<PAGE>
As filed with the Securities and Exchange Commission on March 20, 2000
Registration No. 333-30666
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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Diamond Technology Partners Incorporated
(Exact name of Registrant as specified in its charter)
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Delaware 36-4069408
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification 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)
---------------
Melvyn E. Bergstein
Chairman and Chief Executive Officer
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:
Leland E. Hutchinson Keith F. Higgins
Terrence R. Brady Joel F. Freedman
Winston & Strawn Ropes & Gray
35 West Wacker Drive One International Place
Chicago, Illinois 60601 Boston, Massachusetts 02110
(312) 558-5600 (617) 951-7000
Approximate date of commencement of proposed sale to public: As soon as
practicable after the registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities in any state where the offer or sale is not +
+permitted and we are not soliciting offers to buy these securities. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued March 6, 2000
3,275,000 Shares
CLASS A COMMON STOCK
--------
Diamond Technology Partners Incorporated is offering 1,500,000 shares and the
selling stockholders are offering 1,775,000 shares.
--------
Our Class A Common Stock is quoted on the Nasdaq National Market under the
symbol "DTPI." The last reported sale price of our Class A Common Stock on
March 3, 2000 was $77 11/16 per share.
--------
Investing in our Class A Common Stock involves risks. See "Risk Factors"
beginning on page 5.
--------
PRICE $ A SHARE
--------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Diamond Stockholders
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total........................... $ $ $ $
</TABLE>
The selling stockholders have granted the underwriters the right to purchase up
to an additional 491,250 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
--------
MORGAN STANLEY DEAN WITTER GOLDMAN, SACHS & CO.
DEUTSCHE BANC ALEX. BROWN
SALOMON SMITH BARNEY
ADAMS, HARKNESS & HILL, INC.
FRIEDMAN BILLINGS RAMSEY
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Special Note Regarding Forward-
Looking Statements................. 10
Use of Proceeds..................... 10
Dividend Policy..................... 10
Price Range of Class A Common Stock. 10
Capitalization...................... 11
Selected Consolidated Financial
Data............................... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 13
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business........................... 19
Management......................... 30
Principal and Selling Stockholders. 33
Description of Capital Stock....... 37
Underwriters....................... 39
Legal Matters...................... 40
Experts............................ 40
Available Information.............. 41
Incorporation of Certain
Information by Reference.......... 41
Index to Consolidated Financial
Statements F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. We are offering to sell, and seeking
offers to buy, shares of Class A Common Stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of Class A Common Stock.
In this prospectus, "Diamond", "we", "us" and "our" refer to Diamond
Technology Partners Incorporated and its subsidiaries. All references to
"partners" refers to the internal designation by Diamond of certain of its
senior personnel and does not refer to a partner of a general or limited
partnership. Unless otherwise indicated, all information in this prospectus
assumes no exercise of the underwriters' over-allotment option and gives
effect to a three-for-two stock split of our Class A and Class B Common Stock
effective November 1, 1999. All references to our fiscal years in this
prospectus refer to fiscal years ended on March 31.
"Digital Strategy," "Insight" and "Diamond Marketspace Solutions" are
servicemarks of Diamond.
"Diamond Technology Partners," "Diamond Exchange," "Diamond Network" and
"Context" are all registered trademarks of Diamond.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about Diamond and the common stock being sold in this offering and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus.
Diamond Technology Partners Incorporated
We are an e-business services firm that synthesizes business and industry
insight with technology expertise to create innovative digital strategies for
leading national and multinational corporations. For a business to succeed in
today's digital economy, we believe it must have a strategy that goes beyond
conventional strategic thinking. The standard of building an e-business that is
"faster, better, and cheaper" is based on improving the past. We believe we
offer an approach that results in innovative new business models that enable
our clients to leverage technology and their existing competencies and assets
to develop significant e-business opportunities.
We lead CEOs and senior leadership teams through a diagnostic approach
designed to broaden their understanding of the ways in which the Internet can
be used to leverage their company's existing assets. After thorough analysis of
a client's existing business model, we create digital strategies to help the
client develop and sustain a competitive advantage in the new digital economy.
Once we have conceived a Digital Strategy, we prototype, test and scale the
business models and applications needed to successfully execute that Digital
Strategy.
Our Market Opportunity
The evolution of the Internet has fundamentally changed the way companies do
business. Large companies that have made significant investments in building
their existing sales forces, marketing strategies, brands, supply and
distribution systems and data management systems require digital strategies
that capture both the value of these existing assets and the power of the
Internet. We believe that most companies seeking to develop and implement this
type of digital strategy need a professional service provider that combines a
thorough understanding of technology with innovative strategic thinking,
vertical industry expertise and implementation capabilities. Because of the
Internet's enterprise-wide impact on businesses, CEOs and senior leadership
teams are now focused on responding to the challenges posed by the digital
economy. As a result, we believe that Internet professional service providers
must have access to, and be capable of assisting, these CEOs, senior leadership
teams and boards of directors. Moreover, they must possess the resources and
technological savvy to prototype and scale new business models and integrated
Internet-based applications to execute new digital strategies successfully. We
believe that few Internet professional service providers possess all of these
capabilities required to assist senior management of large corporations in the
development and implementation of comprehensive digital strategies.
Our Solution
Since our founding we have focused on combining innovative strategic
thinking and in-depth vertical industry expertise with a thorough understanding
of technology and its applications. We work with CEOs and senior leadership
teams to develop and implement innovative strategies that leverage existing
assets and the power of the Internet to succeed in the new digital economy. Our
ability to identify, prototype and scale innovative solutions for our clients
is predicated on four attributes that we believe distinguish us from our
competitors.
Strategic Business Model Focus. Our approach goes well beyond "faster,
better and cheaper" principles as we work with CEOs and senior leadership teams
to establish new business models and transform existing business models by
drawing on our expertise in strategy, creative design, technology, operations,
change management and implementation.
1
<PAGE>
Strategic Industry Insight and Expertise. We currently focus on serving four
vertical industries: financial services, consumer and industrial products and
services, telecommunications and energy, and health care and insurance. We
believe our vertical industry focus enables us to use our industry-specific
expertise to define and deliver innovative solutions that effectively address
the market dynamics and business opportunities facing our clients.
Comprehensive Diagnostic Approach. We help companies explore a range of e-
business options by analyzing new industry structures, new industry economics
and new customer behaviors. One of the tools we use is a six-question
diagnostic approach to help CEOs and senior leadership teams consider the
business implications of the new digital economy.
Ability to Prototype, Scale and Execute. Once we have defined a Digital
Strategy and designed a new business model, we identify and develop a portfolio
of solutions. We then prototype select solutions that are quickly brought to
market and tested. Based on performance, the prototypes are revised and then
fully implemented.
Our Strategy
Our goal is to become the leader in the identification, design and delivery
of digital strategies. As an e-business services firm, there are two primary
constituencies critical to the realization of our goal: our professionals and
our clients. Accordingly, each of the following strategies focus on this goal:
. Attract and retain skilled personnel;
. Cultivate senior level client relationships;
. Deliver services through multidisciplinary teams;
. Nurture and promote our intellectual capital;
. Leverage our vertical industry expertise;
. Expand our international presence; and
. Market the Diamond brand.
----------------
Our principal executive offices are located at 875 North Michigan Avenue,
Suite 3000, Chicago, Illinois 60611, and our telephone number is (312) 255-
5000. We have a home page on the World Wide Web at www.diamtech.com and our e-
mail address is [email protected]. Information contained in our home page
is not part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by
Diamond........................ 1,500,000 shares
Selling stockholders........... 1,775,000 shares
-----------
Total........................ 3,275,000 shares
-----------
-----------
Common stock to be outstanding
after this offering
Class A Common Stock........... 20,728,746 shares
Class B Common Stock........... 2,857,931 shares
------------
Total........................ 23,586,677
------------
------------
Overallotment option............. 491,250 shares of Class A Common Stock to
be sold by selling stockholders.
Use of proceeds.................. We intend to use the net proceeds of this
offering for general corporate purposes,
principally working capital for the
expansion of our business. We may also use
a portion of the net proceeds to fund
acquisitions of complementary businesses,
products or technologies or to make
strategic investments. See "Use of
Proceeds" for a further description of the
application of the net proceeds of this
offering.
Nasdaq National Market Symbol.... "DTPI"
</TABLE>
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. The Class
B Common Stock may only be owned by us, our employees or any of our majority-
owned subsidiaries' employees. The number of shares of our common stock to be
outstanding after this offering is based on 22,086,677 shares outstanding as of
February 11, 2000 and includes 383,136 shares issued upon exercise of options
immediately prior to the closing of this offering. However, this number
excludes 200,557 other shares of Class A Common Stock and 624,385 other shares
of Class B Common Stock issuable upon the exercise of outstanding options.
3
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data and number of clients)
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
----------------------- ---------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues........................... $37,557 $58,369 $82,389 $59,705 $92,825
Income from operations................. 1,146 8,783 13,699 9,669 16,707
Net income............................. 633 6,008 9,836 7,029 10,962
Basic earnings per share of common
stock................................. $ 0.05 $ 0.34 $ 0.49 $ 0.35 $ 0.53
Shares used in computing basic earnings
per share of common stock............. 13,716 17,634 19,916 19,874 20,519
Diluted earnings per share of common
stock................................. $ 0.04 $ 0.28 $ 0.42 $ 0.30 $ 0.43
Shares used in computing diluted
earnings per share of common stock.... 14,856 21,258 23,346 23,162 25,401
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended (Unaudited)
-----------------------------------------------------------
June 30, Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31,
1998 1998 1998 1999 1999 1999 1999
-------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $18,375 $20,136 $21,194 $22,684 $25,718 $30,467 $36,640
Income from operations.. $ 2,932 $ 3,289 $ 3,448 $ 4,030 $ 4,551 $ 5,518 $ 6,638
Net income.............. $ 2,135 $ 2,383 $ 2,511 $ 2,807 $ 2,999 $ 3,618 $ 4,345
Other Operating Data:
Number of clients
served................. 40 39 45 47 89 70 66
Number of clients
generating revenues
greater than $500
thousand............... 10 15 15 17 13 16 24
Number of clients
generating revenues
greater than $1
million................ 5 5 5 6 5 10 14
Average revenue per
client................. $ 459 $ 516 $ 471 $ 483 $ 289 $ 435 $ 555
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------
Actual As Adjusted
------- -----------
(Unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $46,997 $163,077
Working capital............................................. 50,964 167,044
Total assets................................................ 91,389 207,469
Total stockholders' equity.................................. 75,079 191,159
</TABLE>
- --------
The significant increase in the number of clients in the quarter ended June
30, 1999 was due to our acquisition of OmniTech Consulting Group, Inc. We
obtained thirty-eight clients in this quarter as a result of that acquisition.
The acquisition also lowered our average revenue per client in this quarter.
See Note 2 of "Notes to Financial Statements" beginning on page F-7 for an
explanation of the methods used to compute basic and diluted earnings per share
data.
The "As Adjusted" column in the Balance Sheet Data table gives effect to the
receipt and application of the estimated net proceeds from our sale of the
1,500,000 shares of Class A Common Stock in this offering at an assumed
offering price of $77 11/16 per share, after deducting the estimated
underwriting discounts and commissions and offering expenses that we will pay.
It also reflects the issuance of 614,010 shares of common stock in connection
with the exercise of options between December 31, 1999 and February 11, 2000,
resulting in proceeds of $2,184,187, and the issuance of 383,136 shares of
common stock in connection with the exercise of options in conjunction with
this offering, resulting in proceeds of $3,424,585. See "Capitalization" and
"Use of Proceeds" for a further description of the estimated net proceeds of
this offering.
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones we face.
Any of the following risks could have a material adverse effect on our
business, financial condition and operating results. As a result, these risks
could cause the decline of the trading price of our Class A Common Stock and
you may lose all or part of your investment. You should also refer to the
other information contained in this prospectus, including our financial
statements and the related notes.
Our Revenues Could Be Adversely Affected by the Loss of a Significant Client
or the Failure to Collect a Large Account Receivable
We have in the past derived, and may in the future derive, a significant
portion of our revenues from a relatively limited number of major clients.
During fiscal 1999, we had two clients that individually accounted for 15% and
10% of our net revenues. During the first nine months of fiscal 2000, we had
one client who individually accounted for 16% of our net revenues. From
quarter to quarter, revenues from one or more individual clients may exceed
10% of our revenues for the quarter. If we lose any major clients or any of
our clients cancel or significantly reduce a large project's scope, we would
lose a significant amount of revenue. In addition, if we fail to collect a
large account receivable, we could be subjected to significant financial
exposure.
Variability of Quarterly Operating Results May Result in Reduced Prices for
Our Common Stock
We have experienced, and may in the future continue to experience,
fluctuations in our quarterly operating results. These fluctuations could
reduce the market price of our common stock. Factors that may cause our
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; and
. the timing of new client engagements and personnel cost increases.
The timing of revenues is difficult to forecast because our sales cycle is
relatively long and our services are affected by both the financial condition
and management decisions of our clients and general economic conditions. A
high percentage of our expenses are relatively fixed at the beginning of any
period. Because our general policy is to not adjust our staffing levels based
upon what we view as short-term circumstances, a variation in the timing,
initiation or 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 period.
The Absence of Long-Term Contracts With Our Clients Reduces the Predictability
of Our Revenues
Our clients are generally able to reduce or cancel their use of our
professional services without penalty and with little or no notice. As a
result, we believe that the number of clients or the number and size of our
existing projects are not reliable indicators or measures of future revenue.
We have in the past provided, and are likely in the future to provide,
services to clients without long-term agreements. When a client defers,
modifies or cancels a project, there is no assurance that we will be able to
rapidly deploy our professionals to other projects in order to minimize the
underutilization of employees and the resulting adverse impact on operating
results. We may not be able to replace cancelled or reduced contracts with new
business, with the result that our revenues may decline.
5
<PAGE>
Our Chief Executive Officer Controls a Significant Portion of the Voting
Rights Which Limits Your Ability to Influence Corporate Matters
Following this offering, you will not be able to significantly influence
corporate matters because our Chief Executive Officer will control a
significant portion of our voting stock. All of the holders of our Class B
Common Stock have granted proxies to our Chief Executive Officer to vote their
shares. After giving effect to this offering, our current Chief Executive
Officer will control approximately 40.5% of the voting rights of our
outstanding common stock. As a result, he will have the voting power to
significantly influence the election of our Board of Directors and to affect
all matters requiring stockholder approval. In addition, an agreement among
Diamond and our partners requires that our Chief Executive Officer be selected
from our partners. This significantly limits the number of qualified persons
that may be considered for that office. As a result, we may not be successful
in attracting future persons who are qualified to serve as our Chief Executive
Officer.
If We Are Unable to Hire, Train and Retain Highly Qualified Professionals, Our
Business and Growth Will Suffer
The loss for any reason of a key executive officer or any significant
number of our client-serving professionals or the inability to attract
qualified personnel would adversely impact our ability to service our clients.
Our success depends upon the continued service of our key executive officers
and our ability to attract, retain and motivate highly skilled professionals
at all levels. As a result of the rapid growth of the Internet, there is
intense competition for employees who have strategic, technical or creative
experience relating to the Internet. We may not be successful in hiring a
sufficient number of highly skilled employees in the future, or in retaining,
training and motivating the employees we hire.
Failure to Properly Manage Our Expanding Operations May Adversely Impact Our
Business
Continued rapid growth will place a significant strain on our financial and
other resources and could result in significant operating losses. Since March
31, 1998, the size of our employee base has more than doubled. Further
increases are anticipated in the future, either through organic growth or
through the carefully targeted acquisition of companies that meet our
acquisition criteria. In order to manage the growth of our professional staff,
we will need to continue to improve our operational, financial and other
internal systems. If our management is unable to manage growth effectively and
revenues do not increase sufficiently to cover our increased expenses, our
operations could be adversely affected.
We May Not Be Able to Effectively Expand Our Business Internationally, Which
Could Harm Our Business
We anticipate expanding our operations internationally in the near future.
A number of risks are inherent in international operations including staffing
and managing operations, currency fluctuations, local economic problems, and
imposition of government regulations. These and other unanticipated problems
we may encounter establishing new international operations could divert our
resources and attention and adversely affect our operations.
The Failure to Successfully Integrate Any Future Acquisitions Could Harm Our
Business and Operating Results
If we acquire businesses in the future and are unable to successfully
integrate these businesses, it could harm our business and operating results.
In order to remain competitive or to expand our business, we may find it
necessary or desirable to acquire other businesses, products or technologies.
We may be unable to identify appropriate acquisition candidates. If we
identify an appropriate acquisition candidate, we may not be able to negotiate
the terms of the acquisition successfully, to finance the acquisition or to
integrate the acquired businesses, products or technologies into our existing
business and operations. Further, completing a potential acquisition and
integrating an acquired business may strain our resources and require
significant management time. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions which would harm our operating results.
6
<PAGE>
If We Are Unable to Adequately Protect Our Intellectual Property Rights or If
We Infringe Upon the Intellectual Property Rights of Others, Our Business May
Be Harmed
Failure to secure or maintain protection of our intellectual property could
adversely affect our ability to service our clients and generate revenue. We
rely on a combination of non-disclosure and other contractual agreements, and
copyright and trademark laws to protect our proprietary rights. We enter into
confidentiality agreements with our employees, require that our clients enter
into such agreements, and limit access to and distribution of our proprietary
information. However, these efforts may be insufficient to prevent
misappropriation of our proprietary information or detect unauthorized use of
our intellectual property rights.
Ownership of intellectual property developed during our client engagements
is the subject of negotiation and is frequently assigned to the client. We
generally retain the right to use any intellectual property that is developed
during a client engagement that is of general applicability and is not
specific to the client's project. Issues relating to the ownership of and
rights to use intellectual property developed during the course of a client
engagement can be complicated and clients may demand assignment of ownership
or restrictions on our use of the work which we produce for clients in the
future. In addition, disputes may arise that affect our ability to resell or
reuse such intellectual property. We may have to pay economic damages in these
disputes which could adversely affect our business.
Failure to Meet Client Expectations Could Result in Losses and Negative
Publicity
A failure or inability by us or one of our subcontractors to meet a
client's expectations could damage our reputation and adversely affect our
ability to attract new business and result in delayed or lost revenues. Our
client engagements involve the creation, implementation and maintenance of
business systems and other applications that can be critical to our clients'
businesses. We may be sued or unable to collect accounts receivable if a
client is not satisfied with our service.
Our client contracts may not protect us from liability for damages in the
event that we are sued. In addition, our general liability insurance coverage
may not continue to be available on reasonable terms or in sufficient amounts.
The successful assertion of any large claim against us or the failure by us to
collect a large account receivable could result in significant financial
exposure to us.
An Inability to Keep Pace with Rapidly Changing Technology May Impair Our
Ability to Remain Competitive
Our failure to develop e-commerce business services that keep pace with
continuing changes in the Internet and related technology, evolving industry
standards, information technology and client preferences will result in
decreased demand for our services. Among our challenges in this area are the
needs to:
. continue to develop our strategic and technical experience;
. develop new services that meet changing customer needs; and
. effectively use leading technologies.
We may not be able to meet these objectives on a timely or successful basis.
Competition in Our Industry is Intense and Could Harm Our Business
Increased competition in our industry could result in price reductions,
reduced gross margins or loss of market share, any of which could seriously
harm our business. The e-commerce business services market is relatively new,
includes a large number of participants, is subject to rapid technological
changes and is highly competitive. We compete with a number of companies that
have significantly greater financial, technical and
7
<PAGE>
marketing resources, greater name recognition, and greater revenues than ours.
We believe that the principal competitive factors in our industry include:
. diagnostic capabilities;
. effectiveness of strategic business models;
. scope of services;
. service delivery approach;
. technical and industry expertise;
. perceived value; and
. results orientation.
We believe that our ability to compete also depends in part on a number of
competitive factors outside of our control, including the ability of our
competitors to hire, retain and motivate senior consultants, the price at
which others offer comparable services, and the extent of our competitors'
responsiveness to customer needs. We may not be able to compete successfully
with our competitors in the future.
In addition, there are relatively low barriers to entry in our industry. We
do not own any patented technology that inhibits competitors from entering
that market or providing services similar to ours. As a result, new and
unknown market entrants could pose a threat to our business.
