Company signed by each of the President and Chief Executive
Officer and the Senior Vice President and Chief Financial and Administrative
Officer of the Company to the effect that each of such officers has carefully
examined the Registration Statement, the Prospectus and this Agreement and, to
his best knowledge, that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied in all material respects with all agreements
and covenants and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose
have been instituted or are pending or, to the best of such officers'
knowledge, are contemplated or threatened by the Commission; and
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and
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the Prospectus, (A) there has been no material adverse change, or
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 and its subsidiaries, on a consolidated basis,
except in each case as described in or contemplated by the Prospectus; (B)
neither the Company nor any of its subsidiaries has entered into any
transactions not in the ordinary course of business; (C) neither the
Company nor any of its subsidiaries has incurred any material liabilities
or obligations, direct or contingent, other than as disclosed in the
Registration Statement and the Prospectus; (D) neither the Company nor any
of its subsidiaries has sustained a loss material to the Company and its
subsidiaries on a consolidated basis, 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 from
any legal or governmental proceeding; (E) no action, suit or proceeding, at
law or in equity, is pending or, to the knowledge of such officer,
threatened against the Company or any of its subsidiaries or affecting any
of their respective properties or businesses before or by any court or
federal, state or foreign commission, board or other administrative agency
that (1) alleges that the conduct of such business as currently conducted
or as proposed to be conducted infringes on any trademarks, service marks,
copyrights, service names, trade names, patents or patent applications
currently held by any third party and (2) if decided unfavorably may have a
Material Adverse Effect; and (F) there has not occurred any other event
required to be set forth in the Prospectus that has not been so set forth.
Except as otherwise provided in clause (iii)(A) above, references to
the Prospectus and Registration Statement in this Section 8(e) shall include any
amendment or supplement thereto at the date of such opinion.
(g) The Underwriters shall have received a certificate, dated the
Closing Date, of each of the Chairman and the Vice President and General Counsel
of each Selling Stockholder or other principal officer, as appropriate, to the
effect that such officers have carefully examined the Registration Statement,
the Prospectus and this Agreement and that the representations and warranties of
each Selling Stockholder in this Agreement are true and correct on and as of the
Closing Date, and that each Selling Stockholder has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at or
prior to the Closing Date.
(h) The Underwriters shall have received from Peat Marwick letters
dated, respectively, the date hereof and the Closing Date, in form and substance
satisfactory to the
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Underwriters and Underwriters' Counsel, with respect to matters set forth below:
(i) confirming that they are and were independent public
accountants with respect to the Company within the meaning of the Act
and the Rules and Regulations;
(ii) stating that it is their opinion that the audited
financial statements and schedules examined by them and included in
the Registration Statement and the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the
Act and the Rules and Regulations;
(iii) stating that, on the basis of certain procedures which
included a reading of the latest available unaudited interim
consolidated financial statements of the Company (with an indication
of the date of the latest available unaudited interim financial
statements), a reading of the latest available minutes of meetings and
actions of the stockholders and board of directors and the various
committees of the board of directors of the Company, inquiries of
officers and other employees of the Company responsible for financial
and accounting matters and other specified procedures and inquiries,
nothing came to their attention that caused them to believe that (A)
the unaudited consolidated financial statements, if any, and schedules
of the Company included in the Registration Statement and the
Prospectus do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the consolidated audited financial statements
of the Company included in the Registration Statement and the
Prospectus, (B) at a specified date not more than five days prior to
the date of such letter, there was any change in the capital stock or
consolidated long-term debt of the Company, or any decrease in the
consolidated stockholders' equity, or net current assets of the
Company, in each case, as compared with amounts shown in the March 31,
1996 consolidated balance sheet included in the Registration Statement
and the Prospectus, except for changes set forth in such letter, and
(C) during the period from March 31, 1996 to such specified date,
there was any decrease in consolidated revenues, income before income
taxes, or net income, or any decrease in net income per common share
of the Company, in each case as compared with the corresponding period
beginning April 1, 1995 except for changes set forth in such letter;
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(iv) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in
the Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company with
the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted
auditing standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriters may reasonably
request.
