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Diamond Management & Technology Consultants, Inc. – IPO: ‘424B1’ on 2/25/97

As of: Tuesday, 2/25/97 · Accession #: 950109-97-1542 · File #: 333-17785

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/25/97  Diamond Mgmt & Tech Consulta… Inc 424B1                  1:279K                                   Donnelley R R & S… 01/FA

Initial Public Offering (IPO): Prospectus — Rule 424(b)(1)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                            75    458K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Additional Information Background Broad Discretion in Application of Proceeds Business Cancellation of Promissory Note Cancellation of Rights Offering Capitalization Cash and cash equivalents Certain Relationships Certain Transactions Class A Common Stock Common Stock Competition Concentration of Revenues Deferred Compensation Description of Capital Stock Dilution Dividend Policy Executive Officers and Directors Exercise Privilege Experts Expiration Date Human Resources and Culture Income taxes Independent Auditors' Report Index to Consolidated Financial Statements Industry Background Intellectual Capital Legal Matters Liquidity Liquidity and Capital Resources Lock-Up Agreements Management Management's Discussion and Analysis of Financial Condition and Results of Operations Method of Exercising Rights Notes to Financial Statements Offering, The Options and Warrants Partners' Operating Agreement Preferred Stock Principal and Selling Stockholders Prospectus Summary Recent Developments Registration Rights Rights Risk Factors Sales, Marketing and Clients Sales of Unsubscribed Shares; Standby Commitment Selected Consolidated Financial Data Shares Eligible for Future Sale Stock Options The Offering Underwriting Use of Proceeds Voting and Stock Restriction Agreement
1	1st Page - Filing Submission
"	Class A Common Stock
4	Prospectus Summary
5	The Offering
8	Risk Factors
"	Concentration of Revenues
10	Competition
"	Liquidity
"	Broad Discretion in Application of Proceeds
11	Dilution
12	Shares Eligible for Future Sale
13	Cancellation of Rights Offering
14	Background
"	Exercise Privilege
15	Expiration Date
"	Method of Exercising Rights
17	Sales of Unsubscribed Shares; Standby Commitment
20	Use of Proceeds
"	Dividend Policy
21	Capitalization
23	Selected Consolidated Financial Data
24	Management's Discussion and Analysis of Financial Condition and Results of Operations
25	Recent Developments
28	Liquidity and Capital Resources
30	Business
"	Industry Background
35	Intellectual Capital
37	Sales, Marketing and Clients
38	Human Resources and Culture
41	Management
"	Executive Officers and Directors
43	Certain Relationships
44	Deferred Compensation
45	Stock Options
47	Certain Transactions
48	Cancellation of Promissory Note
"	Voting and Stock Restriction Agreement
"	Partners' Operating Agreement
49	Principal and Selling Stockholders
51	Description of Capital Stock
"	Common Stock
"	Rights
52	Preferred Stock
53	Options and Warrants
54	Lock-Up Agreements
"	Registration Rights
55	Underwriting
57	Legal Matters
"	Experts
"	Additional Information
58	Index to Consolidated Financial Statements
59	Independent Auditors' Report
64	Notes to Financial Statements
"	Cash and cash equivalents
"	Income taxes

424B1 1st Page of 75 TOC ↑Top Previous Next ↓Bottom Just 1st
Rule 424(b)(1)
File No: 333-17785

PROSPECTUS

3,355,000 SHARES

[LOGO OF DIAMOND TECHNOLOGY PARTNERS APPEARS HERE]

CLASS A COMMON STOCK

(AND RIGHTS TO ACQUIRE
UP TO 3,355,000 OF SUCH SHARES)

Diamond Technology Partners Incorporated ("Diamond" or the "Company") is
granting at no cost to holders of the outstanding common stock ("Safeguard
Common Shares") of Safeguard Scientifics, Inc. ("Safeguard") of record at the
close of business on February 21, 1997 (the "Record Date"), transferable
(Continued on next page)

AN INVESTMENT IN THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" ON PAGES 9 TO 14.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

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[Download Table]

PROCEEDS TO PROCEEDS TO THE
EXERCISE AND UNDERWRITING THE COMPANY SELLING
OFFERING PRICE DISCOUNT(1) (1)(2)(3) STOCKHOLDERS(1)(3)
-------------------------------------------------------------------------------

Per Share.... $5.50 Min. $0.165 Min. $5.115 Min. $5.115
Max. $0.385 Max. $5.335 Max. $5.335
-------------------------------------------------------------------------------
Total(3)..... $18,452,500 Min. $553,575 Min. $9,010,925 Min. $8,184,000
Max. $1,257,575 Max. $9,362,925 Max. $8,536,000

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(1) In connection with the Offering, the Underwriters will receive (a) a
financial advisory fee in an amount equal to 3% of the Exercise Price of
each share of Common Stock sold in the Offering (the "Financial Advisory
Fee"), regardless of the number of shares sold in the Offering and (b) an
additional fee of 4% of the Exercise Price of each share of Common Stock
actually purchased by the Underwriters pursuant to the Standby
Underwriting Agreement or the Underwriters' exercise of Rights in certain
instances (the "Underwriting Discount" and, together with the Financial
Advisory Fee, the "Total Underwriting Discount") if shares of Common Stock
are sold in the Offering. If all of the Rights offered hereby are
exercised, no shares of Common Stock will be required to be purchased by
the Underwriters pursuant to the Standby Underwriting Agreement. The
"Minimum" Total Underwriting Discount assumes that no shares of Common
Stock are purchased by the Underwriters. The "Maximum" Total Underwriting
Discount assumes (i) that 155,000 shares are sold by the Company pursuant
to the exercise of the Direct Rights and (ii) that a total of 3,200,000
shares of Common Stock are purchased by the Underwriters pursuant to the
Standby Underwriting Agreement. In addition, the Company has agreed (i)
under certain circumstances, to pay to the Underwriters certain amounts as
a non-accountable expense allowance and (ii) to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See "UNDERWRITING."
(2) Before deduction of expenses estimated to be $700,000 and payment of a
non-accountable expense allowance to the Underwriters.
(3) The Company has granted to the Underwriters a 20-day option commencing on
the Expiration Date to purchase a maximum of 320,000 additional shares of
Class A common stock to cover over-allotments. See "UNDERWRITING." If such
option is exercised in full, the net incremental proceeds to the Company
from the exercise of such option would be $1,636,800 and the Total
Underwriting Discount with respect to the shares issued pursuant to such
option would be $123,200.

Tucker Anthony Robert W. Baird & Co.
Incorporated Incorporated

THE DATE OF THIS PROSPECTUS IS FEBRUARY 24, 1997.

424B1 2nd Page of 75 TOC 1st Previous Next ↓Bottom Just 2nd
(Continued from previous page)

rights ("Company Rights") to purchase up to 3,200,000 shares of Class A common
stock of Diamond, par value $.001 per share (the "Class A common stock," and
together with the Class B common stock of Diamond, par value $.001 per share
(the "Class B common stock"), the "Common Stock"). Safeguard and certain other
selling stockholders (the "Selling Stockholders") have agreed to sell an
aggregate of 1,600,000 shares of Class A common stock owned by them upon the
exercise of the Company Rights and the Company will sell the remaining
1,600,000 shares. Of the shares being offered by the Selling Stockholders, an
aggregate of 1,508,365 shares are being offered by Safeguard and certain
entities having a relationship with Safeguard. See "MANAGEMENT--Certain
Relationships" and "CERTAIN TRANSACTIONS." A record holder of Safeguard Common
Shares will receive one Company Right for every ten Safeguard Common Shares
owned on the Record Date (the "Rights Offering"). Each Company Right will
entitle the holder to purchase one share of Class A common stock at a purchase
price of $5.50 (the "Exercise Price") per share. This Prospectus also relates
to transferable rights (the "Direct Rights") to purchase an aggregate of
155,000 additional shares of Class A common stock that have been reserved for
issuance and are being granted at no cost by the Company to certain persons
selected by the Company having a relationship with the Company, Safeguard, one
of Safeguard's other partnership companies or other persons selected by the
Company (the "Direct Purchasers"). Each Direct Right will entitle the holder
to purchase one share of Class A common stock from the Company at the Exercise
Price. The Company Rights and the Direct Rights are sometimes collectively
referred to as the "Rights." The exercise period for the Rights will expire at
5:00 p.m., Eastern Standard time, on March 31, 1997 (the "Expiration Date").
Persons may not exercise Rights for fewer than 50 shares of Class A common
stock. This minimum exercise requirement applies to each account in which
Safeguard Common Shares are held. Accordingly, persons holding fewer than 50
Rights will not have the opportunity to exercise such Rights unless action is
taken to comply with such minimum exercise requirements. See "THE OFFERING--
Exercise Privilege."

Once a Right has been exercised by the holder and accepted by the Company,
it may not be withdrawn by the holder. Shares of Class A common stock sold
pursuant to the exercise of Rights, shares sold to the Direct Purchasers and
Unsubscribed Shares sold to the Other Purchasers will be sold first from the
shares being issued by the Company, and thereafter from the shares being sold
by the Selling Stockholders. Shares of Class A common stock that are not
purchased upon exercise of Rights (the "Unsubscribed Shares") will be sold, as
to the first 300,000 Unsubscribed Shares, by the Company at the Exercise Price
to certain persons selected by the Company having a relationship with the
Company, Safeguard, one of Safeguard's other partnership companies or other
persons selected by the Company (the "Other Purchasers"). Thereafter, any
Shares not sold pursuant to the exercise of Company Rights or not sold to the
Other Purchasers (the "Excess Unsubscribed Shares") shall be sold at the
Exercise Price (less the Underwriting Discount) to Tucker Anthony Incorporated
and Robert W. Baird & Co. Incorporated (the "Underwriters") pursuant to a
Standby Underwriting Agreement (the "Standby Underwriting Agreement"). See
"THE OFFERING--Sales of Unsubscribed Shares; Standby Commitment." The
Underwriters' standby underwriting obligations are subject to certain
conditions. Accordingly, there is no assurance that the Rights Offering will
not be canceled. See "UNDERWRITING" and "THE OFFERING--Cancellation of Rights
Offering." The Rights Offering and the offering of Class A common stock to the
Other Purchasers are collectively referred to in this Prospectus as the
"Offering."

The number of Company Rights which will be granted to the holders of
Safeguard Common Shares is solely dependent upon the number of Safeguard
Common Shares which are outstanding on the Record Date. Accordingly, less than
3,200,000 Rights will be granted to holders of Safeguard Common Shares if
there are less than 32,000,000 Safeguard Common Shares outstanding on such
date. The shares of Class A common stock subject to such undistributed Company
Rights (the "Undistributed Rights"), however, will be offered by the Company
to the Other Purchasers at the Exercise Price. As a consequence, a total of
3,200,000 Rights will be granted in the Rights Offering.

The Class A common stock and the Class B common stock are identical in all
aspects other than with respect to voting rights. Shares of Class A common
stock are entitled to one vote per share and shares of Class B

424B1 3rd Page of 75 TOC 1st Previous Next ↓Bottom Just 3rd
common stock are entitled to five votes per share. Accordingly, while the
Class A common stock will represent 56.1% of the outstanding Common Stock upon
completion of the Offering, such Shares will possess only 20.4% of the
aggregate voting rights of the Common Stock. The Class B common stock is
convertible into Class A common stock on a one-for-one basis automatically
upon certain transfers of the Class B common stock and termination of
employment with the Company. See "DESCRIPTION OF CAPITAL STOCK."

Of the shares of Common Stock offered hereby, 1,755,000 shares of Common
Stock will be sold by the Company and an aggregate of 1,600,000 shares of
Common Stock will be sold by the Selling Stockholders. Warren V. Musser, the
chairman and chief executive officer of Safeguard, and/or his assignees are
expected to exercise all Company Rights distributed to them and acquire
approximately 291,000 shares of Common Stock through the Rights Offering. The
Company will receive no proceeds from the sale of any shares by the Selling
Stockholders. After the completion of the Offering, the Selling Stockholders,
in the aggregate, will beneficially own approximately 25.6% of the outstanding
Common Stock. See "PRINCIPAL AND SELLING STOCKHOLDERS."

There is no minimum number of shares that must be sold in the Offering. The
Rights being granted in the Rights Offering are subject to cancellation if
certain conditions are not satisfied. In that event, any payments received by
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, in respect of the
Exercise Price of the Rights shall be promptly returned. See "THE OFFERING--
Cancellation of Rights Offering."

The Company has filed with the Securities and Exchange Commission a
Registration Statement pursuant to the Securities Act of 1933, as amended,
with respect to the Rights offered hereby and the Class A common stock
issuable upon the exercise thereof. Prior to the Rights Offering, there has
been on public market for the Class A common stock or the Rights. See "THE
OFFERING--Background" for factors considered in determining the Exercise Price
of the Rights. As a consequence, there can be no assurance that a public
market will develop, although the Rights and the Class A common stock have
been approved for quotation on the Nasdaq National Market.

Prior to the Expiration Date, the Underwriters may offer shares of Class A
common stock on a when-issued basis, including shares to be acquired through
the purchase and exercise of Rights, at prices set from time to time by the
Underwriters. Each such price when set will not exceed, if applicable, the
highest price at which a dealer not participating in the distribution is then
offering the Class A common stock to other dealers, plus an amount equal to a
dealer's concession, and an offering price set on any calendar day will not be
increased more than once during such day. After the Expiration Date, the
Underwriters may offer shares of Class A common stock, whether acquired
pursuant to the Standby Underwriting Agreement, the exercise of Rights or the
purchase of Class A common stock in the market, to the public at a price or
prices to be determined. The Underwriters may thus realize profits or losses
independent of the underwriting compensation specified herein. Shares of Class
A common stock subject to the Standby Underwriting Agreement will be offered
by the Underwriters, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters. It is expected that delivery of the shares of
Class A common stock will be made against payment therefor in Boston,
Massachusetts on or about April 8, 1997.

The Company intends to furnish to its stockholders annual reports containing
financial statements audited by independent certified public accountants.

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK, THE WHEN-ISSUED CLASS A COMMON STOCK OR THE RIGHTS OR ALL OF THE
FOREGOING AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE CLASS A
COMMON STOCK OF THE COMPANY, INCLUDING INITIATING BIDS OR EFFECTING PURCHASES
ON THE NASDAQ NATIONAL MARKET FOR THE PURPOSE OF PREVENTING OR RETARDING A
DECLINE IN THE MARKET PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

424B1 4th Page of 75 TOC 1st Previous Next ↓Bottom Just 4th
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Except as otherwise
indicated, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option and (ii) gives effect to a 1.65-for-1 split
of the Common Stock effected on February 18, 1997. Unless the context otherwise
requires, all references to "Common Stock" refer collectively to the Class A
common stock and the Class B common stock. See "CERTAIN TRANSACTIONS" and
"DESCRIPTION OF CAPITAL STOCK--Common Stock." All references to fiscal years of
the Company in this Prospectus refer to the fiscal years ended on March 31 in
those years. All references to the term "Partner" refer to the internal
designation by Diamond of certain of its employees and does not refer to a
partner of a general or limited partnership. Unless the context otherwise
indicates, Diamond Technology Partners Incorporated and its wholly-owned
subsidiary are referred to collectively herein as "Diamond" or the "Company."

THE COMPANY

Diamond is a management consulting firm that devises business strategies
enabled by information technology ("IT") and manages the implementation of
those strategies. Diamond was founded upon, and continues to stress, a business
culture in which strategic consulting and IT expertise are optimally integrated
to provide superior client solutions. The Company believes that the
distinguishing qualities of its consulting process are its ability to
synthesize strategy with technology, deliver solutions with measurable results,
deliver services through small multidisciplinary project teams and maintain
objectivity in solution recommendations.

The Company leads its clients through a process which broadens their
understanding of the ways that IT can be incorporated into their businesses to
gain competitive advantage in their markets. Diamond's professionals, working
closely with client personnel, perform thorough analyses of the client's
current business with a focus on alternative IT-driven business strategies.
When an appropriate strategy has been developed, Diamond's professionals
provide important management oversight of the strategy implementation process,
which generally includes design, deployment and integration of IT solutions
together with modification of business processes and organizational structure.
Diamond manages the deployment phase by utilizing the client's internal
resources or third-party resources selected by Diamond for their particular
expertise. Throughout the entire process, Diamond transfers relevant knowledge
to the client organization.

Diamond has grown rapidly since its inception in January 1994, generating
$33.8 million in net revenues over the 12 month period ended December 31, 1996
and expanding from 18 employees at inception to 177 as of December 31, 1996.
Diamond serves clients in a variety of industries, ranging in size from Fortune
500 companies to smaller private companies. The number of clients served by the
Company in each fiscal quarter has increased from nine clients served during
the fiscal quarter ended June 30, 1994 to 29 clients served during the fiscal
quarter ended December 31, 1996. These clients are primarily in the
telecommunications, insurance, financial services and consumer products and
services industries. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Recent Developments."

Pursuant to the terms of the Amended and Restated Voting and Stock
Restriction Agreement dated as of April 1, 1996 (the "Voting and Stock
Restriction Agreement") among Safeguard, Technology Leaders L.P. ("TL") and
Technology Leaders Offshore C.V. ("TL Offshore" and together with TL,
"Technology Leaders") and CIP Capital L.P. ("CIP" and together with Safeguard
and Technology Leaders, the "1994 Purchasers"), CompuCom Systems, Inc.,
Cambridge Technology Partners (Massachusetts), Inc. and each employee-
stockholder of the Company, each employee-stockholder of the Company has
granted a proxy to the Chief Executive Officer of the Company (currently Melvyn
E. Bergstein) conveying the right to vote their shares of Common Stock.
Accordingly, after the completion of the Offering, the Company's Chief
Executive Officer will control approximately 80.0% of the voting rights of the
outstanding Common Stock.

The Company was initially incorporated in Illinois in 1994 and was
reincorporated in Delaware in 1996. The Company's principal executive offices
are located at 875 North Michigan Avenue, Suite 3000, Chicago, Illinois 60611,
and its telephone number is (312) 255-5000. The Company also has a homepage on
the World Wide Web and its e-mail address is dtpgeneral@diamtech.com.
Information contained in the Company's web site shall not be deemed to be part
of this Prospectus.

424B1 5th Page of 75 TOC 1st Previous Next ↓Bottom Just 5th
THE OFFERING

Terms of Offering........... Holders of record at the close of business on
February 21, 1997 of the outstanding Safeguard
Common Shares will receive one Company Right for
every ten Safeguard Common Shares. The Direct
Purchasers will be granted the Direct Rights.
Each Right will entitle the holder to purchase
one share of Class A common stock at a purchase
price of $5.50 per share. Persons may not
exercise Rights for fewer than 50 shares of Class
A common stock. Holders of Rights will have the
opportunity to acquire an aggregate of
approximately 3,355,000 shares of Class A common
stock upon exercise of the Rights.

Exercise Price.............. $5.50 per share of Class A common stock.

Expiration Date for
Rights..................... March 31, 1997 at 5:00 p.m., Eastern Standard
Time.

Rights...................... Rights will be evidenced by transferable
certificates that will be exercisable by the
holder until the Expiration Date, at which time
unexercised rights will be null and void. See
"THE OFFERING."

Exercise by Safeguard CEO... The chairman and chief executive officer of
Safeguard and/or his assignees are expected to
exercise all Company Rights distributed to them
and acquire approximately 291,000 shares of Class
A common stock.

Sale to Other Persons....... The Direct Rights will be granted by the Company
to the Direct Purchasers. The first 300,000
Unsubscribed Shares and the shares of Class A
common stock subject to the Undistributed Rights
will be sold by the Company to the Other
Purchasers.

Standby Underwriting........ The Excess Unsubscribed Shares will be sold to
the Underwriters and offered to the public by the
Underwriters. See "THE OFFERING--Sales of
Unsubscribed Shares; Standby Commitment" and
"UNDERWRITING."

Class A common stock
Offered:
by the Company............ 1,755,000 shares
by the Selling
Stockholders.............. 1,600,000 shares

Common Stock to be
Outstanding After the
Rights Offering............ 11,316,301 shares (representing 6,349,179 shares
of Class A common stock and 4,967,122 shares of
Class B common stock) (1)

Voting Rights and
Conversion................. Shares of Class A common stock are entitled to
one vote per share and shares of Class B common
stock are entitled to five votes per share.
Shares of Class B common stock are convertible on
a one-for-one basis into shares of Class A common
stock automatically upon certain transfers of the
shares of Common Stock and termination of
employment with the Company. See "DESCRIPTION OF
CAPITAL STOCK."

424B1 6th Page of 75 TOC 1st Previous Next ↓Bottom Just 6th
Use of Proceeds............. $2.0 million for the repayment of debt to
Safeguard and the remainder for working capital,
general corporate purposes and capital
expenditures. A portion of the net proceeds may
be used for acquisitions, although the Company is
not currently engaged in any acquisition
negotiations. See "USE OF PROCEEDS."

Nasdaq National Market
Symbols:
Rights.................... DTPIR
Class A common stock...... DTPIV (when-issued)
DTPI (thereafter)
--------
(1) Excludes as of February 10, 1997 (i) 3,074,536 shares of Common Stock
issuable upon the exercise of options (of which options to purchase 79,448
shares were exercisable at February 10, 1997) at a weighted average
exercise price of $2.50 per share and (ii) 526,597 shares of Common Stock
issuable upon the exercise of warrants (all of which were exercisable as of
February 10, 1997) at an exercise price of $5.50 per share. See
"MANAGEMENT--Stock Options" and "CERTAIN TRANSACTIONS."

424B1 7th Page of 75 TOC 1st Previous Next ↓Bottom Just 7th
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF CLIENTS)

[Download Table]

INCEPTION NINE MONTHS ENDED
TO YEAR ENDED MARCH 31, DECEMBER 31,
MARCH 31, ---------------------- -------------------
1994 1995 1996 1995 1996(1)
--------- ---------- ---------- -------- ----------

STATEMENT OF OPERATIONS
DATA:
Net revenues............... $ 261 $ 12,843 $ 26,339 $ 18,756 $ 26,245
Income (loss) from
operations................ (889) (462) 1,374 945 (569)
Net income (loss).......... (886) (377) 1,236 855 (380)
Pro forma net income (loss)
per share of Common
Stock..................... $ (.35) $ (.05) $ 0.13 $ 0.09 $ (0.04)
Shares used in computing
pro forma net income
(loss) per share of Common
Stock..................... 2,511 8,272 9,824 9,762 10,439

[Enlarge/Download Table]

QUARTER ENDED
----------------------------------------------------------------
JUN. 30, SEPT. 30, DEC. 31, MAR 31, JUN. 30, SEPT. 30, DEC. 31,
1995 1995 1995 1996 1996(1) 1996(1) 1996(1)
-------- --------- -------- ------- -------- --------- --------

STATEMENT OF OPERATIONS
DATA:
Net revenues............ $5,863 $5,975 $6,918 $7,583 $ 7,753 $8,336 $10,156
Income (loss) from
operations............. $ 363 $ 149 $ 433 $ 429 $(1,215) $ (589) $ 1,235
Net income (loss)....... $ 312 $ 159 $ 383 $ 382 $ (714) $ (385) $ 719
OTHER OPERATING DATA:
Number of clients
served................. 13 10 13 17 21 25 29
Number of clients
generating revenues
greater than $250,000.. 8 9 8 7 11 11 16
Average revenue per
client................. $ 451 $ 598 $ 532 $ 446 $ 369 $ 333 $ 350

[Download Table]

DECEMBER 31, 1996
---------------------------
ACTUAL(1) AS ADJUSTED(2)(3)
--------- -----------------

BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 7,132 $13,318
Working capital..................................... 6,312 14,498
Total assets........................................ 13,928 20,114
Long-term debt, including current portion........... 2,177 177
Total stockholders' equity.......................... 8,751 16,937

--------
(1) See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Recent Developments."
(2) Adjusted to give effect to the sale by the Company of 1,755 shares of
Common Stock and the receipt and application of approximately $8,186 in net
proceeds from this Offering, after deducting the maximum Total Underwriting
Discount with respect to such shares of approximately $642 and estimated
offering expenses of $825 (including $125 representing the maximum
applicable non-accountable expense allowance to the Underwriters).
(3) The "As Adjusted" long-term debt amount reflects the repayment of a $2,000
loan from Safeguard using net proceeds from this Offering. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Liquidity and Capital Resources" and "USE OF PROCEEDS."