The Price for Our Stock May Be Volatile and Unpredictable
The price for our Class A Common Stock may be volatile and could fall below
the price you pay in this offering. Our Class A Common Stock has been listed
on the Nasdaq National Market since February 1997. The closing market price of
the Class A Common Stock has experienced variations, and since January 1,
1999, our high and low sales price has ranged from a high of $106.00 to a low
of $10.67. The market price of our Class A Common Stock may experience
fluctuations in the future for a variety of reasons. These include:
. quarterly variations in our operating results;
. changes in earnings estimates by analysts;
. announcements of new contracts or service offerings by us or our
competitors;
. general economic or stock market conditions unrelated to our operating
performance; or
. other events or factors.
In addition, the stock market in recent years has experienced significant
price and volume fluctuations which have affected the market prices of
technology related companies. These fluctuations may continue to occur and
disproportionately impact our stock price.
We May Need to Raise Additional Capital in the Future Which May Not Be
Available
We may not be able to raise capital in the future to meet our liquidity
needs and finance our operations and future growth. We were not profitable in
the first two quarters of fiscal 1997. While we have been profitable since the
third quarter of fiscal 1997, we may not continue to be profitable in the
future. We believe that the proceeds of this offering, existing cash
resources, the amounts available under our revolving line of credit and cash
generated from operations will be sufficient to satisfy our operating cash
needs at least through fiscal 2001. Any future decreases in our operating
income, cash flow, or stockholders' equity may impair our future ability to
raise additional funds to finance operations. As a result, we may not be able
to maintain adequate liquidity to support our operations.
8
<PAGE>
We May Invest or Spend the Proceeds of This Offering in a Manner With Which
You Do Not Agree
Our management will have significant flexibility in the application of our
net proceeds from this offering. We may use the net proceeds in ways with
which you do not agree. The exact uses of the net proceeds, and the amount
allocated for each use, will be subject to the discretion of management. These
uses may not yield a positive return. Management's failure to effectively
apply these net proceeds could have an adverse effect on our ability to
implement our business strategy.
Future Sales of Our Common Stock in the Public Market After this Offering
Could Cause the Price of Our Stock to Decline
Our stockholders could sell substantial amounts of our common stock in the
public market after this offering which could cause our market price to
decline. A substantial number of outstanding shares of common stock and shares
of our common stock issuable upon exercise of outstanding stock options and
warrants will become eligible for future sale in the public market at various
times. An increase in the number of shares of our common stock in the public
market could adversely affect prevailing market prices and could impair our
future ability to raise capital through the sale of our equity securities.
Upon completion of this offering, we will have 23,586,677 shares of
outstanding common stock. An aggregate of 19,646,343 shares are immediately
eligible for sale in the public market.
Our Charter Documents and Delaware Law May Discourage An Acquisition of
Diamond
Provisions of our certificate of incorporation, by-laws, and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. We may issue shares of preferred
stock in the future without stockholder approval and upon such terms as our
Board of Directors may determine. Our issuance of this preferred stock 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 our outstanding
stock and potentially prevent the payment of a premium to stockholders in an
acquisition. Our charter and by-laws also provide that special stockholders
meetings may be called only by our Chairman of the Board of Directors, by our
Secretary at the direction of our Board of Directors, or by stockholders
holding at least 30% of the voting power of the issued and outstanding shares
of outstanding common stock, with the result that any third-party takeover not
supported by the Board of Directors could be subject to significant delays and
difficulties. In addition, our 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 our Board of Directors.
We Do Not Intend To Pay Dividends
We have never paid any cash dividends on our common stock and do not expect
to declare or pay any cash or other dividends in the foreseeable future.
9
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates forward-looking statements that
are subject to a number of risks and uncertainties. All statements, other than
statements of historical facts included or incorporated in this prospectus,
regarding our strategy, future operations, financial position, estimated
revenues, projected costs, prospects, plans and objectives of management are
forward-looking statements. When used in this prospectus, the words "will",
"believe", "anticipate", "intend", "estimate", "expect", "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. We cannot
guarantee future results, levels of activity, performance or achievements and
you should not place undue reliance on our forward-looking statements. Our
forward-looking statements do not reflect the potential impact of any future
acquisitions, mergers, dispositions, joint ventures or strategic investments.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
described in "Risk Factors" and elsewhere in this prospectus. We do not assume
any obligation to update any of the forward-looking statements we make.
USE OF PROCEEDS
We estimate the net proceeds from our sale of Class A Common Stock in this
offering will be approximately $110,471,000, after deducting underwriting
discounts and commissions and our estimated offering expenses. We will not
receive any proceeds from the sale of shares of Class A Common Stock by the
selling stockholders in this offering.
We plan to use our net proceeds from this offering for general corporate
purposes, principally working capital for the expansion of our business. We
may also use a portion of the net proceeds of this offering to fund
acquisitions of complementary businesses, products or technologies or to make
strategic investments. Currently, there are no material commitments or
understandings with respect to any such transactions. Pending such uses, we
intend to invest such funds in short-term, investment-grade, interest-bearing
instruments. We do not believe we can accurately estimate the amounts to be
used for each purpose at this time. See "Risk Factors--We May Invest or Spend
the Proceeds of This Offering in a Manner With Which You Do Not Agree" for a
description of several risks relating to our use of proceeds.
DIVIDEND POLICY
To date, we have not paid any cash dividends on our common stock. We
currently intend to retain future earnings for use in our business and,
therefore, do not anticipate paying any cash dividends in the foreseeable
future.
PRICE RANGE OF CLASS A COMMON STOCK
Our Class A Common Stock is quoted on the Nasdaq National Market under the
symbol "DTPI." The following table indicates the high and low sales prices for
our Class A Common Stock for the periods shown.
<TABLE>
<CAPTION>
Sales Price
Per Share
-------------
High Low
------ ------
<S> <C> <C>
Fiscal year ended March 31, 1999:
First Quarter........................................... $20.67 $14.17
Second Quarter.......................................... 21.00 10.67
Third Quarter........................................... 14.00 5.00
Fourth Quarter.......................................... 20.17 10.67
Fiscal year ended March 31, 2000:
First Quarter........................................... $17.17 $12.83
Second Quarter.......................................... 33.09 14.29
Third Quarter........................................... 93.63 25.83
Fourth Quarter (through March 3, 2000).................. 106.00 60.00
</TABLE>
10
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999,
and as adjusted to give effect to:
. our receipt of the estimated net proceeds of $110,471,000 from the sale
of 1,500,000 shares of our Class A Common Stock in this offering at an
assumed offering price per share of $77 11/16 after deducting the
underwriting discounts and commissions and our estimated offering
expenses;
. the issuance of 421,210 shares of Class A Common Stock and 192,800 shares
of Class B Common Stock in connection with the exercise of options
between December 31, 1999 and February 11, 2000, resulting in proceeds of
$2,184,187;
. the issuance of 38,000 shares of Class A Common Stock and 345,136 shares
of Class B Common Stock in connection with the exercise of options that
will be exercised in conjunction with this offering, resulting in
proceeds of $3,424,585;
. the conversion of 166,664 shares of Class B Common Stock to Class A
Common Stock between December 31, 1999 and February 11, 2000; and
. the conversion of 1,235,301 shares of Class B Common Stock to Class A
Common Stock in conjunction with this offering.
This table should be read in conjunction with the consolidated financial
statements and related notes and other financial information included
elsewhere or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
As of
December 31, 1999
------------------
As
Actual Adjusted
-------- --------
(Unaudited)
(in thousands)
<S> <C> <C>
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 18,137,000 and 21,499,000
(as adjusted) shares issued....................... 18 21
Class B Common Stock, $.001 par value; 20,000,000
shares authorized and 3,723,000 and 2,858,000 (as
adjusted) shares issued and outstanding........... 4 3
Additional paid-in capital........................... 58,051 174,131
Notes receivable from sale of common stock........... (341) (341)
Retained earnings.................................... 27,412 27,412
Less Class A Common Stock in treasury, at cost,
769,950 shares...................................... (10,065) (10,065)
-------- --------
Total stockholders' equity....................... 75,079 191,161
-------- --------
Total capitalization............................. $ 75,079 $191,161
======== ========
</TABLE>
The above table excludes as of February 11, 2000, 606,007 shares of Class A
Common Stock and 8,054,992 shares of Class B Common Stock issuable upon the
exercise of outstanding options (of which options to purchase 824,942 shares
were exercisable on February 11, 2000) at a weighted average exercise price of
$14.12 per share.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial 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
related notes and the other financial information appearing elsewhere or
incorporated by reference in this prospectus. The selected consolidated
financial data for each of the three fiscal years ended March 31, 1997, 1998
and 1999, are derived from our consolidated financial statements which have
been audited by KPMG LLP, independent public accountants. The data presented
for the nine-month periods ended December 31, 1998 and 1999 are derived from
unaudited financial statements and include, in the judgment of management, all
adjustments necessary to present fairly the data for such period.
<TABLE>
<CAPTION>
Nine Months
Ended December
Year Ended March 31, 31,
----------------------- ---------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(Unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues......................... $37,557 $58,369 $82,389 $59,705 $92,825
------- ------- ------- ------- -------
Operating expenses:
Project personnel and related
expenses.......................... 21,863 31,619 43,275 31,602 49,618
Professional development and
recruiting........................ 6,272 6,155 9,448 6,840 8,833
Marketing and sales................ 1,928 3,210 4,669 3,371 5,007
Management and administrative
support........................... 6,348 8,602 11,298 8,223 12,660
------- ------- ------- ------- -------
Total operating expenses......... 36,411 49,586 68,690 50,036 76,118
------- ------- ------- ------- -------
Income from operations................. 1,146 8,783 13,699 9,669 16,707
Interest income, net................... 172 1,150 2,488 1,915 1,264
------- ------- ------- ------- -------
Income before taxes.................... 1,318 9,933 16,187 11,584 17,971
Income taxes........................... 685 3,925 6,351 4,555 7,009
------- ------- ------- ------- -------
Net income............................. $ 633 $ 6,008 $ 9,836 $ 7,029 $10,962
======= ======= ======= ======= =======
Basic earnings per share of common
stock................................. $ 0.05 $ 0.34 $ 0.49 $ 0.35 $ 0.53
Shares used in computing basic earnings
per share of common stock............. 13,716 17,634 19,916 19,874 20,519
Diluted earnings per share of common
stock................................. $ 0.04 $ 0.28 $ 0.42 $ 0.30 $ 0.43
Shares used in computing diluted
earnings per share of common stock.... 14,856 21,258 23,346 23,162 25,401
</TABLE>
<TABLE>
<CAPTION>
March 31,
--------------- December 31,
1998 1999 1999
------- ------- ------------
(Unaudited)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $31,437 $47,698 $46,997
Working capital.................................. 26,236 46,872 50,964
Total assets..................................... 40,352 67,086 91,389
Long-term debt, including current portion........ -- -- 1,000
Total stockholders' equity....................... 28,767 53,301 75,079
</TABLE>
See Note 2 of "Notes to Financial Statements" beginning on page F-7 for an
explanation of the methods used to compute basic and diluted earnings per
share data.
12
<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 related notes included
elsewhere or incorporated by reference in this prospectus.
Overview
We are an e-business services firm that synthesizes business and industry
insight with technology expertise to create innovative digital strategies for
leading national and multinational corporations. Once conceived, we believe
such strategies must be implemented rapidly in order to maximize competitive
benefits. We have experienced substantial revenue growth since our inception,
generating net revenues of $92.8 million from 126 clients during the most
recent nine months ended December 31, 1999. We employed 433 client-serving
professionals as of December 31, 1999.
Our revenues are comprised of professional fees for services rendered to
our 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, we and our client agree on fees for services based upon the scope
of the project, our staffing requirements and the level of client involvement.
We recognize revenue as services are performed in accordance with the terms of
the client engagement. Out-of-pocket expenses are reimbursed by our clients
and offset against expenses incurred and are not included in recognized
revenues. Provisions are made for estimated uncollectible amounts based on our
experience. Although from time to time we have been required to make revisions
to our clients' estimated deliverables, to date none of such revisions has had
a material adverse effect on our operating or financial results.
The largest portion of our costs consist primarily of employee-related
expenses for our client-serving professionals and other direct costs, such as
third-party vendor costs and unbilled travel costs associated with the
delivery of services to our clients. The remainder of our costs are comprised
of the expenses associated with the development of our business and the
support of our 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 content development and delivery costs. Marketing and
sales expenses consist primarily of the costs associated with our development
and maintenance of our marketing materials and programs. Management and
administrative support expenses consist primarily of the costs associated with
operations, finance, information systems, facilities and other administrative
support for project personnel.
We regularly review our fees for services, professional compensation and
overhead costs to ensure that our services and compensation are competitive
within the industry. In addition, we monitor the progress of client projects
with client senior management. We manage activities of our professionals by
closely monitoring engagement schedules and staffing requirements for new
engagements. Because most of our client engagements are, and may be in the
future, terminable by our clients without penalty, an unanticipated
termination of a client project could require us to maintain underutilized
employees. While professional staff must be adjusted to reflect active
engagements, we must maintain a sufficient number of senior professionals to
oversee existing client engagements and participate in our sales efforts to
secure new client assignments.
13
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March December
31, 31,
------------------- ------------
1997 1998 1999 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Operating expenses:
Project personnel and related
expenses......................... 58.2 54.2 52.5 52.9 53.5
Professional development and
recruiting....................... 16.7 10.6 11.5 11.5 9.5
Marketing and sales............... 5.1 5.5 5.7 5.6 5.4
Management and administrative
support.......................... 16.9 14.7 13.7 13.8 13.6
----- ----- ----- ----- -----
Total operating expenses........ 96.9 85.0 83.4 83.8 82.0
----- ----- ----- ----- -----
Income from operations................ 3.1 15.0 16.6 16.2 18.0
Interest income, net.................. 0.4 2.0 3.0 3.2 1.4
----- ----- ----- ----- -----
Income before taxes................... 3.5 17.0 19.6 19.4 19.4
Income taxes.......................... 1.8 6.7 7.7 7.6 7.6
----- ----- ----- ----- -----
Net income............................ 1.7% 10.3% 11.9% 11.8% 11.8%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended December 31, 1999 Compared to Nine Months Ended December
31, 1998
We had net income of $11.0 million during the nine months ended December
31, 1999 improved from net income of $7.0 million during the same period in
the prior year as a result of increased revenues combined with an improvement
in the utilization of our client-serving professionals, partially offset by an
increase in expenses required to support our growth during the period.
Our net revenues increased 55% to $92.8 million during the nine months
ended December 31, 1999 as compared to the same period in the prior year. The
increase in our net revenues reflects an increase in the volume of services
delivered to new clients, continued services to our existing client base, as
well as two acquisitions. We served 126 clients during the nine months ended
December 31, 1999 as compared to 68 clients served during the same period in
the prior year.
Project personnel and related expenses increased $18.0 million to $49.6
million during the nine months ended December 31, 1999 as compared to the same
period in the prior year. In aggregate, project personnel and related expenses
increased 57% from the same period in the prior year due to increases in both
the number and compensation of our client-serving professionals. We increased
our client-serving professional staff from 234 at December 31, 1998 to 433 at
December 31, 1999. As a percentage of net revenues, project personnel and
related expenses increased slightly from 52.9% to 53.5% during the nine months
ended December 31, 1999.
Professional development and recruiting expenses increased $2.0 million
during the nine months ended December 31, 1999 as compared to the same period
in the prior year. This increase reflects our recruiting and training of a
higher number of client-serving professionals and an associated increase in
recruiting and training resources. As a percentage of net revenues, these
expenses decreased to 9.5% as compared to 11.5% during the same period in the
prior year as a result of our improved operating leverage resulting from our
net revenue growth.
14
<PAGE>
Marketing and sales expenses increased from $3.4 million to $5.0 million
during the nine months ended December 31, 1999 as compared to the same period
in the prior year as a result of increased spending for:
. the publication of our magazine, Context, which transitioned from a
quarterly publication to a bi-monthly publication and is now being
marketed at selected newsstands across the United States;
. the conduct of several Diamond Exchange and Insight seminars for
prospective clients; and
. the hiring of a chief marketing officer and supporting staff to lead our
corporate branding and marketing initiatives.
As a percentage of net revenues, these expenses decreased from 5.6% to 5.4% as
a result of our improved operating leverage resulting from our net revenue
growth.
Management and administrative support expenses increased from $8.2 million
to $12.7 million, or 54%, during the nine months ended December 31, 1999 as
compared to the same period in the prior year as a result of the additional
facilities, equipment and personnel necessary to support our growth and
increased consulting capacity. As a percentage of net revenues, management and
administrative support expenses decreased from 13.8% to 13.6% as a result of
our improved operating leverage resulting from our net revenue growth.
Fiscal 1999 Compared to Fiscal 1998
Our net income of $9.8 million during fiscal 1999 improved from net income
of $6.0 million during fiscal 1998 as a result of increased revenues combined
with an improvement in the utilization of client-serving professionals,
partially offset by an increase in expenses required to support our growth
during the period.
Our net revenues increased 41.2% to $82.4 million during fiscal 1999 as
compared to fiscal 1998. The increase in our net revenues reflects an increase
in the volume of services delivered to new clients, as well as the leveraging
of our existing client base. For fiscal 1999, $16.9 million of revenue was
derived from services delivered to new clients and $65.5 million related to
the completion of projects or the undertaking of additional projects from our
client base of the previous fiscal year. We served 85 clients during fiscal
1999 as compared to 65 clients served during fiscal 1998.
Project personnel and related expenses increased $11.7 million, or 36.9%,
to $43.3 million during fiscal 1999 as compared to fiscal 1998. This increase
resulted from an increase in the number of client-serving professionals to
respond to growth. We increased our client-serving professional staff from 175
at March 31, 1998 to 239 at March 31, 1999. As a percentage of net revenues,
project personnel and related expenses decreased from 54.2% to 52.5% during
fiscal 1999, reflecting the improvement in utilization of client-serving
professionals.
Professional development and recruiting expenses increased $3.3 million
during fiscal 1999 as compared to fiscal 1998. This increase reflects our
recruiting and training of a higher number of client-serving professionals
during fiscal 1999. We have continued our recruiting and training programs to
support the growth of the business. As a percentage of net revenues,
professional development and recruiting expenses increased from 10.6% to 11.5%
during fiscal 1999.
Marketing and sales expenses increased $1.5 million to $4.7 million during
fiscal 1999 as compared to fiscal 1998 as a result of our investment in our
marketing and branding programs. Our marketing activities in fiscal 1999 were
focused on the continued development of our magazine, Context, which was
launched during the quarter ended December 31, 1997, the promotion of
intellectual capital through the Diamond Exchange, our executive learning
forum for senior executives, and the conduct of three Insight seminars for
prospective clients. As a percentage of net revenues, marketing and sales
expenses increased from 5.5% to 5.7%.
Management and administrative support expenses increased from $8.6 million
to $11.3 million, or 31.3%, during fiscal 1999 as compared to fiscal 1998.
This increase resulted from the cost of additional facilities, equipment and
personnel necessary to support our growth and increased consulting capacity.
As a percentage of net revenues, management and administrative support
expenses decreased from 14.7% to 13.7% as a result of our improved operating
leverage resulting from our net revenue growth.
15
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Our net income of $6.0 million during fiscal 1998 improved from net income
of $633,000 during fiscal 1997 as a result of increased revenues combined with
an improvement in the utilization of client-serving professionals, partially
offset by an increase in expenses required to support our growth during the
period. Our net income in fiscal 1997 included net losses for the first six
months of the fiscal year, which resulted primarily from the loss of two
projects as a result of clients' cancellations of business initiatives. We
responded to these project cancellations and the resulting business
circumstances during the quarter ended September 30, 1996, by reducing
spending levels, including the elimination of our bonus programs for fiscal
1997. We reinstated our bonus programs effective for fiscal 1998. Accordingly,
we recognized bonus expense of $7.6 million during fiscal 1998 as compared to
none during fiscal 1997.