In the event that either of the letters referred to above set forth
any such changes, decreases or increases, it shall be a further condition of the
obligations of the Underwriters that (A) such letter shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Underwriters deem such explanation unnecessary, and (B) such changes, decreases
or increases do not, in the sole judgment of the Underwriters, make it
impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the registration statement originally filed with
respect to the Shares, as amended as of the date hereof.
References to the Registration Statement and the Prospectus in this
Section 8(h) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(i) The Associated Person Lock-Ups with respect to each person listed
on Schedule A annexed hereto and the Musser Lock-Up shall be in full force and
effect.
(j) The outstanding shares of Class A Common Stock and the shares of
Class A Common Stock to be issued by the Company as contemplated by this
Agreement shall have been approved for quotation on the Nasdaq National Market
(upon notice of issuance in the case of the latter shares).
(k) No order suspending the sale of the Shares in any jurisdiction
designated by the Underwriters pursuant to Section 6(a)(iv) hereof shall be in
effect on the Closing Date and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Underwriters, shall be
contemplated.
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(l) The Other Purchasers and the Company shall have entered into the
Other Purchasers Standby Purchase Agreements, copies of the same shall have been
delivered to the Underwriters at least ten days prior to the Closing Date and
the sale of the 300,000 shares of Class A Common Stock constituting the Other
Purchasers Standby Shares to the Other Purchasers pursuant to the Other
Purchasers Standby Purchase Agreements shall have been consummated at a per
share purchase price of not less than $_____.
(m) The Musser Group shall have exercised all of the Rights
distributed to it and purchased 291,000 shares of Class A Common Stock in
connection therewith.
(n) On or prior to the date that Rights certificates are first mailed
to Safeguard Shareholders and on the Closing Date, dated the respective dates
thereof and in form and substance satisfactory to Underwriters' counsel, the
Company and the Selling Stockholders shall furnish to the Underwriters such
information, certificates and documents as either of the Underwriters may
reasonably request.
If any condition of the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date is not so fulfilled, the Underwriters
may terminate this Agreement or, if the Underwriters so elect, they may waive
any such conditions that have not been fulfilled or extend the time for their
fulfillment; provided, however, that if the Underwriters waive the fulfillment
-------- -------
of Section 8(l) hereof due to the failure of the Company to sell all of the
Other Purchasers Standby Shares, the Underwriters agree to purchase, at a price
of $_____ per share, all of the Other Purchasers Standby Shares that have not
been sold pursuant to the Other Purchasers Standby Purchase Agreements as well
as all other Shares required to be purchased by the Underwriters pursuant to
this Agreement. In the event the Underwriters so elect to terminate this
Agreement, all Rights and the Other Purchasers Standby Purchase Agreements shall
become immediately null and void and the Company shall cause the Escrow Agent
under the Rights Agent Agreement to promptly return to the subscribers any
payments received by the Escrow Agent in respect of the exercise price relating
thereto. All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and
Underwriters' Counsel. The Company shall furnish to the Underwriters such
conformed copies of such opinions, certificates, letters and documents in such
quantities as the Underwriters and Underwriters' Counsel shall reasonably
request.
The obligations of the Underwriters to purchase and pay for any Option
Shares after having exercised an option set forth in Section 3(b) hereof shall
be subject, in its discretion, to each of the foregoing conditions of this
Section 8 to purchase the Excess
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Unsubscribed Shares, with all references to the Excess Unsubscribed Shares and
the Closing Date being deemed to refer to such Option Shares and the related
Option Closing Date, respectively.