424B1 8th Page of 75 TOC 1st Previous Next ↓Bottom Just 8th
RISK FACTORS

In evaluating the Company and its business, prospective investors should
consider carefully the following risk factors in addition to the other
information contained herein. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the following risk factors.

RECENT OPERATING LOSSES AND LIMITED OPERATING HISTORY. The Company has only
been in existence since January 28, 1994. In fiscal 1994 and fiscal 1995, the
Company experienced losses due primarily to the developmental nature of the
business. While the Company was profitable in fiscal 1996, the Company
experienced the cancellation of significant projects at its then two largest
clients in the last quarter of fiscal 1996 and the first quarter of fiscal
1997. The cancellation of these projects resulted from each client's
cancellation of the business initiative for which the Company had been
retained. In addition, in order to support the growth of its business, the
Company expanded its level of operations in all areas during fiscal 1996 and
fiscal 1997. As a result of the cancellation of these two projects and the
increase in the Company's operating expenses caused by the Company's
expansion, the Company experienced a net loss of approximately $1.1 million
during the first six months of fiscal 1997. The Company's operating results
and financial condition will be adversely affected if revenues do not increase
sufficiently to cover the Company's expanding level of operations. There can
be no assurance that the Company will be successful in its efforts to so
increase its revenues. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company has experienced and
may in the future continue to experience fluctuations in its quarterly
operating results. Factors that may cause the Company's quarterly operating
results to vary include the number of active client projects, the requirements
of client projects, the termination of major client projects, the loss of
major clients, the timing of new client engagements and the timing of
personnel cost increases. Certain of these factors may also affect the
Company's personnel utilization rates which may cause further variation in
quarterly operating results. The timing of revenues is difficult to forecast
because the Company's sales cycle is relatively long and the Company's
services are impacted by general economic conditions. Because a high
percentage of the Company's expenses are relatively fixed, a variation in the
timing of the initiation or the completion of client assignments, particularly
at or near the end of any quarter, can cause significant variations in
operating results from quarter to quarter and could result in losses for any
particular fiscal period. In addition, many of the Company's engagements are,
and may be in the future, terminable by its clients without penalty. A
termination of a major project could require the Company to maintain under-
utilized employees, resulting in a higher than expected percentage of
unassigned professionals or to terminate the employment of excess personnel.
The Company believes that it must at all times maintain a sufficient number of
senior professionals to oversee existing client projects and participate in
the Company's marketing efforts in securing new client engagements. The
Company's general policy is to not adjust its staffing levels based upon what
it views as short-term circumstances. Due to all of the foregoing factors,
there can be no assurance that the Company's operating results will not be
below the expectations of investors for any given fiscal period. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."

CONCENTRATION OF REVENUES. The Company has in the past derived, and may in
the future derive, a significant portion of its revenues from a relatively
limited number of major projects. During fiscal 1996, the Company had three
clients which individually accounted for more than 10% of its net revenues and
collectively accounted for 51% of its net revenues. For the nine months ended
December 31, 1996, the Company had one client that individually accounted for
15% of its net revenues. There are no long-term commitments by any of the
Company's clients for the Company's services. All of the Company's services
are provided to its clients on a project-by-project basis. During the last
quarter of fiscal 1996 and the first quarter of fiscal 1997, the Company's
then two largest clients terminated projects with the Company, contributing to
a net loss for the first nine months of fiscal 1997 of approximately $380,000.
There can be no assurance that the Company's major clients will

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continue their relationships with the Company and be a significant source of
revenue for the Company or that they will not terminate major projects at any
given time. Any unanticipated termination of a major project or the loss of
any one of the Company's large clients will have a material adverse effect on
the Company and its financial results. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS--
Sales, Marketing and Clients."

CONTROL BY CHIEF EXECUTIVE OFFICER; ELECTION OF FUTURE CHIEF EXECUTIVE
OFFICERS. Pursuant to the terms of the Voting and Stock Restriction Agreement,
each employee-stockholder of the Company has granted a proxy to the Chief
Executive Officer of the Company (currently Melvyn E. Bergstein) conveying the
right to vote their shares of Common Stock. Accordingly, after the completion
of the Offering, the Company's Chief Executive Officer will control the vote
with respect to 4,967,122 shares of Class B common stock and 107,663 Shares of
Class A common stock, constituting approximately 80.0% of the voting rights of
the outstanding Common Stock of the Company after the Offering and will have
the voting power to elect the Company's entire Board of Directors and to
approve all matters requiring stockholder approval. In addition, pursuant to
the terms of the Amended and Restated Partners' Operating Agreement among the
Company and its Partners (the "Partners' Operating Agreement"), the Company's
Chief Executive Officer must be selected from among the Partners pursuant to
the procedures set forth in such Agreement. While the Company's Board of
Directors maintains veto rights with respect to any such person nominated by
the Partners, the inability of the Board to elect a non-Partner as the
Company's Chief Executive Officer significantly limits the number of qualified
persons which the Board may consider for such office. Accordingly, there can
be no assurance that the Company will be successful in attracting future
persons who are qualified to serve as the Company's Chief Executive Officer
and the inability to attract such persons could have a material adverse effect
on the Company. See "MANAGEMENT--Executive Officers and Directors,"
"MANAGEMENT--Certain Relationships," "PRINCIPAL AND SELLING STOCKHOLDERS,"
"CERTAIN TRANSACTIONS--Voting and Stock Restriction Agreement" and "SHARES
ELIGIBLE FOR FUTURE SALE."

RELIANCE ON SENIOR MANAGEMENT. The Company's success depends upon the
continued service of its key executive officers. The Company maintains, and is
the beneficiary of, life insurance policies on the lives of Melvyn E.
Bergstein and Michael E. Mikolajczyk in the amounts of $3.0 million and $1.0
million, respectively. The Company does not maintain key person life insurance
on any of its other key executive officers. The loss for any reason of one or
more of its key executive officers could have a material adverse effect on the
Company and its prospects. Furthermore, there can be no assurance that the
Company will be successful in attracting and retaining additional key
executive officers that it will require to accommodate growth successfully.
See "MANAGEMENT."

MANAGEMENT OF GROWTH. The Company has been experiencing a period of
substantial growth which has placed, and may continue to place, a strain on
the Company's financial and other resources. During fiscal 1996 and the first
nine months of fiscal 1997, the size of the Company's professional staff
increased from 85 to 177 full-time employees. Further increases are
anticipated during the remainder of fiscal 1997. The Company's ability to
manage its staff growth effectively will require it to continue to improve its
operational, financial and other internal systems, and to train, motivate and
manage its employees. If the Company's management is unable to manage growth
effectively and new employees are unable to achieve anticipated performance
levels, the Company's results of operations could be adversely affected. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."

DEPENDENCE ON SKILLED PROFESSIONALS. The Company's success will depend in
large part upon its ability to attract, retain and motivate highly skilled
professionals, particularly Partners and senior principals. Qualified client-
serving professionals are in particularly great demand and are likely to
remain a limited resource for the foreseeable future. There can be no
assurance that the Company will be successful in attracting and retaining the
skilled professionals it requires to conduct and expand its operations
successfully. The loss of some or all of the Company's professionals or the
inability to attract, hire and train additional skilled personnel could have a

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material adverse effect on the Company, including its ability to secure and
complete engagements. See "BUSINESS--Human Resources and Culture."

PROJECT RISKS. Because many of the Company's projects are critical to its
clients, a failure or inability to meet a client's expectations could damage
the Company's reputation and adversely affect its ability to attract new
business. In addition, the failure of a project or the failure of the Company
to collect a large account receivable could also result in significant
financial exposure to the Company, which could have a material adverse effect
on the Company's financial condition. From inception through December 31,
1996, the Company wrote off accounts receivable totalling approximately
$974,000 which it could not collect. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "BUSINESS--Industry
Background."

TECHNOLOGICAL ADVANCES. The Company's success will depend in part on its
ability to develop strategic business and IT solutions which keep pace with
continuing changes in evolving industry standards, IT and changing client
preferences. There can be no assurance that the Company will be successful in
addressing these developments on a timely basis or that, if addressed, the
Company will be successful in the marketplace. The Company's delay in
addressing or failure to address these developments could have a material
adverse effect on the Company's business. See "BUSINESS--Industry Background."

COMPETITION. The management consulting and systems integration markets
include a large number of participants, are subject to rapid changes and are
highly competitive. The Company competes with and faces potential competition
for client assignments and experienced personnel from a number of companies
that have significantly greater financial, technical and marketing resources,
generate greater revenues than does the Company and have greater name
recognition. A majority of the Company's revenue is derived from Fortune 500
companies and other large organizations, and there are an increasing number of
professional services firms seeking consulting engagements from that client
base. The Company believes that the principal competitive factors in the
segment of the consulting industry in which the Company competes include scope
of services, service delivery approach, technical and industry expertise,
perceived value, objectivity and a results orientation. The Company believes
that its ability to compete also depends in part on a number of competitive
factors outside of its control, including the ability of its competitors to
hire, retain and motivate senior project managers, the price at which others
offer comparable services and the extent of its competitors' responsiveness to
customer needs. There can be no assurance that the Company will be able to
compete successfully with its competitors in the future. See "BUSINESS--
Competition."

LIQUIDITY. The Company was not profitable in the first two quarters of
fiscal 1997. While the Company was profitable during the third quarter of
fiscal 1997, there can be no assurance that the Company will continue to be
profitable in the future. The Company believes that the combination of the net
proceeds received by it from this Offering, the amounts available under its
revolving line of credit, cash generated from operations and existing cash
balances will be sufficient to satisfy its operating cash needs for the 12
months following the consummation of this Offering. Any future decreases in
its operating income, cash flow, or stockholders' equity may impair the
Company's future ability to raise additional funds to finance operations.
There can be no assurance that the Company will in the future maintain
adequate liquidity to support its operations. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

BROAD DISCRETION IN APPLICATION OF PROCEEDS. After the repayment of $2.0
million of debt to Safeguard, the Company intends to use a significant portion
of the net proceeds from the Offering for working capital, general corporate
purposes and capital expenditures. A portion of the net proceeds may also be
used to make acquisitions or to form strategic alliances. Accordingly, the
specific uses for the net proceeds will be at the complete discretion of the
Board of Directors of the Company and may be allocated based upon
circumstances arising from time to time in the future. See "USE OF PROCEEDS."

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DILUTION. The average price per share paid upon the issuance by the Company
of Common Stock prior to the Offering was $1.03. The average price per share
of Common Stock paid by the 1994 Purchasers in the 1994 Purchase was $0.91 per
share. Purchasers of the Common Stock of the Company offered hereby will
suffer an immediate dilution of $4.01 in the net tangible book value per share
as of December 31, 1996 of the Common Stock from the Exercise Price of the
Rights and the offering price of the Common Stock issued to the Direct
Purchasers. See "DILUTION" and "CERTAIN TRANSACTIONS."

BENEFITS OF OFFERING TO CURRENT STOCKHOLDERS. The Offering will provide
significant benefits to the current stockholders of the Company, including the
creation of a public market for the Common Stock and the receipt of proceeds
from the sale of Common Stock in the Offering by the Selling Stockholders. As
a result, the Company's current stockholders will generally have greater
liquidity with respect to their investment in the Common Stock and their
holdings of Common Stock will potentially have a greater value. Furthermore,
the Company intends to use $2.0 million of the proceeds to the Company to
repay a loan from Safeguard, one of the Selling Stockholders. The Selling
Stockholders and the Company's other executive officers and directors will own
4,455,592 shares of Common Stock. Based on the Exercise Price of $5.50, such
shares owned will have an aggregate market value of approximately $24.5
million. See "PRINCIPAL AND SELLING STOCKHOLDERS."

Safeguard beneficially owns approximately 2.4 million shares of the
Company's Common Stock, which it purchased at prices that were significantly
below the Exercise Price. Safeguard is selling approximately 895,000 shares in
the Offering. Therefore, by exercising their Rights, Safeguard shareholders
will be purchasing shares of the Company's Common Stock, which they already
indirectly own through their ownership of Safeguard Common Shares, at a
purchase price significantly higher than the price at which they were
originally purchased by Safeguard.

REQUIREMENTS FOR LISTING SECURITIES ON THE NASDAQ NATIONAL MARKET;
APPLICATION OF THE PENNY STOCK RULES. The Class A common stock and Rights (the
"Listed Securities") have been approved for listing upon completion of the
Offering with respect to the Class A common stock and from the date of this
Prospectus through the Expiration Date with respect to the Rights. If the
Company is unable to maintain the standards for continued listing, the Listed
Securities could be subject to delisting from the Nasdaq National Market.
Trading, if any, in the Listed Securities would thereafter be conducted on the
Nasdaq Small Cap Market, if the Listed Securities met the listing requirements
for such market. If the Listed Securities did not meet the Nasdaq Small Cap
Market listing requirements, or if the Listed Securities were delisted from
the Nasdaq Small Cap Market, trading of such securities would thereafter be
conducted on an electronic bulletin board established for securities that do
not meet the Nasdaq listing requirements or in what is commonly referred to as
the "pink sheets." As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Company's
securities.

In addition, if the Company's securities were delisted, they would be
subject to the so-called penny stock rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally defined
as an investor with a net worth in excess of $1.0 million or annual income
exceeding $200,000, or $300,000 together with a spouse). For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser's written
consent to the transaction prior to sale. Consequently, delisting, if it
occurred, may affect the ability of broker-dealers to sell the Company's
securities and the ability of purchasers in the Offering to sell their
securities in the secondary market.

The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as defined in the regulations) of less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to certain exceptions.
For any transaction involving a penny stock, unless exempt, the rules require
the delivery, prior to the transaction, of a disclosure schedule relating to
the penny stock market. The broker-dealer also must disclose the commissions
payable to

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both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on
the limited market in penny stocks. As a result, if the Common Stock is
determined to be "penny stock," an investor may find it more difficult to
dispose of the Company's Common Stock.

NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the Offering,
there has been no public market for the Common Stock or the Rights, and there
can be no assurance that an active public market will develop or be sustained.
The Exercise Price of the Rights and purchase price of the Common Stock has
been determined solely by negotiations between the Company, the Selling
Stockholders and the Underwriters and does not necessarily reflect the price
at which shares of Common Stock may be sold in the public market during or
after the Offering. See "THE OFFERING--Background" for a discussion of the
factors considered in determining the Exercise Price. The public markets, in
general, have from time to time experienced extreme price and volume
fluctuations, which have in some cases been unrelated to the operating
performance of particular companies, and the market for technology stocks, or
small capitalization stocks such as the Common Stock, can be subject to
greater price volatility than the stock market in general. In addition,
factors such as announcements of technological innovations, announcements of
new products by the Company's competitors or third parties, and market
conditions in the IT industry may have a significant impact on the market
price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE. A substantial number of outstanding shares
of Common Stock and shares of Common Stock issuable upon exercise of
outstanding stock options and warrants will become eligible for future sale in
the public market at various times. In addition to the factors affecting the
stock market in general and the market for the Common Stock discussed above,
sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the market
price of the Common Stock and inhibit the Company's ability to raise
additional capital in the future. Upon completion of the Offering, the Company
will have 11,316,301 (11,636,301 if the Underwriters' over-allotment option is
exercised in full) shares of Common Stock outstanding, excluding 3,074,536
shares of Common Stock issuable upon the exercise of stock options and 526,597
shares of Common Stock issuable upon the exercise of warrants outstanding as
of February 10, 1997 and excluding any stock options granted by the Company
after February 10, 1997. Of these shares, the Common Stock sold in the
Offering, except for certain shares described below, will be freely tradeable
without restriction or further registration under the Securities Act of 1933,
as amended (the "Act"). The remaining 7,961,301 shares of Common Stock (the
"Restricted Shares") were sold by the Company in reliance on exemptions from
the registration requirements of the Act and are "restricted securities" as
defined in Rule 144 under the Act ("Rule 144") and may not be sold in the
absence of registration under the Act unless an exemption is available,
including an exemption afforded by Rule 144 or Rule 701 ("Rule 701") under the
Act. Without considering the contractual restrictions described below,
approximately (i) 5,610,531 Restricted Shares will be eligible for sale ninety
days after the date of this Prospectus, subject to volume and other resale
conditions imposed by Rule 144, and (ii) 2,350,770 Restricted Shares will be
eligible for future sale subject to the holding period and other conditions
imposed by Rule 144. Certain restrictions on shares of Common Stock are
applicable to (i) any shares of Common Stock purchased in the Offering by
affiliates of the Company, which may generally only be sold in compliance with
the limitations of Rule 144, except for the holding period requirements
thereunder, and (ii) the shares of Common Stock owned by the Selling
Stockholders that are not being offered hereby, all of which, together with
the shares of Common Stock owned by the Partners of the Company, each director
of the Company and certain other stockholders and 157,000 shares of Common
Stock beneficially owned by Warren V. Musser and/or his assignees, are subject
to lock-up agreements (the "Lock-Up Agreements") and pursuant to such
agreements will not be eligible for sale or other disposition until 180 days
after the Expiration Date (the "Lock-Up Expiry Date") without the prior
written consent of the Underwriters. Pursuant to the 1994 Purchase, the
Company has granted Safeguard, Technology Leaders and CIP certain registration
rights whereby they may cause the Company to register their shares of Common
Stock under the Act for public sale. See "SHARES ELIGIBLE FOR FUTURE SALE."

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It is anticipated that a registration statement (the "Form S-8 Registration
Statement") covering the Common Stock that may be issued pursuant to the
exercise of options awarded by the Company will be filed and become effective
prior to the Lock-Up Expiry Date, and that shares of Common Stock that are so
acquired or offered thereafter pursuant to the Form S-8 Registration Statement
generally may be resold in the public market without restriction or
limitation. Subject to the provisions of any Lock-Up Agreement, shares of
Common Stock may be resold in the public market beginning 90 days after the
date of this Prospectus pursuant to Rule 701 (i) by persons who are not
affiliates of the Company, without compliance with the public information,
holding period, volume limitation or notice provisions of Rule 144 and (ii) by
affiliates of the Company, without compliance with the holding period
requirements of Rule 144. See "MANAGEMENT--Stock Options," "SHARES ELIGIBLE
FOR FUTURE SALE--Options and Warrants" and "UNDERWRITING."

ANTI-TAKEOVER PROVISIONS. Shares of preferred stock may be issued by the
Company in the future without stockholder approval and upon such terms as the
Board of Directors may determine. The rights of the holders of the Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding stock of the Company and
potentially prevent the payment of a premium to stockholders in an acquisition
transaction. The Company has no present plans to issue any shares of preferred
stock. See "CERTAIN TRANSACTIONS--Voting and Stock Restriction Agreement."

The Company has adopted a number of provisions in its charter and bylaws
that may make a change in control difficult, if not impossible, and therefore
may tend to discourage an unsolicited or unfriendly takeover bid. The
Company's Class B common stock is entitled to five votes per share and
currently constitutes 79.6% of the voting power of the Common Stock. All of
the issued and outstanding Class B common stock is owned, and after the
Offering will continue to be owned, by employee stockholders of the Company,
all of whom have granted proxies to the Chief Executive Officer of the Company
to vote their shares. Therefore, the Chief Executive Officer (or his
successors) will have the power to determine all matters submitted to a vote
of shareholders, including any matter related to a change in control of the
Company. The charter and bylaws of the Company also provide that special
stockholders meetings may be called only by the Chairman of the Board of
Directors, by the Secretary at the direction of the Board of Directors, or by
stockholders holding at least 30% of the shares of outstanding Common Stock.
Notice of stockholder proposals at annual meetings of stockholders must be
presented to the Company at least 45 days prior to the date of the meeting. In
addition, the Company's Board of Directors is divided into three classes, each
of which serves for a staggered three-year term, which may make it more
difficult for a third party to gain control of the Board of Directors. See
"DESCRIPTION OF CAPITAL STOCK."

NO DIVIDENDS. To date, the Company has not paid any cash dividends on its
Common Stock, and does not expect to declare or pay any cash or other
dividends in the foreseeable future. Further, the secured credit agreement
with the Company's commercial lender prohibits payment of dividends or other
distributions on the Company's Common Stock. See "DIVIDEND POLICY."

CANCELLATION OF RIGHTS OFFERING. If the conditions precedent to the sale to
the Underwriters of the Excess Unsubscribed Shares on the sixth business day
after the Expiration Date (the "Closing Date") are not satisfied (assuming
that there are Excess Unsubscribed Shares), the Underwriters may elect, on or
before the Closing Date, to cancel the Rights Offering and the Company and the
Selling Stockholders will not have any obligations with respect to the Rights
except to return promptly, without interest, any payment received in respect
of the Exercise Price. See "THE OFFERING--Cancellation of Rights Offering" and
"UNDERWRITING." The Company has been advised by the NASD that it is likely
that trades in the Rights and the when-issued shares of Common Stock in the
market would be canceled if the Rights Offering is not consummated.

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THE OFFERING

The Company is granting, at no cost, to the holders of Safeguard Common
Shares of record at the close of business on the Record Date, Company Rights,
on the basis of one Company Right for every ten Safeguard Common Shares. The
Selling Stockholders have agreed with the Company to sell 1,600,000 shares of
Class A common stock upon the exercise of the Company Rights. The Company will
sell the remaining 1,600,000 shares of Class A common stock upon the exercise
of the Company Rights. The Company is granting, at no cost, the 155,000 Direct
Rights to the Direct Purchasers. Each Right enables the holder to purchase one
share of Class A common stock at an Exercise Price of $5.50 per share. As of
the close of business on the day before the date of this Prospectus, there
were 31,277,255 Safeguard Common Shares outstanding. Accordingly, subject to
changes in the number of outstanding Safeguard Common Shares through the
Record Date (principally as a result of the exercise of options and the
conversion of convertible securities to purchase Safeguard Common Shares), a
total of 3,127,726 Company Rights are expected to be issued to holders of
Safeguard Common Shares outstanding on the Record Date. In the event that
Company Rights to purchase fewer than 3,200,000 shares of Common Stock are
issued to holders of Safeguard Common Shares, the shares of Common Stock
subject to such Undistributed Rights will be offered by the Company to the
Other Purchasers at the Exercise Price.