Our net revenues increased 55.4% to $58.4 million during fiscal 1998 as
compared to fiscal 1997. The increase in our net revenues reflects an increase
in the volume of services delivered to new clients, as well as the leveraging
of our existing client base. For fiscal 1998, $20.1 million of revenue was
derived from services delivered to new clients and $38.3 million related to
the completion of projects or the undertaking of additional projects from our
client base of the previous fiscal year. We served 65 clients during fiscal
1998 as compared to 45 clients served during fiscal 1997.
Project personnel and related expenses increased $9.8 million, or 44.6%, to
$31.6 million during fiscal 1998 as compared to fiscal 1997. This increase
resulted from an increase in the number of client-serving professionals to
respond to growth, combined with the impact of the reinstatement of the bonus
program during fiscal 1998. We increased our client-serving professional staff
from 146 at March 31, 1997 to 175 at March 31, 1998. As a percentage of net
revenues, project personnel and related expenses decreased from 58.2% to 54.2%
during fiscal 1998, reflecting the improvement in utilization of client-
serving professionals.
Professional development and recruiting expenses decreased $117,000 during
fiscal 1998 as compared to fiscal 1997. This decrease reflects the initial
investment in certain intellectual capital programs during fiscal 1997,
partially offset by our training of a higher number of client-serving
professionals during fiscal 1998. We continued our recruiting and training
programs to support the growth of the business. As a percentage of net
revenues, professional development and recruiting expenses decreased from
16.7% to 10.6% during fiscal 1998 as a result of our improved operating
leverage resulting from our net revenue growth.
Marketing and sales expenses increased $1.3 million to $3.2 million during
fiscal 1998 as compared to fiscal 1997 as a result of our investment in our
marketing and branding programs. Our marketing activities in fiscal 1998 were
focused on the development of our magazine, Context, which was launched during
the quarter ended December 31, 1997 and the promotion of intellectual capital
through the Diamond Exchange, our executive learning forum for senior
executives. As a percentage of net revenues, marketing and sales expenses
increased from 5.1% to 5.5%.
Management and administrative support expenses increased from $6.3 million
to $8.6 million, or 35.5%, during fiscal 1998 as compared to fiscal 1997. This
increase resulted from the cost of additional facilities, equipment and
personnel necessary to support our growth and increased consulting capacity,
combined with the impact of the reinstatement of bonus programs. As a
percentage of net revenues, management and administrative support expenses
decreased from 16.9% to 14.7% as a result of our improved operating leverage
resulting from our net revenue growth.
Selected Quarterly Results of Operations
Set forth below are selected statements of operations and other operating
data for each of our full quarters covering the last two fiscal years and the
nine months ended December 31, 1999. In our 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 related notes
contained elsewhere herein. Results of operations for any previous fiscal
quarter are not necessarily indicative of results for any future period.
16
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------------
June 30, Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31 Mar 31, June 30, Sept 30, Dec 31,
1997 1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- ------- ------- -------- -------- ------- ------- -------- -------- -------
(Unaudited)
(dollars in thousands, except number of clients)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $12,101 $14,359 $15,390 $16,519 $18,375 $20,136 $21,194 $22,684 $25,718 $30,467 $36,640
Income (loss) from
operations............. $ 1,260 $ 2,105 $ 2,498 $ 2,920 $ 2,932 $ 3,289 $ 3,448 $ 4,030 $ 4,551 $ 5,518 $ 6,638
Net income (loss)....... $ 867 $ 1,433 $ 1,724 $ 1,984 $ 2,135 $ 2,383 $ 2,511 $ 2,807 $ 2,999 $ 3,618 $ 4,345
Other Operating Data:
Number of clients
served(1).............. 33 30 35 35 40 39 45 47 89 70 66
Number of clients
generating revenues
greater than $500
thousand............... 9 13 11 11 10 15 15 17 13 16 24
Number of clients
generating revenues
greater than
$1 million............. 4 5 4 4 5 5 5 6 5 10 14
Average revenue per
client(1).............. $ 367 $ 479 $ 440 $ 472 $ 459 $ 516 $ 471 $ 483 $ 289 $ 435 $ 555
</TABLE>
- -------
(1) The significant increase in the number of clients in the quarter ended
June 30, 1999 was due to our acquisition of OmniTech Consulting Group,
Inc. We obtained thirty-eight clients in this quarter as a result of that
acquisition. The acquisition also lowered our average revenue per client
in this quarter.
We have experienced quarterly fluctuations in our operating results
partially due to our rapid growth since inception, together with the impact of
our considerable investments in recruiting, training and marketing during the
periods.
Liquidity and Capital Resources
We closed our initial public offering of common stock in April 1997 and
received net proceeds totaling approximately $10.1 million. We used $2.0
million of the proceeds from the initial public offering to repay a loan from
Safeguard Scientifics, Inc.
In April 1998, we sold approximately 980,000 shares of our Class A Common
Stock as part of a public offering and received net proceeds of approximately
$15.9 million.
We maintain a revolving line of credit pursuant to the terms of an
unsecured credit agreement from a commercial bank under which we may borrow up
to $10.0 million at an annual interest rate based on the prime rate or based
on the LIBOR plus 1.75%, at our discretion. This line of credit has been
reduced to account for letters of credit outstanding. As of December 31, 1999,
we had approximately $9.8 million available under this line of credit.
Our billings for the three months ended December 31, 1999 totaled $48.6
million. These amounts include billings to clients for out-of-pocket expenses
that are reimbursed by clients which are not included in recognized revenues.
Our gross accounts receivable balance of $14.2 million at December 31, 1999
represents twenty-six days of billings for the quarter.
In October 1998, our Board of Directors authorized the repurchase, from
time to time, of up to one million shares of our Class A Common Stock. These
repurchases were authorized to be made in the open market or in privately
negotiated transactions. At December 31, 1999, the number of shares purchased
under this authorization was 769,500 shares at an aggregate cost of $10.1
million. We funded the repurchases through our cash balances.
We believe that the net proceeds from our sale of Class A Common Stock in
this offering, together with our current cash balances, existing lines of
credit and cash flow from existing and future operations, will be sufficient
to fund our operating requirements at least through fiscal 2001. Should our
business expand more rapidly than expected, we believe that additional bank
credit would be available to fund any additional operating and capital
requirements. In addition, we could consider seeking additional public or
private debt or equity financing to fund future growth opportunities.
17
<PAGE>
Year 2000 Issue
Many existing computer programs were designed and developed without
considering the impact of the change in the century and consequently use only
two digits to identify a year in the date field. If not corrected, many
computer applications could fail or create erroneous results at or after the
year 2000. We have conducted an assessment of the potential impact of the year
2000 issue on our operations and mission critical vendors. In light of the
fact that we have only been in existence for a little over five years, our key
financial, information and operation systems have been designed to be year
2000 compliant without the need for any modifications or conversions.
Accordingly, the year 2000 issue has not had, and we do not expect it to have,
a material effect on our consolidated financial position, results of operation
or cash flows.
We have participated in certain projects that involve year 2000 issues for
some of our clients. Generally, we include provisions in client contracts
that, among other things, disclaim implied warranties, limit the duration of
express warranties, and limit our liability to the amount of fees paid by the
client to us in connection with the project. We also maintain insurance to
protect against potential liability that may arise in connection with year
2000 issues at our clients. Although we have no reason to believe that any
such work will result in litigation against us, it is possible that we could
be adversely affected by litigation in connection with these projects. There
can be no assurance that we will be able to obtain the desired contractual
protections in agreements, or that any such contractual provisions will
prevent clients from asserting claims against us with respect to the year 2000
issue. There can also be no assurance that the contractual protections, if
any, obtained by us or the insurance coverage will operate to protect us from,
or adequately limit the amount of, any liability arising from claims asserted
against us.
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BUSINESS
Overview
We are an e-business services firm that synthesizes business and industry
insight with technology expertise to create innovative digital strategies for
leading national and multinational corporations. For a business to succeed in
today's digital economy, we believe it must have a strategy that goes beyond
conventional strategic thinking. The standard of building an e-business that
is "faster, better, and cheaper" is based on improving the past. We offer an
approach that results in innovative new business models that enable our
clients to leverage technology and their existing competencies to develop e-
business opportunities.
We lead CEOs and senior leadership teams through a diagnostic approach
designed to broaden their understanding of the ways in which the Internet can
be used to leverage their company's existing assets. After thorough analysis
of a client's existing business model, we create a Digital Strategy to help
the client develop and sustain a competitive advantage in the new digital
economy. Once we have conceived a Digital Strategy, we prototype, test and
scale the applications needed to successfully execute the Digital Strategy.
Industry Background
The evolution of the Internet has fundamentally changed the way companies
do business. Initially, companies used the Internet as an additional means of
communicating information and displaying product and service information on
static corporate web sites. Then, start-up companies known as "dot coms"
emerged with purely online business models. More recently, well-established
companies, including industry leaders, have recognized the power of the
Internet as a medium for conducting both business-to-consumer and business-to-
business transactions and interactions. The growth of e-commerce has been
dramatic. International Data Corporation estimates that revenues generated
from Internet commerce will grow from $50.4 billion in 1998 to over $1.3
trillion in 2003, a compound annual growth rate of 92%.
Many companies have tried to capture this market opportunity by simply
building an online presence. We believe many of these companies have had
difficulty leveraging their online presence with their traditional business
assets. Large companies that have made significant investments in building
their existing sales forces, marketing strategies, brands, supply and
distribution systems and data management systems require digital strategies
that enable them to take advantage of the power of the Internet to leverage
these assets.
Successful development and implementation of digital strategies requires a
combination of innovative strategic thinking, in-depth vertical industry
expertise and a thorough understanding of technology and its applications. We
believe that few companies possess the internal resources required to develop
and implement their own digital strategies. As a result, companies are
increasingly turning to outside professional service providers for development
and implementation of digital strategies. International Data Corporation
estimates that the worldwide market for Internet services will grow from $7.8
billion in 1998 to $78.5 billion in 2003, a compound annual growth rate of
59%.
Many Internet professional service providers only offer advice on using the
Internet to conduct business in a manner that is "faster, better and cheaper"
than current methods without transforming a client's underlying business
model. For example, web site design firms typically specialize in the front-
end design of e-commerce sites. Traditional information technology service
providers typically focus only on the enhancement of existing systems and the
implementation of traditional business applications. Traditional strategic
consulting firms typically do not integrate their strategic and technological
capabilities. Most Internet professional service providers do not, in our
view, possess the combination of strategic industry and technological
expertise necessary to create new business models that capitalize on the value
of a company's existing asset base in the new digital economy.
Because the Internet's impact has been enterprise-wide, touching all
aspects of a company's business, processes and channels, senior leadership
teams of traditional businesses have recognized that they must
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respond comprehensively and strategically to the challenges posed by the
digital economy. The development and implementation of a digital strategy is a
focus at the highest levels of business organizations, including the chief
executive officer and the board of directors. We believe that companies
increasingly seek Internet professional service providers that possess both
the strategic insight necessary to create innovative digital strategies and
the resources required to prototype and scale applications to implement those
strategies.
The Diamond Solution
We combine innovative strategic thinking, in-depth vertical expertise, and
a thorough understanding of technology and its applications to deliver end-to-
end e-business solutions. Our ability to identify, prototype and scale
innovative e-business solutions for our clients is predicated on four
attributes that we believe distinguish us from our competitors.
Strategic Business Model Focus. Our approach goes well beyond "faster,
better and cheaper" principles as we work with CEOs and senior leadership
teams to establish new business models. We collaborate with our clients to
develop e-business opportunities that leverage the value of their existing
physical and digital assets, intellectual capital and business relationships.
We believe we have the capabilities to develop and deliver new business
models, and transform existing business models, by drawing on our expertise in
strategy, creative design, technology, operations, change management and
implementation.
Strategic Industry Insight and Expertise. We currently focus on serving
four vertical industries: financial services, consumer and industrial products
and services, telecommunications and energy, and health care and insurance. We
believe our vertical industry focus enables us to define and deliver
innovative solutions that effectively address the market dynamics and business
opportunities facing our clients. Within each of the vertical industries we
serve, we have internal and outside experts whose intellectual capital and
experience allow us to create an innovative, industry-specific digital
strategy.
Comprehensive Diagnostic Approach. We work with our clients from the
earliest stages of study and assessment to the creation and implementation of
a Digital Strategy. We use a six-question diagnostic approach to help CEOs and
senior leadership teams consider the business implications of the digital
economy. The first three questions deal with the new industry structure, its
economics and its customer behaviors. The second three questions focus on
implementation and how to make difficult but necessary changes to exploit e-
business opportunities.
Ability to Prototype, Scale and Execute. Once we have defined a new
business model and designed a Digital Strategy, we identify and develop a
portfolio of solutions. From this portfolio, we prototype selected solutions
which are quickly brought to market and tested. Through this process, we
assess how various solutions perform in the market and determine which
solutions most effectively implement the Digital Strategy before our clients
commit resources to a full-scale implementation. Based on performance, we
revise, recast and implement the optimal prototype. We believe this approach
delivers high quality solutions quickly and efficiently.
Our Growth Strategy
Our goal is to become the leader in the identification, design and delivery
of digital strategies. As an e-business services firm, there are two primary
constituencies critical to the realization of our goal: our professionals and
our clients. Accordingly, each of the following strategies focuses on
attracting, developing and retaining our professionals and clients.
Attract and Retain Skilled Personnel. We believe that our continued success
and growth require us to expand our base of highly skilled professionals. This
emphasis on human resources begins with our recruitment of client-serving
professionals from the best business and technical schools. It continues
through the process of training, developing and promoting promising
professionals within Diamond and culminates in the sharing of equity in
Diamond as both an acknowledgment of merit and a means of retention. In
addition, we seek to
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complement organic growth by gaining experienced and talented professionals
through carefully targeted acquisitions.
Cultivate Senior Level Client Relationships. We develop strong, long-term
relationships with our clients that often lead to repeat business and
referrals. We achieve this by cultivating close relationships with our
clients' CEOs and senior leadership teams. The access, contact and goodwill
generated through our existing client relationships afford us significant
opportunities to provide additional services and solutions.
Deliver Services Through Multidisciplinary Teams. In order to maintain a
differentiated service offering, we seek to develop and sustain a business
culture that is common across all disciplines in the organization. We seek to
promote our culture by exposing our professionals to all of the various
services that we provide while further developing skills in each
professional's principal area of expertise. Our end-to-end delivery of a
Digital Strategy enables professionals with different skill sets such as
strategy, creative design, technology, operations, change management and
implementation to contribute their expertise to our clients' projects and to
learn from each other.
Nurture and Promote Our Intellectual Capital. We utilize our accumulated
knowledge and experience to provide relevant intellectual capital to a given
project and to develop innovative solutions for our clients. We continuously
seek to identify, disseminate and incorporate new intellectual capital
throughout our organization to keep abreast of business and technology trends.
Intellectual capital is provided by internal and external experts and industry
practitioners, including the Diamond Network.
Leverage Our Vertical Industry Expertise. We believe that our vertical
market focus gives us the industry- specific insights necessary to develop
innovative digital strategies for our clients. We are able to offer digital
strategies informed by a thorough understanding of the particular market
through a vertical focus in four key markets: financial services, consumer and
industrial products and services, telecommunications and energy, and health
care and insurance. We also believe that our vertical market focus provides a
scalable structure for growth. We expect the number of vertical markets on
which we focus to change and grow as our expertise and market demands evolve.
Expand Our International Presence. We believe that international markets
present a substantial growth opportunity for us and we intend to enter some of
these markets. We also believe that the proliferation of e-business abroad is
in the early stages and lagging the United States by one to two years.
Increasing our exposure and access to global markets will enable us to provide
additional service to our existing multinational clients and attract new
clients from international markets. We are currently focused on establishing a
European presence and continue to evaluate expansion into other global markets
that complement the services we offer our current clients. We may choose to
enter or expand into those markets through organic growth or targeted business
acquisitions.
Market the Diamond Brand. We intend to continue to invest in the
development and maintenance of our brand identity in the marketplace. We
promote our name and credentials through publications, seminars, speaking
engagements, media and analyst relations, direct marketing, the World Wide Web
and other efforts. We believe that building a brand image facilitates both the
lead generation process and the ability to attract and retain the best people
by raising awareness of Diamond, resulting in an increase in the number of new
clients and recruitment opportunities.
Our Services
We are an e-business services firm that combines business strategy and
industry insight with technology expertise to create innovative digital
strategies for leading national and multinational firms. For a business to
succeed in today's digital economy, we believe it must have a strategy that
goes beyond conventional strategic thinking. The standard of building an e-
business that is "faster, better, and cheaper" is based on improving the past.
We offer an approach that results in innovative new business models that
enable our clients to utilize technology and their existing competencies to
develop e-business opportunities.
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We work closely with our clients to help them understand, develop, and
manage the complete implementation of a Digital Strategy. Typically, this
involves analyzing and categorizing their business options, identifying
transforming business concepts, prototyping and launching the chosen concepts,
then market testing and scaling the e-business for ongoing success. Our teams
combine innovative strategic thinking, creative design capabilities,
technological expertise, change management and disciplined program management
to identify and scale innovative solutions quickly with minimized risk.
Our project teams are composed of strategists, technologists, program
managers, operations managers, web site developers and creative designers who
work closely with our clients and analyze, create, and implement a Digital
Strategy. Each team is supported by Diamond Network members who are leading
professional and academic thinkers in their fields and who bring additional
insight, experience and intellectual capital to our clients' challenges.
Our Approach
We have developed a comprehensive five-stage process to deliver digital
strategies for our clients. This process streamlines the launch and scaling of
a successful e-business, and provides disciplined program management to move
expeditiously and with minimized risk. The process is customized for each
engagement to meet our client's specific needs.
Stage 1: Options. The process begins with a thorough industry analysis that
reflects the new realities of our client's market and competitive situation.
We help companies explore a range of e-business options by analyzing new
industry structures, new industry economics, and new customer behaviors. The
resulting options offer businesses an important opportunity to reset
expectations, create new points of differentiation, and redefine the value
offered by our clients to their customers in the new digital economy. We use
the following six questions to help CEOs and senior leadership consider the
business implications of the digital economy:
. What is the new industry structure?
. What are the new economics?
. What is the new customer behavior?
. How do I reorganize my business?
. How do I implement the necessary changes?
. Where is the value?
The answers to this diagnostic help to identify potential solutions.
Stage 2: Concept Plan and Demo. Crucial to this stage is the analysis of
the portfolio of potential solutions which we refer to as "killer apps." Our
diversity of experience allows us to analyze the range of options and
possibilities, with one or more prototypes ultimately defined and selected.
Once the concept has been selected, we begin constructing the application
prototype. We also begin working on a business plan, drawing from simultaneous
activities in a number of areas including business analysis, technology
architecture, and preliminary customer research.
Stage 3: Launch Plan and Prototype. At this stage, we develop a detailed
launch plan for the new Digital Strategy. This includes finalization of our
business analysis, execution of a detailed program management structure, and,
if necessary, development of funding strategies in preparation for launching
the business. At the same time, we quickly create a working prototype,
allowing us to learn from live customer experience with the application,
including complete front-end, user interaction, and back-end activities.
Stage 4: Market Test. Our next step is to assess how the selected
prototypes will perform in the market. An e-business launch is a complex
endeavor and the challenge is to prove the venture's viability. We market
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test our prototypes in a manner that allows us to effectively and efficiently
determine the viability and business risk of the prototype. Through this
process, we assess how various prototypes perform in the market before our
clients commit resources to a full-scale implementation.
Stage 5: Implement. We revise and adjust the launch plan based on data
gathered from the market test. Our data helps us validate our business
analysis and metrics projections and enables us to analyze technology, market
and operating performance and make necessary adjustments. The practical
information gathered from these tests helps expedite full business deployment.
Our team then builds a system to integrate with existing legacy systems. As
the business is launched full-scale, our team stays in place throughout this
phase to assure that the client has the knowledge and resources to manage the
new business for ongoing success.
Throughout these five stages, our services may be supplemented by the
services of third parties who specialize in such areas as research, marketing,
advertising, capital funding and web hosting.
Sales and Marketing
Our principal sales activities are managed by our senior partners. They are
responsible for building relationships with CEOs and senior leadership teams
of existing and potential clients and for formulating and executing our sales
and marketing strategy. Our senior partners call on existing and potential
clients, discuss potential engagements, negotiate the terms of engagements,
and direct the staffing and execution of consulting projects.