9. Indemnification.
---------------
(a) The Company and each of the Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each of the Underwriters and
each person, if any, who is a Controlling Person with respect to either of the
Underwriters, against any and all losses, claims, damages, expenses and
liabilities, joint or several (and actions in respect thereof), whatsoever
(including any and all reasonable expenses incurred in investigating, preparing
or defending against any litigation, commenced or threatened, or any claim
whatsoever), as such are incurred, (i) to which the Underwriters or such
Controlling Person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus (as from time to time amended and
supplemented) or (B) in any application or other document or written
communication (in this Section 9 collectively called "Application") executed by
the Company or the Selling Stockholders or based upon written information
furnished by the Company or the Selling Stockholders in any jurisdiction in
order to qualify the Class A Common Stock under the securities laws thereof or
filed with the Commission, any state securities commission or agency, the Nasdaq
National Market or any other securities exchange, or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made, unless such statement or omission was made in
reliance upon, and in strict conformity with, the Provided Information or (ii)
to which the Underwriters or such Controlling Person may become liable to any
party which relate to, or arise out of, the Underwriters' or such Controlling
Person's consummation of the transactions contemplated hereby or the
Underwriters' or such Controlling Person's role in connection herewith
(including without limitation as a result of any breach of any representation or
warranty made by the Company or the Selling Stockholders); provided, however,
that neither the Company nor the Selling Stockholders shall be responsible for
any losses, claims, damages, expenses or liabilities that are finally judicially
determined to have resulted primarily from the gross negligence or intentional
or reckless misconduct of the Underwriters or such Controlling Person. The
indemnity agreement contained in this subsection (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of the Underwriters and
such Controlling Person with respect to a person asserting any such losses,
claims, damages, liabilities or expenses who purchased the Shares if at or prior
to the written confirmation of the sale of such Shares a copy
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of the Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person and the untrue statement contained in, or omission of a
material fact from, such Preliminary Prospectus was corrected in the Prospectus
(or the Prospectus as amended or supplemented). The indemnity agreements in
this subsection (a) shall be in addition to any liability that the Company or
the Selling Stockholders may have at common law or otherwise.
(b) The Underwriters agree to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, the Selling Stockholders and each other Controlling Person, if any,
who controls the Company or the Selling Stockholders, to the same extent as the
foregoing indemnity from the Company and the Selling Stockholders to the
Underwriters but only with respect to statements made in, or omissions from, any
Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any Application made in reliance
upon, and in strict conformity with, the Provided Information.
(c) Promptly after receipt by any indemnified party or parties under
this Section 9 of notice of the commencement of any action, suit or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against one or more indemnifying parties under this Section 9, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party or parties shall not
relieve it from any liability that it may have under this Section 9 except to
the extent that it has been prejudiced in any material respect by such failure
or from any liability that it may have otherwise). In case any such action is
brought against any indemnified party or parties, and it notifies the
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties will be entitled to participate therein, and to the extent it
may elect, by written notice delivered to the indemnified party or parties
promptly after receiving the aforesaid notice from such indemnified party or
parties, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party or parties. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or parties unless (i) the employment of
such counsel shall have been authorized in writing by the indemnifying party in
connection with the defense of such action, (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to such indemnified party or
parties to have charge of the defense of such action within a reasonable time
after notice to the indemnifying party or parties of commencement of the action,
or (iii) such indemnified party or parties shall have reasonably concluded that
there may be defenses available to it or them that
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are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 9 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
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that such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 9, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 9 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
action in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Shares or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (A) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where either the
Company and/or the Selling Stockholders are the contributing parties and the
Underwriters are the indemnified parties, the relative benefits received by the
Company and/or the Selling Stockholders, on the one hand (treated collectively
as one person for this purpose), and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total proceeds from the offering of
the Shares and the Shares of Class A Common Stock sold upon exercise of the
Rights (net of underwriting discounts and other commissions paid to the
Underwriters but before deducting the other expenses incurred by the Company and
the Selling Stockholders in connection with the sale of the Shares) bear to the
total underwriting discounts and other commissions received by the
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Underwriters hereunder, in each case as set forth in the table on the cover page
of the Prospectus. 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 related to
information supplied by the Company and the Selling Stockholders (treated
collectively as one person for this purpose) or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to above in
this Section 9(d) shall be deemed to include any legal or other expense
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 9(d) the Underwriters shall not be required to contribute any amount in
excess of the underwriting discount and other commissions applicable to the
Shares purchased by the Underwriters hereunder. 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. For purposes of this Section 9, each person, if any, who
controls the Company or the Selling Stockholders within the meaning of the Act,
each officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company and the Selling Stockholders, subject in each case to this Section 9(d).