BACKGROUND

The Company has agreed with the Selling Stockholders to make a Rights
Offering to holders of Safeguard Common Shares on the terms set forth in this
Prospectus. The Company believes that the Rights Offering offers several
advantages over a traditional initial public offering, including, the
opportunity to offer its Common Stock to investors who, as Safeguard
shareholders, already have some knowledge of the Company's business, the
opportunity to achieve a broader distribution to a more stable shareholder
base and the minimization of underwriting discounts and commissions. In
addition, Safeguard has advised the Company that it prefers the Rights
Offering to a traditional initial public offering because it allows its
shareholders the opportunity to purchase shares of Common Stock at the initial
offering price before such shares are offered to the general public by the
Underwriters.

Prior to the Rights Offering, there has been no public market for the Common
Stock or the Rights. Consequently, the Exercise Price was determined by
negotiations among the Company, the Selling Stockholders and the Underwriters.
In determining the Exercise Price, the Underwriters, the Board of Directors of
the Company and the Selling Stockholders considered such factors as the future
prospects and historical growth rate in revenues and earnings of the Company,
its industry in general and the Company's position in its industry; revenues,
earnings and certain other financial and operating information of the Company
in recent periods; market valuations of the securities of companies engaged in
activities similar to those of the Company; the management of the Company;
and, with respect to the Company, the advice of the Underwriters.

EXERCISE PRIVILEGE

Each Right will entitle the holder thereof to receive, upon payment of the
Exercise Price, one share of Class A common stock, subject to the restrictions
described herein (the "Exercise Privilege"). Persons may not exercise Rights
for fewer than 50 shares of Common Stock. In the event that a holder of Rights
meeting the minimum exercise requirement elects to exercise in multiple
transactions and one such transaction involves less than the minimum exercise
requirement, such holder should provide to the Rights Agent a letter stating
that such holder has already exercised a sufficient number of Rights to
satisfy the minimum exercise requirement. For purposes of the Rights Offering,
a person that holds Safeguard Common Shares in multiple accounts must meet the
50 share minimum purchase requirement in each account. Accordingly, persons
holding fewer than 50 Rights in an account should consider the advisability of
consolidating the Rights in one account, selling Rights, or purchasing
additional Rights to comply with the minimum exercise requirements of the
Rights Offering. The Company has established these minimum exercise
requirements primarily to limit the costs associated with a significant number
of odd lots of the Common Stock.

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NO FRACTIONAL RIGHTS

No fractional Rights will be issued in the Rights Offering and a holder of a
number of Safeguard Common Shares not evenly divisible by ten will be entitled
to receive the next higher whole number of Rights. For purposes of this
rounding process, record holders of Safeguard Common Shares known to be acting
as nominees for beneficial holders of Safeguard Common Shares will be
disregarded, and the rounding process will take place with respect to the
aggregate holdings of Safeguard Common Shares by the beneficial holder.

EXPIRATION DATE

The Rights Offering will terminate, and the Rights will expire, at 5:00
p.m., Eastern Standard time, on March 31, 1997, the Expiration Date. After the
Expiration Date, unexercised Rights will be null and void. Neither the Company
nor any Selling Stockholder will be obligated to honor any purported exercise
of Rights received by ChaseMellon Shareholder Services, L.L.C. (the "Rights
Agent") after the Expiration Date, regardless of when the documents relating
to such exercise were sent, except pursuant to the delayed delivery procedures
described below under "--Method of Exercising Rights."

METHOD OF TRANSFERRING RIGHTS

Rights may be transferred, in whole or in part, by endorsing and delivering
to the Rights Agent, at the addresses set forth below under "--Method of
Exercising Rights," a Rights certificate that has been properly endorsed for
transfer, with instructions to reissue the Rights, in whole or in part, in the
name of the transferee. The Rights Agent will reissue certificates for the
transferred Rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the Rights, in each case to the extent it is
able to do so prior to the Expiration Date. Safeguard and the Company believe
that a market for the Rights may develop during the period preceding the
Expiration Date. The Rights have been approved for quotation by the Nasdaq
National Market for the period February 25, 1997 through March 31, 1997 and
will trade under the symbol "DTPIR" during such period. Any questions
regarding the transfer of Rights should be directed to the Rights Agent at
P.O. Box 798, Midtown Station, New York, NY 10018, Attention: Reorganization
Department, telephone number (800) 223-6554.

Because persons may not exercise Rights for fewer than 50 shares of Common
Stock, persons holding fewer than 491 Safeguard Common Shares in one account
will not be entitled to exercise Rights unless they consolidate Rights
received in multiple accounts or acquire enough additional Rights in the
market to satisfy the 50 share minimum exercise requirement. Such holders
should consult with their regular investment advisor and review various
alternatives, including acquiring additional Rights or selling or otherwise
transferring their Rights. All commissions, fees and other expenses (including
brokerage commissions and any transfer taxes) incurred in connection with the
purchase or sale of Rights are for the account of the transferor and
transferee of Rights, and none of such commissions, fees or expenses will be
paid by the Company or the Selling Stockholders.

METHOD OF EXERCISING RIGHTS

Rights may be exercised by completing and signing the election to purchase
form that appears on the back of each Rights certificate. The completed and
signed election to purchase form, accompanied by payment in full of the
Exercise Price for all shares for which the Exercise Privilege has been
exercised, must be received by the Rights Agent on or before the Expiration
Date. Neither the Company nor the Selling Stockholders will be obligated to
honor any purported exercise of Rights received by the Rights Agent after the
Expiration Date, regardless of when the documents relating to such exercise
were sent, except pursuant to the delayed delivery procedures described below.
Therefore, the Company and Safeguard suggest, for the holders' protection,
that Rights be delivered to the Rights Agent by overnight or express mail
courier, or, if mailed, by registered mail. Persons may not exercise Rights
for fewer than 50 shares of Common Stock in each account.

424B1 16th Page of 75 TOC 1st Previous Next ↓Bottom Just 16th
The Rights and Exercise Price, if any, should be mailed or delivered to the
Rights Agent as follows:

[Enlarge/Download Table]

By Mail: By Hand or by Overnight/Express Mail Courier:

ChaseMellon Shareholder Services, L.L.C. ChaseMellon Shareholder Services, L.L.C.
Reorganization Department Reorganization Department
P.O. Box 798 120 Broadway, 13th Floor
Midtown Station New York, NY 10271
New York, NY 10018

Payment of the Exercise Price must be made in U.S. dollars by cash, check or
money order payable to "Safeguard Escrow Account." Mellon Bank N.A. will serve
as the escrow agent of the Safeguard Escrow Account.

An exercise also will be in acceptable form if, on or before the Expiration
Date, the Rights Agent has received payment in full of the Exercise Price for
shares to be purchased pursuant to the Exercise Privilege and a letter or
telegraphic notice from a bank, trust company or member firm of the New York
or American Stock Exchange setting forth the subscriber's name, address and
taxpayer identification number, the number of shares subscribed for pursuant
to the Exercise Privilege, and guaranteeing that a properly completed and
signed election to purchase form will be delivered to the Rights Agent within
three business days after the Expiration Date. Acceptance of subscriptions in
the foregoing manner will be subject to receipt of the duly executed election
to purchase form with respect to the Exercise Privilege within such three
business day period. No formal arrangements for the deposit of election to
purchase forms have been made with any bank, trust company or member firm.

A holder of Rights who purchases less than all the shares of Common Stock
represented by his Rights certificate will receive from the Rights Agent a new
Rights certificate representing the balance of the unsubscribed Rights, to the
extent that the Rights Agent is able to reissue a Rights certificate prior to
the Expiration Date.

Certificates representing the Common Stock purchased by exercising the
Exercise Privilege will be issued as soon as practicable after the sale of the
Unsubscribed Shares and in no event later than six business days after the
Expiration Date. See "--Sales of Unsubscribed Shares; Standby Commitment." All
funds received by the Rights Agent in payment of the Exercise Price will be
retained in escrow by the Escrow Agent and will not be delivered to the
Company or the Selling Stockholders until the certificates representing Common
Stock have been issued.

Record holders of Safeguard Common Shares who hold such shares for the
account of others (e.g., brokers or depositories for securities), and who thus
receive Rights certificates representing Rights for the account of more than
one beneficial owner, should provide such beneficial owners with copies of
this Prospectus and should ascertain and execute on their behalf the
intentions of such beneficial owners as to the exercise or transfer of such
Rights.

All questions as to the validity, form, eligibility (including times of
receipt, beneficial ownership and compliance with minimum exercise provisions)
and acceptance of subscription forms and the Exercise Price will be determined
by the Company and Safeguard, whose determination will be final and binding.
Once made, subscriptions are irrevocable, and no alternative, conditional or
contingent subscriptions will be accepted. The Company and Safeguard reserve
the absolute right to reject any or all purchases not properly submitted or
the acceptance of which would, in the opinion of its counsel, be unlawful. The
Company and Safeguard also reserve the right to waive any irregularities (or
conditions) and their interpretations of the terms (and conditions) of the
Rights Offering shall be final and binding. Any irregularities in connection
with purchases must be cured within five business days of the giving of notice
of defect by the Rights Agent, but no later than three business days after the
Expiration Date, unless waived by the Company and Safeguard. The Company, the
Selling Stockholders, the Underwriters and the Rights Agent are not under any
duty to give notification of defects in

424B1 17th Page of 75 TOC 1st Previous Next ↓Bottom Just 17th
such subscriptions and will not have any liability for failure to give such
notifications. Exercises will not be deemed to have been made until such
irregularities have been cured or waived and rejected exercises and the
Exercise Price paid therefor will be returned promptly by the Rights Agent to
the appropriate holders of the Rights.

INVESTOR INFORMATION

Investors who desire additional copies of this Prospectus or additional
information should contact Gregory R. Rush at Tucker Anthony Incorporated, One
Beacon Street, Boston, Massachusetts 02108, telephone number (617) 725-1757 or
William J. Filip at Robert W. Baird & Co. Incorporated, 777 E. Wisconsin
Avenue, Milwaukee, Wisconsin 53202-5391, telephone number (414) 298-7665.

EXPECTATIONS CONCERNING THE EXERCISE OF RIGHTS

Warren V. Musser, the chairman and chief executive officer of Safeguard,
and/or his assignees are expected to exercise all Rights distributed to them
and acquire approximately 291,000 shares of Common Stock through the Rights
Offering.

SALES OF UNSUBSCRIBED SHARES; STANDBY COMMITMENT

The Unsubscribed Shares will be sold, as to the first 300,000 Unsubscribed
Shares, at the Exercise Price to the Other Purchasers (who are persons
selected by the Company having a relationship with the Company, Safeguard, one
of Safeguard's other partnership companies or other persons selected by the
Company) and, as to the number of Unsubscribed Shares exceeding the 300,000
shares of Common Stock offered to the Other Purchasers (the "Excess
Unsubscribed Shares"), to the Underwriters at the Exercise Price less the
Underwriting Discount pursuant to the Standby Underwriting Agreement.

The Company is offering the first 300,000 Unsubscribed Shares at the
Exercise Price to the Other Purchasers and expects to enter into, prior to the
Expiration Date, agreements obligating it to sell up to an aggregate of
300,000 Unsubscribed Shares to the Other Purchasers and obligating the Other
Purchasers to purchase from it up to an aggregate of 300,000 Unsubscribed
Shares. In the event that less than 300,000 Unsubscribed Shares are available
for sale to the Other Purchasers as of the Expiration Date, the number of
remaining Unsubscribed Shares will be sold to each Other Purchaser, on a
discretionary basis, as derived by multiplying the maximum number of
Unsubscribed Shares each Other Purchaser has agreed to purchase by the
fraction obtained after dividing the aggregate number of remaining
Unsubscribed Shares by 300,000. See "UNDERWRITING."

In accordance with the Standby Underwriting Agreement, the Underwriters (i)
will receive the Financial Advisory Fee of 3% of the Exercise Price for each
share of Common Stock subject to the Offering, and (ii) will purchase, within
six business days after the Expiration Date and subject to the terms and
conditions of the Standby Underwriting Agreement, the Excess Unsubscribed
Shares at a price per share equal to the Exercise Price less the Underwriting
Discount equal to 4% of the Exercise Price for each Excess Unsubscribed Share,
in addition to the Financial Advisory Fee for such shares. Under certain
circumstances, the Underwriters may be entitled to receive the Underwriting
Discount for shares of Common Stock acquired by them pursuant to the exercise
of Rights purchased by them. See "UNDERWRITING." The Excess Unsubscribed
Shares acquired by the Underwriters pursuant to the Standby Underwriting
Agreement, the Common Stock acquired by the Underwriters pursuant to the
exercise of Rights and the Common Stock acquired by the Underwriters in the
market will be offered by the Underwriters to the public at prices which may
vary from the Exercise Price. If all of the Rights are exercised there will be
no Excess Unsubscribed Shares and the Underwriters will not be required to
purchase any Common Stock pursuant to the Standby Underwriting Agreement. The
Underwriters may terminate their obligations under the Standby Underwriting
Agreement if certain events occur, or if the Company or any Selling
Stockholder fails to comply with any of their respective obligations under the
Standby Underwriting Agreement. See "UNDERWRITING." The Company has granted to
the Underwriters a 20-day

424B1 18th Page of 75 TOC 1st Previous Next ↓Bottom Just 18th
option commencing on the Expiration Date to purchase a maximum of 320,000
additional shares of Common Stock to cover over-allotments, if any. See
"UNDERWRITING." The Company intends to supplement the Prospectus after the
Expiration Date to set forth the results of the Rights Offering, the
transactions by the Underwriters during the Exercise Period, the number of
Unsubscribed Shares purchased by the Other Purchasers, if any, the number of
Unsubscribed Shares purchased by the Underwriters, if any, and the subsequent
reoffering thereof.

CANCELLATION OF RIGHTS OFFERING

If the conditions precedent to the sale to the Underwriters of the Excess
Unsubscribed Shares on the sixth business day after the Expiration Date (the
"Closing Date") are not satisfied (assuming that there are Excess Unsubscribed
Shares), the Underwriters may elect, on or before the Closing Date, to cancel
the Rights Offering. In the event that the Rights Offering is cancelled, the
Company and the Selling Stockholders will not have any obligations with
respect to the Rights except to promptly return, without interest, any payment
received in respect of the Exercise Price. In order to fulfill their
obligations, the Company and Safeguard have established an escrow account with
the Rights Agent to hold funds received prior to the Closing Date. See
"UNDERWRITING." The Company has been advised by the NASD that it is likely
that trades in the Rights and the when-issued shares of Common Stock in the
market would be canceled if the Rights Offering is not consummated.

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material federal income tax consequences
affecting holders of Safeguard Common Shares receiving Company Rights in the
Offering. In the opinion of Morgan, Lewis & Bockius LLP, the distribution of
the Company Rights by the Company may constitute taxable income to holders of
Safeguard Common Shares under the Internal Revenue Code of 1986, as amended
(the "Code"), and may also be subject to state or local income taxes. Because
of the complexity of the provisions of the Code referred to below and because
tax consequences may vary depending upon the particular facts relating to each
holder of Safeguard Common Shares, such holders should consult their own tax
advisors concerning their individual tax situations and the tax consequences
of the Offering under the Code and under any applicable state, local or
foreign tax laws.

Safeguard has been advised by Morgan, Lewis & Bockius LLP that, under
current interpretations of case law, the Code, and applicable regulations
thereunder, the federal income tax consequences applicable to holders of
Safeguard Common Shares receiving Company Rights in the Offering generally are
as follows:

Distribution of Company Rights to Holders of Safeguard Shares

The Company Rights, representing the right to acquire shares of Common Stock
from the Company or the Selling Stockholders, can be considered as
constituting "property" within the meaning of Section 317(a) of the Code. The
federal income tax consequences of a distribution by the Company of the
Company Rights which are considered "property" to holders of Safeguard Common
Shares, as determined under the Code and the regulations thereunder, are as
follows: (i) each noncorporate holder of Safeguard Common Shares will be
deemed to have received a distribution from Safeguard, generally taxable as
ordinary dividend income, in an amount equal to the fair market value (if any)
of the Company Rights, as of the date of distribution, (ii) each corporate
holder of Safeguard Common Shares (other than foreign corporations and S
corporations) will be deemed to have received a distribution from Safeguard
(generally taxable as a dividend subject to the dividends received deduction
for corporations (generally 70%, but 80% under certain circumstances)) in an
amount equal to the fair market value (if any) of the Company Rights, as of
the date of distribution; and (iii) the tax basis of the Company Rights in the
hands of each holder (whether corporate or noncorporate) of Safeguard Common
Shares will be equal to the fair market value (if any) of the Company Rights
as of the date of distribution. Because of the predominantly factual nature of
determining the fair market value, if any, of the Company Rights, Morgan,
Lewis & Bockius LLP has expressed no opinion with respect to the fair market
value of the Company Rights.

424B1 19th Page of 75 TOC 1st Previous Next ↓Bottom Just 19th
Since the fair market value of the Company Rights will determine the amount
of taxable income deemed received by the holders of Safeguard Common Shares,
the determination of the fair market value of each Right as of the date of
distribution is critical. The Exercise Price was determined through arms-
length negotiations among the Company, the Selling Stockholders and the
Underwriters. Based on these negotiations and because Safeguard views the
Company Rights as merely a mechanism that permits the purchase of the Common
Stock, Safeguard's Board of Directors believes that the per share value of
Common Stock represented by the Company Rights at the date of the commencement
of the Offering approximates the Exercise Price, and that the Company Rights
should have no value for federal income tax purposes. However, the Internal
Revenue Service is not bound by this determination. See "--Background."

Exercise of Rights

Holders of Company Rights, whether corporate or noncorporate, will recognize
neither gain nor loss upon the exercise of the Company Rights. A holder of
Company Rights who receives shares of Common Stock upon the exercise of the
Company Rights will acquire a tax basis in such shares equal to the sum of the
Exercise Price paid under the Offering and the tax basis (if any) of the
holder of Company Rights in the Company Rights.

Transfer of Rights

The transferable nature of the Company Rights will permit a holder of
Company Rights to sell Company Rights prior to exercise. Pursuant to Section
1234 of the Code, a Company Rights holder who sells Company Rights prior to
exercise will be entitled to treat the difference between the amount received
for the Company Rights and the adjusted tax basis (if any) of the holder of
Company Rights in the Company Rights as a short-term capital gain or capital
loss, provided that Common Stock subject to the Company Rights would have been
a capital asset in the hands of the holder had it been acquired by him. The
gain or loss so recognized will be short-term since the Company Rights will
have been held for not longer than one year.

Non-Exercise of Rights

The income tax treatment applicable to holders of Company Rights who fail to
exercise or transfer their Company Rights prior to the Expiration Date also is
set forth in Section 1234 of the Code. Holders of Company Rights who allow
their Company Rights to lapse are deemed under the Code to have sold their
Company Rights on the date on which the Company Rights expire. Since upon such
lapse no consideration will be received by a holder of Company Rights, and
since the Company Rights will have been held for not longer than one year, a
short-term capital loss equal to the tax basis (if any) in the Company Rights
will be sustained by the holder on such lapse, provided that Common Stock
subject to the Company Rights would have been a capital asset in the hands of
the holder had it been acquired by him.

424B1 20th Page of 75 TOC 1st Previous Next ↓Bottom Just 20th
USE OF PROCEEDS

The minimum net proceeds to the Company from the sale of the 1,755,000
shares of Common Stock offered by the Company hereby are estimated to be
approximately $8.2 million after deducting estimated offering expenses
allocable to and payable by the Company (including the maximum applicable non-
accountable expense allowance to the Underwriters) and assuming the sale of
all such shares pursuant to the Standby Underwriting Agreement (other than the
155,000 shares sold to the Direct Purchasers pursuant to the exercise of the
Direct Rights), the payment to the Underwriters of the Total Underwriting
Discount with respect to the shares sold by the Company pursuant to the
Standby Underwriting Agreement and the payment of only the Financial Advisory
Fee with respect to the shares of Common Stock sold by the Company to the
Direct Purchasers through the Direct Rights. In the event more of the shares
of Common Stock offered hereby are sold pursuant to the exercise of Rights,
the Company will not be obligated to pay the Underwriting Discount with
respect to such shares and will, therefore, realize an amount of net proceeds
greater than approximately $8.2 million. See "RISK FACTORS--Liquidity" and "--
Broad Discretion in Application of Proceeds," "THE OFFERING--Sales of
Unsubscribed Shares; Standby Commitment" and "UNDERWRITING." The Company will
not receive any proceeds from the sale of Common Stock by the Selling
Stockholders.

The principal reason for the Offering is to establish a stronger capital
base for the Company to support the continued expansion of its revenues. The
Company intends to use the net proceeds, together with cash flow from
operations, to repay a $2.0 million loan from Safeguard (the "Safeguard Loan")
and for working capital, general corporate purposes and capital expenditures.
The Safeguard Loan has a maturity date of November 1, 2001 but must be prepaid
in full upon the consummation of this Offering and bears interest at rates
which escalate 1.0% annually, starting at 6.0% in the initial year. In
addition, the Company may expand its technical and marketing capabilities
through the acquisition of other companies or businesses that are
complementary to the Company's current business. A portion of the net proceeds
from the Offering may be used in the future for such acquisitions, although
the Company has no commitments or understandings with respect to future
acquisitions, nor is it currently actively considering any particular
acquisition. The Company has not determined the amounts it intends to utilize
on each of the listed uses, or the timing of such uses. The amounts actually
expended for each use may vary significantly depending upon a number of
factors, including future revenue growth, if any, the amount of cash generated
or used by the Company's operations and the status of acquisition
opportunities, if any, presented to the Company. The Company believes that the
net proceeds from the sale of the Common Stock offered hereby, together with
its current cash balances and cash flow from future operations will be
sufficient to fund its operating requirements for the 12 months following the
consummation of this Offering. Pending such uses, the net proceeds of the
Offering will be invested in short-term, investment-grade, interest-bearing
securities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION--Liquidity and Capital Resources."

DIVIDEND POLICY

To date, the Company has not paid any cash dividends on its Common Stock.
The Company currently intends to retain future earnings for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment of future dividends, if any, will depend,
among other things, on the Company's results of operations and financial
condition, any restriction in the Company's secured credit agreement and on
such other factors as the Company's Board of Directors may, in its discretion,
consider relevant. The Company's secured credit agreement with its commercial
lender currently prohibits the payment of dividends.

424B1 21st Page of 75 TOC 1st Previous Next ↓Bottom Just 21st
CAPITALIZATION

The following table sets forth the total capitalization of the Company as of
December 31, 1996, and as adjusted to reflect the sale of 1,755,000 shares of
Class A common stock by the Company pursuant to the Offering and the
application of the estimated minimum net proceeds of approximately $8.2
million therefrom. This table should be read in conjunction with the Financial
Statements and related notes thereto and other financial information included
elsewhere in this Prospectus.