We primarily sell our services to CEOs or other senior executives of
national and multinational corporations. We believe that a majority of our
fees are sourced from CEO and senior management's operating budgets as opposed
to information technology budgets. We have divided our senior partners into
vertical groups focused on four industry sectors: financial services; consumer
and industrial products and services; telecommunications and energy; and
health care and insurance. The sales efforts in each group are led by a senior
partner who is assigned revenue and profit contribution responsibility for the
group. We seek projects within each group from both new prospects and existing
clients. Each vertical group maintains a current list of targeted prospects
that are tracked on an ongoing basis by our senior management. Building on
leads generated through our marketing programs, senior partners pursue formal
consulting engagements.
The primary focus of our marketing programs is to generate leads through
building relationships and educating client prospects about Diamond. We have
initiated a number of relationship-marketing programs designed to complement,
encourage and accelerate personal relationships. We build relationships both
directly and on a collaborative basis with Diamond Network members and through
relationships with certain third-party industry executives who we call "client
relationship executives." These executives are typically retired senior
executives with a wide network of contacts in a given industry. We currently
have twenty client relationship executives focusing on our four vertical
groups.
Complementing the relationship-marketing programs are a variety of other
business development and marketing techniques used to communicate directly
with current and prospective clients, including publications, surveys, e-mail
newsletters, media and analyst relations, speeches and a homepage on the World
Wide Web. Three of our more substantive marketing efforts include publishing
the business magazine, Context; hosting the Diamond Exchange and Insight, two
executive learning forums; and publishing books and other regular newsletters
focusing on digital strategies. Each of these programs is designed to educate
the market on the opportunities of digital strategies, demonstrate our
intellectual capital, and create an ongoing dialogue with client prospects.
See "Intellectual Capital" for a description of these efforts.
Representative Clients
The following are examples of clients that are representative of our
business:
Simon Property Group. Simon Property Group is one of the largest publicly
traded retail real estate investment trusts (REIT) in North America,
developing and managing more than 250 properties. Its portfolio
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includes upscale and destination-shopping malls such as the Mall of America
and the Forum Shops at Caesar's Palace in Las Vegas, community shopping
centers, mixed-use properties, regional malls and specialty retail centers. In
the spring of 1999, with the prospect of the strongest online holiday shopping
season ever, Simon Property Group's CEO realized that he needed to take
advantage of e-commerce opportunities and engaged Diamond to help create a
Digital Strategy for future growth.
Over an eight-month period, we created a platform that offered continuity
for the customer by combining physical space and virtual space through two
applications. The first initiative we protoyped was FastFrog.com, a teen-
oriented, cross-retail gift registry. Through FastFrog.com, teens can build a
personalized gift registry in one of two ways. First, teens can build their
registry at the mall by scanning in the barcodes of products sold by
participating retailers with a hand-held "ZapStick" that they check out at a
mall kiosk. When the ZapStick is returned, the contents are uploaded onto the
teen's personalized FastFrog.com home page. Teens can also select products
from a group of retailers on the FastFrog.com home page. Once a registry is
established, family and friends can then review the list and purchase gifts
for the teens.
The second initiative we prototyped was YourSherpa.com. YourSherpa.com
provides time-constrained adults the ability to shop at multiple mall stores
without waiting in lines and without having to carry packages back to the car.
Through the use of a scanning device checked out at a kiosk in the mall, the
customer can designate products for purchase at the point of scanning. At the
kiosk, customers pay for their purchases from multiple in-mall stores in one
transaction and designate the final shipping destination for the packages. In
addition, and similar to FastFrog.com, shoppers can create individual gift
registries through the use of the scanning device at the mall or online.
We piloted FastFrog.com and YourSherpa.com during the 1999 holiday shopping
season at three Atlanta malls. The strategy was well-received by consumers and
garnered significant media attention. The offerings successfully tied the
tangibility of the in-mall shopping experience with the convenience and
expediency of shopping online.
In addition to our role in designing the initial branding and strategy for
FastFrog.com and YourSherpa.com, we assisted Simon Property Group in the
development of a business incubator called Clixnmortar.com. We assisted
Clixnmortar.com in building a "Design and Experience Center" to showcase the
offerings to potential retail partners, developing a technology architecture,
drafting business policies, establishing financial systems and staffing the
organization. Our activities with Clixnmortar.com extended from the addition
of participant retailers and their products to the design and delivery of a
fulfillment system for consumers.
Enron. Enron is one of the world's leading electricity, natural gas and
communications companies. Enron has a successful history of making markets in
commodities. Seeing an opportunity in bandwidth, Enron formed a new company to
pioneer the creation of the industry's first broadband trading market.
Increased market demand for data transmission capacity, telecommunication
deregulation, and an excess supply make bandwidth a fast growing commodity.
We teamed with Enron in June of 1999 to develop and launch an over-the-
counter bandwidth market. First, we interviewed traders, documented trading
processes, and defined system requirements. Next, we began designing a
solution by bringing in highly skilled e-commerce developers and delivering
the first release of the Web-based, business-to-business trading system in
just under three months. Enron, using the Diamond-developed trading system,
executed the first commodity bandwidth trade in December 1999.
Traditionally, contracting for bandwidth entailed multiple-year contracts
and waits of several months for actual connectivity. These transactions took
weeks to negotiate. By contrast, the Enron bandwidth trading system automates
key parts of the process, enabling the trading of individual bandwidth
contracts on a spot basis. This is only possible because the automated system
physically controls the network elements, cross-connecting buyers and sellers
in a matter of seconds.
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Mutual Fund Company. In September 1999, a top US-based investment
management and mutual fund company engaged Diamond to assess the impact of the
Internet on the mutual fund industry. Although the client had a well-
recognized brand, it realized that the new economy provided an opportunity to
strategically reposition itself in the developing digital financial services
marketplace. As a result, the client saw the need to leverage its existing
asset base through the integration of the Internet into its existing business
model.
To establish a common understanding and framework for addressing the e-
commerce issues facing the company, we led the client's senior management
through a multi-day workshop that investigated the opportunities and
competitive threats emerging in the asset management and financial services
markets. From ideas generated during this workshop, we developed a portfolio
of potential digital strategies that leveraged the Internet to better serve
existing customers and simultaneously address customer segments not currently
served by the client. Upon analyzing our proposed strategies, the client's
senior management approved the development of several business plans. Our team
was able to deliver the requested e-commerce business plans to the client in
less than 45 days. The client has recently approved funding for the execution
of one of these plans and we have begun the process of prototyping and
implementing the client's new digital strategy.
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, we have developed multiple programs to continuously identify,
develop and disseminate intellectual capital from individuals both within and
outside Diamond.
Context. Context is a business magazine we have published since November of
1997 covering the growing intersection of business and technology. We have
recently increased the frequency of distribution from quarterly to bi-monthly
and have begun newsstand distribution in select locations. Context is
distributed to approximately 30,000 officer-level executives in the United
States. We believe the magazine serves as a useful business development and
marketing tool to communicate directly with our existing and prospective
clients. Context also provides a means to further develop our employees'
points of view as abstracted and generated from client engagement experiences.
Diamond Exchange. The Diamond Exchange is a series of executive learning
forums that we launched in February 1997. CEOs and other senior executives are
invited to participate in the Diamond Exchange. We provide our paid
subscription members with innovative, leading-edge research to explore and
understand the strategic risks and opportunities of emerging technologies.
Diamond Exchange members meet three times a year to discuss current issues and
research findings, and their business implications. During these meetings, we
provide the members with the opportunity to discuss their issues with Diamond
Network members, our partners and other business leaders.
Insight. Insight is a series of one-and-a-half day management learning
sessions focused on the theory and practice of Digital Strategy. Launched in
late 1998, the sessions provide senior executives of our existing and
prospective clients with the opportunity to explore the strategic risks and
opportunities of emerging technologies. The forums are sponsored each year by
leading technology firms and will be sponsored by Intel Corporation in
calendar 2000.
Books and Other Publications. In 1998, a senior partner of Diamond and a
member of the Diamond Network co-authored a book, Unleashing the Killer App:
Digital Strategies for Market Dominance. To date, it has sold over 100,000
copies and is published in 8 different languages. It is widely recognized as a
leading publication in the field of digital strategy. Other Diamond employees
are currently authoring books with Diamond's support. In addition, we publish
electronic and physical newsletters to CEOs and senior managers, and our
partners and Diamond Network members are frequent speakers at business and
technology forums.
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Knowledge Leaders. We have created a career path for certain of our
professionals who desire to specialize in a particular area, such as technical
architecture, electronic commerce or supply-chain operations. We refer to
these professionals as "knowledge leaders" within our organization. Knowledge
leaders are responsible for identifying new developments within their
respective areas of expertise and capabilities, and applying that knowledge to
client projects and within the organization. We currently have four partner-
level knowledge leaders and anticipate adding more knowledge leaders in the
future.
Diamond Network. The Diamond Network is a group currently comprised of 12
recognized business and technology leaders associated with Diamond. Members of
the Diamond Network, whom we refer to as Diamond Fellows, provide us with a
set of skills that augment and enhance the value that we can provide to our
clients. Diamond Fellows provide a source of intellectual capital, introduce
us to prospective clients, author and contribute to industry publications,
serve as faculty to the Diamond Exchange and Insight and participate in client
projects. Diamond Fellows are contractually committed to dedicate a number of
days annually to Diamond to support marketing, sales, and client work. Diamond
Network relationships are generally non-exclusive, two-year contracts. Diamond
Fellows are compensated with a combination of stock options and per diem
payments for services provided to us or our clients on our behalf. Current
Fellows 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. He is a contributing writer for Wired magazine and 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 and
computer consultant-at-large. 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. He also led the
development of Digital Equipment's VAX. Additionally, Mr. Bell directed the
National Science Foundation's efforts in computing research.
Larry Downes is a consultant and speaker on e-business strategies, and
is co-author of Unleashing the Killer App: Digital Strategies for Market
Dominance, which was published by the Harvard Business School Press in May
1998. He holds teaching appointments at both The University of Chicago
Graduate School of Business and the Northwestern University School of Law.
Tim Gallwey consults in the area of learning in the business
environment. 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. His fifth book,
The Inner Game of Work, was published in January 2000 by Random House.
James H. Gilmore is a co-founder, with B. Joseph Pine II, of Strategic
Horizons LLP, a "thinking studio" dedicated to helping businesses conceive
and design new ways of adding value to their economic offerings. Mr.
Gilmore provides expertise in the areas of creativity and mass
customization and uses technology to efficiently customize goods and
services to individual customers. He also is co-author of The Experience
Economy: Work is Theatre and Every Business a Stage (1999).
Alan C. Kay, Ph.D. is a Disney fellow and vice-president of research and
development for Walt Disney Imagineering and also a member of our Board of
Directors. Dr. Kay was also a founding principal of the Xerox Palo Alto
Research Center, chief scientist of Atari, Inc. and an Apple Computer
fellow. Dr. Kay is credited with the conception of the laptop computer and
the overlapping windows and icon interface that is used in almost all
personal computers today. He was also a contributor to the development of
the Ethernet, laser printing, network client/servers, and the forerunner of
the Macintosh computer. He contributed to the inventions of 3D graphics and
the ARPANet, now the Internet.
Andrew Lippman, Ph.D. is an associate director and founding member of
the Media Lab at the Massachusetts Institute of Technology. Mr. Lippman is
the principal investigator of the Digital Life research program, a
consortium of 45 companies and 15 faculties that researches technical,
social, and economic aspects of computing in everyday life. He has
published widely and made over 100 presentations on digital entertainment,
personal communications, and making the information highway entertaining
and profitable.
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Heidi Mason is a managing director of The Bell-Mason Group and is a
technology marketing consultant in Silicon Valley specializing in new
ventures. Ms. Mason is co-creator, with Gordon Bell, of the Bell-Mason
Diagnostic and Venture Development System, a technology and methodology to
assess strengths and weaknesses of high-tech, early stage ventures.
B. Joseph Pine II is co-founder of Strategic Horizons LLP. Mr. Pine is
co-author of The Experience Economy: Work is Theatre and Every Business a
Stage (1999). His earlier publication, Mass Customization: The New Frontier
in Business Competition, received the 1995 Shingo Prize for Excellence in
Manufacturing Research.
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. 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.
Mohanbir Sawhney is the Tribune Professor of Electronic Commerce and
Technology at Northwestern University's Kellogg Graduate School of
Management, and a specialist in crafting marketing strategies in the fast-
changing network economy. He has been awarded the Sydney Levy award for
excellence in teaching and named the 1998 Outstanding Professor of the Year
at Kellogg.
Marvin Zonis, Ph.D. is a professor of international political economy
and leadership at the University of Chicago Graduate School of Business. He
is an expert and consultant on political risk and emerging markets, Mideast
politics, the oil industry, and the foreign policies of Russia and the
United States.
The intellectual capital gathered through these various programs is shared
throughout Diamond through inclusion in our quarterly all-hands meetings, the
Diamond Exchange and Insight programs, Context, and our interactive case-based
training and development programs.
Investment Activities
In the course of providing services to our clients, we have encountered
opportunities to invest in our clients or with our clients in new ventures
that resulted from the implementation of a Digital Strategy. We have carefully
considered these options and have made small investments in three of our
clients. In these instances, we have received equity interests in lieu of a
portion of our fees. In addition, we have announced plans to make a strategic
investment in a small international start-up venture which we believe will
provide us with future client and investment opportunities.
These selected equity investments allow us to share in the potential
appreciation of our clients' value resulting from the implementation of
business strategies that we have helped developed. We believe these
investments demonstrate our faith in the business strategies we have helped
create with our clients. As a result, we believe these investments strengthen
our client relationships and increase the potential for repeat business. We
believe these investments also serve as an additional retention vehicle for
our employees.
We make equity investments only after careful consideration and due
diligence. In the last nine months, we have limited our total equity
investments to not more than 5% of our revenues during that period. We
anticipate future investments will generally only be made in our clients and
for a minority interest where a venture capital firm or private equity
investor takes a lead role and sets valuation. We will continue to explore
additional vehicles through which we may make future equity investments.
Human Resources and Culture
As of December 31, 1999, we had 539 employees. Of these employees, 433 were
client-serving professionals and 106 were management and administrative
personnel comprising marketing, human resources, finance, accounting, legal,
internal information systems and administrative support.
27
<PAGE>
The responsibilities of our partners include client relationship
development, business development, client management, program management,
thought leadership, professional staff development and mentoring. Our partners
typically have ten to twenty years or more of experience.
Culture. We believe our ability to simultaneously provide expertise in
strategy, operations and technology is dependent upon our ability to develop
and sustain a business culture that is common across all disciplines in the
organization. Three primary elements comprise our culture:
. an environment that intellectually challenges our personnel through
continuous training and client work;
. consistency in compensation and career paths across all disciplines and
skill sets within Diamond; and
. participation by all of our employees in our continuing development and
ownership of Diamond.
Recruiting. We intend to grow primarily from within to maintain our strong
culture. We believe our success will depend on our ability to continue to
attract, retain and motivate highly skilled employees to support our current
operations and future growth. We attribute our success in hiring these people
to our ability to provide individuals with high impact client opportunities,
multidisciplinary training and career development, attractive long-term career
advancement opportunities, small teams and a collaborative approach to
consulting and competitive compensation.
Although a significant number of our current employees were hired directly
from other firms, a growing number of our associates are being hired annually
from undergraduate and graduate business programs at many of the country's
leading universities. Over time, we expect to hire a majority of our employees
from these programs and, as a result, we expect senior level positions will be
predominantly filled from internal promotions.
Training and Professional Development. Our training and professional
development programs help us to deliver high-quality services to our clients,
as well as to attract and retain highly skilled professionals. We have
developed programs that ensure all individuals have the opportunity to develop
consulting, business and technology skills throughout their careers. These
programs reinforce our culture by exposing all professionals to the various
services we provide while further developing deep skills in each
professional's principal area of expertise.
Compensation. Our compensation programs have been structured to attract and
retain highly skilled professionals by offering competitive base salaries
coupled with annual cash bonus opportunities. We use equity at all levels
within Diamond to provide long-term wealth creation opportunities and to
retain individuals through vesting provisions. We believe that those
professional services firms able to offer equity will be more successful in
attracting and retaining talented individuals to their organizations.
Our partners are eligible to receive an annual bonus comprised of cash
commensurate with their level of responsibility and based on our overall
performance. Our partners buy stock and are granted stock options upon being
elected a partner. We grant additional equity in conjunction with movement
through the partner levels. Stock and options that we issue to partners vest
annually over five years. Individuals below the partner level are awarded
annual cash bonuses based on their performance. Our non-partners are granted
stock options at the time of hire and promotion. These options typically vest
after three years.
Competition
Our primary competitors include Internet professional service providers,
strategic consulting firms, systems integrators, web-consulting firms, online
agencies and firms that provide both consulting and systems integration
services. Many of our competitors are substantially larger than us and have
significantly greater financial, technical and marketing resources, greater
name recognition and greater revenues. We believe that competition may
increase from both the large, traditional strategic consulting firms as these
firms increase their use of information technology in their services and enter
the digital strategy market and also from the smaller
28
<PAGE>
web-consulting firms where the barriers to entry are not significant. We
believe that the principal criteria considered by prospective clients when
selecting a consulting firm to develop and implement digital strategies
include diagnostic capabilities, effectiveness of strategic business models,
scope of services, service delivery approach, technical and industry
expertise, perceived value and a results orientation.
Furthermore, we face the additional challenge of competing for and
retaining the best personnel available in the e-business services market. As
other firms enter the digital strategy market, we believe that our client-
serving professionals and employees may be targeted by other firms to satisfy
their own personnel needs.
Facilities
Our headquarters and principal administrative, information systems,
financial, accounting, marketing, legal and human resources operations are
located in approximately 132,000 square feet of leased space primarily in
Chicago, Illinois, but also in San Francisco, California, Bridgewater, New
Jersey, Cleveland, Ohio and Boston, Massachusetts. The approximate payments
due under these leases for the 2000 and 2001 fiscal years are $2.4 million and
$3.3 million, respectively.
We anticipate that we will require additional office space as our business
expands and believe that we will be able to obtain suitable space as needed.
Legal Proceedings
We are not party to any claims or actions that we believe could have a
material effect on our results of operations or financial position.
29
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Melvyn E. Bergstein..... 57 Chairman of the Board of Directors and Chief Executive
Officer
Michael E. Mikolajczyk.. 48 President, Secretary and Director
Karl E. Bupp............ 37 Chief Financial Officer and Treasurer
Michael J. Connolly..... 38 Vice President
Adam J. Gutstein........ 37 Chief Operating Officer and Director
John J. Sviokla......... 42 Vice President and Director
Edward R. Anderson (1). 53 Director
Donald R.
Caldwell (1)(2)....... 53 Director
Mark L. Gordon (2)..... 48 Director
Alan C. Kay............. 59 Director
John D. Loewenberg (2). 59 Director
Christopher J.
Moffitt (1)........... 45 Director
Arnold R. Weber......... 70 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Melvyn E. Bergstein co-founded Diamond in January 1994 and served as our
Chairman and Chief Executive Officer and President until July 1, 1998, when
Mr. Bergstein vacated the office of President in favor of Mr. Mikolajczyk. Mr.
Bergstein has been a member of our board of directors since January 1994.
Prior to co-founding Diamond, Mr. Bergstein held several senior executive
positions with Technology Solutions Company from 1991 to 1993. Prior to that
time, Mr. Bergstein held several senior positions with other consulting firms,
including twenty-one years in various positions with the Arthur Andersen &
Co.'s consulting division, now Andersen Consulting. Mr. Bergstein also serves
as a member of the board of directors of New Era of Networks, Inc., an
enterprise application integration software company.
Michael E. Mikolajczyk co-founded Diamond and joined us in April 1994,
serving as a member of our board of directors since then. From April 1994
until July 1998, Mr. Mikolajczyk also served as our Senior Vice President,
Chief Financial and Administrative Officer. Since July 1998, Mr. Mikolajczyk
has served as our President and became our Secretary in July 1999. Effective
April 1, 2000, Mr. Mikolajczyk will assume the title of Vice Chairman. From
1993 to 1994, he served as senior vice president of finance and administration
and chief financial officer for Technology Solutions Company. Prior to that
time, Mr. Mikolajczyk held several senior financial and corporate development
positions at MCI Telecommunications Corporation.