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect to
which a claim for contribution may be made against another party or parties
under this Section 9(d), notify such party or parties from whom contribution may
be sought, but the omission so to notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this Section 9(d), but only
to the extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to
any liabilities which any indemnifying party may have at common law or
otherwise.
10. Representations and Agreements to Survive Delivery.
--------------------------------------------------
All representations, warranties, agreements and covenants contained in this
Agreement or contained in certificates of each of the officers of the Company or
of each Selling Stockholder submitted pursuant hereto, shall be deemed to be
representations, warranties, agreements and covenants at the Closing Date and
the Option Closing Date, as the case may be, and such representations,
warranties, agreements and covenants of the Underwriters, the Company and each
Selling Stockholder, and the indemnity agreements contained in Section 9 hereof,
shall remain operative and in full
-49-
<PAGE>
force and effect regardless of any investigation made by or on behalf of the
Underwriters, the Company and each Selling Stockholder or any Controlling
Person, and shall survive termination of this Agreement or the issuance and
delivery of the Shares to the Underwriters, provided that to the extent any such
--------
representations, warranties, agreements or covenants are expressly waived in
writing by the Underwriters, the survival of the same shall be as set forth in
such waiver, or, if not so set forth, as provided in this Section 10.
11. Effective Date.
--------------
This Agreement shall become effective at 9:00 a.m., Boston time, on
the next full business day following the date hereof or upon the commencement of
the rights offering, whichever is earlier; provided, however, that the
-------- -------
provisions of Sections 6, 7, 9, 10 and 12 of this Agreement shall at all times
be effective.
12. Termination.
-----------
(a) Subject to subsection (c) of this Section 12, the Underwriters
shall have the right to terminate this 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 Class A
Common Stock (on a when-issued basis) shall have been suspended by the
Commission or the Nasdaq National Market; (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 an
Illinois, Massachusetts, New York, Pennsylvania 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 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 December 31, 1996 or (ix) on any date
commencing on the date hereof and ending on the Closing Date, if there shall be
such material adverse market conditions (whether occurring suddenly
-50-
<PAGE>
or gradually between the date hereof and the Closing Date) affecting the 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.
(b) If the Underwriters elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 12, they
shall so notify the Company on the same day as such election is made by
telephone or telegram, confirmed by letter.
(c) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including pursuant to Section 13 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 7 and Section 9 shall not be in
any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
13. Default by the Company or the Selling Stockholders.
--------------------------------------------------
If the Company or the Selling Stockholders shall fail to sell and deliver
to the Underwriters the Excess Unsubscribed Shares to be sold and delivered by
the Company or the Selling Stockholders at the Closing Date or the Option Shares
to be sold and delivered by the Company at any Option Closing Date under the
terms of this Agreement, then the Underwriters may at their option, by written
notice to the Company and the Selling Stockholders, either (a) terminate this
Agreement without any liability on the part of any non-defaulting party other
than pursuant to Section 12 or (b) purchase the Shares which the Company and the
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. In the event of a failure of the Selling Stockholders to sell and
deliver as referred to in this Section, either the Underwriters or the Company
shall have the right to postpone the Closing Date or the Option Closing Date, as
the case may be, for a period not exceeding seven business days in order that
the necessary changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, as may be effected. No action
taken pursuant to this Section shall relieve the Company or the Selling
Stockholders from liability in respect of such default.
14. Notices.
-------
All notices and communications hereunder may be mailed or transmitted by
any standard form of telecommunication and, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given when delivered to a notice party hereto at the address specified herein or
at the address subsequently communicated in writing by the notice parties.
-51-
<PAGE>
Notices to the Underwriters shall be directed to the Underwriters in care of
Tucker Anthony Incorporated, One Beacon Street, Boston, Massachusetts 02108,
Attention: Corporate Finance Department, and Robert W. Baird & Co.,
Incorporated, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5391,
Attention: Dominick P. Zarcone, with a copy to Drinker Biddle & Reath, 1000
Westlakes Drive, Suite 300, Five Westlakes, Berwyn, Pennsylvania, 19132,
Attention: Robert H. Strouse, Esq. Notices to the Company shall be directed to
the address of the Company as set forth on the facing page to the Registration
Statement, with a copy to Gordon & Glickson P.C., 444 North Michigan Avenue,
Suite 3600, Chicago, Illinois, 60611-3903, Attention: Scott L. Glickson, Esq.