[Download Table]

DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)

Long-term debt, including current portion(3)........... $ 2,177 $ 177
------- -------
Stockholders' equity:
Preferred Stock, $1.00 par value; 2,000,000 shares
authorized, and no shares issued and outstanding.... - -
Class A common stock, $.001 par value; 40,000,000
shares authorized, and 4,271,439 and 6,026,439 (as
adjusted) shares issued and outstanding(2).......... 4 6
Class B common stock, $.001 par value; 20,000,000
shares authorized, and 5,281,612 and 5,281,612 (as
adjusted) shares issued and outstanding(2).......... 5 5
Additional paid-in capital(2)........................ 9,294 17,478
Notes receivable from sale of Common Stock........... (146) (146)
Accumulated deficit.................................. (406) (406)
------- -------
Total stockholders' equity........................... 8,751 16,937
------- -------
Total capitalization............................... $10,928 $17,114
======= =======

--------
(1) Adjusted to give effect to the sale by the Company of 1,755,000 shares of
Class A common stock and the receipt and application of approximately
$8,186 in net proceeds from this Offering, after deducting the maximum
Total Underwriting Discount with respect to such shares of approximately
$642 and estimated offering expenses of $825 (including $125 representing
the maximum applicable non-accountable expense allowance to the
Underwriters).
(2) Excludes as of February 10, 1997 (i) 3,074,536 shares of Common Stock
issuable upon the exercise of options (of which options to purchase 79,448
shares were exercisable at February 10, 1997) at a weighted average
exercise price of $2.50 per share and (ii) 526,597 shares of Common Stock
issuable upon the exercise of warrants (all of which were exercisable as
of February 10, 1997) at an exercise price of $5.50 per share. Also,
excludes 8,250 shares of Class B common stock issued since December 31,
1996 and does not reflect the conversion of 322,740 shares from Class B
common stock to Class A common stock subsequent to December 31, 1996. See
"MANAGEMENT--Stock Options" and "CERTAIN TRANSACTIONS."
(3) The "As Adjusted" long-term debt amount reflects the repayment of a $2,000
loan from Safeguard using net proceeds from this Offering. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--Liquidity and Capital Resources" and "USE OF PROCEEDS."

424B1 22nd Page of 75 TOC 1st Previous Next ↓Bottom Just 22nd
DILUTION

The net tangible book value of the Company as of December 31, 1996 was
approximately $8.6 million or $0.90 per share of Common Stock. Net tangible
book value per share of Common Stock represents the amount of the Company's
tangible assets less its total liabilities, divided by the total number of
shares of Common Stock outstanding. Without taking into account any changes in
net tangible book value after December 31, 1996, other than to give effect to
the items described in Note 1 appearing immediately below the following table,
the pro forma net tangible book value of the Company as of December 31, 1996
would have been approximately $16.8 million or $1.49 per share. This
represents an immediate increase in such pro forma net tangible book value of
$.59 per share to existing stockholders and an immediate dilution of $4.01 per
share to investors purchasing Common Stock at the Exercise Price in the
Offering. New stockholders that acquire Common Stock from the Underwriters at
a price greater than the Exercise Price will experience greater dilution. The
following table illustrates this per share dilution in net tangible book
value:

[Download Table]

Exercise Price..................................................... $5.50
Net tangible book value per share as of December 31, 1996........ $0.90
Increase per share attributable to new stockholders(1)........... .59
-----
Pro forma net tangible book value per share as of December 31,
1996.............................................................. 1.49
-----
Dilution per share to new stockholders............................. $4.01
=====

--------
(1) Reflects the sale by the Company of 1,755,000 shares of Common Stock and
the receipt of approximately $8.2 million in net proceeds from the
Offering after deducting the maximum Total Underwriting Discount with
respect to such shares of approximately $642,000 and estimated offering
expenses of $825,000 (including $125,000 representing the maximum
applicable non-accountable expense allowance to the Underwriters).

The following table sets forth, on an adjusted basis as of February 18,
1997, the number of shares of Common Stock issued by the Company, the total
consideration paid and the average price per share paid upon original issuance
to stockholders prior to the Offering and by new investors, based upon the
Exercise Price of $5.50 per share before deducting the Underwriters'
compensation and estimated offering expenses:

[Download Table]

SHARES TOTAL
PURCHASED(1) CONSIDERATION(2)(3) AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE(2)
---------- ---------- ----------- ---------- ------------

Existing shares...... 9,561,301 84.5% $ 9,809,631 50.4% $1.03
New shares........... 1,755,000 15.5 9,652,500 49.6 5.50
---------- ----- ----------- -----
Total.............. 11,316,301 100.0% $19,462,131 100.0% 1.72
========== ===== =========== =====

--------
(1) Sales by the Selling Stockholders in the Offering will cause the number of
shares held by existing stockholders to be reduced to approximately
7,961,301 shares or 70.4% of the total shares of Common Stock to be
outstanding after the Offering, and will increase the number of shares
held by new investors to approximately 3,355,000 shares, or 29.6% of the
total shares of Common Stock to be outstanding after the Offering. See
"PRINCIPAL AND SELLING STOCKHOLDERS."
(2) Reflects gross consideration from the issuance of Common Stock and
therefore does not reflect deductions for stock issuance costs of $471,000
and notes issued in exchange for stock issuance of $146,000.
(3) Reflects gross consideration from the issuance of Common Stock and
therefore does not reflect deductions for the maximum Underwriting
Discount with respect to such shares of approximately $642,000 and
estimated offering expenses of $825,000.

The foregoing tables do not assume the exercise of any options. As of
February 10, 1997, there were outstanding options to purchase an aggregate of
3,074,536 shares of Common Stock (of which 79,448 were exercisable at February
10, 1997) at a weighted average exercise price of $2.50 per share and excludes
526,597 shares of Common Stock issuable upon the exercise of warrants at an
exercise price of $5.50 per share. As of February 10, 1997, the Company had an
additional 399,164 shares of Common Stock available for future grants and
other issuances under its Stock Option Plan. See "MANAGEMENT--Stock Options,"
"CERTAIN TRANSACTIONS" and Note 7 to the Consolidated Financial Statements
appearing elsewhere in this Prospectus.

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SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The financial data presented below has been derived from the Company's
consolidated financial statements. The audited balance sheets as of March 31,
1995 and 1996 and the related statements of operations, stockholders' equity
and cash flows for each of the years in the two-year period ended March 31,
1996 and for the period from January 28, 1994 (inception) to March 31, 1994
and the KPMG Peat Marwick LLP report thereon and the Company's unaudited
balance sheet as of December 31, 1996 and the related statements of
operations, stockholders' equity and cash flows for the period then ended are
included elsewhere in this Prospectus. The data presented below should be read
in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," the Consolidated Financial Statements
and the notes thereto and other financial information appearing elsewhere in
this Prospectus.

[Download Table]

INCEPTION YEAR ENDED NINE MONTHS ENDED
TO MARCH 31, DECEMBER 31,
MARCH 31, ---------------- ------------------
1994 1995 1996 1995 1996
--------- ------- ------- -------- --------

STATEMENT OF OPERATIONS DATA:
Net revenues.................. $ 261 $12,843 $26,339 $ 18,756 $ 26,245
------ ------- ------- -------- --------
OPERATING EXPENSES:
Project personnel and
related expenses........... 633 8,351 15,312 10,710 16,307
Professional development and
recruiting................. 106 1,395 4,587 3,508 4,478
Marketing and sales......... 94 451 606 430 1,189
Management and
administrative support..... 317 3,108 4,460 3,163 4,840
------ ------- ------- -------- --------
Total operating expenses.. 1,150 13,305 24,965 17,811 26,814
------ ------- ------- -------- --------
Income (loss) from
operations................... (889) (462) 1,374 945 (569)
Interest income, net.......... 3 85 164 119 82
------ ------- ------- -------- --------
Income (loss) before taxes.... (886) (377) 1,538 1,064 (487)
Income taxes.................. -- -- ( 302) (209) 107
------ ------- ------- -------- --------
Net income (loss)............. $ (886) $ (377) $ 1,236 $ 855 $ (380)
====== ======= ======= ======== ========
Pro forma net income (loss)
per share of Common
Stock(1)..................... $ (.35) $ (0.05) $ 0.13 $ 0.09 $ (0.04)
Shares used in computing pro
forma net income (loss) per
share(1)..................... 2,511 8,272 9,824 9,762 10,439

[Download Table]

MARCH 31,
-------------------- DECEMBER 31,
1994 1995 1996 1996
------ ------ ------ ------------

BALANCE SHEET DATA:
Cash and cash equivalents................... $1,148 $4,690 $4,635 $7,132
Working capital............................. 558 4,345 4,396 6,312
Total assets................................ 1,456 7,513 11,615 13,928
Long-term debt, including current
portion(2)................................. -- 256 125 2,177
Total stockholders' equity.................. 766 5,187 6,568 8,751

--------
(1) Pro forma net income (loss) per share is computed using the weighted
average number of shares of Common Stock and Common Stock equivalent
shares (stock options and warrants) outstanding unless anti-dilutive. As
required by Staff Accounting Bulletin No. 83 issued by the Securities and
Exchange Commission, Common Stock and Common Stock equivalent shares
issued by the Company during the twelve-month period preceding the initial
filing of the Registration Statement have been included in the calculation
as if they were outstanding for all periods presented regardless of the
dilutive effect (using the treasury stock method and the assumed public
offering price).
(2) As of December 31, 1996, the Company had long-term debt of approximately
$2,177, which includes a loan from Safeguard for $2,000 made on November
8, 1996.

424B1 24th Page of 75 TOC 1st Previous Next ↓Bottom Just 24th
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following information should be read in connection with the information
contained in the Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "RISK FACTORS."

OVERVIEW

Diamond is a management consulting firm that devises business strategies
enabled by information technology ("IT") and manages the implementation of
those strategies. Diamond was founded upon, and continues to stress, a
business culture in which strategic consulting and IT expertise are optimally
integrated to provide superior client solutions. The Company has experienced
substantial revenue growth as its net revenues have increased from $12.8
million in its first full fiscal year of operations ending March 31, 1995 to
$26.3 million in fiscal 1996 while growing its client base from 16 clients
served in fiscal 1995 to 24 clients served in fiscal 1996. The number of the
Company's client-serving professionals has also grown during this two-year
period from 69 to 115 at the end of fiscal 1995 and fiscal 1996, respectively.

The Company's revenues are comprised of professional fees for services
rendered to clients which are billed either monthly or semi-monthly in
accordance with the terms of the client engagement. Prior to the commencement
of a client engagement, the Company and its client agree on fees for services
based upon the scope of the project, Diamond staffing requirements and the
level of client involvement. The Company recognizes revenues as services are
performed in accordance with the terms of the client engagement. Out-of-pocket
expenses are reimbursed by clients and offset against expenses incurred and
are not included in recognized revenues. Provisions are made for estimated
uncollectible amounts based on the Company's experience. Although the Company
from time to time has been required to make revisions to its clients'
estimated deliverables, to date none of such revisions has had a material
adverse effect on the Company's operating or financial results.

The largest portion of the Company's costs consist primarily of employee-
related expenses for its client-serving professionals and other direct costs,
such as third-party vendor costs and unbilled travel costs associated with the
delivery of services to clients. The remainder of the Company's costs are
comprised of the expenses associated with the development of the business and
the support of its client-serving professionals, such as professional
development and recruiting, marketing and sales, and management and
administrative support. Professional development and recruiting expenses
consist primarily of recruiting and training costs. Marketing and sales
expenses consist primarily of the costs associated with the Company's
development and maintenance of its marketing materials and programs, in
addition to other marketing programs. Management and administrative support
expenses consist primarily of the costs associated with operations, finance,
human resources, information systems, facilities and other administrative
support for project personnel.

The Company regularly reviews its fees for services, professional
compensation and overhead costs to ensure that its services and compensation
are competitive within the industry. In addition, Diamond monitors the
progress of client projects with client senior management on a periodic basis.
The Company manages activities of its professionals by closely monitoring
engagement schedules and staffing requirements for new engagements. Because
most of the Company's client engagements are, and may be in the future,
terminable by the client without penalty, an unanticipated termination of a
client project could require the Company to maintain under-utilized employees,
resulting in a higher than expected percentage and number of inactive
professionals. While professional staff must be adjusted to reflect active
engagements, the Company must maintain a sufficient number of senior
professionals to oversee existing client engagements and participate with the
Company's sales efforts to secure new client assignments.

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RECENT DEVELOPMENTS

The Company's net revenues of $10.2 million during the quarter ended
December 31, 1996 increased $1.8 million, or 21.8%, from the prior quarter's
net revenues. This increase, combined with the impact of the cost reductions
described in the following paragraphs, resulted in net income of $719,000
during the quarter, substantially offsetting the net losses during the six
months ended September 30, 1996 of $1.1 million.

The Company's net revenues continued to grow during each of the three
quarters ended December 31, 1996, despite the cancellation of two significant
projects during the last quarter of fiscal 1996 and the first quarter of
fiscal 1997. The cancellation of these projects resulted from (a) one client's
acquisition of an existing business which eliminated its need for Diamond's
continued services in assisting the client in the establishment of a similar
business and (b) the other client's cancellation of the business initiative
for which the Company had been retained. The revenues from these two clients
represented approximately $3.8 million in the quarter ended March 31, 1996
and, after such cancellations, represented approximately $1.5 million in the
quarter ended June 30, 1996, $300,000 in the quarter ended September 30, 1996
and zero in the quarter ended December 31, 1996. At the time of these project
cancellations, the Company was in the process of increasing the number of its
client-serving professionals to support anticipated revenue growth.
Accordingly, the lost revenue associated with these projects, together with
the expanded capacity for future anticipated revenue growth, resulted in a
higher than expected percentage of unassigned professionals during each of the
quarters ended June 30, 1996 and September 30, 1996 and net losses of $714,000
and $385,000, respectively. The Company responded to the impact of this lost
revenue and reduced utilization of its client-serving professionals by
evaluating its cost structure and eliminating, or deferring, certain planned
spending and terminating certain non-client-serving professionals. At the same
time, the Company elected to retain existing client-serving professionals so
that it could be in a position to respond to anticipated future growth.
Finally, the following compensation reductions were implemented to help the
Company recover from the situation.

. The Company eliminated employee bonuses for the year ending March 31,
1997.

. The Partners agreed to a temporary 8.3% reduction in compensation for one
year commencing with the quarter ending December 31, 1996.

. Certain of the Partners forgave prior years' deferred compensation
totalling approximately $485,000 during the quarter ended December 31,
1996. These Partners also agreed to forgive an additional $485,000 of
deferred compensation during the quarter ending March 31, 1997 if the
Company does not achieve certain revenue thresholds during that quarter.
To the extent that such amounts are forgiven in the quarter ending March
31, 1997, the Company will recognize the amount as a reduction in
operating expenses in the period.

The Company's response to these project cancellations and the resulting
business circumstances effectively reduced spending levels, while maintaining
the consulting capacity required to support future growth. In the aggregate
(assuming the revenue thresholds related to potential forgiveness of deferred
compensation described above are not met), the Company reduced or will reduce
its expense levels by approximately $800,000 in the quarter ended September
30, 1996, approximately $1.1 million in the quarter ended December 31, 1996,
$1.1 million in the quarter ending March 31, 1997, and $200,000 in each
quarter ending June 30, 1997 and September 30, 1997 as compared to the expense
levels included in the quarter ended June 30, 1996.

RESULTS OF OPERATIONS

The Company's operations during the period from inception on January 28,
1994 to March 31, 1994 (the "Inception Period") reflect a loss of $886,000
which was attributable to the developmental nature of the business during the
start-up phase of operations. The Company's investment in its consulting
capacity and marketing programs during the Inception Period was focused
primarily on the development of a core group of consultants and administrative
personnel to start the business, recruitment of new consultants to support the
future growth of the business and development of a corporate identity and
marketing approach. Accordingly, a comparison of fiscal 1995 to the Inception
Period is not meaningful and the discussion that follows is only directed
toward a

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comparison of the nine months ended December 31, 1996 and 1995 and a
comparison of fiscal 1996 and fiscal 1995.

The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of net revenues:

[Download Table]

YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------- ------------------
1995 1996 1995 1996
----- ----- -------- --------

Statement of Operations Data:
Net revenues................................ 100.0% 100.0% 100.0% 100.0%
----- ----- -------- --------
Operating expenses:
Project personnel and related expenses.... 65.0 58.1 57.1 62.1
Professional development and recruiting... 10.9 17.4 18.7 17.1
Marketing and sales....................... 3.5 2.3 2.3 4.5
Management and administrative support..... 24.2 17.0 16.9 18.4
----- ----- -------- --------
Total operating expenses................ 103.6 94.8 95.0 102.1
----- ----- -------- --------
Income (loss) from operations............... (3.6) 5.2 5.0 (2.1)
Interest income, net........................ 0.7 0.6 0.7 0.3
----- ----- -------- --------
Income (loss) before taxes.................. (2.9) 5.8 5.7 (1.8)
Income taxes................................ -- (1.1) (1.1) 0.4
----- ----- -------- --------
Net income (loss)........................... (2.9%) 4.7% 4.6% (1.4%)
===== ===== ======== ========

NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995

The Company's net revenues increased 39.9% to $26.2 million during the nine
months ended December 31, 1996, as compared to the same period in the prior
year. The increase in the Company's net revenues reflects an increase in the
volume of services delivered to new clients, as well as the leveraging of the
Company's existing client base by undertaking additional projects for these
clients. For the nine months ended December 31, 1996, $9.4 million of revenue
was derived from services delivered to new clients and $16.8 million related
to the completion of projects or undertaking additional projects from the
Company's client base of the previous fiscal year. The Company served 39
clients during the nine months ended December 31, 1996 (of which 16 were
clients during the prior fiscal year) as compared to 18 clients during the
same period in the prior year.

Project personnel and related expenses increased $5.6 million to $16.3
million during the nine months ended December 31, 1996 from the same period in
the prior year. In aggregate, project personnel and related expenses increased
52.3% from the same period in the prior year due to the increase in the number
of its client-serving professionals hired during the period to respond to
anticipated future growth. The Company increased its client-serving
professional staff from 100 at December 31, 1995 to 143 at December 31, 1996.
As a percentage of net revenues, project personnel and related expenses
increased from 57.1% to 62.1% during the nine months ended December 31, 1996.
This largely reflects the impact of the reduced utilization that occurred as a
result of the cancellation of two significant projects in March and April 1996
as previously noted.

Professional development and recruiting expenses increased from $3.5 million
to $4.5 million, or 27.7%, during the nine months ended December 31, 1996 due
to the increase in recruiting and the training of a higher number of
professional consultants. The increase also reflects the Company's continued
emphasis on its investment in recruiting and training to support the growth of
its business as partially offset by certain cost containment initiatives
undertaken in response to the events described in "--Recent Developments." As
a percentage of net revenues, professional development and recruiting expenses
decreased to 17.1% as compared to 18.7% during the same period in the prior
year.

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Marketing and sales expenses increased from $430,000 to $1.2 million during
the nine months ended December 31, 1996. As a percentage of net revenues,
these expenses increased from 2.3% to 4.5%, reflecting the Company's expanded
investment in its marketing and sales programs.

Management and administrative support expenses increased from $3.2 million
to $4.8 million during the nine months ended December 31, 1996. As a
percentage of net revenues, these expenses increased from 16.9% to 18.4%,
reflecting the costs associated with the additional facilities, equipment and
personnel necessary to support the Company's growth and increased consulting
capacity and the recognition of certain legal expenses. See "CERTAIN
TRANSACTIONS--Cancellation of Promissory Note."

FISCAL 1996 COMPARED TO FISCAL 1995

The Company's net revenues increased 105.1% to $26.3 million in 1996, as
compared to $12.8 million in 1995. The increase in the Company's net revenues
reflects an increase in the volume of services delivered to new clients, as
well as the leveraging of the Company's existing client base by undertaking
additional projects for these clients. For the year ended March 31, 1996, $6.9
million of revenue was derived from services delivered to new clients and
$19.4 million related to the completion of projects or undertaking additional
projects from the Company's client base of the previous fiscal year. The
Company served 24 clients during 1996 (of which 12 were clients during the
prior year) as compared to 16 clients during the same period in the prior
year.

Project personnel and related expenses increased from $8.4 million to $15.3
million, or 83.4%. This reflects the increase in the number of professional
consultants required to support the Company's growth during the period and to
respond to anticipated future growth. In response to the Company's
requirements for additional project personnel, the Company increased its
number of client- serving professionals from 69 at March 31, 1995 to 115 at
March 31, 1996. As a percentage of net revenues, these expenses decreased from
65.0% to 58.1% during 1996, reflecting the Company's improved utilization of
its client-serving professionals relative to the preceding year.

Professional development and recruiting expenses increased from $1.4 million
to $4.6 million during 1996. As a percentage of net revenues, these expenses
increased from 10.9% to 17.4% in 1996. This increase reflects the Company's
emphasis on its investment in recruiting and training to support the growth of
the business and to conduct internal training to support the assimilation and
development of its highly skilled employee base.

Marketing and sales expenses increased from $451,000 to $606,000, or 34.4%
as a result of the Company's expanded investment in its marketing and sales
programs. As a percentage of net revenues, these expenses decreased from 3.5%
in 1995 to 2.3% in 1996.

Management and administrative support expenses increased from $3.1 million
to $4.5 million, or 43.5% as a result of the additional facilities, equipment
and personnel necessary to support the Company's growth and increased
consulting capacity. As a percentage of net revenues, these expenses decreased
from 24.2% to 17.0% as a result of the Company's improved operating leverage
resulting from the Company's net revenue growth.

The Company's effective tax rate of 19.6% in 1996 was lower than the federal
statutory rate primarily due to the recognition of benefits not recognized
during fiscal 1994 and 1995. The Company did not recognize these benefits in
1994 and 1995 because of its operating losses during those years, its limited
operating history and the likelihood of their realization at the end of each
of those fiscal years.

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UNAUDITED QUARTERLY RESULTS

Set forth below are selected statements of operations data for each of the
Company's full quarters since inception. In the Company's opinion, this data
has been prepared on the same basis as the audited financial statements and
includes all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the information for the period presented
when read in conjunction with the Consolidated Financial Statements and notes
thereto contained elsewhere herein. Results of operations for any previous
fiscal quarter are not necessarily indicative of results for any future
period.

[Enlarge/Download Table]

QUARTER ENDED
------------------------------------------------------------------------------------------------------
JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR 31, JUN. 30, SEPT. 30, DEC. 31,
1994 1994 1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- --------- -------- -------- -------- --------- -------- ------- -------- --------- --------
(DOLLARS IN THOUSANDS)

STATEMENT OF
OPERATIONS DATA:
Net revenues..... $ 1,332 $2,859 $3,542 $5,110 $5,863 $5,975 $6,918 $7,583 $ 7,753 $8,336 $10,156
Income (loss)
from
operations...... $(1,188) $ (271) $ 112 $ 885 $ 363 $ 149 $ 433 $ 429 $(1,215) $ (589) 1,235
Net income
(loss).......... $(1,178) $ (243) $ 146 $ 898 $ 312 $ 159 $ 383 $ 382 $ (714) $ (385) 719
Other Operating
Data:
Number of clients
served.......... 9 12 10 10 13 10 13 17 21 25 29
Number of clients
generating
revenues greater
than $250,000... 2 4 5 6 8 9 8 7 11 11 16
Avg. revenue per
client.......... $ 148 $ 238 $ 354 $ 511 $ 451 $ 598 $ 532 $ 446 $ 369 $ 333 $ 350

The Company has experienced quarterly fluctuations in its operating results
partially due to its rapid growth since inception, together with the impact of
the Company's considerable investments in recruiting and training during the
periods. Because the Company's revenues are derived from professional fees and
the Company is in its early stages of investment with many of its clients,
quarterly results can be affected by the commencement and completion of client
engagements and the booking of new business. In addition, expenses are
impacted by the investment made in training programs, campus recruiting and
the development of new business.