Karl E. Bupp co-founded Diamond and joined us in April 1994 as Vice
President of Financial Planning responsible for our internal planning,
analysis and treasury functions. Since July 1998, Mr. Bupp has served as our
Chief Financial Officer and Treasurer. Prior to joining us, Mr. Bupp was the
corporate controller, and director of planning and treasury services for
Technology Solutions Company. From 1985 to 1993, he held various financial
management and analyst positions with MCI Telecommunications Corporation.
30
<PAGE>
Michael J. Connolly joined us in May 1995 as a partner and Vice President.
Since July 1999, Mr. Connolly has been managing our Diamond Marketspace
Solutions group. Diamond Marketspace Solutions helps build and operate fully
functioning e-business ventures for Diamond's clients. Effective April 1,
2000, Mr. Connolly will assume the title of chief operating officer. Prior to
joining Diamond, Mr. Connolly was an associate partner with Andersen
Consulting.
Adam J. Gutstein co-founded Diamond in January 1994 and has served as a
partner and Vice President since inception and as a member of our board of
directors since August 1999. Since July 1998, Mr. Gutstein has served as Chief
Operating Officer responsible for the client-serving operations including
sales and delivery of our services revenue and profit contribution. Effective
April 1, 2000, Mr. Gutstein will assume the title of President. Prior to
joining us, Mr. Gutstein was a vice president at Technology Solutions Company
and a manager with Andersen Consulting.
John J. Sviokla joined us in September 1998 as a partner and Vice President
and became a member of our board of directors in August 1999. Effective April
1, 2000, Dr. Sviokla will assume the title of Vice Chairman. Prior to joining
us, Dr. Sviokla was a professor at the Harvard Business School from October
1986 to August 1998. His pioneering work on Marketspace established Harvard's
first course on electronic commerce, and he co-authored the seminal articles
Managing in the Marketspace and Exploiting the Virtual Value Chain, both
appearing in the Harvard Business Review. Dr. Sviokla has authored over 90
articles, cases, and edited books, and has been a consultant to large and
small companies around the world. He has been a guest professor at many
universities including, Kellogg, MIT, The London Business School, the
Melbourne Business School and the Hong Kong Institute of Science and
Technology. His current research and consulting focuses on how to help large
companies unlock value in the new economy.
Edward R. Anderson has been a member of our board of directors since June
1994. In July 1999, Mr. Anderson became the chairman and chief executive
officer of E-Certify Corp. From January 1994 to July 1999 he was president,
chief operating officer and director of CompuCom Systems, Inc. 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.
Prior to that time, Mr. Anderson held executive and management positions with
The Computer Factory, W.R. Grace & Company, and the American Express Company.
Donald R. Caldwell has been a member of our board of directors since June
1994 and has been the chief executive officer of Cross Atlantic Technology
Fund, L.P. since March 1999. From February 1996 to March 1999, Mr. Caldwell
was president and chief operating officer and a director of Safeguard
Scientifics, Inc. From April 1991 to December 1993, Mr. Caldwell was the
president of Valley Forge Capital Group, Ltd. Prior to that time, Mr. Caldwell
held various executive and management positions with a predecessor company of
Cambridge Technology Partners (Massachusetts), Inc. and Arthur Young & Co., a
predecessor to Ernst & Young, LLP. Mr. Caldwell currently serves on the board
of directors of First Consulting Group, in addition to numerous privately held
companies and other civic organizations.
Mark L. Gordon has been a member of our board of directors since August
1999. Mr. Gordon is an attorney with the law firm Gordon & Glickson LLC and
has been a partner of that firm since August 1979, currently serving as its
managing partner. Mr. Gordon founded Gordon & Glickson's technology practice
and advises a wide range of emerging technology companies, including Diamond,
on business and legal matters. Mr. Gordon also serves as a member of the board
of directors of New Era of Networks, Inc., an enterprise application
integration software company.
Alan C. Kay has been a member of our board of directors since June 1996 and
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. Prior to that time, Dr. Kay held
scientific positions at Atari Corporation and Xerox Palo Alto Research Center.
He was a research associate and lecturer in computer science at Stanford
University from 1969-1971.
31
<PAGE>
John D. Loewenberg has been a member of our board of directors since
October 1996. Mr. Loewenberg is currently managing partner and a consultant
with JDL Enterprises, a consulting firm. Previously Mr. Loewenberg was an
executive vice president and chief operating officer of Connecticut Mutual, a
life insurance company, from May 1995 through 1996. Prior to joining
Connecticut Mutual, Mr. Loewenberg held several senior management positions
with Aetna Life and Casualty and its affiliates. Mr. Loewenberg is a director
of CompuCom Systems, Inc., Sanchez Computer Associates, Inc., and DocuCorp
International, Inc.
Christopher J. Moffitt co-founded Diamond in January 1994 and served as our
senior vice president and secretary until July 1, 1999. He has been a member
of our board of directors since January 1994. From 1988 to 1993, he served as
senior vice president of Technology Solutions Company. Prior to that time, Mr.
Moffitt held several consulting positions and senior technology positions with
Arthur Young & Co. a predecessor to Ernst & Young, LLP, Neiman Marcus and
Electronic Data Systems.
Arnold R. Weber has been a member of our board of directors since November
1999. Mr. Weber has been President Emeritus of Northwestern University since
July 1998 and was its 14th president from 1985 to 1994. From 1995 to 1999, he
served as president of the Civic Committee of The Commercial Club of Chicago,
a leading business and civic organization in Chicago. Mr. Weber has been a
member of the faculty at the Graduate School of Business at the University of
Chicago, Stanford University and the Massachusetts Institute of Technology.
Mr. Weber is a trustee of the Museum of Science and Industry, the Committee
for Economic Development, the Aspen Institute and the University of Notre
Dame. He has received honorary degrees from various universities, including
Notre Dame, the University of Colorado, Loyola University of Chicago,
Northwestern University and the University of Illinois. Mr. Weber is a
director of Aon Corporation, John Deere & Company, PepsiCo Inc. and the
Tribune Company.
Effective April 1, 2000, Mr. Connolly will assume the title of Chief
Operating Officer; Mr. Gutstein will assume the title of President; Mr.
Mikolajczyk will assume the title of Vice Chairman; and Mr. Sviokla will
assume the title of Vice Chairman.
Our board of directors is divided into three classes. Each director serves
for a term of three years and until his successor has been elected and
qualified. Messrs. Mikolajczyk's, Caldwell's and Kay's terms expire as of the
2000 Annual Meeting of the Stockholders. Messrs. Bergstein's, Sviokla's,
Gordon's and Lowenberg's terms expire as of the 2001 Annual Meeting of
Stockholders. Messrs. Gutstein's, Anderson's, Moffit's and Weber's terms
expire as of the 2002 Annual Meeting of Stockholders. Our board of directors
has an Audit Committee, which reviews and recommends to the board of directors
internal accounting and financial controls for Diamond and accounting
principles and auditing practices and procedures to be employed in the
preparation and review of financial statements. Our board of directors also
has a Compensation Committee, which reviews and recommends policies to our
board of directors, practices and procedures relating to the compensation of
managerial employees and the establishment and administration of employee
benefit plans, except for stock option plans, which are managed by our board
of directors as a whole. Our by-laws provide that a majority of the
Compensation Committee will consist of members of our board of directors who
are not officers or employees of Diamond or any of its subsidiaries.
32
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of February 11, 2000, and as adjusted to
reflect the sale of the shares in this offering, by
. each selling stockholder,
. each person who is known by us to own beneficially more than 5% of the
outstanding shares of common stock,
. each of our directors,
. each executive officer, and
. all executive officers and directors 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 in the event that any shares of Class B
Common Stock are transferred to any party other than a permitted holder or the
holder of a share of Class B Common Stock ceases to be a permitted holder. See
"Description Of Capital Stock". Shares of Class B Common Stock to be sold in
this offering will be automatically converted into Class A Common Stock.
Unless otherwise indicated below, to our knowledge, 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>
Shares Beneficially Owned Shares Beneficially Owned Total
Prior to the Offering (1) After the Offering (1) Unvested Remaining
----------------------------------- Amount to ----------------------------------- Options Shares and
Name Shares Options Total % be Sold Shares Options Total % (2) Options
- ---- --------- ------- --------- ------- --------- --------- ------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Executive officers and directors
Anderson, Edward
R. (5)(6)
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 32,460 -- 32,460 * 17,000 15,460 -- 15,460 * 22,500 37,960
Bergstein, Melvyn
E. (3)(5)(7)(8)
(individually)
Class B......... 667,821 13,848 681,669 18.1% 154,000 513,821 13,848 527,669 18.4% 88,158 615,827
Class A......... 187,932 -- 187,932 1.1% -- 187,932 -- 187,932 * -- 187,932
Bupp, Karl E. (3)
Class B......... 127,931 6,346 134,277 3.6% 30,500 97,431 6,346 103,777 3.6% 46,956 150,733
Class A......... 12,947 -- 12,947 * -- 12,947 -- 12,947 * -- 12,947
Caldwell, Donald
R. (5)(11)
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 69,775 -- 69,775 * 8,000 61,775 -- 61,775 * 30,000 91,775
Connolly, Michael
J. (3)
Class B......... 20,271 31,098 51,369 1.4% 31,500 10,727 9,142 19,869 * 111,193 131,062
Class A......... -- -- -- -- -- -- -- -- -- -- --
Gordon, Mark L.
(5)(15)
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 12,000 19,553 31,553 * 15,500 12,000 4,053 16,053 * 15,000 31,053
Gutstein, Adam J.
(3)(5)(7)
Class B......... 189,387 19,637 209,024 5.5% 49,500 139,887 19,637 159,524 5.5% 89,041 248,565
Class A......... 16,140 -- 16,140 * -- 16,140 -- 16,140 * -- 16,140
Kay, Alan C. (5)
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... -- 79,002 79,002 * 15,500 -- 63,502 63,502 * 66,000 129,502
Loewenberg, John
D. (5)
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... -- 29,850 29,850 * 7,000 -- 22,850 22,850 * 15,000 37,850
Mikolaczyk,
Michael E.
(3)(5)(7)
Class B......... 553,000 36,497 589,497 15.6% 102,000 451,000 36,497 487,497 16.8% 78,684 566,181
Class A......... 5,682 -- 5,682 * -- 5,682 -- 5,682 * -- 5,682
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned Total
Prior to the Offering (1) After the Offering (1) Unvested Remaining
----------------------------------- Amount to ----------------------------------- Options Shares and
Name Shares Options Total % be Sold Shares Options Total % (2) Options
- ---- --------- ------- --------- ------- --------- --------- ------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Moffitt,
Christopher J.
(5)(12)
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 241,157 8,117 249,274 1.4% 48,000 193,157 8,117 201,274 1.0% 61,609 262,883
Sviokla, John J.
(3)(5)(7)
Class B......... 5,400 20,186 25,586 0.7% 16,500 4,500 4,586 9,086 * 143,921 153,007
Class A......... -- -- -- -- -- -- -- -- -- -- --
Weber, Arnold R.
(5)
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... -- -- -- -- -- -- -- -- -- 22,500 22,500
All directors and
executive
officers as a
group (13
persons) (17)
Total Class B's. 1,563,810 127,612 1,691,422 43.6% 384,000 1,217,366 90,056 1,307,422 44.4% 557,953 1,865,375
Total Class A's. 578,093 136,522 714,615 3.9% 111,000 505,093 98,522 603,615 2.9% 232,609 836,224
--------- ------- --------- --------- --------- ------- --------- ------- ---------
Total........... 2,141,903 264,134 2,406,037 495,000 1,722,459 188,578 1,911,037 790,562 2,701,599
========= ======= ========= ========= ========= ======= ========= ======= =========
Bergstein, Melvyn
E. (9)(10)(16)
(as proxy
holder)
Class B......... 3,080,275 345,136 3,425,411 82.2% 1,081,301 2,344,110 -- 2,344,110 82.0% -- 2,344,110
Class A......... -- -- -- -- -- -- -- -- -- -- --
All directors and
officers as a
group including
Mr. Bergstein,
as proxy holder
(9)(10)(16)
Total Class B's. 3,748,096 345,136 4,093,232 100.0% 1,235,301 2,857,931 90,056 2,947,987 100.0% 557,953 3,505,940
Total Class A's. 578,093 136,522 714,615 3.9% 111,000 505,093 98,522 603,615 2.9% 232,609 836,224
--------- ------- --------- --------- --------- ------- --------- ------- ---------
Total........... 4,326,189 481,658 4,807,847 1,346,301 3,363,024 188,578 3,551,602 790,562 4,342,164
========= ======= ========= ========= ========= ======= ========= ======= =========
Selling
Stockholders
Abbattista,
Anthony L. (3)
Class B......... 48,655 17,311 65,966 1.8% 31,500 17,155 17,311 34,466 1.2% 72,619 107,085
Class A......... 90 -- 90 * -- 90 -- 90 * -- 90
Adlai-Gail,
Matthew S. (3)
Class B......... -- 14,198 14,198 * 11,000 -- 3,198 3,198 * 41,198 44,396
Class A......... 16,836 -- 16,836 * -- 16,836 -- 16,836 * -- 16,836
Beller, Michael
J.
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 116,300 -- 116,300 * 23,000 93,300 -- 93,300 * -- 93,300
Belmont, Fred A.
(3)
Class B......... -- 20,138 20,138 * 16,000 -- 4,138 4,138 * 47,138 51,276
Class A......... 39,582 -- 39,582 * -- 39,582 -- 39,582 * -- 39,582
Bergstein, Adam
as beneficiary
of trust
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 149,985 -- 149,985 * 59,000 90,985 -- 90,985 * -- 90,985
Bergstein, Seth
as beneficiary
of trust
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 149,985 -- 149,985 * 59,000 90,985 -- 90,985 * -- 90,985
Bestor, Laura M.
(3)
Class B......... 40,937 12,065 53,002 1.4% 12,000 28,937 12,065 41,002 1.4% 43,304 84,306
Class A......... -- -- -- -- -- -- -- -- -- -- --
Bloyd, Robert E.
(3)
Class B......... 26,963 34,088 61,051 1.6% 26,500 26,963 7,588 34,551 1.2% 52,611 87,162
Class A......... -- -- -- -- -- -- -- -- -- -- --
Carroll, Paul B.
(3)
Class B......... 27,602 41,630 69,232 1.8% 11,500 16,102 41,630 57,732 2.0% 50,825 108,557
Class A......... -- -- -- -- -- -- -- -- -- -- --
Chugani, Sandeep
(3)
Class B......... 5,111 35,636 40,747 1.1% 8,000 4,029 28,718 32,747 1.1% 70,442 103,189
Class A......... 1,000 -- 1,000 * -- 1,000 -- 1,000 * -- 1,000
Coughlin, Ronald
V.
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 83,049 -- 83,049 * 19,500 63,549 -- 63,549 * -- 63,549
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned Total
Prior to the Offering (1) After the Offering (1) Unvested Remaining
----------------------------------- Amount to ----------------------------------- Options Shares and
Name Shares Options Total % be Sold Shares Options Total % (2) Options
- ---- --------- ------- --------- ------- --------- --------- ------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Curran,
Christopher B.
(3)
Class B......... 12,117 32,260 44,377 1.2% 26,000 11,035 7,342 18,377 * 76,443 94,820
Class A......... 825 -- 825 * -- 825 -- 825 * -- 825
DeCuyper, Robert
M. (3)
Class B......... 40,849 39,650 80,499 2.1% 15,500 39,767 25,232 64,999 2.3% 71,378 136,377
Class A......... -- -- -- -- -- -- -- -- -- -- --
Economos, William
(3)
Class B......... 49,605 12,820 62,425 1.7% 10,500 39,105 12,820 51,925 1.8% 24,836 76,761
Class A......... -- -- -- -- -- -- -- -- -- -- --
Forsythe, Elwood
G. (3)
Class B......... 129,280 8,200 137,480 3.7% 47,000 82,280 8,200 90,480 3.2% 61,851 152,331
Class A......... -- -- -- -- -- -- -- -- -- -- --
Grieve, Kevin C.
(3)
Class B......... 46,989 8,130 55,119 1.5% 7,000 39,989 8,130 48,119 1.7% 76,443 124,562
Class A......... 1,500 -- 1,500 * -- 1,500 -- 1,500 * -- 1,500
Hoffman, Michael
R. (3)
Class B......... -- 14,198 14,198 * 11,000 -- 3,198 3,198 * 41,198 44,396
Class A......... 16,836 -- 16,836 * -- 16,836 -- 16,836 * -- 16,836
Hugener, Carl J.
(3)
Class B......... 49,971 3,821 53,792 1.4% 2,736 49,655 1,401 51,056 1.8% 27,049 78,105
Class A......... 3,264 -- 3,264 * 3,264 -- -- -- * -- --
Kingley, Jay R.
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 82,449 -- 82,449 * 19,000 63,449 -- 63,449 * -- 63,449
Kraczkowsky,
Thomas C. (3)
Class B......... 22,020 10,806 32,826 * 15,500 8,766 8,560 17,326 * 36,474 53,800
Class A......... -- -- -- -- -- -- -- -- -- -- --
Krauss, Joel D.
(3)
Class B......... -- 24,638 24,638 * 19,500 -- 5,138 5,138 * 65,138 70,276
Class A......... 39,582 -- 39,582 * -- 39,582 -- 39,582 * -- 39,582
Krauss, Michael
C. (3)
Class B......... 824 20,925 21,749 * 9,500 824 11,425 12,249 * 61,426 73,675
Class A......... 31,254 -- 31,254 * 7,500 23,754 -- 23,754 * -- 23,754
Lohrmann, Charles
Brent (3)
Class B......... 21,661 31,343 53,004 1.4% 27,500 18,004 7,500 25,504 * 63,959 89,463
Class A......... 435 -- 435 * -- 435 -- 435 * -- 435
Matsumura, Alan
A. (3)
Class B......... 69,085 10,870 79,955 2.1% 21,000 48,085 10,870 58,955 2.1% 60,621 119,576
Class A......... 2,082 -- 2,082 * -- 2,082 -- 2,082 * -- 2,082
McGee, James V.
(3)
Class B......... 169,180 5,697 174,877 4.7% 8,000 161,180 5,697 166,877 5.8% 36,845 203,722
Class A......... 3,642 -- 3,642 * -- 3,642 -- 3,642 * -- 3,642
McIntosh, Henry
E. (3)
Class B......... 2,640 15,971 18,611 * 13,000 2,112 3,499 5,611 * 63,890 69,501
Class A......... -- -- -- -- -- -- -- -- -- -- --
McKula, Timothy
J. (3)(13)
Class B......... 31,920 43,491 75,411 2.0% 15,500 18,466 41,445 59,911 2.1% 45,774 105,685
Class A......... 4,050 -- 4,050 * -- 4,050 -- 4,050 * -- 4,050
Mui, Chunka K.
(3)
Class B......... 66,357 54,390 120,747 3.2% 39,000 27,357 54,390 81,747 2.8% 78,042 159,789
Class A......... 5,682 -- 5,682 * -- 5,682 -- 5,682 * -- 5,682
Palmer, Michael
J. (3)
Class B......... 45,298 13,450 58,748 1.6% 15,500 29,798 13,450 43,248 1.5% 82,852 126,100
Class A......... -- -- -- -- -- -- -- -- -- -- --
Quade, Bruce R.
(3)
Class B......... 145,317 38,871 184,188 4.9% 58,500 86,817 38,871 125,688 4.3% 69,133 194,821
Class A......... 1,932 -- 1,932 * -- 1,932 -- 1,932 * -- 1,932
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned Total
Prior to the Offering (1) After the Offering (1) Unvested Remaining
------------------------------------- Amount to ----------------------------------- Options Shares and
Name Shares Options Total % be Sold Shares Options Total % (2) Options
- ---- --------- --------- --------- ------- --------- --------- ------- --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rappaport, David
M. (3)
Class B......... 153,764 5,133 158,897 4.3% 35,000 118,764 5,133 123,897 4.3% 31,935 155,832
Class A......... 3,207 -- 3,207 * -- 3,207 -- 3,207 * -- 3,207
Rohner, Timothy
J. (3)(11)
Class B......... 19,697 61,982 81,679 2.1% 30,565 10,227 40,887 51,114 1.8% 56,218 107,332
Class A......... 1,935 -- 1,935 * 1,935 -- -- -- -- -- --
Ross, Gregory D.