Notices to the Selling Stockholders shall be directed to Safeguard Scientifics,
Inc., 800 Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 1987,
Attention: James A. Ounsworth, Esq., with a copy to Morgan, Lewis and Bockius
LLP, 2000 One Logan Square, Philadelphia, Pennsylvania 19103, Attention: N.
Jeffrey Klauder, Esq. In each case a party may change its address for notice
hereunder by a written communication to the other parties.
15. Parties.
-------
This Agreement shall inure solely to the benefit of, and shall be binding
upon, the Underwriters, the Company, and the Selling Stockholders and the
Controlling Persons, directors and officers or general partners referred to in
Section 9 hereof, and their respective successors, legal representatives and
assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained. No purchaser of Shares from the
Underwriters shall be deemed to be a successor by reason merely of such
purchase.
16. Construction.
------------
This Agreement shall be governed by the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles
thereof. The word "including" as used herein shall not be construed so as to
exclude any other thing not referred to or described.
17. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which taken together shall be
deemed to be one and the same instrument.
18. Entire Agreement.
----------------
This Agreement contains the entire agreement between parties hereto in
connection with the subject matter hereof.
-52-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Underwriters, the Company and the Selling Stockholders, please so indicate in
the space provided below for that purpose, thereupon this letter shall
constitute a binding agreement among us.
Very truly yours,
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
By:___________________________
Name:
Title:
SAFEGUARD SCIENTIFICS, INC.
By:___________________________
Name:
Title:
TECHNOLOGY LEADERS L.P.
By:___________________________
Name:
Title:
CIP CAPITAL L.P.
By:___________________________
Name:
Title:
CompuCom Systems, Inc.
By:___________________________
Name:
Title:
-53-
<PAGE>
CAMBRIDGE TECHNOLOGY PARTNERS
INC.
By:___________________________
Name:
Title:
-54-
<PAGE>
Confirmed and accepted
as of the date first
above written:
TUCKER ANTHONY INCORPORATED ROBERT W. BAIRD & CO. INCORPORATED
By:____________________________ By:___________________________
Name: Name:
Title: Title:
-55-
<PAGE>
Schedule A
Name
- ----
Anthony L. Abbatista
Edward R. Anderson
Tim Andrews
Michael J. Beller
Melvyn E. Bergstein
Laura M. Bestor
Robert E. Bloyd
Karl E. Bupp
CIP Capital L.P.
Donald R. Caldwell
Cambridge Technology Partners (Massachusetts) Inc.
Paul Carroll
CompuCom Systems, Inc.
Michael J. Connolly
Ronald V. Couglin
Robert Michael DeCuyper
James P. Dooley
William H. Economos
Craig D. Elderkin
Elwood G. Forsythe
Adam J. Gutstein
Carl J. Hugener
Alan Kay
Jay R. Kingley
Chapman H. Kistler
John D. Loewenberg
Charles Brent Lohrmann
Michael J. Martinez
Alan A. Matsumura
Dr. James V. McGee
Michael E. Mikolajczyk
Christopher J. Moffitt
Chunka Mui
Peer H. Munck
Warren V. Musser (and, his assignees, if any)
James W. Niland
Jeffrey R. Opie
Michael J. Palmer
Claire M. Parker
Bruce R. Quade
David M. Rappaport
Timothy J. Rohner
Scott Rupple
Safeguard Scientifics, Inc.
Mark E. Siefertson
Kierk E. Siefkas
-56-
<PAGE>
Martha J. Silva
James C. Spira
Steven Steinberg
Technology Leaders L.P.
Technology Leaders Offshore C.V.