The Company's loss from operations during the quarters ended June 30, 1994
and September 30, 1994 reflects the impact of the costs incurred in the
Company's efforts to increase the number of its client-serving professionals
and develop its corporate identity and marketing programs. Since that time,
the Company has expanded its client base and key client relationships, thereby
generating substantial growth in net revenues. The Company increased its
investment in recruiting and training during each of the quarters of fiscal
1996 partially offsetting the impact of increased revenues in these quarters.
During each of the three quarters ended December 31, 1996, the Company
continued to expand its client base, key client relationships and client-
serving professionals, despite the cancellation of two significant projects.
See "--Recent Developments" and "RISK FACTORS--Concentration of Revenues."

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has used proceeds from the private sales of Common
Stock and cash from operations to fund its operating and capital requirements.
The Company expects that cash from operations and the proceeds from this
Offering will provide the principal sources of future liquidity for the
Company. Variations in the Company's operating results have occurred in the
past and any significant decreases in net income could adversely affect
liquidity.

The Company is currently experiencing a period of growth which could place a
strain on the Company's financial resources. The Company expects to increase
its client-serving professional staff by nearly 30% during the next 12 months.
Although the Company's plans to hire personnel are driven in response to
increased demand for the Company's consulting services, a portion of these
expenses may be incurred in anticipation of increased demand. Operating
results and liquidity may be adversely affected if market demand and revenues
do not

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increase as anticipated. Capital expenditures for computer equipment,
telecommunications equipment, and furniture and fixtures and leasehold
improvements totaled $1.2 million during the nine months ended December 31,
1996 and $1.8 million during the year ended March 31, 1996. The Company
anticipates that its capital expenditures for fiscal 1998 will not exceed $1.0
million.

The Company entered into a $2.0 million subordinated loan agreement with
Safeguard on November 8, 1996 for general working capital purposes. In
connection with this loan, the Company issued warrants to Safeguard for the
purchase of 526,597 shares of the Company's Common Stock at $5.50 per share.
The loan has a maturity date of November 1, 2001 but must be repaid in full
upon the consummation of this Offering and bears interest at rates which
escalate 1.0% annually, starting at 6.0% in the initial year.

The Company also obtained a revolving line of credit (pursuant to the terms
of a secured credit agreement) from a commercial bank under which the Company
may borrow up to $3.0 million at an annual interest rate based on the prime
rate or based on the LIBOR rate plus 2.5%, at the Company's discretion. As of
December 31, 1996, the Company had approximately $2.7 million available under
this line of credit. See Note 6 of Notes to Consolidated Financial Statements.

The Company may expand its capabilities through the acquisition of other
businesses that are complementary to the Company's business. A portion of the
net proceeds from this Offering may be used in the future for such
acquisitions, although the Company is not currently engaged in active
discussions with respect to any acquisition. See "USE OF PROCEEDS."

The Company currently anticipates that the net proceeds received by the
Company from this Offering, together with amounts available under its current
revolving line of credit, cash generated from operations and existing cash
balances will be sufficient to satisfy its operating cash needs for the 12
months following the consummation of this Offering. Should the Company's
business expand more rapidly than expected, the Company believes that
additional bank credit would be available to fund such operating and capital
requirements. In addition, the Company could consider seeking additional
public or private debt or equity financing to fund future growth
opportunities.

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121") was issued in March 1995. SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company anticipates the adoption of SFAS 121 will not have a material impact
on its results of operations or financial position.

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") was issued in October 1995. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") with pro forma disclosures of net income and net income per share
as if the fair value method had been applied. The Company intends to continue
to apply APB 25 for future stock options and stock based awards, and
accordingly, does not anticipate that the adoption of SFAS 123 will have a
material impact on its results of operations or financial position.

The Company will adopt both SFAS 121 and 123 effective for its fiscal year
ending March 31, 1997.

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BUSINESS

OVERVIEW

Diamond is a management consulting firm that devises business strategies
enabled by information technology ("IT") and manages the implementation of
those strategies. Diamond was founded upon, and continues to stress, a
business culture in which strategic consulting and IT expertise are optimally
integrated to provide superior client solutions. The Company believes that the
distinguishing qualities of its consulting process are its ability to
synthesize strategy with technology, deliver solutions with measurable
results, deliver services through small multidisciplinary project teams and
maintain objectivity in solution recommendations.

Diamond differentiates itself from other management consultants primarily by
its in-depth knowledge of IT and its broader scope of services, including
implementation management. The Company differentiates itself from systems
integrators primarily by its ability to devise business strategies, its focus
on knowledge transfer and program management during implementation, and its
objectivity in recommending solutions. Finally, in comparison to firms that
offer both management-consulting and systems-integration services through
separate business units, Diamond differentiates itself by its ability to offer
integrated strategy and IT services simultaneously through a single
multidisciplinary team and by its objectivity.

Diamond was founded in January 1994 by executives with extensive experience
with both major consulting firms and emerging growth technology businesses.
Diamond has grown rapidly since its inception, serving clients in a variety of
industries ranging in size from Fortune 500 companies to smaller private
companies.

INDUSTRY BACKGROUND

The organizational structure and service offerings of consulting firms at
any given time coincide with the concerns of the businesses these firms serve.
For many decades, business organizations have retained management consultants
to provide general strategic advice. The advent of the computer, however,
changed the way businesses operate. Consequently, software developers emerged
to offer custom software applications that would improve the functionality of
the hardware in which businesses had invested. In the 1970s and 1980s, as the
investments businesses made in IT continued to grow (including investments in
hardware, networks and software provided by different vendors), systems
integrators emerged to help businesses integrate and deploy these products. By
the 1990s, IT had become a significant part of most business operations, and
was starting to be used for more strategic purposes. In response to these
developments, many consulting firms created or acquired complementary business
units in an attempt to provide a single source for all consulting needs of a
business.

Many large corporations face a rapidly changing business environment and new
bases of competition. Success in the midst of change may require mastering
increasing complexity, adapting products and services to dynamic market
conditions, reducing costs and improving quality. With businesses and
consumers becoming more comfortable with technology, IT is increasingly being
used in a variety of innovative, strategic ways to create new businesses,
products and services, open new sales and marketing channels and provide cost
reduction and time-to-market advantages. IT is also, however, creating new
competitors, eliminating established sales and

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marketing channels, and shortening research and development cycles. In
response, the Company's experiences indicate that business leaders are
developing a different and more sophisticated view of how technology can be
used to create a business strategy, rather than simply to enable a business
strategy.

There is increasing recognition of the change in the business environment
driving this new use of technology. A company looking for help to develop a
business strategy incorporating IT generally has two choices: hire two
separate firms (a management consultant followed by a systems integrator) or
hire one firm that offers both management-consulting and systems-integration
services.

When hiring separate firms, a management consultant first works with the
senior management of the company to develop a new business strategy. Senior
management then hires a systems integrator to determine and develop the
information systems to support the business strategy. The Company believes
that there are several inherent disadvantages to this two-step approach.
First, a management consultant that does not have a comprehensive
understanding of IT may not recognize the strategic potential of IT for that
business, and therefore not recommend a strategy that fully incorporates IT.
Second, after a systems integrator is hired to deploy the strategy, transition
time is often required for the integrator to fully understand the strategy
recommended by the management consultant. This transition between the two
firms generally increases the overall risk and length of the project (i.e.,
time-to-market), and may threaten the integrity of the original strategy. In
addition, systems integrators often have proprietary software or have hardware
reseller agreements that give them an economic incentive to recommend a
particular solution over a potentially more advantageous one. The second
alternative is to hire one firm that offers both management-consulting and
systems-integration services. However, these services are typically delivered
by separate practices or business units within the same firm. The separate
units generally function like two separate firms, and typically require a
transition period between strategy, development and deployment.

The Company believes that it competes in a developing market comprised of
portions of the management-consulting market and the systems-integration
market. International Data Corporation ("IDC"), an industry analyst, defines
the market for management-consulting service to include strategy, business
process reengineering, change management services, operational analysis,
process improvement and technology consulting. Diamond participates in this
entire market. IDC defines the market for systems-integration services to
include IT planning, IT design, custom software development, project
management, test and debug, installation, training/knowledge transfer, system
migration, staging, relocation services, system configuration, software
reengineering, site preparation, documentation service, and business recovery.
Diamond participates in the project management and training/knowledge transfer
segments of this market. IDC estimates aggregate revenue from these segments
of the systems-integration market and the management-consulting market were
$20.6 billion in 1995 and will grow at a compound annual growth rate of 13.7%
to $39.2 billion in the year 2000.

THE DIAMOND ADVANTAGE

Diamond was founded with the objective of creating a common business culture
in which strategic consulting and IT expertise are optimally integrated to
provide superior client solutions. The Diamond solution is defined by the
ability to (i) consult with clients to synthesize strategy with technology,
(ii) deliver an operating solution with measurable results, (iii) deliver
services through small multidisciplinary project teams and (iv) maintain
solution objectivity.

Consult with Clients to Synthesize Strategy with Technology. Diamond
simultaneously provides expertise in strategy consulting, business processes
and IT. This enables the Company to identify strategic opportunities that
might not otherwise be considered by a management consulting firm or a systems
integration firm.

Deliver a Solution with Measurable Results. Diamond delivers a solution with
measurable goals for its clients that is supported by a cost/benefit analysis.
Because the solution is delivered to the client by the same multidisciplinary
team that created the strategy, the time-to-market and risk associated with
these projects is reduced.

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Utilize Small, Multidisciplinary Project Teams. The Company's services are
delivered through small, experienced and multidisciplinary teams that work
collaboratively with a client. The Company refers to its project staffing
model as a "diamond," which contemplates a team configuration of highly
skilled professionals representing multiple areas of expertise. The size and
composition of a "diamond" is determined based upon the needs of a given
project. Diamond consultants, working closely with the client, create an
environment in which knowledge and skills are constantly shared. This transfer
of knowledge is of significant value to the client.

Maintain Solution Objectivity. Diamond has intentionally refrained from
entering into alliances that might influence, or be perceived to influence,
the strategy that it recommends to a client. Furthermore, the Company does not
offer systems integration programming services that might bias its
recommendation. Diamond believes this objectivity is critical to its ability
to address strategic issues and earn its clients' trust.

DIAMOND'S STRATEGY

Diamond's goal is to become the leader in the development and deployment of
business strategies that are enabled by IT. As a professional services firm,
there are two constituencies critical to the realization of this goal: the
Company's professionals and its clients. Accordingly, each of the following
strategies focus on developing, attracting and retaining the Company's
professionals and clients.

Develop a Culture of Multidisciplinary Teams. The Company seeks to develop
and sustain a strong culture that equally supports all disciplines within the
Company through common career paths, compensation programs and training. The
Company seeks to promote its culture by exposing its professionals to all of
the various services that Diamond provides while further developing skills in
each professional's principal area of expertise.

Develop Long-Term Client Relationships. The Company seeks to continue to
develop strong relationships with clients to sustain and grow repeat business.
The Company plans to expand marketing activities designed to strengthen,
encourage and accelerate relationship building with both current and
prospective clients.

Identify and Disseminate Intellectual Capital. Diamond utilizes its
accumulated knowledge and experience to provide relevant intellectual capital
to a given project and to develop innovative solutions for its clients. The
Company continuously seeks to identify and disseminate new intellectual
capital throughout its organization to keep abreast of business and technology
trends. Intellectual capital is provided by individuals both within and
outside the Company and incorporated into the Company's practice and training
to insure that all of the Company's professionals are provided with the most
current information on relevant topics.

Develop Diamond Brand Image. Diamond intends to continue to invest in the
creation and maintenance of its brand identity in the marketplace. The Company
promotes its name and credentials through publications, speaking engagements,
media relations, direct marketing and other efforts. The Company believes that
building a brand image facilitates the lead generation process by raising
awareness of the Company, and consequently, increasing the number of
opportunities to propose on new projects.

Refrain from Entering into Hardware or Software Agreements. In order to
maintain its objectivity, the Company intentionally refrains from entering
into relationships with computer hardware and software vendors that may create
a real or perceived bias in the solution it recommends to a client.

DIAMOND'S SERVICES

The Company devises and implements business strategies enabled by IT.
Diamond leads a client through a process combining creative and analytical
thinking with an in-depth understanding of IT to enable the client to
conceptualize its business differently, and then develop and implement a
business strategy that more effectively incorporates IT. This is fundamentally
different than the traditional, sequential approach that addresses strategy
first, followed by development of new or revised IT solutions.

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While Diamond manages the implementation of IT-driven strategies, it does not
provide programming services. The Company's collaborative approach utilizes the
client's IT staff for programming functions. In the event that a client's
organization is unable to provide such functions internally, Diamond
subcontracts to third-party software programmers or systems integrators
selected for their expertise.

A small project team of Diamond consultants with expertise in strategy,
business processes and IT works closely with the client throughout this
process. See "--Human Resources and Culture--Organization." The phases which
are included on any given client project, and the amount of time spent on each
phase vary greatly depending upon the scope of work and the readiness of the
client organization to change. The Company's Service Delivery Process is
generally outlined in the following diagram:

[DIAGRAM OF DIAMOND'S SERVICE DELIVERY PROCESS APPEARS HERE]

EXECUTIVE ALIGNMENT SEGMENT

The executive alignment segment of the process is designed to help the client
explore the new strategic possibilities of technology before determining a
strategy. This segment consists of three phases: learning, collaboration and
prototyping. Learning helps clients explore and understand the new strategic
possibilities of technology in order to set preliminary goals, collaboration
gains consensus within the client's organization on these preliminary goals and
prototyping tests the goals to ensure they are realistic and prioritizes them
based on desired results. This segment leads to the development of an IT-driven
business strategy to achieve a client's objectives.

Learning--The objective of the learning phase is to help the client evaluate
the strategic possibilities of IT for its business and explore an appropriate
range of potential goals. During the learning phase, all aspects of the
attendant business issues (e.g., shrinking margins, heightened competition,
reduced market share, etc.) are examined in order to identify and understand
new alternatives based on relationships between emerging technologies and the
marketplace.

Collaboration--The collaboration phase is an extension of the learning phase
in which specific alternatives are shared with key members of the client
organization. During the collaboration phase, Diamond works with the client to
gain consensus on the goals that were preliminarily established in the learning
phase.

Prototyping--During the prototyping phase, the goals agreed upon in the
collaboration phase are translated into potential strategies. These strategies
are then modeled in a number of ways, including using computer simulation
technology or conducting a small market test. Prototyping helps to prioritize
and determine which strategies are realistic by understanding their effect on
the client's customers, processes, organization and technology.

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STRATEGY SEGMENT

Based on the results of the executive alignment segment, an IT-driven
business strategy is then determined by the Company and the client. The
strategy is a blueprint to help the client reach its goal. When determining
the strategy, the team further evaluates the dynamics of the client's
competitive and financial environments. Importantly, specific performance
goals and detailed deployment plans for the new strategy are created, which
constitute milestones by which the client can readily measure results during
the deployment phase. The deployment plans developed in this phase correspond
to the requirements of the project, but generally include an organizational
strategy, a process redesign strategy and an IT strategy.

PROGRAM MANAGEMENT SEGMENT

The objective of the program management segment is to keep client and/or
third-party resources focused on the business value of the project throughout
the implementation of the strategy. Diamond's program management services
provide the leadership and management needed to implement adjustments to the
deployment plan as needed to deliver a solution on time and within budget. Key
variables managed throughout this segment include project content,
constituencies affected by the project, knowledge transferred, risk associated
with the project and resources utilized.

Program management services are delivered either as part of the
implementation of a strategy, or as a service by itself. As part of the
implementation of a strategy, program management consists primarily of three
phases: architecture, development and deployment. When delivered as a separate
service, program management services are used to manage very large,
enterprise- wide initiatives, or to help a client regain control of a project
that has materially deviated from plan.

Architecture--The architecture phase of the process defines how the new
strategy will be implemented. During this phase, the team examines and defines
the business and technical components of the solution. Examples of business
components include new/renovated buildings, new/redesigned business processes,
personnel training, or organizational redesign. Technical architectures
address tools, methodologies, procedures and controls to build and support new
and existing IT systems; physical networks; and hardware and software
standards.

Development--The processes and systems to realize the benefits of the new
strategy are put into place during the development phase. Diamond's program
management services are most prominent in this phase. During development,
Diamond teaches, coaches and manages the implementation team comprised
primarily of client IT staff. Specific knowledge about new technologies and
processes are transferred more broadly to the client organization during this
phase, as the team aligns the people, processes and technologies required for
a successful deployment.

Deployment--The strategy becomes operational during the deployment phase.
Diamond manages the implementation of the strategy using the client's IT
management and programming resources and, if needed, third-party programmers
or systems integrators. Diamond measures results against the performance goals
defined in the strategy phase.

REPRESENTATIVE PROJECTS

Diamond currently focuses on providing services to clients primarily in four
major industries: telecommunications, insurance, financial services, and
consumer products and services. The Company intends to expand the industries
in which it focuses as its expertise and market demands evolve.

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The following are examples of projects that are representative of the
Company's business:

Consumer Products Company--The operations of this consumer products
company were not able to keep pace with its rapid growth spurred primarily
by new international markets. A team of Diamond and client professionals
examined and evaluated potential benefits in various areas across the
client's organization. The team identified the following functions as
having the highest potential positive impact and addressed them
simultaneously: IT architecture, supply-chain processes and marketing
strategy. The team updated the IT architecture to accommodate international
standards (e.g., multiple languages, currencies, procedures and cultures),
addressing all components of the architecture, including network,
operations, applications, data, execution and development. The team also
recommended and implemented supply-chain improvements to more closely link
the organization with its key vendors to improve forecasting,
accountability and delivery. Finally, recommendations to the marketing
strategy were made to reflect the growth that the client's operations were
now able to support.

Insurance Company--This insurance company initially engaged Diamond to
assess its IT capabilities in light of a corporate cost-cutting mandate.
Through its multidisciplinary approach, the client more than met its cost-
cutting goals and the team helped the client identify an opportunity to
integrate IT in a new sales strategy to give it an advantage over its
competitors. During the assessment, the team of Diamond and client
personnel reviewed the client's IT architecture, organization and
operations, as well as the current and potential impact of IT on the
business. This assessment helped the project team identify opportunities
for improvement in four areas of the business: new business, collections,
policy service and claims. The team redesigned business processes and
deployed notebook computers throughout the field sales force, fundamentally
improving the way sales personnel sold new business, served existing
customers, managed claims and collected premiums.

Telecommunications Provider--This traditional telecommunications provider
engaged Diamond to define the requirements and costs of the customer
service and sales functions of a new market it was preparing to enter. The
Diamond project team identified a strategy to design and implement two
sophisticated, integrated inbound/outbound call centers. The call centers
use various technologies, including interactive voice response,
computer/telephony integration and knowledge-based systems (compilations of
information and experiences supported and distributed by IT) in order to
create facilities that are able to provide feedback and support to the
marketing, customer service and operations of the business. The project
team designed and implemented telephony and IT systems, as well as new
processes, procedures and training for the call center agents, supervisors
and management. The creation of the centers to support both inbound and
outbound contacts enabled the company to leverage critical information
gathered in the centers with other areas of its business.

INTELLECTUAL CAPITAL

Consulting firms are notably knowledge-intensive organizations. In the past,
the existence of accumulated experience within a consulting firm was enough to
attract and retain clients. Today, information is more readily accessible and
the useful life of new knowledge is shortening. In recognition of this trend,
Diamond has developed programs to identify, capture and disseminate
intellectual capital from individuals both within and outside the Company.

Knowledge Leaders--The Company has created a career path for certain of its
professionals who desire to specialize in a particular area, such as technical
architecture, electronic commerce or supply-chain operations. Diamond refers
to these professionals as "knowledge leaders" within its organization.
Knowledge leaders are responsible for identifying new developments within
their respective areas of expertise and capabilities, and applying that
knowledge on client projects. Diamond currently has four Partner-level
knowledge leaders and anticipates that more knowledge leaders will be added in
the future.

Diamond Exchange--The Diamond Exchange is an executive learning forum that
the Company plans to launch in February 1997. Senior executives ranging from
CEOs to CIOs will be invited to participate in the

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Diamond Exchange. The Company will provide its paid-subscription members with
innovative, leading-edge research to explore and understand the strategic
risks and opportunities of emerging technologies. The Company anticipates that
Diamond Exchange members will meet three times a year to discuss research
findings and their business implications. During these meetings, Diamond will
provide the members of the Diamond Exchange with the opportunity to discuss
their issues with Diamond Network members and other business leaders. There
will also be a number of smaller working sessions throughout the year. The
objectives of this program are threefold: (i) to help clients and prospects
learn and research the strategic possibilities of technology, (ii) to maintain
and develop relationships with clients, and (iii) to build intellectual
capital and integrate it into the Company.

Diamond Network--The Diamond Network is a group currently comprised of 12
recognized business and technology leaders associated with the Company.
Members of the Diamond Network provide Diamond with a set of skills which
augment and enhance the value which Diamond can provide to its clients.
Diamond Network members provide a source of intellectual capital, introduce
the Company to prospective clients, participate in joint-marketing
initiatives, and participate in client projects. Members are contractually
committed to a certain number of days dedicated to Diamond to support
marketing, sales, and client work. Diamond Network relationships are generally
non-exclusive, two-year contracts. Network members may work for other
employers, however, the members must be able to continue working with Diamond
in their designated roles. Members are compensated with a combination of stock
options and per diem payments for services actually provided to clients of the
Company on the Company's behalf. Current members of the Diamond Network
include:

John Perry Barlow is a writer and lecturer on the social, legal and
economic issues arising on the border between the physical and virtual
worlds. Mr. Barlow is a Diamond Exchange fellow, a faculty member of
Diamond Technology Partners. He is a contributing editor of numerous
publications, ranging from Communications of the ACM to Mondo 2000. He has
been a contributing writer for Wired magazine since its first issue. Mr.
Barlow is co-founder and vice chairman of the Electronic Frontier
Foundation, an organization that promotes freedom of expression in digital
media.

Gordon Bell is a senior researcher with Microsoft Corporation, computer
consultant-at-large and Diamond Exchange fellow. Mr. Bell spent 23 years at
Digital Equipment Corp. as vice president of research and development where
he managed the development of the first time-sharing and mini computers,
and led the development of the DEC VAX. He has been a founder, advisor and
investor of numerous start-up companies. Mr. Bell also directed the
National Science Foundation's computing research, has written numerous
books and has been awarded several patents.

Leonard L. Berry, Ph.D. is a professor of marketing and director of the
Center for Retailing Studies at the College of Business Administration at
Texas A&M University. Dr. Berry is the former national president of the
American Marketing Association and holds the JC Penney Chair in Retailing
Studies. Dr. Berry is the author of "On Great Service: A Framework for
Action" (1995, Free Press) and co-author of "Marketing Services: Competing
Through Quality" (1991, Free Press).