(3)
Class B......... 2,394 35,556 37,950 1.0% 11,500 1,950 24,500 26,450 * 36,474 62,924
Class A......... 1,500 -- 1,500 * -- 1,500 -- 1,500 * -- 1,500
Safeguard
Scientifics,
Inc.
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 347,835 -- 347,835 1.9% 196,000 151,835 -- 151,835 * -- 151,835
Shinnick, Michael
L. (3)
Class B......... 2,295 23,181 25,476 * 14,500 1,776 9,200 10,976 * 36,474 47,450
Class A......... -- -- -- -- -- -- -- -- -- -- --
Siefertson, Mark
E. (3)(14)
Class B......... 40,586 14,170 54,756 1.5% 36,500 7,918 10,338 18,256 * 115,524 133,780
Class A......... -- -- -- -- -- -- -- -- -- -- --
Siefkas, Kirk E.
(3)
Class B......... 103,830 53,928 157,758 4.1% 49,500 54,330 53,928 108,258 3.7% 53,182 161,440
Class A......... -- -- -- -- -- -- -- -- -- -- --
Spira, James C.
(3)
Class B......... 132,080 36,784 168,864 4.5% 53,500 78,580 36,784 115,364 4.0% 58,928 174,292
Class A......... 450 -- 450 * -- 450 -- 450 * -- 450
Van Ermen, Steven
R. (3)
Class B......... 14,581 23,181 37,762 1.0% 15,500 3,137 19,125 22,262 * 36,474 58,736
Class A......... 7,511 -- 7,511 * -- 7,511 -- 7,511 * -- 7,511
Weakland, Thomas
E. (3)
Class B......... 46,485 6,539 53,024 1.4% 15,500 30,985 6,539 37,524 1.3% 64,771 102,295
Class A......... 1,000 -- 1,000 * -- 1,000 -- 1,000 * -- 1,000
Weyl, Alan J.
Class B......... -- -- -- -- -- -- -- -- -- -- --
Class A......... 54,000 -- 54,000 * 12,500 41,500 -- 41,500 * -- 41,500
Yeffeth, Glen B.
(3)
Class B......... 4,630 14,316 18,946 * 12,500 2,735 3,711 6,446 * 57,265 63,711
Class A......... -- -- -- -- -- -- -- -- -- -- --
Other selling
stockholders (4)
Class B......... 152,745 128,567 281,312 7.3% 98,000 114,919 68,393 183,312 6.3% 866,123 1,049,435
Class A......... 107,855 -- 107,855 * 28,000 79,855 -- 79,855 2.8% -- 79,855
All selling
stockholders
(18)
Total Class B's. 3,289,278 1,095,546 4,384,824 90.5% 1,235,301 2,399,113 750,410 3,149,523 87.3% 3,392,810 6,542,333
Total Class A's. 1,853,746 136,522 1,990,268 11.1% 539,699 1,352,047 98,522 1,450,569 7.0% 232,609 1,683,178
--------- --------- --------- --------- --------- ------- --------- --------- ---------
Total........... 5,143,024 1,232,068 6,375,092 1,775,000 3,751,160 848,932 4,600,092 3,625,419 8,225,511
========= ========= ========= ========= ========= ======= ========= ========= =========
</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 this
offering (i) assumes 17,955,445 shares of Class A Common Stock and
3,748,096 shares of Class B Common Stock were outstanding as of the date
of this prospectus, (ii) assumes 20,728,746 shares of Class A Common
Stock and 2,857,931 shares of Class B Common Stock will be outstanding
upon the successful completion of this offering, (iii) includes
additional shares of Common Stock issuable pursuant to options or
warrants held by such owner which may be exercised within 60 days after
the date of this prospectus and (iv) no exercise of the underwriters'
overallotment option.
36
<PAGE>
(2) These unvested options vest over various periods over the next 5 years
and have an average exercise price of $13.35.
(3) This stockholder is a Partner.
(4) Total of 18 persons. Includes thirteen partners. Each of these persons
are selling 10,000 or fewer shares of common stock and owns less than 1%
of the outstanding common stock.
(5) This stockholder is a Director.
(6) Excludes shares of Class A Common Stock held in trust for certain members
of the Anderson family.
(7) The address of each of Messrs. Bergstein, Gutstein, Mikolajczyk, and
Sviokla is 875 North Michigan Avenue, Suite 3000, Chicago, Illinois
60611.
(8) Excludes 299,970 shares of Class A Common Stock held in trust for certain
members of the Bergstein family. Of these Class A shares held in trust,
118,000 are being sold as a part of this offering.
(9) Excludes all shares of common stock directly owned by Mr. Bergstein.
(10) All holders of Class B Common Stock have granted Mr. Bergstein the right
to vote such shares pursuant to the terms of irrevocable proxies.
(11) Includes certain shares held in trust.
(12) Excludes shares of Class A Common Stock held in trust for certain members
of the Moffitt family.
(13) Includes 300 shares of Class A Common Stock and 16,350 shares of Class B
Common Stock issuable upon the exercise of stock options and that are
owned by Linda Y. Mann, the wife of Mr. McKula. The unvested options
total also includes 9,300 shares of Class B Common Stock issuable upon
the exercise of stock options that are owned by Linda Y. Mann.
(14) Excludes shares of Class A Common Stock held in trust for certain members
of the Siefertson family.
(15) Includes 19,553 options to purchase Class A Common Stock granted to
Gordon & Glickson PC, the law firm for which Mr. Gordon is the managing
director.
(16) Shares beneficially owned prior to this offering include 345,136 shares
of Class B Common Stock to be issued upon exercise of options immediately
prior to closing of this offering.
(17) Excludes shares of Class B Common Stock Mr. Bergstein beneficially owns
pursuant to the terms of irrevocable proxies from selling stockholders
other than directors and executive officers.
(18) Excludes shares of Class B Common Stock Mr. Bergstein beneficially owns
pursuant to the terms of irrevocable proxies from stockholders who are
not selling shares in this offering.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock 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 11, 2000, there were 22,086,677 shares of common stock
outstanding and held of record by approximately 6,700 stockholders and
includes 383,136 shares issued upon exercise of options immediately prior to
the closing of this offering. After giving effect to the issuance of the
1,500,000 shares of Class A Common Stock in this offering and the exercise of
outstanding warrants and options in conjunction with this offering, there will
be 23,586,677 shares of our common stock outstanding.
Our 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. Permitted holders of Class B Common Stock are
persons who are employees of Diamond or any of our majority-owned subsidiaries
and us. A person shall cease to be a permitted holder on the date on which he
or she ceases to be an employee of Diamond or any of our majority-owned
subsidiaries. The holders of common stock do not have cumulative voting
rights. The election of directors is determined by a plurality of
37
<PAGE>
votes cast and, except as otherwise required by law or our certificate of
incorporation, all other matters are determined by a majority of the votes
cast. Accordingly, the holders of the Class B Common Stock may significantly
influence the election of all directors standing for election. All of the
holders of our Class B Common Stock have granted proxies to our Chief
Executive Officer to vote their shares. After giving effect to this offering,
our current Chief Executive Officer will control approximately 40.5% of the
voting rights of our outstanding common stock. See "Risk Factors--Our Chief
Executive Officer Controls a Significant Portion of the Voting Rights Which
Limits Your Ability to Influence Corporate Matters." 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.
As of February 11, 2000, there were 17,955,445 shares of Class A Common Stock
and 3,748,096 shares of Class B Common Stock issued and outstanding. Upon
completion of this offering, there will be 20,728,746 shares of Class A Common
Stock and 2,857,931 shares of Class B Common Stock outstanding.
The holders of our common stock are entitled to receive ratably such
dividends, if any, as may be declared by our 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 Diamond, the holders of our common stock are entitled to receive ratably
our net assets 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 us and the selling stockholders in
this offering will be, when issued and paid for, fully paid and nonassessable.
The rights, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of our preferred stock which we may designate and issue
in the future. See "--Preferred Stock."
Preferred Stock
We, by resolution of our board of directors and without any further vote or
action by the stockholders, have 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 our 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 our preferred stock
may have the effect of delaying, deferring or preventing a change of control
of Diamond. As of the date of this prospectus, there are no shares of
preferred stock outstanding, and we have no plans to issue any shares of our
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, telephone number (800) 526-0801.
38
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Deutsche Bank
Securities, Inc., Salomon Smith Barney Inc., Adams, Harkness & Hill, Inc. and
Friedman, Billings, Ramsey & Co., Inc. are acting as representatives, have
severally agreed to purchase, and we and the selling stockholders have agreed
to sell to them, the respective number of shares of Class A Common Stock that
each underwriter has agreed to purchase is set forth opposite the names of the
underwriters below:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated........................
Goldman, Sachs & Co......................................
Deutsche Bank Securities, Inc............................
Salomon Smith Barney Inc.................................
Adams, Harkness & Hill, Inc..............................
Friedman, Billings, Ramsey & Co., Inc....................
---------
Total................................................ 3,275,000
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and the selling stockholders and subject to prior sale. The
shares will be sold by the underwriters at a price established by the pricing
committee of our board of directors. The underwriting agreement provides that
the obligations of the several underwriters to pay for and accept delivery of
the shares of Class A Common Stock offered by this prospectus are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the
shares offered by this prospectus if any shares are taken. However, the
underwriters are not required to take or pay for the shares covered by the
underwriters over-allotment option described below.
The underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain dealers. After the
offering, this offering price and other selling terms may from time to time be
varied by the representatives of the underwriters.
The selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of 491,250 additional shares of Class A Common Stock at the public
offering price listed on the cover page of this prospectus, less underwriting
discounts and commissions. The underwriters may exercise the option solely for
the purpose of covering over-allotments, if any, made in connection with this
offering. To the extent the option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares of Class A Common Stock as the number
listed next to such underwriter's name in the preceding table bears to the
total number of shares listed next to the names of all underwriters in the
preceding table. If the underwriters' over-allotment option is exercised in
full, the total price to the public would be $ and the total
underwriters' discounts and commissions would be $ .
We, our directors, partners and the selling stockholders have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the underwriters, each of us will not, during the period ending 90
days from the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of our
common stock.
39
<PAGE>
Whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in case or otherwise.
The restrictions described in the previous paragraph do not apply to:
. the sale of shares to the underwriters under the underwriting agreement;
. transactions by any person other than Diamond relating to shares of our
common stock or other securities acquired in open market transactions
after the completion of this offering; or
. the issuance by us of shares of our common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing.
In order to facilitate this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may over-allot in connection with
this offering, creating a short position in our common stock for their own
account. In addition, to cover over-allotments or to stabilize the price of
our common stock, the underwriters may bid for, and purchase, shares of common
stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing our
common stock in this offering if the syndicate repurchases previously
distributed shares of our common stock in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of our common stock
above independent market levels. The underwriters are not required to engage
in these activities and may end any of these activities at any time.
The underwriters and dealers may engage in passive market making
transactions in the Class A Common Stock in accordance with Rule 103 of
Regulation M promulgated by the Securities and Exchange Commission. In
general, a passive market maker may not bid for, or purchase, the Class A
Common Stock at a price that exceeds the highest independent bid. In addition,
the net daily purchases made by any passive market maker generally may not
exceed 30% of its average daily trading volume in the Class A Common Stock
during a specified two-month prior period, or 200 shares, whichever is
greater. A passive market maker must identify passive market making bids as
such or maintain the market price of the Class A Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
From time to time, certain of the underwriters have provided and may
continue to provide, investment banking services to us.
Since February 1997, we have provided consulting services in the ordinary
course of business to Goldman, Sachs & Co., one of the representatives of the
underwriters. Through December 1999, we have earned in excess of $30 million
in connection with services provided to Goldman, Sachs & Co. Our work for
Goldman, Sachs & Co. is ongoing and we anticipate it to continue in the
future.
We, the selling stockholders and the underwriters have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the shares of our Class A Common Stock will be passed upon
for us by Winston & Strawn, Chicago, Illinois. Legal matters in connection
with this offering will be passed upon for the underwriters by Ropes & Gray,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Diamond Technology Partners
Incorporated as of March 31, 1998 and 1999, and for each of the years in the
three-year period ended March 31, 1999 have been included herein and in the
registration statement in reliance upon the reports of KPMG LLP, independent
certified public accountants, appearing elsewhere in the prospectus, and upon
the authority of them as experts in accounting and auditing.
40
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information about us and our common stock, you should
review the registration statement and exhibits and schedules thereto. You may
read and copy any document we file at the Commission's public reference room
at 450 Fifth Street, N.W., Washington. D.C. 20549. Please call the Commission
at 1-800-SEC-0330 for further information on the public reference room. Our
filings are also available to the public from the Commission's web site at
http://www.sec.gov.
We are required to file periodic reports, proxy statements and other
information with the Commission. These periodic reports, proxy statements and
other information will be available for inspection and copying at the
Commission's public reference room and the web site of the Commission referred
to above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or information filed by us (File No. 000-22125)
with the Commission are incorporated in this prospectus by reference and made
a part hereof:
. Annual Report on Form 10-K for the year ended March 31, 1999;
. Report on Form 8-K filed April 26, 1999 announcing the acquisition of
OmniTech Consulting Group, Inc.;
. Report on Form 8-K filed October 22, 1999 announcing three-for-two stock
split;
. Quarterly Reports on Form 10-Q for the quarters ended June 30, 1999,
September 30, 1999 and December 31, 1999;
. Proxy Statement for the 1999 Annual Meeting of Stockholders;
. The description of our common stock contained in the Registration
Statement on Form 8-A as filed with the Commission on February 10, 1997;
and
. All documents filed by us with the Commission pursuant to Section 13(a),
13(c), 14 or 14(d) of the Exchange Act after the date of this prospectus
and prior to the termination of this offering.
Any statement contained in a document or a portion of which is incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, on the written or oral request of any such person, a
copy of any and all of the documents incorporated herein by reference (other
than exhibits not specifically incorporated herein by reference). Requests for
such copies should be directed to Investor Relations, Diamond Technology
Partners Incorporated, 875 North Michigan Avenue, Suite 3000, Chicago,
Illinois 60611, telephone number (312) 255-5000, e-mail address
[email protected].
41
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999 and December 31,
1999..................................................................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended March 31,
1997, 1998 and 1999 and the nine months ended December 31, 1998 and 1999. F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended
March 31, 1997, 1998 and 1999 and the nine months ended December 31,
1999..................................................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31,
1997, 1998 and 1999 and the nine months ended December 31, 1998 and 1999. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Diamond Technology Partners Incorporated:
We have audited the accompanying consolidated balance sheets of Diamond
Technology Partners Incorporated and subsidiary as of March 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the fiscal years in the three-year period ended
March 31, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Diamond
Technology Partners Incorporated and subsidiary as of March 31, 1998 and 1999,
and the results of its operations and its cash flows for each of the years in
the three-year period ended March 31, 1999 in conformity with generally
accepted accounting principles.