Alan J. Weyl
-57-
<PAGE>
Schedule B
Name of Underwriters % of Underwriter Shares
- -------------------- -----------------------
Tucker Anthony Incorporated 50%
Robert W. Baird & Co. Incorporated 50%
-58-
<PAGE>
Exhibit 10.12
W - 6
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 January 31, 1997
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
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 one hundred forty-six thousand one hundred seventy-one (146,171)
shares of the Company's Common Stock, par value $.001 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.
1. 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.
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
<PAGE>
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 of 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 instructions to any transfer agent of the Warrant Certificate or Warrant
Shares in order to implement such restrictions on transferability.
2
<PAGE>
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
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 provisions 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 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
3
<PAGE>
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 warrants 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).
(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,
4
<PAGE>
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.
5.4 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
5
<PAGE>
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 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
6
<PAGE>
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 of
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 of 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 Warrantholder.
-----------------------
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:___________________________________
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 10.13
W - 7
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 January 31, 1997
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
WARRANT CERTIFICATE
TO PURCHASE COMMON STOCK
DIAMOND TECHNOLOGY PARTNERS INCORPORATED (the "Company"), hereby grants
to CIP CAPITAL, L.P. (the "Warrantholder") the right to purchase up to twenty-
six thousand eight hundred eight (26,808) shares of the Company's Common Stock,
par value $.001 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.
1. 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.
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
<PAGE>
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 of 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 instructions to any transfer agent of the Warrant Certificate or Warrant
Shares in order to implement such restrictions on transferability.
2
<PAGE>
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
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 provisions 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 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
3
<PAGE>
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 warrants 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).
(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,
4
<PAGE>
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.
5.4 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
5
<PAGE>
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 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
6
<PAGE>
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 of
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 of 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 Warrantholder.
-----------------------
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:___________________________________
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 10.14
W - 8
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 January 31, 1997
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
WARRANT CERTIFICATE
TO PURCHASE COMMON STOCK
DIAMOND TECHNOLOGY PARTNERS INCORPORATED (the "Company"), hereby grants to
TECHNOLOGY LEADERS FR CORP. (the "Warrantholder") the right to purchase up to
seventy-seven thousand eight hundred seventy-three (77,873) shares of the
Company's Common Stock, par value $.001 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.
1. 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.
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
<PAGE>
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 of 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 instructions to any transfer agent of the Warrant Certificate or Warrant
Shares in order to implement such restrictions on transferability.
2
<PAGE>
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
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 provisions 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 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
3
<PAGE>
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 warrants 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).
(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,
4
<PAGE>
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.
5.4 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
5
<PAGE>
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 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
6
<PAGE>
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 of
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 of 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 Warrantholder.
-----------------------
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:___________________________________
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 10.15
W-9
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 January 31, 1997
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
WARRANT CERTIFICATE
TO PURCHASE COMMON STOCK
DIAMOND TECHNOLOGY PARTNERS INCORPORATED (the "Company"), hereby grants
to TECHNOLOGY LEADERS, L.P. (the "Warrantholder") the right to purchase up to
sixty-eight thousand two hundred ninety-eight (68,298) shares of the Company's
Common Stock, par value $.001 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.
1. 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.
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
<PAGE>
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 of 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 instructions to any transfer agent of the Warrant Certificate or Warrant
Shares in order to implement such restrictions on transferability.
2
<PAGE>
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
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 provisions 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 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
3
<PAGE>
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 warrants 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).
(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,
4
<PAGE>
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.
5.4 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
5
<PAGE>
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 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
6
<PAGE>
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 of
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 of 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 Warrantholder.
-----------------------
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:
-----------------------------------
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:
-------------------
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<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 7,560,590 9,063,189
Additional shares pursuant
to SAB83 competition 2,200,924 2,200,924 2,203,795 2,200,924 1,376,306
----------------------------------------------------------------------
Shares used in computing
proforma net income (loss)
per share of Common Stock 2,511,408 8,272,205 9,823,563 9,761,514 10,439,495
----------------------------------------------------------------------
Pro forma net income (loss)
per share of Common Stock (0.35) (0.05) 0.13 0.09 (0.04)
----------------------------------------------------------------------
</TABLE>