Tim Gallwey consults in the area of learning in the business environment
and is a Diamond Exchange fellow. Mr. Gallwey has worked with a number of
major corporations to develop the coaching skills of their managers and to
create work environments that support learning and peak performance. He is
also the author of the "inner game" series of instructional books on
tennis, golf and skiing.

James H. Gilmore is a co-founder (with B. Joseph Pine II) of Strategic
Horizons LLP. Mr. Gilmore provides expertise in the areas of creativity and
Mass Customization (using technology to efficiently customize goods and
services to individual customers). Prior to co-founding Strategic Horizons,
Mr. Gilmore served as head of the process redesign practice to CSC
Consulting.

Alan Kay, Ph.D. is a Disney fellow and vice president of research and
development for Walt Disney Imagineering. Dr. Kay is also a Diamond
Exchange fellow and a member of Diamond's Board of Directors. Dr. Kay was
also a founding principal of the Xerox Palo Alto Research Center (PARC),
chief scientist of Atari, Inc. and an Apple Computer fellow. Dr. Kay was
one of the principal inventors of personal computing, the bit map screen,
overlapping window interfaces, and object-oriented programming. He
contributed to the inventions of 3D graphics and the ARPANet (now the
Internet).

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Andrew Lippman, Ph.D. is an associate director and a founding member of
the Media Lab at the Massachusetts Institute of Technology. Mr. Lippman has
served on advisory boards of IBM and various technology start-up companies.
He has presented his views on the future of the information and television
industries to Congressional subcommittees, the National Endowment for the
Arts, and the National Academy of Sciences. Currently, he is on the science
council of the Corporation for National Research Initiatives' program to
develop global information infrastructures.

B. Joseph Pine II is a co-founder (with James H. Gilmore) of Strategic
Horizons LLP. Mr. Pine provides expertise in the area of Mass Customization
(using technology to efficiently customize goods and services to individual
customers). He is author of "Mass Customization: The New Frontier In
Business Competition" (Boston: Harvard Business School Press, 1993). Mr.
Pine is a Diamond Exchange fellow, and a member of the Executive Education
faculty at the UCLA Anderson Graduate School for Management.

David P. Reed, Ph.D. is an information architect and independent
entrepreneur who focuses on designing the information space in which
people, groups and organizations operate. Dr. Reed is a Diamond Exchange
fellow. He was a senior scientist at Interval Research Corp., vice
president and chief scientist for Lotus Development Corp., and vice
president of research and development and chief scientist at Software Arts
Inc. (the creators of VisiCalc, the first electronic spreadsheet). Before
joining Software Arts, he was an assistant professor of computer science
and engineering at the Massachusetts Institute of Technology.

John J. Sviokla, DBA is an associate professor at the Harvard Business
School. Dr. Sviokla's current work focuses on electronic commerce and
knowledge management. He is the author of several books including "Keeping
Customers" (1993, Harvard Business School Press) and "Seeking Customers"
(1993, Harvard Business School Press), as well as several Harvard Business
Review articles including "Managing in the Marketplace" and "Exploiting the
Virtual Chain." Dr. Sviokla consults to large and small firms, and teaches
regularly in the Harvard Business School masters in business program, as
well as with a variety of executive education programs.

Richard Y. Wang, Ph.D. is co-director for Total Data Quality Management
(TDQM) Research Program at the Massachusetts Institute of Technology and
founder of Cambridge Research Group, a firm specializing in data quality
management. Dr. Wang is regularly called upon for advice by both the public
and private sectors. He has published extensively in leading academic
journals addressing issues related to the development of concepts, models
and methods fundamental to the field of data quality research and practice.

DiamondWorks--DiamondWorks is a proprietary knowledge management system (a
compilation of information and experiences supported and distributed by IT)
that accumulates, generates and disseminates intellectual capital developed by
Diamond professionals. The system shares the intellectual capital of the
Company among its employees by gathering best practices and synergies within
and across industries. DiamondWorks also provides Diamond consultants a single
place to search for information, approaches and frameworks across all
disciplines.

The intellectual capital gathered through these various programs is shared
throughout the Company in both formal and informal ways. Some formal venues
include frequent all-hands meetings, an interactive case-based training system
called ASK Diamond, and the Company's training and development programs .

SALES, MARKETING AND CLIENTS

The Company primarily markets its services to senior executives of large,
national and multinational corporations. The Company markets its services both
directly and on a collaborative basis with members of the Diamond Network and
through relationships with certain third-party industry sector specialists. To
date, Diamond has focused its efforts primarily in four industries:
telecommunications, insurance, financial services, and consumer products and
services. The Company expects this list of industries to change and grow as
Diamond's expertise and market demands evolve. As of December 31, 1996,
Diamond had six dedicated marketing personnel, including three full-time
Partners responsible for managing overall marketing, the Diamond Exchange, the
Diamond Network, lead identification and follow up. The majority of Diamond's
sales activities are pursued by its Partners.

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Personal referrals and relationships have historically been among the most
successful methods of gaining new business. The Company has initiated a number
of relationship marketing programs designed to encourage and accelerate
personal relationships. The Diamond Network and the Diamond Exchange are two
such relationship marketing programs currently underway. See "--Intellectual
Capital." The Company employs a variety of other business development and
marketing techniques to communicate directly with current and prospective
clients, including authoring articles, maintaining media and industry analyst
relations, conducting direct marketing, participating in conferences as
speakers and panelists, and providing a home page on the World Wide Web.

Although every client relationship is unique, the Company's client
relationships to date generally have included multiple projects for a client.
Fees generated from each of these projects generally ranged from less than
$100,000 to more than $3.0 million, and have spanned from one month to more
than 20 months. Diamond's objective is to develop long-term relationships with
its clients in several different areas of the client organization, as
appropriate, over a period of time. While it is a goal of the Company to have
less than 10% of its net revenues from any given client, during fiscal 1996
the Company had three clients which individually accounted for more than 10%
of its net revenues and collectively accounted for 51% of its net revenues.
For the nine months ended December 31, 1996, the Company had one client that
individually accounted for 15% of its net revenues.

COMPETITION

While the Company believes that no one firm competes with it in all service
areas, several firms compete with it in one or more areas. The Company's
primary competitors include management consulting firms, systems integrators
and firms that provide both management-consulting and systems-integration
services. The Company believes that it competes favorably with these firms. In
addition, Diamond believes that future competition will also come from new
entrants into the market. Against these new entrants, the Company will compete
based on its early entry in the market and the reputation and awareness it is
currently developing. The Company believes that the principal criteria
considered by prospective clients when selecting a consulting firm to develop
and implement business strategies that incorporate IT include: scope of
services, service delivery approach, technical and industry expertise,
perceived value, objectivity and a results orientation. Many of the Company's
competitors are substantially larger than the Company and have significantly
greater financial, technical and marketing resources, greater name recognition
and generate greater revenues than the Company.

The recent growth in the IT services market has attracted many new
competitors and has afforded traditional competitors significant growth
opportunities. Diamond believes that a new and growing portion of this market
in the future is for consulting firms that are able to help clients synthesize
strategy with technology. While the Company believes that there will be a
market for general management consulting firms, it believes that firms that
deliver management consulting based on an in-depth understanding of technology
will have the greatest opportunity to grow. Furthermore, the Company believes
that the firms that will be sustainable will also be able to maintain solution
objectivity and to deliver an operating solution with measurable results.
While the Company believes some existing management consultants and systems
integrators will eventually be able to position themselves in such a manner,
there is currently a window of opportunity to establish an early and
defensible market position.

HUMAN RESOURCES AND CULTURE

As of December 31, 1996, Diamond had 143 client-serving professionals,
comprised of 26 Partners, 27 senior principals, 25 principals, 48 associates
and 17 analysts. Employees designated as Partners also serve as officers of
the Company in the capacity of vice presidents. In addition, the Company had
34 management and administrative personnel comprising marketing, human
resources, finance, accounting, internal information systems and
administrative support.

The responsibilities of a Partner include client relationship development,
business development, client management, program management, thought
leadership, professional staff development and mentoring. Partners typically
have ten to 20 years, or more, of experience. Senior principals and principals
have six to ten years, or

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more, of experience. Consultants at these levels generally have an advanced
degree and are primarily responsible for project management, cost/benefit
analysis, interview design and conduct, operations and process evaluation,
technical architecture design and evaluation, and recommendation development
and execution. Associates generally have four to seven years of experience and
are responsible for project team management, financial modeling, process
mapping, and economic analysis. Analysts have up to five years of experience
and are responsible for data collection and analysis, industry and competitive
research development, application design and presentation development.

Culture--Diamond believes its ability to simultaneously provide expertise in
strategy, business processes and IT is dependent upon its ability to develop
and sustain a business culture that is common across all disciplines in the
organization. There are three primary elements that comprise Diamond's
culture: (i) an environment that intellectually challenges its people through
continuous training and client work; (ii) consistency in compensation and
career paths across all disciplines and skill sets within the firm; and (iii)
participation by all employees in the continuing development and ownership of
the firm. The Company plans to further strengthen its culture through various
policies and programs and by continuing to increase promotions from within the
organization.

Examples of culture-developing programs include the Company's all-hands
meetings and its assimilation program. The Company has brought its employees
together in all-hands meetings on a regular basis (four to six times annually)
to further develop and reinforce Diamond's culture while also introducing
outside perspectives from leaders in business, technology and industry. During
these all hands meetings, employees are encouraged to exchange ideas and
issues related to the development of the Company. The Company's assimilation
program is designed to introduce new employees to Diamond's culture. It is
supported by an interactive computer system, ASK Diamond, that shares the
knowledge and observations of the Company's founders ("corporate memories")
through indexed video clips.

Organization--Diamond's organization also reflects its multidisciplinary
culture. Diamond's client-serving professionals below the senior principal
level are not organized internally by skill or industry. Rather, in order to
reduce the barriers between people with different functional skills, the
Company's professional organization is grouped into multidisciplinary "staff
teams." The composition of the staff teams reflects the combination of skills
represented on a typical project. Project teams are generally comprised of
professionals from various staff teams.

Each staff team is typically comprised of ten to 15 people and is led by a
Partner. Team members interact as a group to build relationships and for
general communications, and individually with the Partner for project
assignments, annual performance reviews and general career development advice
and direction. While mentoring is the primary responsibility of the staff team
Partner, all Partners provide mentoring to Diamond's professionals to give
individuals access to numerous senior people with various perspectives and
experiences.

A project team's composition generally reflects the shape of a diamond and
represents the Company's commitment to provide services to its clients through
small, multidisciplinary teams of highly skilled and experienced
professionals. The size and composition of a "diamond" is determined by the
particular needs of a given project and is generally comprised of a Partner,
who serves as the project leader, three to five senior principals or
principals and two to four associates or analysts. Partners may, in some
cases, serve as project leader for more than one project team simultaneously.

From a marketing and client service perspective, Partners and senior
principals are assigned to one of several market-focused teams. These teams
are designed to capitalize on common issues impacting clients within the same
industry. To date, Diamond has concentrated its services primarily in four
industries: telecommunications, insurance, financial services, and consumer
products and services. The Company expects this list of industries to change
and grow as Diamond's expertise and market demands evolve.

Recruiting--The Company intends to grow primarily from within to maintain a
strong culture. The Company's success will depend on its ability to continue
to attract, retain and motivate highly skilled employees

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to support current operations and future growth. The Company attributes its
success in hiring these people to its ability to provide individuals with
competitive compensation, multidisciplinary training and career development,
attractive long-term career advancement opportunities, small teams and a
collaborative approach to consulting.

Although a significant number of the Company's current employees were hired
directly from other firms, a growing number of associates are being hired
annually from graduate business programs at many of the country's leading
universities. The Company also has a summer associate program that provides an
additional source of graduate business program hires. Over time, the Company
expects to hire a majority of its employees from these programs and, as a
result, the more senior levels will be filled from internal promotions.

Training and Development--The Company's training and professional
development programs help it to deliver high-quality services to its clients,
as well as to attract and retain highly skilled professionals. The Company has
developed programs that ensure all individuals have the opportunity to develop
consulting, business and IT skills throughout their careers. These programs
reinforce Diamond's culture by exposing all professionals to the various
services Diamond provides while further developing deep skills in each
professional's principal area of expertise.

Diamond utilizes innovative, case-based training to simulate real client
projects with real client issues. This approach creates a "learn-by-doing"
environment supported by Diamond Partners and outside professionals who
provide coaching and feedback to participants. Industry executives are brought
in to simulate the role of the client executive during Diamond's training
courses. Because training is conducted in teams structured similarly to an
actual engagement, participants learn in an environment which resembles their
work environment. As a result, consultants are able to successfully transfer
what they learn to their projects.

Compensation--The Company's compensation programs have been structured to
attract and retain highly skilled professionals by offering competitive base
salaries coupled with annual cash bonus opportunities. Equity is used at all
levels within the organization to provide long-term wealth creation
opportunities and to retain individuals through vesting provisions. Diamond
believes that those professional services firms able to offer equity will be
more successful in attracting talented individuals to their organizations.

Individuals below the Partner level are awarded annual cash bonuses based on
their performance as it compares to their peers. Partners can receive an
annual bonus comprised of both cash and equity commensurate with their level
of responsibility and based on the overall performance of the Company. Non-
Partners are granted stock options at the time of hire and/or promotion, based
on their level. These options vest after three years. Partners buy stock and
are granted stock options upon being elected a Partner. Additional equity
grants are made in conjunction with movement through the Partner levels. Stock
and options issued to Partners vest annually over five years.

FACILITIES

The Company's headquarters and principal administrative, information
systems, financial, accounting, marketing and human resources operations are
located in approximately 24,000 square feet of leased space in Chicago,
Illinois. The approximate payments due from the Company under this lease for
the 1997 and 1998 fiscal years are $600,000 and $800,000, respectively. This
lease expires in 2002, but permits an extension of five years with notice (see
Note 5 to the Financial Statements). Diamond has also leased approximately
7,000 square feet of office space in Cleveland, Ohio. The approximate payments
due from the Company under this lease for the 1997 and 1998 fiscal years are
$100,000 and $200,000 respectively. This lease expires in 2001, but permits an
extension of three years with notice.

The Company anticipates that additional office space will be required as
business expands and believes that it will be able to obtain suitable space as
needed.

LEGAL PROCEEDINGS

In the opinion of management, there are no claims or actions against the
Company the ultimate disposition of which will have a material effect on the
Company's results of operations or financial position.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

[Download Table]

NAME AGE POSITION(S)
---- --- -----------

Melvyn E. Bergstein(2).............. 54 Chairman of the Board of Directors,
Chief Executive Officer and President
Christopher J. Moffitt(3)(5)........ 42 Senior Vice President, Secretary and
Director
Michael E. Mikolajczyk(1)........... 45 Senior Vice President, Chief Financial
and Administrative Officer, Treasurer
and Director
James C. Spira(3)(4)................ 54 Senior Vice President and Director
Donald R. Caldwell(1)(4)(5)......... 50 Director
Edward R. Anderson(3)(5)............ 50 Director
John D. Loewenberg(2)(4)............ 56 Director
Alan Kay(1)......................... 56 Director

--------
(1) Term expires as of the 1997 Annual Meeting of Stockholders
(2) Term expires as of the 1998 Annual Meeting of Stockholders
(3) Term expires as of the 1999 Annual Meeting of Stockholders
(4) Member of the Audit Committee
(5) Member of the Compensation Committee

Melvyn E. Bergstein co-founded the Company in January 1994 and has served as
its Chairman, Chief Executive Officer and President since that time. From 1991
to 1993, Mr. Bergstein at various times served as vice chairman, executive
vice president, president and co-chief executive officer, and a member of the
board of directors of Technology Solutions Company, a publicly traded,
Chicago-based systems integrator. From 1989 to 1991, he was senior vice
president--systems integration for Computer Sciences Corporation. From 1968 to
1989, Mr. Bergstein held a number of positions with Arthur Andersen & Co.'s
consulting division (now Andersen Consulting). While with Andersen Consulting,
Mr. Bergstein served as partner from 1977 to 1989 and managing director of
worldwide technology from 1985 to 1989. Mr. Bergstein served on Arthur
Andersen's Board during the 1985 to 1989 period, and as chairman of Arthur
Andersen's Consulting Oversight Committee during 1989. Mr. Bergstein received
his bachelors degree from the University of Pennsylvania. Mr. Bergstein is
also a member of the board of directors of Integrated Systems Consulting
Group, Inc., a publicly traded company and a Safeguard partnership company.

Christopher J. Moffitt co-founded the Company in January 1994 and has served
as Senior Vice President, Secretary and a member of the Board of Directors of
the Company since that time. From 1988 to 1993, he served as senior vice
president of Technology Solutions Company. From 1986 to 1988, Mr. Moffitt was
a principal in the Management Consulting Group of Arthur Young (now Ernst &
Young) where he became partner in 1988. From 1981 to 1986, Mr. Moffitt served
as director of information systems for Neiman Marcus. Mr. Moffitt began his
career in 1974 with Electronic Data Systems as a systems engineer and account
manager. Mr. Moffitt received his bachelors degree from the University of
Miami.

Michael E. Mikolajczyk joined the Company in April 1994 and has served as
Senior Vice President, Chief Financial and Administrative Officer and a member
of its Board of Directors since that time. From 1993 to 1994, he served as
senior vice president of finance and administration and chief financial
officer for Technology Solutions Company. From 1981 to 1993, Mr. Mikolajczyk
was with MCI Telecommunications Corporation where he served at various times
as vice president of finance and administration for both its Business Services
Division and its Central Division, vice president of corporate development and
analysis, vice president of

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business analysis, tariffs and contracts, and vice president of marketing and
finance for MCI's Digital Information Services Company. Mr. Mikolajczyk
received his bachelors degree from Wayne State University and his M.B.A. from
Harvard Business School.

James C. Spira joined the Company in November 1995 and has served as Senior
Vice President since that time. He became a member of its Board of Directors
in February 1996. From 1991 to 1995, Mr. Spira was a group vice president of
the Tranzonic Companies, Inc., a $200 million public corporation specializing
in the manufacture and distribution of quality paper, cloth and vinyl
products. Prior to that time, Mr. Spira co-founded Cleveland Consulting
Associates in 1974, where he served as the firm's president and chief
executive officer. Mr. Spira serves on the board of directors of CIBER, Inc.,
and the Tranzonic Companies, Inc. Mr. Spira holds an M.B.A. from the
University of Pennsylvania's Wharton School and a B.A. in history from Hobart
College.

Donald R. Caldwell, a Director of the Company since June 1994, has been the
president and chief operating officer of Safeguard since February 1996 and a
director of Safeguard since May 1996. Mr. Caldwell was an executive vice
president of Safeguard from December 1993 to February 1996. Prior to such
time, Mr. Caldwell was the president of Valley Forge Capital Group, Ltd., a
business mergers and acquisition advisory firm that he founded, from April
1991 to December 1993 and an executive officer of a predecessor company of
Cambridge Technology Partners (Massachusetts), Inc., a provider of information
technology consulting and software development, from December 1989 to March
1991. Mr. Caldwell's prior positions included serving as a partner in the
national office of Arthur Young & Co. (a predecessor to Ernst & Young, LLP).
Mr. Caldwell serves on the board of directors of Integrated System Consulting
Group, Inc., one of the Safeguard partnership companies. Mr. Caldwell also
serves on the boards of numerous privately held companies and other
organizations such as the Pennsylvania Academy of Fine Arts, Episcopal
Community Services, the Committee on Economic Development, and the
Philadelphia Orchestra.

Edward R. Anderson, a Director of the Company since June 1994, has been
president, chief executive officer and a director of CompuCom Systems, Inc., a
PC dealer and network integration company and a Safeguard partnership company
since January 1994. He joined CompuCom as chief operating officer in August
1993. From 1988 to 1993, Mr. Anderson served as president and chief operating
officer of ComputerLand USA. From 1984 to 1988, he served as vice president of
marketing, chief financial officer, and as a member of the board of directors
and the executive management team of the Computer Factory. Mr. Anderson began
his career in 1974 as a financial analyst with W.R. Grace & Company, serving
as director of real estate and vice president of planning and control for
specialty retailing until 1980. He served as vice president of strategic
planning and business development for a division of the American Express
Company.

John D. Loewenberg, a Director of the Company since October 1996, was an
executive vice president and chief operating officer of Connecticut Mutual, a
life insurance company, from May 1995 through 1996. Prior to joining
Connecticut Mutual, Mr. Loewenberg served as senior vice president of Aetna
Life and Casualty, a multi-line insurer, and as chief executive officer of
Aetna Information Technology, the information systems company of Aetna Life
and Casualty, from March 1989 to May 1995. Mr. Loewenberg was chairman of
Precision Systems, Inc. until April 1996 and is a director of CompuCom
Systems, Inc., and Sanchez Computer Associates, Inc., two of Safeguard's
partnership companies.

Alan Kay, a Director of the Company since June 1996, is currently vice
president of research and development for Walt Disney Imagineering, Inc. and
is a Disney fellow. From 1984 to 1996, Dr. Kay was an Apple fellow at Apple
Computer, Inc. From 1982 to 1984, he was chief scientist of Atari Corporation.
From 1971 to 1982, he was a member of research staff, principal scientist, and
Xerox fellow at the Xerox Palo Alto Research Center. From 1969 to 1971, he was
a research associate and lecturer in computer science at Stanford University.

The Board of Directors is divided into three classes. Each Director will
serve for a term of three years and until his successor has been elected and
qualified. The Board of Directors has an Audit Committee, which reviews and
recommends to the Board internal accounting and financial controls for the
Company and accounting

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principles and auditing practices and procedures to be employed in the
preparation and review of financial statements. The Board of Directors also
has a Compensation Committee, which reviews and recommends to the Board
policies, practices and procedures relating to the compensation of managerial
employees and the
establishment and administration of employee benefit plans, except for stock
option plans. The Company's By-laws provide that a majority of the
Compensation Committee shall consist of members of the Board of Directors who
are not officers or employees of the Company or any subsidiary of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In fiscal 1996 the Company did not have a Compensation Committee or any
other committee of the Board of Directors performing similar functions.
Recommendations concerning the aggregate compensation of all of the Company's
Partners (including its executive officers) were made to the Board of
Directors by the Company's Chief Executive Officer and the Company's
Management Committee. The Management Committee is a non-board operating
committee which has been established by the Company pursuant to the terms of
the Partners' Operating Agreement. Pursuant to the terms of the Partners'
Operating Agreement, allocations among the Company's Partners (including its
executive officers) were made by the Management Committee upon approval of the
aggregate amount of such compensation by the Board of Directors and the
approval of the actual allocations by at least seventy percent of the
Company's Partners. The Company expects to generally continue these procedures
except that the Compensation Committee of the Board of Directors will review
and approve the aggregate recommendations made by the Chief Executive Officer
and the Management Committee and the actual allocations of such amounts which
will be granted to the Company's executive officers. See "CERTAIN
TRANSACTIONS--Partners' Operating Agreement."