KPMG LLP
Chicago, Illinois
April 19, 1999, except as to
Note 9, which is as of
November 1, 1999
F-2
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31, March 31, December 31,
Assets 1998 1999 1999
------ --------- --------- ------------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents................... $31,437 $47,698 $46,997
Accounts receivable, net of allowance of
$559 and $419 as of
March 31, 1998 and 1999, respectively and
$1,670 as of December 31, 1999............. 5,063 10,434 12,496
Prepaid expenses............................ 548 1,790 6,546
Deferred income taxes....................... 773 735 735
------- ------- -------
Total current assets...................... 37,821 60,657 66,774
Computers, equipment and software, net........ 1,644 3,419 8,069
Other assets.................................. 887 3,010 6,725
Intangibles, net.............................. -- -- 9,821
------- ------- -------
Total assets.............................. $40,352 $67,086 $91,389
======= ======= =======
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable............................ $ 1,734 $ 1,468 $ 3,447
Note payable, current portion............... -- -- 500
Accrued compensation........................ 6,535 8,835 7,367
Deferred revenue............................ 1,129 709 1,781
Other accrued liabilities................... 2,187 2,773 2,715
------- ------- -------
Total current liabilities................. 11,585 13,785 15,810
Note payable, less current portion............ -- -- 500
------- ------- -------
Total liabilities......................... 11,585 13,785 16,310
------- ------- -------
Stockholders' Equity:
Preferred Stock, $1.00 par value, 2,000
shares authorized, no shares issued........ -- -- --
Class A Common Stock, $.001 par value,
40,000 shares authorized, 10,947, 15,008
and 18,137 shares issued................... 11 15 18
Class B Common Stock, $.001 par value,
20,000 shares authorized, 7,331, 5,474 and
3,723 shares issued........................ 7 5 4
Additional paid-in capital.................. 22,457 42,146 58,051
Notes receivable from sale of common stock.. (323) (32) (341)
Retained earnings........................... 6,615 16,451 27,412
------- ------- -------
28,767 58,585 85,144
Less Class A Common Stock in treasury, at
cost, 456 and 771 shares................... -- 5,284 10,065
------- ------- -------
Total stockholders' equity................ 28,767 53,301 75,079
------- ------- -------
Total liabilities and stockholders'
equity................................... $40,352 $67,086 $91,389
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal year ended March
31, Nine months ended
------------------------- -------------------------
December 31, December 31,
1997 1998 1999 1998 1999
------- ------- ------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues.............. $37,557 $58,369 $82,389 59,705 92,825
------- ------- ------- ------- -------
Operating expenses:
Project personnel and
related expenses....... 21,863 31,619 43,275 31,602 49,618
Professional development
and recruiting......... 6,272 6,155 9,448 6,840 8,833
Marketing and sales..... 1,928 3,210 4,669 3,371 5,007
Management and
administrative support. 6,348 8,602 11,298 8,223 12,660
------- ------- ------- ------- -------
Total operating
expenses............. 36,411 49,586 68,690 50,036 76,118
------- ------- ------- ------- -------
Income from operations.... 1,146 8,783 13,699 9,669 16,707
Interest income........... 183 1,201 2,534 1,929 1,297
Interest expense.......... (11) (51) (46) (14) (33)
------- ------- ------- ------- -------
Income before taxes....... 1,318 9,933 16,187 11,584 17,971
Income taxes.............. 685 3,925 6,351 4,555 7,009
------- ------- ------- ------- -------
Net income................ $ 633 $ 6,008 $ 9,836 $ 7,029 $10,962
======= ======= ======= ======= =======
Basic earnings per share
of common stock.......... $ 0.05 $ 0.34 $ 0.49 $ 0.35 $ 0.53
Shares used in computing
basic earnings per share
of common stock.......... 13,716 17,634 19,916 19,874 20,519
Diluted earnings per share
of common stock.......... $ 0.04 $ 0.28 $ 0.42 $ 0.30 $ 0.43
Shares used in computing
diluted earnings per
share of common stock.... 14,856 21,258 23,346 23,162 25,401
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Notes
Class Class Receivable
A B Class A Additional from Sale Retained Total
Common Common Stock Paid-in of Common (Deficit) Treasury Stockholders'
Stock Stock Subscribed Capital Stock Earnings Stock Equity
------ ------ ---------- ---------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1996................... $ 5 $ 6 $ -- $ 6,840 $(257) $ (26) $ -- $ 6,568
Stock issued and
subscribed............. 3 1 8,476 2,487 (120) -- -- 10,847
Purchase of stock....... -- -- -- (3) -- -- -- (3)
Repayment of notes...... -- -- -- -- 255 -- -- 255
Net income.............. -- -- -- -- -- 633 -- 633
--- --- ------- ------- ----- ------- ------- -------
Balance at March 31,
1997................... 8 7 8,476 9,324 (122) 607 -- 18,300
Issuance of stock....... 3 -- (8,476) 11,554 (443) -- -- 2,638
Exercise of stock
options................ -- -- -- 1,192 -- -- -- 1,192
Income tax benefit
related to stock option
exercises.............. -- -- -- 480 -- -- -- 480
Purchase of stock....... -- -- -- (93) -- -- -- (93)
Repayment of notes...... -- -- -- -- 242 -- -- 242
Net income.............. -- -- -- -- -- 6,008 -- 6,008
--- --- ------- ------- ----- ------- ------- -------
Balance at March 31,
1998................... 11 7 -- 22,457 (323) 6,615 -- 28,767
Issuance of stock....... 1 -- -- 15,998 (60) -- -- 15,939
Exercise of warrants.... -- -- -- 1,326 -- -- -- 1,326
Exercise of stock
options................ -- 1 -- 1,460 -- -- -- 1,461
Income tax benefit
related to stock option
exercises.............. -- -- -- 1,331 -- -- -- 1,331
Purchase of stock....... -- -- -- (426) -- -- (5,284) (5,710)
Conversion to Class A... 3 (3) -- -- -- -- -- --
Repayment of notes...... -- -- -- -- 351 -- -- 351
Net income.............. -- -- -- -- -- 9,836 -- 9,836
--- --- ------- ------- ----- ------- ------- -------
Balance at March 31,
1999................... $15 $ 5 $ -- $42,146 $ (32) $16,451 $(5,284) $53,301
Issuance of stock
(unaudited)............ -- -- -- 4,761 (579) -- -- 4,182
Exercise of stock
options and warrants
(unaudited)............ 1 1 -- 2,764 -- -- -- 2,766
Income tax benefit
related to stock option
exercises (unaudited).. -- -- -- 7,252 -- -- -- 7,252
Purchase of stock
(unaudited)............ -- -- -- (117) -- -- (4,781) (4,898)
Conversion to Class A
(unaudited)............ 2 (2) -- -- -- -- -- --
Repayment of Notes
(unaudited)............ -- -- -- -- 270 -- -- 270
Employee stock purchase
plan (unaudited)....... -- -- -- 1,245 -- -- -- 1,245
Net Income (unaudited).. -- -- -- -- -- 10,961 -- 10,961
--- --- ------- ------- ----- ------- ------- -------
Balance at December 31,
1999 (unaudited)....... 18 4 -- 58,051 (341) 27,412 (10,065) 75,079
=== === ======= ======= ===== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended March
31, Nine Months Ended
------------------------- -------------------------
December 31, December 31,
1997 1998 1999 1998 1999
------- ------- ------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 633 $ 6,008 $ 9,836 $ 7,029 $10,962
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization....... 1,290 871 998 741 2,012
Tax benefits from
employee stock
plans.............. -- 480 1,331 709 7,252
Deferred
compensation
forgiven........... (967) -- -- -- --
Cancellation of
notes receivable... 226 -- -- -- --
Deferred income
taxes.............. (213) (461) 38 -- --
Changes in assets and
liabilities:
Accounts receivable. (1,192) (567) (5,371) (2,050) (56)
Prepaid expenses and
other.............. 617 15 (1,242) (557) (4,677)
Accounts payable.... 454 125 (266) 163 1,651
Deferred
compensation....... (248) -- -- -- --
Accrued
compensation....... (1,089) 6,535 2,300 607 (2,955)
Deferred revenue.... 710 419 (420) (517) 1,072
Income taxes
payable............ 480 (82) -- (476) (4,139)
Other assets and
liabilities........ 603 655 (1,314) 337 (1,005)
------- ------- ------- ------- -------
Net cash provided
by operating
activities....... 1,304 13,998 5,890 5,986 10,117
------- ------- ------- ------- -------
Cash flows used in
investing activities:
Capital expenditures,
net.................. (1,218) (475) (2,773) (1,821) (5,966)
Acquisitions, net of
cash acquired........ -- -- -- -- (4,240)
Other assets.......... (476) (648) (223) (875) --
------- ------- ------- ------- -------
Cash flows used in
investing activities... (1,694) (1,123) (2,996) (2,696) (10,206)
------- ------- ------- ------- -------
Cash flows from
financing activities:
Proceeds from notes
payable.............. 2,250 -- -- -- --
Repayment of notes
payable.............. (375) (2,000) -- -- --
Stock issuance costs.. (692) (649) (1,523) (1,523) --
Common stock issued
and subscribed....... 12,122 3,757 20,600 20,065 4,169
Purchase of treasury
stock................ -- -- (5,284) (2,984) (4,781)
Repurchase of common
stock................ (3) (93) (426) -- --
------- ------- ------- ------- -------
Net cash provided
by financing
activities....... 13,302 1,015 13,367 15,558 (612)
------- ------- ------- ------- -------
Net increase in cash and
cash equivalents....... 12,912 13,890 16,261 18,848 (701)
Cash and cash
equivalents at
beginning of year...... 4,635 17,547 31,437 31,437 47,698
------- ------- ------- ------- -------
Cash and cash
equivalents at end of
year................... $17,547 $31,437 $47,698 $50,285 $46,997
======= ======= ======= ======= =======
Supplemental disclosure
of cash flow
information:
Cash paid during the
year for interest.... $ 44 $ 51 $ 24 $ 14 $ 19
Cash paid during the
year for income
taxes................ 418 4,558 5,875 4,241 2,709
Supplemental disclosure
for noncash investing
and financing
activities:
Issuance of common
stock for notes...... $ 120 $ 443 $ 60 $ 60 $ 579
Stock issuance costs
accrued but not paid. 609 -- -- -- --
Deferred and incentive
compensation applied
to Payment for common
stock................ 155 1,041 -- -- --
Issuance of
acquisition note
payable.............. -- -- -- -- 1,000
Issuance of common
stock in acquisition. -- -- -- -- 4,177
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
Diamond Technology Partners Incorporated (the "Company" or "Diamond") is an
e-business services firm that synthesizes business and industry insight with
technology expertise to create innovative digital strategies for leading
national and multinational corporations. The Company serves clients primarily
in four key markets: financial services, consumer and industrial products and
services, telecommunications and energy, and health care and insurance. The
Company offers services in digital strategy development, program management,
change management and profit improvement.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All intercompany accounts and
balances have been eliminated in consolidation. Certain prior period amounts
have been reclassified to conform with current period presentation.
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 Software
Computers, equipment and software are stated at cost less accumulated
depreciation. Depreciation is based on the estimated useful lives of the
assets 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 $1,239,000, $720,000 and
$998,000 for the years ended March 31, 1997, 1998 and 1999, 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.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist principally of cash investments and
accounts receivable. The Company places its cash investments with high quality
financial institutions. Trade receivables potentially subject the Company to
credit risk. The Company extends credit to its customers based upon an
evaluation of the customer's financial condition and credit history and
generally does not require collateral. The Company has historically incurred
minimal credit losses. The Company had one customer which individually
accounted for 14% of revenues as of and for the year ended March 31, 1997. No
customers individually accounted for more than 10% of revenues as of and for
the year ended March 31, 1998. The Company had two customers which
collectively accounted for 25% of revenues as of and for the year ended March
31, 1999.
F-7
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 of 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.
Earnings Per Share
The Company's basic earnings per share and diluted earnings per share are
computed in accordance with Statement of Financial Accounting Standards No.
128 "Earnings Per Share," and are presented in accordance with Securities and
Exchange Commission Staff Accounting Bulletin ("SAB") No. 98. SAB No. 98
revised the calculation of pre-initial public offering common stock and common
stock equivalent shares previously governed by SAB No. 83. The Company has
retroactively applied SAB No. 98 to all periods prior to fiscal year 1998.
Basic earnings per share is computed using the weighted average number of
common shares outstanding. Diluted earnings per share is computed using the
weighted average number of common shares outstanding and the assumed exercise
of stock options and warrants (using the treasury stock method). Following is
a reconciliation of the shares (in thousands) used in computing basic and
diluted earnings per share for the fiscal years ended March 31, 1997, 1998 and
1999:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Shares used in computing basic earnings per share... 13,716 17,634 19,916
Dilutive effect of stock options and warrants....... 1,140 3,624 3,430
------ ------ ------
Shares used in computing diluted earnings per share. 14,856 21,258 23,346
====== ====== ======
Antidilutive securities not included in dilutive
earnings per share calculation..................... 956 66 24
====== ====== ======
</TABLE>
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 assets and liabilities and the
disclosure of contingent assets and liabilities, and revenues and expenses
during the period reported. Actual results could differ from those estimates.
Financial Instruments
The fair value of the Company's financial instruments approximates their
carrying value.
Interim Financial Information
The unaudited financial statements as of December 31, 1999 and for the nine
month periods ended December 31, 1999 and 1998 include all normal and
recurring adjustments that are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for such
periods.
F-8
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Computers, Equipment and Training Software
Computers, equipment and software at March 31, 1998, and 1999 are
summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Computers and equipment................................. $ 2,322 $ 4,272
Software................................................ 1,429 2,252
------- -------
3,751 6,524
Less accumulated depreciation and amortization.......... (2,107) (3,105)
------- -------
$1,644 $ 3,419
======= =======
</TABLE>
(4) Commitments
The Company leases office space and equipment under various operating
leases. As of March 31, 1999, the minimum future lease payments under
operating leases with noncancelable terms in excess of one year are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
2000.............................. $1,878
2001.............................. 1,115
2002.............................. 811
2003.............................. 403
2004.............................. 324
Thereafter........................ 647
------
$5,178
======
</TABLE>
Rent expense under operating leases amounted to $980,000, $1,611,000 and
$1,660,000 for the years ended March 31, 1997, 1998, and 1999, respectively.
The Company is party to standby letters of credit in support of the minimum
future lease payments under leases for permanent office space and office
furniture amounting to $367,000 as of March 31, 1999, declining annually
during the lease terms.
(5) Notes Payable and Line of Credit
Notes payable at March 31, 1997 consisted of a $2,000,000 loan from
Safeguard Scientifics, Inc. ("Safeguard"). Interest on the outstanding
principal balance of the loan was payable quarterly at a rate of 6%. The
Company repaid the loan from Safeguard in April 1997 following the closing of
its initial public offering ("IPO").
The Company has an available line of credit of $10,000,000 with a
commercial bank, which has been reduced by letters of credit outstanding as of
March 31, 1999 in the amount of $367,000. At March 31, 1999, all remaining
amounts under this line of credit were available to the Company at the bank's
prime rate or LIBOR plus 1.75%, at the Company's discretion.
(6) Stockholders' Equity
Stock Split, Stock Recapitalization and Public Offerings
The Board of Directors authorized a 1.65 to 1 stock split in the form of a
stock dividend effective February 18, 1997. All references in the financial
statements to share and per share data have been adjusted to
F-9
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
effect this stock split. Additionally, on February 18, 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 of Directors. 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
only be owned beneficially or of record by employees of the Company or by the
Company.
On March 31, 1997, the Company completed its IPO and sold 2,632,500 of its
common shares at the price of $3.67 per share. The Company realized $8,476,000
in connection with the sale, net of the payment of the underwriters
commissions and other expenses of the offering. Of the net proceeds,
$2,000,000 were used to repay a loan from Safeguard. In the offering, an
additional 2,400,000 shares were sold by selling stockholders. On April 8,
1997, the underwriters', pursuant to their exercise of the over-allotment
option, purchased an additional 480,000 shares of the Company's common stock
at $3.67 per share. The Company's proceeds from these additional shares, net
of expenses, were $1,595,000.
In April 1998, the Company completed an offering and sold 982,188 shares of
Class A Common Stock at a price of $17.83 per share. The Company realized
approximately $15.9 million in connection with the sale, net of payment of the
underwriters' commissions and other expenses of the offering. In the offering,
an additional 3,517,812 shares were sold by selling stockholders.
In September 1998, the Company's Board of Directors authorized the
repurchase, from time to time, of up to one million shares of the Company's
Class A Common Stock. These repurchases were authorized to be made in the open
market or in privately negotiated transactions. At March 31, 1999, the number
of shares purchased under this authorization was 455,700 at an aggregate cost
of $5,284,176. The Company funded the repurchases through its cash balances.
Warrants and Stock Options
In November 1996, the Company granted additional warrants to Safeguard. The
warrants permit the holder to purchase up to 789,899 shares of stock at an
exercise price of $3.67 per share and expire on November 1, 2001. On January
31, 1997, Safeguard transferred 428,123 of these warrants to certain of its
affiliates. Of these warrants, 361,773 were exercised on April 7, 1998.
Under the Company's 1994 Stock Option Plan and under the Company's 1998
Equity Incentive Plan (collectively, the "Stock Option Plans" or "Plans"), the
Company may grant qualified incentive stock options to officers and employees
of the Company. The Stock Option Plans provide that, subsequent to the IPO,
options will be granted at the average of the closing price of a share of
Class A Common Stock on the Nasdaq Stock Market System for the ten trading
days immediately preceding the date of grant. Options have been granted to
officers 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 which fully vest upon the third
anniversary of the date of grant and expire on the fifth anniversary of the
date of grant. Options were also granted to employees at various times which
vest over periods ranging from 18 months to 3 years from the date of grant and
which expire on the fifth anniversary of the date of grant. The Company's
Board of Directors has also granted non-qualified stock options 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 vest over
periods ranging from immediate to five years.
F-10
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the transactions, both incentive and
nonqualified, pursuant to the Plans (amounts in thousands, except price per
share amounts).
<TABLE>
<CAPTION>
Weighted-
Average
Shares Exercise
Under Price Per
Option Range of Prices Share
------ ---------------- ---------
<S> <C> <C> <C>
Balances, March 31, 1996.............. 1,674 $0.81 to $ 1.21 $ 0.99
Granted............................. 3,306 1.21 to 3.67 2.15
Exercised........................... -- -- --
Canceled............................ (228) 0.81 to 3.63 1.35
------ ---------------- ------
Balances, March 31, 1997.............. 4,752 0.81 to 3.67 1.77
Granted............................. 2,444 4.27 to 15.07 12.97
Exercised........................... (822) 0.81 to 3.67 1.45
Canceled............................ (215) 0.81 to 12.83 2.01
------ ---------------- ------
Balances, March 31, 1998.............. 6,159 0.81 to 15.07 6.25
Granted............................. 3,530 6.73 to 19.87 9.16
Exercised........................... (972) 0.81 to 8.93 1.52
Canceled............................ (2,555) 1.21 to 19.87 12.74
------ ---------------- ------
Balances, March 31, 1999.............. 6,162 $0.81 to $18.27 $ 6.20
====== ================ ======
</TABLE>
At March 31, 1997, 1998 and 1999, 297,000, 931,500 and 772,500 options were
exercisable, respectively, under the Plans.
The following table summarizes information about stock options under the
Plans at March 31, 1999 (share amounts in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------
Range of Options Weighted-Average Options
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Prices at 3/31/99 Contractual Life Exercise Price at 3/31/99 Exercise Price
-------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.81
to
$ 1.21 1,256 3.23 $ 1.17 294 $ 1.15
1.51
to
4.40 1,211 3.69 2.93 446 2.43
6.67
to
7.75 2,624 5.26 7.74 8 7.75
8.10
to
13.27 623 5.27 10.09 26 8.91
14.30
to
18.27 450 5.66 14.61 -- --
------ ----- ---- ------ --- ------
$ 0.81
to
$18.27 6,164 4.57 $ 6.20 774 $ 2.21
====== ===== ==== ====== === ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its option plans. Accordingly, no compensation expense has been recognized.
Had compensation expense for the Company's Stock Option Plans been determined
based on the fair value at the grant date for awards under these plans
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and diluted earnings per share would have been reduced by
$229,000 or $.01 per share in 1997, $345,000 or $.01 per share in 1998, and
$2,099,000 or $0.09 per share in 1999. The weighted-average fair value of the
options granted under the Stock Option Plans in 1997, 1998 and 1999,
calculated using the Black-Scholes pricing model, was $.47, $4.48, and $2.68
respectively. The following assumptions were used in
F-11
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Black-Scholes pricing model for options granted in 1997, 1998 and 1999:
risk-free interest rate ranging from 4.4% to 6.3%, estimated volatility of
35%, expected dividend yield 0% and an expected life of 1 to 6 years.
(7) Income Taxes
The provision for income taxes for fiscal years ended March 31, 1997, 1998
and 1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Current:
Federal........................................... $ 656 $3,781 $5,654
Foreign........................................... 131 -- --
State............................................. 111 605 659
----- ------ ------
898 4,386 6,313
Deferred............................................ (213) (461) 38
----- ------ ------
$ 685 $3,925 $6,351
===== ====== ======
</TABLE>
The total tax provision differs from the amount computed by applying the
federal income tax rate of 34 percent for 1997 and 1998 and 35 percent for
1999 to income (loss) before income taxes for the following reasons (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ------ ------
(Amounts in
thousands)
<S> <C> <C> <C>
Federal income taxes at statutory rate................ $448 $3,377 $5,665
Effect of permanent differences....................... 185 194 254
State income taxes, net of federal benefit............ 52 354 432
---- ------ ------
$685 $3,925 $6,351
==== ====== ======
</TABLE>
The tax effects of the temporary differences that give rise to the deferred
tax assets and liabilities at March 31, 1998 and 1999 are presented below (in
thousands):
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(Amounts in thousands)
<S> <C> <C>
Deferred tax assets:
Reserves and allowances........................ 814 521
Accrued bonuses................................ 101 318
Accrued recruiting............................. 145 247
----------- -----------
Total gross deferred tax assets.............. 1,060 1,086
Deferred tax liabilities:
Accelerated depreciation....................... 97 157
Capitalized assets............................. 120 18
Other.......................................... 70 176
----------- -----------
Total deferred tax liabilities............... 287 351
----------- -----------
Net deferred income taxes........................ $ 773 $ 735
=========== ===========
</TABLE>
Management believes it is more likely than not that the deferred tax assets
will be realized in the future.
F-12
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) 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 could not be distributed prior to March 31,
1996 without approval by the Board of Directors. Amounts deferred under this
program accrued interest at rates available to the Company from its bank and
were immediately vested. Effective April 1, 1996, the Board of Directors
elected to discontinue this program. Pursuant to an agreement entered into by
all officers who had deferred compensation, approximately $967,000 was
forgiven during the year ended March 31, 1997.
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.
(9) Stock Split
The Company's Board of Directors approved a three-for-two stock split of
the Company's Class A and Class B Common Stock, effective November 1, 1999.
Shareholders of record at the close of business on October 25, 1999 received
an additional share for every two shares of the Company's Class A or Class B
Common Stock held. The consolidated balance sheets, statements of operations,
statements of stockholders' equity and notes to consolidated financial
statements have been restated to reflect this split.
(10) Business Combinations (Unaudited)
In October 1999, the Company acquired Leverage Information Systems, Inc.,
("Leverage"), a San Francisco based systems architecture and development
company specializing in the building of complex web sites and intranets. Under
the terms of the acquisition, the Company paid $1.0 million in cash and issued
97,500 shares of the Company's Class A Common Stock.
In April 1999, the Company acquired OmniTech Consulting Group, Inc.
("OmniTech"), a Chicago-based change management firm specializing in web-based
and other multimedia corporate learning. Under the terms of the acquisition
agreement, the Company paid $4.0 million in cash, and issued a $1.0 million
note and 173,461 shares of the Company's Class A Common Stock. Additionally,
OmniTech may be paid a maximum of $2 million over the two years following the
closing date upon achievement of certain performance measures.
The acquisitions are being accounted for under the purchase method of
accounting and, accordingly, the operating results of OmniTech and Leverage
have been included in the Company's consolidated financial statements since
the date of acquisition. The excess of net assets acquired ("Goodwill")
recorded for OmniTech and Leverage approximated $10.0 million, and are being
amortized on a straight-line basis over 25 years and 7 years, respectively.
F-13
<PAGE>
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarized unaudited pro forma financial information for the
nine months ended December 31, 1999 and 1998 assume the OmniTech and Leverage
acquisitions occurred as of April 1 of each year:
<TABLE>
<CAPTION>
Nine Months
Ended December
31,
---------------
1999 1998
------- -------
(In thousands,
except per
share data)
<S> <C> <C>
Net Revenue............................................... $94,139 $68,050
Net income................................................ 10,424 7,437
Earnings per share:
Basic................................................... 0.51 0.37
Diluted................................................. 0.41 0.32
</TABLE>
These amounts are based upon certain assumptions and estimates, and do not
necessarily represent results that would have occurred if the acquisition had
taken place on the basis assumed above, nor are they indicative of the results
of future combined operations.