CERTAIN RELATIONSHIPS

Technology Leaders Management L.P., a limited partnership, is the sole
general partner of Technology Leaders L.P. and a co-general partner of
Technology Leaders Offshore C.V. Technology Leaders L.P. and Technology
Leaders Offshore C.V. are venture capital funds that are required by their
governing documents to make all investment, voting and disposition actions in
tandem. Technology Leaders L.P. and Technology Leaders Offshore C.V. are
referred to collectively in this Prospectus as "Technology Leaders."
Technology Leaders Management L.P. has sole responsibility for all investment,
voting and disposition decisions for Technology Leaders. The general partners
of Technology Leaders Management L.P. are (i) Technology Leaders Management,
Inc., a privately held subsidiary of Safeguard, (ii) TL Partners I, a general
partnership among Technology Leaders Management, Inc. and the Managing
Directors of Technology Leaders Management, Inc., other than Mark J. DeNino,
and (iii) four other corporations (the "TLA Corporations") owned by
individuals, one of whom serves as a director of Safeguard, and three of whom
are not currently otherwise affiliated with Safeguard or the Company.
Technology Leaders Management L.P. is managed by an executive committee, by
whose decisions the general partners have agreed to be bound, that consists of
seven voting members including (i) Warren V. Musser, Robert E. Keith, Jr. and
Gary J. Anderson, M.D., each of whom are designees of Technology Leaders
Management, Inc., and (ii) one designee of each of the TLA Corporations.
Clayton S. Rose is a non-voting member of that executive committee. Technology
Leaders Management, Inc. is the administrative manager of Technology Leaders,
subject to the control and direction of the executive committee of Technology
Leaders Management L.P. Mr. Musser is the chairman and Mr. Keith is president
and chief executive officer of Technology Leaders Management, Inc. and Mr.
Keith, Ira M. Lubert, Dr. Anderson, Mr. DeNino and Christopher Moller, Ph.D.,
are the managing directors of Technology Leaders Management, Inc. Mr. Keith,
Mr. Lubert and Dr. Anderson are former officers of Safeguard and Mr. Keith is
a director of Safeguard.

Safeguard Scientifics (Delaware), Inc., a privately held subsidiary of
Safeguard, is a limited partner in Technology Leaders L.P. holding 3.3% of the
aggregate limited partnership interests in Technology Leaders L.P. Technology
Leaders Management, Inc. holds directly or indirectly 31% of the general
partnership interests in Technology Leaders Management L.P.

424B1 44th Page of 75 TOC 1st Previous Next ↓Bottom Just 44th
EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
paid or accrued in fiscal 1996 with respect to the Company's Chief Executive
Officer, its other executive officers and a former executive officer at March
31, 1996 (collectively, the "Named Officers"):

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------------- AWARDS--
SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS COMPENSATION
------------------ ------ ----------- -------------- ------------ ------------

Melvyn E. Bergstein..... 1996 $ 480,000 $ 127,207(2) -- $ 5,472(3)
Chairman, Chief
Executive Officer, and
President
Christopher J. Moffitt.. 1996 400,000 105,630(4) -- 1,938(3)
Senior Vice President,
and Secretary
Michael E. Mikolajczyk.. 1996 360,000 92,548(5) 16,500 1,938(3)
Senior Vice President,
Chief Financial and
Administrative Officer
and Treasurer
James C. Spira.......... 1996 208,789(7) -- 74,250 456(3)
Senior Vice President
Alan J. Weyl............ 1996 307,864(8) -- -- 252,736(6)
Former Senior Vice
President

--------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Officers which are
available generally to all salaried employees of the Company and certain
perquisites and other personal benefits, securities or property received
by the Named Officers which do not exceed the lesser of $50,000 or 10% of
the aggregate of any such Named Officer's salary and bonus in fiscal 1996.
(2) Includes $120,000 of deferred compensation earned but not paid during the
year ended March 31, 1996 and $7,207 of interest on such cumulative
amounts.
(3) Represents excess group life insurance premiums paid.
(4) Includes $100,000 of deferred compensation earned but not paid during the
year ended March 31, 1996 and $5,630 of interest on such cumulative
amounts.
(5) Includes $90,000 of deferred compensation earned but not paid during the
year ended March 31, 1996 and $2,548 of interest on such cumulative
amounts.
(6) Represents severance payments of $250,000 and excess group life insurance
of $2,736.
(7) Represents a partial year as Mr. Spira joined the Company in November
1995.
(8) Represents a partial year as Mr. Weyl left the Company in January 1996.

DEFERRED COMPENSATION

From the inception of the Company through March 31, 1996, certain Partner's
base salaries were reduced by a percentage which was to be paid at a future
date, plus accrued interest. Amounts deferred under this program initially
ranged from 20% to 40% of base salary and were subsequently revised to 20% of
base salary effective April 1, 1995 for all participants. Certain amounts of
this deferred compensation were exchanged for Common Stock in January 1995 and
April 1996.

After March 31, 1996, the deferral of compensation for these Partners was
discontinued. As a result of the losses sustained by the Company in the first
two quarters of fiscal 1997, each of these Partners agreed to waive

424B1 45th Page of 75 TOC 1st Previous Next ↓Bottom Just 45th
their rights to deferred compensation if the Company does not achieve certain
revenue targets in the third and fourth quarters of fiscal 1997. Pursuant to
this agreement these Partners forgave prior years' deferred compensation
totalling approximately $485,000 during the quarter ended December 31, 1996.
These Partners also agreed to forgive an additional $485,000 of deferred
compensation during the quarter ending March 31, 1997 if the Company does not
achieve certain revenue thresholds during that quarter. To the extent that
such amounts are forgiven in the quarter ending March 31, 1997, the Company
will recognize the amount as a reduction in operating expenses in the period.

EMPLOYMENT AGREEMENTS

The Company entered into Employment Agreements with Mr. Bergstein, Mr.
Moffitt, Mr. Mikolajczyk and Mr. Spira that provide for annual salaries and
bonuses of up to 100% of annual salaries. The annual salaries are subject to
annual reviews. The Employment Agreements are terminable at any time by either
party and contain non-competition provisions, which last for 18 months
following cessation of employment with the Company. In addition, the
Employment Agreements prohibit the individuals from disclosing any of the
Company's confidential information and require the individuals to disclose to
the Company, and to grant ownership to the Company all ideas, inventions and
business plans developed during the course of employment to the extent they
relate to the business of the Company, result from work performed for the
Company or result from use of any of the Company's property. Mr. Bergstein's
agreement is dated February 1, 1994 and provides for a current annual salary
of $525,000. Mr. Moffitt's agreement is dated February 1, 1994 and provides
for a current annual salary of $450,000. Mr. Mikolajczyk's agreement is dated
April 18, 1994 and provides for a current annual salary of $400,000. Mr.
Spira's agreement is dated November 1, 1995 and provides for a current annual
salary of $500,000.

STOCK OPTIONS

The Company's Amended and Restated 1994 Stock Option Plan (the "Stock Option
Plan") provides for the grant to any employee of the Company of "incentive
stock options" within the meaning of Section 422 of the Code. Under the Stock
Option Plan, the Company may grant options to purchase in the aggregate
8,910,000 shares of Class B common stock, less (at the time of the grant of
any option) all shares (i) theretofore issued to any party other than
Safeguard, Technology Leaders Offshore C.V., CIP Capital L.P., Technology
Leaders L.P., or any member thereof or transferee therefrom, or (ii) subject
to any options granted by the Company. As of February 10, 1997, the Company
has granted options under the Stock Option Plan to purchase in the aggregate
3,074,536 shares of Common Stock (net of any expired or terminated options) at
a weighted average exercise price of $2.50 per share.

The Company's Board of Directors has the power to select employees to whom
options shall be granted under the Stock Option Plan and to determine the
terms of each grant, including the number of shares of Common Stock subject to
the option, the term of the option, the vesting schedule and the exercise
price (which may not be less than the fair market value of a share of Common
Stock on the date of grant). Options have been granted to Partners to purchase
805,200 shares of Common Stock which vest incrementally with 10%, 15%, 25%,
25% and 25% of the option vesting on the first through fifth anniversaries of
the date of grant, respectively and expire on the seventh anniversary of the
date of grant. Options have been granted to employees to purchase 1,199,559
shares of Common Stock which fully vest upon the third anniversary of the date
of grant and expire on the fifth anniversary of the date of grant. Options to
purchase 491,341 shares of Common Stock which provide for an acceleration of
the vesting schedule to six months following the consummation of this Offering
have been granted to Partners and employees.

The Company's Board of Directors has also granted non-qualified stock
options to purchase 578,436 shares of Common Stock to certain persons who were
not employees on the date of grant and certain non-employee members of the
Board of Directors. These non-qualified stock options have exercise prices
equal to, or greater than, the fair market value on the date of grant with
vesting over periods ranging from immediate to five years.

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The Board of Directors may alter, suspend or discontinue the Stock Option
Plan in any respect whatsoever, provided, however, that certain amendments, as
required by the Code with respect to incentive stock options, are subject to
stockholder approval. The Stock Option Plan shall continue in effect until
terminated by the Board of Directors or until there is no more stock as to
which an option may be granted and no options are outstanding; provided, that
all options must be granted thereunder within ten years of the effective date
of the plan.

The options granted under the Stock Option Plan are not transferable in any
way other than upon the death of the employee. Shares issued upon the exercise
of any option granted under the Stock Option Plan are subject to the terms and
restrictions contained in the Voting and Stock Restriction Agreement.

Under Section 162(m) of the Code, the Company may be precluded from claiming
a federal income tax deduction for total remuneration in excess of $1,000,000
paid to the Chief Executive Officer or to any of the other four most highly
compensated officers in any one year. Total remuneration would include amounts
received upon the exercise of stock options granted under the Stock Option
Plan. An exception does exist, however, for "performance-based compensation,"
including amounts received upon the exercise of stock options pursuant to a
plan approved by stockholders that meets certain requirements. The Stock
Option Plan is intended to meet the requirements of Treasury Regulation
section 1.162-27(f), and the options granted under the Stock Option Plan are
intended to meet the requirements of "performance-based compensation."

The following table provides information on stock options granted by the
Company in fiscal 1996 to the Named Officers. All Company option grants
depicted below were made pursuant to the Stock Option Plan.

OPTION GRANTS IN LAST FISCAL YEAR

[Enlarge/Download Table]

PERCENT OF REALIZABLE POTENTIAL
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATE OF STOCK
SHARES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN PRICE PER EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ----------- --------- ---------- ---------- -----------

Melvyn E. Bergstein..... -- -- -- -- -- --
Christopher J. Moffitt.. -- -- -- -- -- --
Michael E.
Mikolajczyk(2)......... 16,500 1% $1.21 3/31/02 $ 8,142 $ 18,974
James C. Spira.......... 74,250 4% $1.82 11/1/02 $ 54,959 $ 128,077
Alan J. Weyl............ -- -- -- -- -- --

--------
(1) The amounts shown are calculated assuming that the Common Stock market
value was equal to the exercise price per share as of the date of grant of
the options. This value is the approximate price per share at which shares
of the Common Stock would have been sold in private transactions on or
about the date on which the options were granted. The dollar amounts under
these columns assume a compounded annual market price increase for the
underlying shares of the Common Stock from the date of grant to the end of
the option term of 5% and 10%. This format is prescribed by the Commission
and is not intended to forecast future appreciation of shares of the
Common Stock. The actual value, if any, a Named Officer may realize will
depend on the excess of the market price for shares of the Common Stock on
the date the option is exercised over the exercise price. Accordingly,
there is no assurance that the value realized by a Named Officer will be
at or near the value estimated above.
(2) In fiscal 1997, Mr. Mikolajczyk received the following options: an option
to purchase 16,500 shares of Common Stock on April 1, 1996, which expires
on March 31, 2003 and has an exercise price of $1.82 per share, an option
to purchase 6,397 shares of Common Stock on November 1, 1996, which
expires on October 31, 2003 and has an exercise price of $3.18 per share
and an option to purchase 14,632 shares of Common Stock on November 1,
1996, which expires on October 31, 2003 and has an exercise price of $2.27
per share.

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The following table sets forth information concerning options exercised
during fiscal 1996 and the number and the hypothetical value of certain
unexercised options of the Company held by the Named Officers as of March 31,
1996. This table is presented solely for purposes of complying with the
Commission rules and does not necessarily reflect the amounts the optionees
will actually receive upon any sale of the shares acquired upon exercise of
the options.

AGGREGATED OPTION EXERCISES AND
LAST FISCAL YEAR-END OPTION VALUES

[Enlarge/Download Table]

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
MARCH 31, 1996 MARCH 31, 1996
SHARES ACQUIRED VALUE ------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- --------------- -------- ----------- ------------- ----------- ----------------

Melvyn E. Bergstein..... -- -- -- -- -- --
Christopher J. Moffitt.. -- -- -- -- -- --
Michael E. Mikolajczyk.. -- -- -- 16,500 -- $ 70,785
James C. Spira.......... -- -- -- 74,250 -- 273,240
Alan J. Weyl............ -- -- -- -- -- --

--------
(1) Assumes, for presentation purposes only, a per share fair market value of
$5.50.

CERTAIN TRANSACTIONS

Pursuant to the terms of the 1994 Purchase, Safeguard, Technology Leaders
and CIP purchased from the Company 1,512,501 shares, 1,512,501 shares and
274,999 shares, respectively, of the Common Stock at a purchase price of
approximately $0.91 per share and Safeguard was granted a warrant (the "1994
Purchase Warrant") exercisable for 825,000 shares of Common Stock at an
exercise price of $1.21 per share. Safeguard subsequently transferred to each
of two of its partnership companies, CompuCom Systems, Inc. ("CompuCom") and
Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge"), a portion
of the 1994 Purchase Warrant, each portion covering the purchase of 165,000
shares of Common Stock. In the second quarter of fiscal 1997, Safeguard,
CompuCom and Cambridge exercised in full their respective portions of the 1994
Purchase Warrant in accordance with its terms. After completion of the
Offering, Safeguard, Technology Leaders and CIP will beneficially own
approximately 12.5%, 10.8% and 2.0%, respectively, of the Company's
outstanding Common Stock and CompuCom and Cambridge will each beneficially own
approximately 1.0% of the Company's outstanding Common Stock. In addition,
pursuant to the terms of the 1994 Purchase, Safeguard, Technology Leaders and
CIP were granted certain registration rights and entered into certain
arrangements with respect to voting, which arrangements will terminate upon
the consummation of the Offering by their terms and without the need of any
further action on the part of any party thereto. See "SHARES ELIGIBLE FOR
FUTURE SALE--Registration Rights."

In December 1996, the Company adopted an Agreement and Plan of
Recapitalization. Pursuant to such agreement, the Company reclassified (i) the
shares of Common Stock of the Company held by Safeguard, Technology Leaders
and all other nonemployee stockholders into shares of Class A common stock of
the Company and (ii) the shares of Common Stock of the Company held by
employee stockholders into shares of Class B common stock of the Company. See
"Description of Capital Stock--Common Stock."

On November 8, 1996, the Company borrowed $2.0 million from Safeguard,
payable on November 1, 2001. Interest on the outstanding principal balance of
the loan accrues during the first year at an annual interest rate of 6% and
the interest rate increases as of each succeeding anniversary of the loan by
one percentage point to a rate of 10% per year during the fifth year. Interest
is payable quarterly during the term.

In connection with the loan, the Company granted Safeguard a security
interest in all of its assets. The obligations to repay the loan and the
security interest are subordinated to the interests of the commercial bank

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which is the Company's principal lender. Notwithstanding the subordination,
the Company is required to repay the loan from Safeguard upon the closing of
this Offering, if the net proceeds received by the Company are sufficient to
pay the loan in full. As a condition to the making of the loan, the Company
also granted Safeguard a warrant to purchase 526,597 shares of Common Stock at
an exercise price of $5.50 per share. On January 31, 1997, Safeguard
transferred warrants to purchase 241,182 shares of Common Stock to Technology
Leaders L.P. and Technology Leaders FR Corp., and warrants to purchase 44,233
shares of Common Stock to CIP. The rights granted under the warrants expire on
November 1, 2001.

The Company has granted options to purchase Common Stock to certain non-
employee Directors. In June 1996, Alan Kay received options to purchase
110,001 shares of Common Stock at an exercise price of $1.82 per share. In
October 1996, John D. Loewenberg and Edward R. Anderson each received options
to purchase 16,500 shares of Common Stock at an exercise price of $3.18 per
share. All of these options vest over a period of five years. See
"MANAGEMENT--Stock Options."

CANCELLATION OF PROMISSORY NOTE

Until being finally resolved by a global settlement among all parties in
June 1996, Melvyn E. Bergstein, Chairman, Chief Executive Officer and
President of the Company, the Company and others were involved in a lawsuit
with Technology Solutions Company ("TSC"). Because of the nature of the claims
by Mr. Bergstein and TSC, Mr. Bergstein and the Company were represented by
the same counsel. During the course of the litigation, the Company and Mr.
Bergstein each paid legal fees attributable to the litigation. Mr. Bergstein
executed a promissory note, dated April 14, 1995, under which he agreed to pay
certain of the fees paid by the Company, with interest, after the conclusion
of the litigation. The Company subsequently determined, however, that the
amounts due under the note more accurately reflected fees attributable to the
Company's defense and settlement of these claims, and therefore the Company
canceled the full amount ($226,402) due under the note and expensed this
amount in the quarter ended September 30, 1996. "See MANAGEMENTS' DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Nine Months
Ended December 31, 1996 Compared to Nine Months Ended December 31, 1996."

VOTING AND STOCK RESTRICTION AGREEMENT

The Selling Stockholders and each employee-stockholder of the Company have
agreed to be bound by the Amended and Restated Voting and Stock Restriction
Agreement dated as of April 1, 1996 (the "Voting and Stock Restriction
Agreement"). Any employee considering purchasing shares of the Common Stock
from the Company must agree to become bound by and a party to the Voting and
Stock Restriction Agreement (to the extent not already bound).

The Voting and Stock Restriction Agreement provides for, among other things:
(i) the grant of a proxy by each employee-stockholder of the Company to the
Chief Executive Officer of the Company conveying the right to vote their
shares of Common Stock, (ii) rights to purchase shares of employee-
stockholders upon termination of employment; and (iii) rights of first offer
of the Company to purchase shares (other than shares sold in the Offering)
offered by any (A) employee-stockholder who is not also a Partner or (B) of
the Selling Stockholders (excluding any shares offered in the Offering); and
(iv) restrictions on the transferability of certain shares of Common Stock.

PARTNERS' OPERATING AGREEMENT

All of the Partners of the Company have agreed to be bound by the Partners'
Operating Agreement. Each individual proposed to be hired as, or promoted to,
a Partner, must agree to become bound by and a party to the Partners'
Operating Agreement. The Partners' Operating Agreement provides for, among
other things: (i) nomination procedures for the nomination of candidates to
the office of Chief Executive Officer; (ii) procedures for the removal and
retention of the Chief Executive Officer; (iii) procedure for the admission
and removal of Partners; and (iv) the compensation of management personnel. In
addition, the Partners' Operating Agreement provides that the Chief Executive
Officer must be selected from among the Partners pursuant to the procedures
set forth in such Agreement, subject to the right of the Company's Board of
Directors to veto any such person nominated by the Partners. The Chief
Executive Officer may be removed by the Board of Directors or for certain
other specified reasons.

424B1 49th Page of 75 TOC 1st Previous Next ↓Bottom Just 49th
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of the date of this Prospectus, and as
adjusted to reflect the sale of the shares offered hereby, by (i) each Selling
Stockholder, (ii) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (iii) each director of
the Company, (iv) each Named Officer, and (v) all directors and executive
officers of the Company as a group. Holders of Class A common stock are
entitled to one vote per share and holders of Class B common stock are
entitled to five votes per share. Shares of Class B common stock are
convertible immediately into shares of Class A common stock on a one-for-one
basis, and accordingly, holders of Class B common stock are deemed to own the
same number of shares of Class A common stock. Unless otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock,
except to the extent authority is shared by spouses under applicable law.