(11) Quarterly Financial Information (Unaudited)
The following table presents the unaudited quarterly financial information
for fiscal 1997, 1998 and 1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------
June 30 Sept 30 Dec 31 Mar 31
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year Ended March 31, 1997
Net revenues.......................... $ 7,753 $ 8,336 $10,156 $11,312
Income (loss) from operations......... (1,215) (589) 1,235 1,715
Income (loss) before taxes............ (1,193) (600) 1,306 1,805
Net income (loss)..................... (714) (385) 719 1,013
Basic earnings (loss) per share....... (0.06) (0.03) 0.05 0.07
Diluted earnings (loss) per share..... $ (0.06) $ (0.03) $ 0.05 $ 0.06
Year Ended March 31, 1998
Net revenues.......................... $12,101 $14,359 $15,390 $16,519
Income from operations................ 1,260 2,105 2,498 2,920
Income before taxes................... 1,471 2,387 2,825 3,250
Net income............................ 867 1,433 1,724 1,984
Basic earnings per share.............. 0.05 0.08 0.10 0.11
Diluted earnings per share............ $ 0.04 $ 0.07 $ 0.08 $ 0.09
Year Ended March 31, 1999
Net revenues.......................... $18,375 $20,136 $21,194 $22,684
Income from operations................ 2,932 3,289 3,448 4,030
Income before taxes................... 3,529 3,938 4,117 4,603
Net income............................ 2,135 2,383 2,511 2,807
Basic earnings per share.............. 0.11 0.12 0.13 0.14
Diluted earnings per share............ $ 0.09 $ 0.10 $ 0.11 $ 0.12
</TABLE>
F-14
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meaning assigned to them in the Prospectus which
forms a part of this Registration Statement.
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Class A Common Stock being registered. All
amounts are estimates except the Securities and Exchange Commission
registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 79,800
NASD filing fee................................................. $ 30,500
Nasdaq National Market listing fee.............................. $ 25,000
Printing expenses............................................... $125,000
Legal fees and expenses......................................... $200,000
Accounting fees and expenses.................................... $ 50,000
Miscellaneous................................................... $ 14,700
--------
Total....................................................... $525,000
========
</TABLE>
Item 15. 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 or she 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 them in connection with such proceeding if they acted in good
faith and in a manner they 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 their 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 maintains a directors and officers
liability insurance policy.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement
+5.1 Opinion of Nancy K. Bellis, the Vice President and General Counsel
of Diamond, as to the legality of the securities being registered
+23.1 Consent of Nancy K. Bellis (contained in Exhibit 5.1)
*23.2 Consent of KPMG LLP
+24.1 Power of Attorney (included on signature page)
</TABLE>
- --------
+ Filed previously.
* Filed herewith.
II-1
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and this offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 15 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 that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) 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 this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on March 20, 2000.
Diamond Technology Partners
Incorporated
/s/ Michael E. Mikolajczyk
By: _________________________________
Michael E. Mikolajczyk
President, Secretary and Director
Pursuant to the requirements of the Act, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman and Chief Executive March 20, 2000
____________________________________ Officer (Principal
Melvyn E. Bergstein Executive Officer)
* Chief Financial Officer and March 20, 2000
____________________________________ Treasurer (Principal
Karl E. Bupp Financial and Accounting
Officer)
* President, Secretary and March 20, 2000
____________________________________ Director
Michael E. Mikolajczyk
* Chief Operating Officer and March 20, 2000
____________________________________ Director
Adam J. Gutstein
* Vice President and Director March 20, 2000
____________________________________
John J. Sviokla
* Director March 20, 2000
____________________________________
Edward R. Anderson
* Director March 20, 2000
____________________________________
Donald R. Caldwell
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director March 20, 2000
____________________________________
Mark L. Gordon
* Director March 20, 2000
____________________________________
Alan C. Kay
* Director March 20, 2000
____________________________________
John D. Loewenberg
* Director March 20, 2000
____________________________________
Arnold R. Weber
</TABLE>
- --------
/s/ Michael E. Mikolajczyk
*By:____________________________
Michael E. Mikolajczyk
as attorney in fact
Michael E. Mikolajczyk was appointed the lawful attorney-in-fact with power
and authority to execute this registration statement on behalf of the officers
and directors named above pursuant to the power of attorney incorporated into
the signature pages at the time of the initial filing of this registration
statement.
II-4
<PAGE>
3,275,000 Shares
DIAMOND TECHNOLOGY PARTNERS INCORPORATED
CLASS A COMMON STOCK ($.001 PAR VALUE)
UNDERWRITING AGREEMENT
__________, 2000
<PAGE>
_____________, 2000
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Deutsche Bank Securities Inc.
Salomon Smith Barney Inc.
Adams, Harkness & Hill, Inc.
Friedman, Billings, Ramsey & Co., Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Diamond Technology Partners Incorporated, a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule II hereto (the "Underwriters"), and certain stockholders of the Company
(the "Selling Stockholders") named in Schedule I hereto severally propose to
sell to the several Underwriters, an aggregate of 3,275,000 shares of the Class
A Common Stock, par value $.001 per share, of the Company (the "Firm Shares"),
of which 1,500,000 shares are to be issued and sold by the Company and 1,775,000
shares are to be sold by the Selling Stockholders, each Selling Stockholder
selling the amount set forth opposite such Selling Stockholder's name in
Schedule I hereto.
The Selling Stockholders named in Schedule I hereto also severally
propose to sell to the several Underwriters an aggregate of not more than an
additional 491,250 shares of Class A Common Stock, par value $.001 per share,
(the "Additional Shares"), each Selling Stockholder selling the amount set forth
opposite such Selling Stockholder's name in Schedule I hereto, if and to the
extent that you, as Managers of the offering, shall have determined to exercise,
on behalf of the Underwriters, the right to purchase such shares of common stock
granted to the Underwriters in Section 3 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares". The
shares of Class A Common Stock, par value $.001 per share, of the Company to be
outstanding after giving effect to the
<PAGE>
sales contemplated hereby are hereinafter referred to as the "Common Stock". The
Company and the Selling Stockholders are hereinafter sometimes collectively
referred to as the "Sellers".
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus".
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
incorporated by reference in the Prospectus complied or will comply when so
filed in all material respects with the Exchange Act and the applicable
rules and regulations of the Commission thereunder; (ii) the Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (iii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon
<PAGE>
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered by
the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be sold by the
Selling Stockholders) outstanding prior to the issuance of the Shares to be
sold by the Company have been duly authorized and are validly issued, fully
paid and non-assessable.
(h) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.
-3-
<PAGE>
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) The Company is not, and after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus will not be, required to register as an "investment
company" as such term is defined in the Investment Company Act of 1940, as
amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have
-4-
<PAGE>
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses
or approvals would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its subsidiaries, except in each case as described in the
Prospectus.
(q) The Company and its subsidiaries do not own any real property.
The Company and its subsidiaries have good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries. Any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material
and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries, in each case
except as described in the Prospectus.
(r) Except for the Stock Purchase Agreement dated as of March 22,
1994 among the Company, Melvyn E. Bergstein, Christopher J. Moffitt,
Safeguard Scientifics, Inc. and the investors party thereto, as amended to
date, or as otherwise
-5-
<PAGE>
described in the Prospectus, there are no contracts, agreements or
understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to require
the Company to include such securities with the Shares registered pursuant
to the Registration Statement.
(s) KPMG LLP, who have certified certain financial statements of the
Company and its subsidiaries, are independent public accountants as
required by the Securities Act and the rules and regulations of the
Commission thereunder.
(t) The Shares have been approved for listing on the Nasdaq National
Market, subject to official notice of issuance.
2. Representations and Warranties of the Selling Stockholders. Each
of the Selling Stockholders represents and warrants to and agrees with each of
the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by or on behalf of such Selling
Stockholder and Nancy K. Bellis, as Custodian, relating to the deposit of
the Shares to be sold by such Selling Stockholder (the "Custody Agreement")
and the Power of Attorney appointing certain individuals as such Selling
Stockholder's attorneys-in-fact to the extent set forth therein, relating
to the transactions contemplated hereby and by the Registration Statement
(the "Power of Attorney") will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of such Selling
Stockholder (if such Selling Stockholder is a corporation), or any
agreement or other instrument binding upon such Selling Stockholder or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over such Selling Stockholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Stockholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Stockholder and the
legal right and power, and all authorization and approval required by law,
to enter into this Agreement, the
-6-
<PAGE>
Custody Agreement and the Power of Attorney and to sell, transfer and
deliver the Shares to be sold by such Selling Stockholder.
(d) The Shares to be sold by such Selling Stockholder pursuant to
this Agreement have been duly authorized and are validly issued, fully paid
and non-assessable.
(e) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and are valid and binding agreements of such Selling
Stockholder.
(f) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.
(g) If the Selling Stockholder is Melvyn E. Bergstein, Michael E.
Mikolajczyk, Karl E. Bupp or Adam J. Gutstein, (i) the Registration
Statement, when it became effective, did not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph 2(g) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(h) For each Selling Stockholder other than those making a
representation and warranty pursuant to Section 2(g) above, all information
relating to such Selling Stockholder furnished to the Company in writing by
or on behalf of such Selling Stockholder for use in the Registration
Statement or the Prospectus is, and on the Closing Date will be, true,
correct and complete and does not, and on the Closing Date will not,
contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading.
-7-
<PAGE>
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $______ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Stockholders
agree to sell to the Underwriters the Additional Shares, and the Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
491,250 Additional Shares at the Purchase Price. If you, on behalf of the
Underwriters, elect to exercise such option, you shall so notify the Company in
writing not later than 30 days after the date of this Agreement, which notice
shall specify the number of Additional Shares to be purchased by the
Underwriters and the date on which such shares are to be purchased. Such date
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 5 hereof solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of Firm Shares set forth in Schedule II
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof that is described in the
Prospectus, (C) transactions by any
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person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
offering of the Shares or (D) grants of options to purchase up to ______ shares
of Class A or Class B Common Stock pursuant to the Company's existing equity
based compensation plans, provided that no such option shall be exercisable
during the period ending 90 days after the date of the Prospectus. In addition,
each Selling Stockholder, agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $____ a
share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on ____________, 2000 or at such other time on the same or such other
date, not later than _________, 2000, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date".
Payment for any Additional Shares shall be made to the Selling
Stockholders in Federal or other funds immediately available in New York City
against delivery of such Additional Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on the date specified in
the notice described in Section 3 or at such other time on the same or on such
other date, in any event not later than _______, 2000 as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing
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not later than one full business day prior to the Closing Date or the Option
Closing Date, as the case may be. The certificates evidencing the Firm Shares
and Additional Shares shall be delivered to you on the Closing Date or the
Option Closing Date, as the case may be, for the respective accounts of the
several Underwriters, with any transfer taxes payable in connection with the
transfer of the Shares to the Underwriters duly paid, against payment of the
Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [__________] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 6(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and
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satisfied all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Nancy K. Bellis, Vice President and General Counsel of the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares to be sold
by the Selling Stockholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
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<PAGE>
(v) all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned of record directly or
indirectly by the Company;
(vi) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale
of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Description of Capital Stock" and "Underwriters" and (B) in the
Registration Statement in Item 15, in each case insofar as such
statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information called
for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
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<PAGE>
exhibits to the Registration Statement that are not described or filed
as required; and
(xi) such counsel (A) is of the opinion that each document filed
pursuant to the Exchange Act and incorporated by reference in the
Registration Statement and the Prospectus (except for financial
statements and schedules and other financial and statistical data
included therein as to which such counsel need not express any
opinion) complied when so filed as to form in all material respects
with the Exchange Act and the applicable rules and regulations of the
Commission thereunder, (B) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (C) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the Prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (D) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Winston & Strawn, outside counsel to the Company, dated the
Closing Date, covering the matters referred to in Sections 6(iii), (iv),
(vi), (vii), (viii), (ix), (x) and (xi), and to the effect that the Company
is not, and after giving effect to the offering and sale of the Shares and
the application of the proceeds thereof as described in the Prospectus will
not be required to register as an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(e) The Underwriters shall have received on the Closing Date an
opinion of Winston & Strawn, counsel for the Selling Stockholders, dated
the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders;
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(ii) the execution and delivery by or on behalf of each Selling
Stockholder of, and the performance by such Selling Stockholder of its
obligations under, this Agreement and the Custody Agreement and Powers
of Attorney of such Selling Stockholder will not contravene any
provision of applicable law, or the certificate of incorporation or
by-laws of such Selling Stockholder (if such Selling Stockholder is a
corporation), or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon such Selling Stockholder
or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over such Selling Stockholder, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Stockholder, except such as may be required
by the securities or Blue Sky laws of the various states in connection
with offer and sale of the Shares;
(iii) each of the Selling Stockholders has valid title to the
Shares to be sold by such Selling Stockholder and the legal right and
power, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and Power of Attorney of
such Selling Stockholder and to sell, transfer and deliver the Shares
to be sold by such Selling Stockholder;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Stockholder have been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder and are valid and binding
agreements of such Selling Stockholder; and
(v) assuming that the Underwriters are bona fide purchasers
purchasing in good faith without notice of any adverse claim within
the meaning of the Uniform Commercial Code, upon the delivery of and
payment for the Shares to be sold by each Selling Stockholder as
contemplated by this Agreement, each of the Underwriters will acquire
title to such Shares free and clear of any security interests, claims,
liens, equities and other encumbrances.
(f) The Underwriters shall have received on the Closing Date an
opinion of Ropes & Gray, counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in Sections 6(c)(vi), 6(c)(vii),
6(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and clauses (B), (C) and
(D) of 6(c)(xi) above.
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<PAGE>
With respect to Section 6(c)(xi) above, Winston & Strawn and Ropes &
Gray may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified. With respect to Section 6(e) above,
Winston & Strawn may rely upon an opinion or opinions of counsel for any
Selling Stockholders and, with respect to factual matters and to the extent
such counsel deems appropriate, upon the representations of each Selling
Stockholder contained herein and in the Custody Agreement and Power of
Attorney of such Selling Stockholder and in other documents and
instruments; provided that (A) each such counsel for the Selling
Stockholders is satisfactory to your counsel, (B) a copy of each opinion so
relied upon is delivered to you and is in form and substance satisfactory
to your counsel, (C) copies of such Custody Agreements and Powers of
Attorney and of any such other documents and instruments shall be delivered
to you and shall be in form and substance satisfactory to your counsel and
(D) Winston & Strawn shall state in their opinion that they are justified
in relying on each such other opinion.
The opinions of Winston & Strawn described in Sections 6(d) and 6(e)
above (and any opinions of counsel for any Selling Stockholder referred to
in the immediately preceding paragraph) shall be rendered to the
Underwriters at the request of the Company or one or more of the Selling
Stockholders, as the case may be, and shall so state therein.
(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from KPMG LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in or incorporated reference into
the Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
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<PAGE>
(i) The Shares shall have been approved for listing on the Nasdaq
National Market.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, seven signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 7(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
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<PAGE>
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending March 31, 2001 that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers agree to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Stockholders in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all expenses in connection with any offer and sale
of the Shares outside of the United States, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in connection
with offers and sales outside of the United States, (vi) all costs and expenses
incident to listing the Shares on the Nasdaq National Market, (vii) the cost of
printing certificates representing the Shares, (viii) the costs and charges of
any transfer agent, registrar or depositary, (ix) the costs and expenses of the
Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any such
consultants, and the Company's pro rata share of the cost of any aircraft
chartered in connection with the road show with the approval of the Company, and
(x) all other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in this
Section. It is understood, however, that except as provided in this Section,
Section 9 entitled "Indemnity and Contribution", and the last paragraph of
Section 11 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
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on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
9. Indemnity and Contribution. (a) (i) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; and (ii) the Selling
Stockholders, severally but not jointly, agree to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 or the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; provided, however,
that each of the Selling Stockholders other than Melvyn E. Bergstein, Michael E.
Mikolajczyk, Karl E. Bupp and Adam J. Gutstein shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with information furnished to the Company by any person other than
such Selling Stockholder.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Selling Stockholder
furnished in writing by or on behalf of such Selling Stockholder expressly for
use in the Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto.
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(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, the directors of the
Company, the officers of the Company who sign the Registration Statement and
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(d) The aggregate liability of any Selling Stockholder for any
indemnification under this Section 9 shall not exceed the net proceeds received
by such Selling Stockholder from the offering of the Shares sold by such Selling
Stockholder.
(e) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a), 9(b) or 9(c), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and
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each person, if any, who controls the Company within the meaning of either such
Section and (iii) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Selling Stockholders and all persons, if
any, who control any Selling Stockholder within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of any Underwriters, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In the case of any such separate firm for the
Company, and such directors, officers and control persons of the Company, such
firm shall be designated in writing by the Company. In the case of any such
separate firm for the Selling Stockholders and such control persons of any
Selling Stockholders, such firm shall be designated in writing by the persons
named as attorneys-in-fact for the Selling Stockholders under the Powers of
Attorney. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(f) To the extent the indemnification provided for in Section 9(a),
9(b) or 9(c) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(f)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(f)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or
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<PAGE>
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Sellers on the one hand and the Underwriters
on the other hand in connection with the offering of the Shares shall be deemed
to be in the same respective proportions as the net proceeds from the offering
of the Shares (before deducting expenses) received by each Seller and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the Sellers
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Sellers or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective number of Shares they have purchased hereunder, and not joint.
(g) The Sellers and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 9(f). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission and no Selling Stockholder shall be required to contribute
any amount in excess of the net proceeds received by such Selling Stockholder
from the offering of the Shares sold by such Selling Stockholder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The remedies provided for in
this Section 9 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in equity.
(h) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf
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<PAGE>
of any Underwriter or any person controlling any Underwriter, any Selling
Stockholder or any person controlling any Selling Stockholder, or the Company,
its officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you, the
Company and the Selling Stockholders for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without
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<PAGE>
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Stockholders. In any such case either you or the relevant Sellers shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Additional Shares to be purchased, the non-
defaulting Underwriters shall have the option to (i) terminate their obligation
hereunder to purchase Additional Shares or (ii) purchase not less than the
number of Additional Shares that such non-defaulting Underwriters would have
been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
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<PAGE>
Very truly yours,
DIAMOND TECHNOLOGY PARTNERS
INCORPORATED
By:
----------------------------
Name:
Title:
The Selling Stockholders named in
Schedule I hereto, acting severally
By:
----------------------------
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Deutsche Bank Securities Inc.
Salomon Smith Barney Inc.
Adams, Harkness & Hill, Inc.
Friedman, Billings, Ramsey & Co., Inc.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
---------------------------
Name:
Title:
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<PAGE>
SCHEDULE I
Number of Number of
Firm Shares Additional Shares
Selling Stockholder To Be Sold To Be Sold
------------------- ----------- -----------------
[NAMES OF SELLING STOCKHOLDERS]
Total........
<PAGE>
SCHEDULE II
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Deutsche Bank Securities Inc.
Salomon Smith Barney Inc.
Adams, Harkness & Hill, Inc.
Friedman, Billings, Ramsey & Co., Inc.
--------------------------
Total ........
==========================
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 2000
Morgan Stanley & Co. Incorporated
Goldman, Sachs & Co.
Deutsche Bank Securities Inc.
Salomon Smith Barney Inc.
Adams, Harkness & Hill, Inc.
Friedman, Billings, Ramsey & Co., Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Diamond Technology Partners Incorporated, a
Delaware corporation (the "Company"), providing for the public offering (the
"Public Offering") by the several Underwriters, including Morgan Stanley (the
"Underwriters"), of 3,275,000 shares (the "Shares") of the Class A Common Stock,
$.001 par value per share, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 90 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to
<PAGE>
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement or (b) transactions relating to shares of
Common Stock or other securities acquired in open market transactions after the
completion of the Public Offering. In addition, the undersigned agrees that,
without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending 90 days after the date of the Prospectus, make any demand for or exercise
any right with respect to, the registration of any shares of Common Stock or any
security convertible into or exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
_________________________
(Name)
_________________________
(Address)
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Diamond Technology Partners Incorporated:
We consent to the use of our report included herein and the references to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
Chicago, Illinois
March 20, 2000