[Enlarge/Download Table]

BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
--------------------------- NUMBER OF SHARES -------------------------
NUMBER OF TO BE SOLD IN NUMBER OF
NAME AND ADDRESS(2) SHARES PERCENTAGE THE OFFERING SHARES PERCENTAGE
------------------- -------------- ------------ ---------------- ------------- -----------

Melvyn E. Bergstein(3).. 5,074,785 53.1% -- 5,074,785 44.8%
(Includes 4,480,702
shares reflected solely
as a result of Mr.
Bergstein's right to
vote such shares and
594,083 shares owned by
Mr. Bergstein)
Safeguard Scientifics,
Inc.(4)................ 2,393,058 24.4 949,390 1,443,668 12.5
800 The Safeguard
Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders(5)... 1,753,683 17.9 503,994 1,249,689 10.8
800 The Safeguard
Building
435 Devon Park Drive
Wayne, PA 19087
Christopher J.
Moffitt(6)............. 633,600 6.6 -- 633,600 5.6
Michael E.
Mikolajczyk(7)......... 518,933 5.4 -- 518,933 4.6
James C. Spira(8)....... 205,425 2.1 -- 205,425 1.8
CIP Capital L.P.(9)..... 319,232 3.3 91,635 227,597 2.0
Cambridge Technology
Partners............... 165,000 1.7 54,981 110,019 1.0
(Massachusetts),
Inc.(9)
CompuCom Systems,
Inc.(9)................ 165,000 1.7 54,981 110,019 1.0
John D. Loewenberg(10).. 8,250 * -- 8,250 *
Alan Kay................ -- -- -- -- --
Donald R. Caldwell(11).. -- -- -- -- --
Edward R. Anderson(12).. -- -- -- -- --
All executive officers
and directors
as a group (8
persons)(13)........... 5,092,110 53.2 -- 5,092,110 45.0

--------
* Less than 1% of the outstanding Common Stock
(1) Solely for the purpose of determining beneficial ownership herein, the
number of shares of Common Stock deemed outstanding prior to the Offering
(i) assumes 9,561,301 shares of Common Stock were outstanding as of the
date of this Prospectus, (ii) assumes 11,316,301 shares of Common Stock
will be outstanding upon the successful completion of the Offering, and
(iii) includes additional shares of Common Stock issuable pursuant to
options or warrants held by such owner which may be exercised within 60
days after the date of

424B1 50th Page of 75 TOC 1st Previous Next ↓Bottom Just 50th
this Prospectus ("presently exercisable options"), as set forth below. The
beneficial ownership after the Offering does not account for the exercise
of Rights by such stockholders in the Offering.
(2) The address of each of Messrs, Bergstein, Moffitt and Mikolajczyk is 875
North Michigan Avenue, Suite 3000, Chicago Illinois 60611.
(3) The shares of Common Stock include 4,967,122 shares of Class B common
stock and 107,663 shares of Class A common stock and together represent
80.0% of the aggregate voting rights of the Common Stock. Includes
4,373,039 shares of Class B common stock and 107,663 shares of Class A
common stock held by other persons who have granted Mr. Bergstein the
right to vote such shares pursuant to the terms of irrevocable proxies.
Mr. Bergstein is the record holder of 594,083 shares of Class B common
stock. Excludes approximately 10,000 shares of common stock purchasable
upon the exercise of Company Rights and 199,880 Shares of Class A Common
Stock held in trust for certain members of the Bergstein family.
(4) The shares are Class A common stock and represent 4.6% of the aggregate
voting rights of the Common Stock. Includes a warrant which is presently
exercisable for 241,182 shares of Class A common stock and the shares of
Common Stock owned by CompuCom Systems, Inc., of which Safeguard owns
approximately 50% of the voting securities. The warrant and all shares of
Class A common stock are held of record by Safeguard Scientifics
(Delaware), Inc., a privately held subsidiary of Safeguard. Includes
153,690 shares of Common Stock granted by Safeguard to certain of its
employees pursuant to a long-term incentive plan (the "LTIP Plan").
Safeguard will continue to exercise voting rights with respect to these
shares until the occurrence of certain vesting requirements. Excludes all
shares of Common Stock beneficially owned by Technology Leaders, in which
Safeguard has a beneficial interest. See "MANAGEMENT--Certain
Relationships" for a description of the relationships between Safeguard
and Technology Leaders. Excludes all shares of Common Stock owned by
Cambridge Technology Partners (Massachusetts), Inc. of which Safeguard
owns approximately 21% of the voting securities. The largest shareholder
of Safeguard is Warren V. Musser, the chairman and chief executive officer
of Safeguard, who is the record holder of approximately 9.5% of the total
Safeguard Common Shares outstanding.
(5) The shares are Class A common stock and represent 4.0% of the aggregate
voting rights of the Common Stock. Includes warrants issued to Technology
Leaders L.P. and Technology Leaders FR Corp., which are presently
exercisable for 241,182 shares of Class A common stock. See "MANAGEMENT--
Certain Relationships" for a description of the relationships between
Safeguard and Technology Leaders.
(6) The shares are Class B common stock and Mr. Moffitt has granted Mr.
Bergstein all voting rights with respect to these shares pursuant to an
irrevocable proxy. Excludes approximately 998 shares of Common Stock
purchasable upon the exercise of Company Rights and 74,250 of Class A
Common Stock held in trust for certain members of the Moffitt family.
(7) The shares are Class B common stock and Mr. Mikolajczyk has granted Mr.
Bergstein all voting rights with respect to these shares pursuant to an
irrevocable proxy. Includes 1,650 shares of Common Stock issuable pursuant
to presently exercisable options. Excludes approximately 500 shares of
Common Stock purchasable upon the exercise of Company Rights and 41,250
shares of Class A Common Stock held in trust for certain members of the
Mikolajczyk family.
(8) The shares are Class B common stock and Mr. Spira has granted Mr.
Bergstein all voting rights with respect to these shares of Common Stock
pursuant to an irrevocable proxy. Includes 7,425 shares of Common Stock
issuable pursuant to presently exercisable options.
(9) The shares are Class A common stock and represent less than 1.0% of the
aggregate voting rights of the Common Stock. CIP's total includes a
warrant which is presently exercisable for 44,233 shares of Class A common
stock.
(10) The shares of Common Stock represent less than 1.0% of the aggregate
voting rights of the Common Stock. Excludes approximately 250 shares of
Common Stock purchasable upon the exercise of Company Rights.
(11) Excludes all shares of Common Stock beneficially owned by Safeguard. Mr.
Caldwell serves as president and chief operating officer of Safeguard. See
"MANAGEMENT--Executive Officers and Directors." Mr. Caldwell disclaims
beneficial ownership of such shares. Excludes 28,050 shares of Common
Stock allocated to Mr. Caldwell under the LTIP Plan, of which Mr. Caldwell
has neither dispositive nor voting power. Excludes approximately 8,113
shares of Common Stock purchasable upon the exercise of Company Rights.
(12) The shares of Common Stock represent less than 1.0% of the aggregate
voting rights of the Common Stock. Excludes approximately 240 shares of
Common Stock purchasable upon the exercise of Company Rights.
(13) Includes, in the aggregate, 9,075 shares of Common Stock issuable pursuant
to presently exercisable option. Excludes approximately 20,101 shares of
Common Stock purchasable upon the exercise of Company Rights.

424B1 51st Page of 75 TOC 1st Previous Next ↓Bottom Just 51st
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 40,000,000 shares of
Class A common stock, par value $.001 per share, 20,000,000 shares of Class B
common stock, par value $.001 per share, and 2,000,000 shares of Preferred
Stock, par value $1.00 per share.

COMMON STOCK

As of February 10, 1997, there were 9,561,301 shares of Common Stock
outstanding and held of record by 79 stockholders. After giving effect to the
issuance of the 1,755,000 shares of Common Stock offered by the Company
hereby, there will be 11,316,301 shares of Common Stock outstanding.

The Common Stock is divided into two classes, Class A and Class B. Class A
common stock is entitled to one vote per share and Class B common stock is
entitled to five votes per share on all matters submitted to a vote of holders
of Common Stock. Class B common stock may be owned beneficially or of record
only by Permitted Holders (as defined below). In the event that any share of
Class B common stock is transferred to any party other than a Permitted Holder
or if a beneficial or record holder of a share of Class B common stock ceases
to be a Permitted Holder, the share automatically and immediately shall be
converted into a share of Class A common stock. Shares of Class A Common Stock
may not be converted into shares of Class B common stock. On the date hereof,
there are 4,594,179 shares of Class A common stock and 4,967,122 shares of
Class B common stock issued and outstanding. All of the shares of Common Stock
being offered by this Prospectus are shares of Class A common stock.

"Permitted Holders" of Class B common stock are (i) persons who are
employees of the Company or any of its majority-owned subsidiaries and (ii)
the Company. A person shall cease to be a Permitted Holder on the date on
which he or she ceases to be an employee of the Company or any of its
majority-owned subsidiaries.

The holders of Common Stock do not have cumulative voting rights. The
election of directors is determined by a plurality of votes cast and, except
as otherwise required by law or the Certificate of Incorporation of the
Company, all other matters are determined by a majority of the votes cast.
Accordingly, the holders of the Class B common stock may elect all directors
standing for election. See "RISK FACTORS--Control by Principal Stockholders."

The holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
Preferred Stock. Upon the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities. Holders of the Common Stock have no preemptive, subscription,
redemption or conversion rights other than as described herein. The
outstanding shares of Common Stock are, and the shares offered by the Company
in the Offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. See "--Preferred Stock."

RIGHTS

The Company is granting on the date hereof the Rights to the holders of
Safeguard Common Shares. The Rights, subject to minimum exercise requirements,
are each exercisable for one share of Common Stock at an exercise price of
$5.50 per share. Persons may not exercise Rights for fewer than 50 shares of
Common Stock. For purposes of the Rights Offering, a person that holds
Safeguard Common Shares in multiple accounts must meet the 50 share minimum
purchase requirement in each account. Accordingly, persons holding fewer than
50 Rights in an account should consider the advisability of consolidating the
Rights in one account, selling Rights, or purchasing additional Rights to
comply with the minimum exercise requirements of the Rights Offering.

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Rights may be transferred, in whole or in part, by endorsing and delivering to
the Rights Agent a Rights certificate that has been properly endorsed for
transfer, with instructions to reissue the Rights, in whole or in part, in the
name of the transferee. The Rights Agent will reissue certificates for the
transferred Rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the Rights, in each case to the extent it is
able to do so prior to the Expiration Date.

The Rights Offering will terminate and the Rights will expire at 5:00 p.m.,
Eastern Standard time, on the Expiration Date, which is March 31, 1997. After
the Expiration Date, unexercised Rights will be null and void. For more
information about the Rights and the Rights Offering process, reference should
be made to "THE OFFERING" and to "RISK FACTORS--Cancellation of the Rights
Offering."

PREFERRED STOCK

The Company, by resolution of the Board of Directors and without any further
vote or action by the stockholders, has the authority, subject to certain
limitations prescribed by law, to issue from time to time up to an aggregate
of 2,000,000 shares of Preferred Stock in one or more classes or series and to
determine the designation and the number of shares of any class or series as
well as the voting rights, preferences, limitations and special rights, if
any, of the shares of any such class or series, including the dividend rights,
dividend rates, conversion rights and terms, voting rights, redemption rights
and terms, and liquidation preferences. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change of control of
the Company. As of the date of this Prospectus, there are no shares of
Preferred Stock outstanding, and the Company has no plans to issue any shares
of Preferred Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C., Overpeck Centre, 85 Challenger Road, Ridgefield
Park, New Jersey 07660.

424B1 53rd Page of 75 TOC 1st Previous Next ↓Bottom Just 53rd
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 11,316,301,
(11,636,301 if the Underwriters' over-allotment option is exercised in full)
shares of Common Stock outstanding, excluding 3,074,536 shares of Common Stock
subject to stock options and 526,597 warrants outstanding as of February 10,
1997 and any stock options or warrants granted by the Company after February
10, 1997. Of these shares, the Common Stock sold in the Offering, except for
certain shares described below, will be freely tradeable without restriction
or further registration under the Act. The remaining 7,961,301 shares of
Common Stock (the "Restricted Shares") were sold by the Company in reliance on
exemptions from the registration requirements of the Act and are "restricted
securities" as defined in Rule 144 and may not be sold in the absence of
registration under the Act unless an exemption is available, including an
exemption afforded by Rule 144 or Rule 701. See "RISK FACTORS--Shares Eligible
for Future Sale."

In general, under Rule 144 as currently in effect, if three years have
elapsed since the date of acquisition of restricted securities from the
Company or any affiliate and the acquiror or subsequent holder is not deemed
to have been an affiliate of the Company for at least 90 days prior to a
proposed transaction, such person would be entitled to sell such shares under
Rule 144(k) without regard to the limitations described below. If two years
have elapsed since the date of acquisition of restricted securities from the
Company or any affiliate, the acquiror or subsequent holder thereof (including
persons who may be deemed affiliates of the Company) is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then-outstanding shares of Class A common stock or the
average weekly trading volume in the Class A common stock on the Nasdaq
National Market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain provisions regarding the manner of
sale, notice requirements and the availability of current public information
about the Company. Without considering the contractual restrictions described
below, approximately (i) 5,610,531 Restricted Shares will be eligible for sale
ninety days after the date of this Prospectus, subject to volume and other
resale conditions imposed by Rule 144, and (ii) 2,350,770 Restricted Shares
will be eligible for future sale subject to the holding period and other
conditions imposed by Rule 144. Certain restrictions apply to any shares of
Common Stock purchased in the Offering by affiliates of the Company, which may
generally only be sold in compliance with the limitations of Rule 144, except
for the holding period requirements thereunder. See "RISK FACTORS--Shares
Eligible for Future Sale."

Rule 144A under the Act provides a nonexclusive safe harbor exemption from
the registration requirements of the Act of specified resales of restricted
securities to certain institutional investors. In general, Rule 144A allows
unregistered resales of restricted securities to a "qualified institutional
buyer," which generally includes an entity, acting for its own account or for
the account of other qualified institutional buyers, that in the aggregate
owns or invests at least $100 million in securities that, when issued, were of
the same class as securities listed on a national securities exchange or
quoted on the Nasdaq National Market. The shares of Common Stock outstanding
as of the date of this Prospectus would be eligible for resale under Rule 144A
because such shares, when issued, were not of the same class as any listed or
quoted securities.

OPTIONS AND WARRANTS

As of February 10, 1997, there were outstanding (i) options to purchase an
aggregate of 3,074,536 shares of Common Stock (of which 79,448 were
exercisable at February 10, 1997) and (ii) a presently exercisable warrant to
purchase an aggregate of 526,597 shares of Common Stock. The holders of
options to purchase a total of 1,275,583 shares are subject to Lock-Up
Agreements, which restrict, until after the Lock-Up Expiry Date (without the
Underwriters' prior written consent), the holders' ability to sell or
otherwise dispose of Common Stock acquired upon the exercise of such options
and warrants. An aggregate of 399,164 additional shares are available for
issuance pursuant to future grants under the Stock Option Plan. See
"MANAGEMENT--Stock Options."

The Company issued options and underlying shares of Common Stock to
employees of the Company who were not executive officers and directors of the
Company pursuant to Rule 701. Under Rule 701, such employees

424B1 54th Page of 75 TOC 1st Previous Next ↓Bottom Just 54th
of the Company who prior to the Offering purchased shares pursuant to the
Stock Option Plan are entitled to sell such shares without having to comply
with the public information, holding period, volume limitation or notice
provisions of Rule 144 commencing 90 days after the date of this Prospectus.
Rule 701 also permits the shares subject to unexercised options under such
Plan to be sold upon exercise without having to comply with such provisions of
Rule 144. As of the date hereof, (i) no shares of Common Stock will be
eligible for sale under Rule 701 by Company employees, commencing 90 days
after the date of this Prospectus, and (ii) approximately 3,074,536 shares of
Common Stock subject to unexercised options will be eligible for sale under
Rule 701 by Company employees commencing 90 days after the date of this
Prospectus, subject to applicable vesting provisions.

It is anticipated that a Form S-8 Registration Statement covering the Common
Stock that may be issued pursuant to the exercise of options after the
effectiveness of the Form S-8 Registration Statement will be filed and
declared effective prior to the Lock-Up Expiry Date and that shares of Common
Stock that are so acquired and offered thereafter pursuant to the Form S-8
Registration Statement generally may be resold in the public market without
restriction or limitation, except in the case of affiliates of the Company,
which generally may only resell such shares in compliance with Rule 144,
except for the holding period requirements thereunder.

LOCK-UP AGREEMENTS

The Selling Stockholders, each Partner of the Company, each director of the
Company and certain other stockholders, who in the aggregate will own
approximately 7,830,538 shares of Common Stock after the completion of the
Offering and will be deemed to beneficially own an additional 569,910 shares
of Common Stock, have agreed with the Underwriters that they will not sell or
otherwise dispose of any shares of Common Stock (other than shares of Common
Stock sold in the Offering) until after the Lock-Up Expiry Date without the
prior written consent of the Underwriters. In addition, Warren V. Musser has
agreed that he and/or his assignees will not sell or otherwise dispose of
157,000 shares of Common Stock without the prior written consent of the
Underwriters.

REGISTRATION RIGHTS

In connection with the 1994 Purchase, the Company granted certain
registration rights to Safeguard, Technology Leaders, CIP and certain
employees of the Company, including each Named Officer (collectively, the
"Registration Rights Holders"). In particular, under certain circumstances and
subject to certain limitations, the Registration Rights Holders can require
the Company to register under the Act (i) a minimum of 20% of the aggregate
number of shares of Common Stock acquired by them in connection with the 1994
Purchase, provided that the Company is not obligated to effect more than one
such registration, and (ii) on Form S-3 such number of shares of Common Stock
having a market value of at least $500,000, provided that the Company is not
required to effect more than one such registration during any twelve-month
period or three such registrations in the aggregate. The Registration Rights
Holders were also granted certain "piggy-back" registration rights whereby
under certain circumstances and subject to certain conditions, they may
include shares of Common Stock in any registration of shares of Common Stock
under the Act on a form which permits registration of secondary shares.

424B1 55th Page of 75 TOC 1st Previous Next ↓Bottom Just 55th
UNDERWRITING

The Company, the Selling Stockholders and the Underwriters have entered into
the Standby Underwriting Agreement on the date hereof, pursuant to which the
Underwriters are required, subject to certain terms and conditions (all of
which are set forth below), to purchase the Excess Unsubscribed Shares in
accordance with the percentages set forth below. If all of the Rights are
exercised there will be no Excess Unsubscribed Shares and the Underwriters
will not be required to purchase any shares of Common Stock.

[Download Table]

UNDERWRITERS % OF UNDERWRITER SHARES
------------ -----------------------

Tucker Anthony Incorporated.......................... 50%
Robert W. Baird & Co. Incorporated................... 50%

The Underwriters have agreed, subject to the condition that the Company and
the Selling Stockholders comply with their respective obligations under the
Standby Underwriting Agreement and subject to the Underwriters' right to
terminate their obligations under the Standby Underwriting Agreement (as
specified below), to purchase all of the Excess Unsubscribed Shares. The
Company will pay the Underwriters the Financial Advisory Fee equal to 3% of
the Exercise Price for each share of Class A common stock included in the
Offering. The Financial Advisory Fee is for services and advice rendered in
connection with the structuring of the Offering, valuation of the business of
the Company, and financial advice to the Company before and during the
Offering. An additional fee of 4% of the Exercise Price will be paid to the
Underwriters (i) for each share of Class A common stock purchased by the
Underwriters pursuant to the Standby Underwriting Agreement and (ii) for each
share of Class A common stock purchased upon the Underwriters' exercise of
Rights if such Rights were purchased by the Underwriters at a time when the
Class A common stock was trading (on a "when issued" basis) at a per share
price of less than 120% of the Exercise Price or if the Underwriters purchase
such Rights with Safeguard's prior acknowledgment that it would be entitled to
receive the Underwriting Discount for Class A common stock purchased pursuant
to the exercise of such Rights. In addition, the Company has agreed to pay the
Underwriters a non-accountable expense allowance in the aggregate amount of
$125,000, provided, however, such non-accountable expense allowance shall be
reduced to $50,000 or zero if, on the Expiration Date, the closing price for
the Class A common stock traded on a "when issued" basis is at least $10.00
per share or greater than $12.00 per share, respectively. The Company has
granted to the Underwriters a 20-day option commencing on the Expiration Date
to purchase a maximum of 320,000 additional shares of Class A common stock at
a per share price equal to the Exercise Price less the Financial Advisory Fee
and the Underwriting Discount. The Underwriters may exercise such option in
whole or in part only to cover over-allotments made in connection with the
sale of shares of Class A common stock by the Underwriters.

Prior to the Expiration Date, the Underwriters may offer shares of Class A
common stock on a when-issued basis, including shares to be acquired through
the purchase and exercise of Rights, at prices set from time to time by the
Underwriters. Each such price when set will not exceed, if applicable, the
highest price at which a dealer not participating in the distribution is then
offering the Class A common stock to other dealers, plus an amount equal to a
dealer's concession, and an offering price set on any calendar day will not be
increased more than once during such day. After the Expiration Date, the
Underwriters may offer shares of Class A common stock, whether acquired
pursuant to the Standby Underwriting Agreement, the exercise of the Rights or
the purchase of Class A common stock in the market, to the public at a price
or prices to be determined. The Underwriters may thus realize profits or
losses independent of the Underwriting Discount and the Financial Advisory
Fee. Shares of Class A common stock subject to the Standby Underwriting
Agreement will be offered by the Underwriters when, as and if sold to, and
accepted by, the Underwriters and will be subject to their right to reject
orders in whole or in part.

Prior to the Offering, there has been no public market for the Common Stock
or the Rights. Consequently, the Exercise Price was determined by negotiations
among the Company, the Selling Stockholders and the Underwriters. In
determining the Exercise Price, the Underwriters, the Board of Directors of
the Company and

424B1 56th Page of 75 TOC 1st Previous Next ↓Bottom Just 56th
the Selling Stockholders considered such factors as the future prospects and
historical growth rate in revenues and earnings of the Company, its industry
in general and the Company's position in its industry; revenues, earnings and
certain other financial and operating information of the Company in recent
periods; market valuations of the securities of companies engaged in
activities similar to those of the Company; the management of the Company;
and, with respect to the Company, the advice of the Underwriters.

The Underwriters will be prohibited from engaging in any market making
activities with respect to the Company's when-issued Class A common stock and
Class A common stock until the Underwriters have completed their participation
in the distribution of shares offered hereby. As a result, the Underwriters
may be unable to provide a market for the Company's when-issued Class A common
stock and Class A common stock should it desire to do so, during certain
periods while the Rights are exercisable.

In connection with the Offering, the Underwriters and certain selling group
members may engage in stabilizing, syndicate short covering transactions or
other transactions that stabilize, maintain or otherwise affect the market
price of the Class A common stock. Stabilizing transactions may consist of
initiating bids or effecting purchases on the Nasdaq National Market for the
purpose of preventing or retarding a decline in the market price of the Class
A common stock. Bids or purchases effected by the Underwriters or selling
group members for such purposes may be instituted at prices no higher than the
most recent independent bid price. Such transactions may stabilize the market
price of the Class A common stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities arising out of or based upon
misstatements or omissions in this Prospectus or the Registration Statement of
which this Prospectus is a part and certain other liabilities, including
liabilities under the Act, and to contribute to certain payments that the
Underwriters may be required to make.

The Underwriters may terminate their obligations under the Standby
Underwriting Agreement (i) if any calamitous domestic or international event
or act or occurrence has disrupted or, in the Underwriters' opinion, will in
the immediate future materially disrupt, the general securities market in the
United States; (ii) if trading in the Class A Common Stock (on a when-issued
basis) shall have been suspended by the Commission or Nasdaq; (iii) if trading
on the New York Stock Exchange, the American Stock Exchange or the Nasdaq
National Market or in the over-the-counter market shall have been suspended,
or minimum or maximum prices for trading shall have been fixed, or maximum
ranges for prices for securities shall have been required on the over-the-
counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; (iv) if the United States shall have
become involved in a war or major hostilities which, in the Underwriters'
opinion, will affect the general securities market in the United States; (v)
if a banking moratorium has been declared by a New York, Massachusetts,
Pennsylvania, Illinois or federal authority; (vi) if a moratorium in foreign
exchange trading has been declared; (vii) if the Company shall have sustained
a loss material to the Company by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act, whether or not
such loss shall have been insured, or from any labor dispute or any legal or
governmental proceeding; (viii) if there shall be such material adverse market
conditions (whether occurring suddenly or gradually between the date of this
Prospectus and the closing of the Offering) affecting markets generally as in
the Underwriters' reasonable judgment would make it inadvisable to proceed
with the offering, sale or delivery of the shares of Class A common stock
offered hereby; or (ix) if there shall have been such material adverse change,
or any development involving a prospective material adverse change (including
a change in management or control of the Company), in the business condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company since December 31, 1996 or that materially impacts
the Standby Underwriting Agreement.

The Company has agreed that, without the prior written consent of the
Underwriters, it will not offer, sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock (or securities convertible

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into shares of Common Stock) (collectively, the "Securities") acquired in the
Rights Offering or held by it as of the date hereof until after the Lock-Up
Expiry Date, other than (i) Common Stock to be sold in the Offering, and (ii)
Company option issuances and sales of Common Stock pursuant to the Stock
Option Plan and (iii) Securities issued as consideration for an acquisition if
the party being issued the Securities agrees not to transfer, sell, offer for
sale, contract or otherwise dispose of such Securities until after the Lock-Up
Expiry Date. The Selling Stockholders, each Partner of the Company, each
director of the Company, and certain other stockholders, who will in the
aggregate own approximately 7,830,538 shares of Common Stock after the
completion of the Offering and will be deemed to beneficially own an
additional 569,910 shares of Common Stock, have agreed with the Underwriters
that they will not sell or otherwise dispose of any shares of Common Stock
(other than shares of Common Stock sold in the Offering) until after the Lock-
Up Expiry Date without the prior written consent of the Underwriters. In
addition, Warren V. Musser has agreed that he and/or his assignees will not
sell or otherwise dispose of 157,000 shares of Common Stock without the prior
written consent of the Underwriters. See "MANAGEMENT--Stock Options" and
"SHARES ELIGIBLE FOR FUTURE SALE."

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Gordon & Glickson P.C., Chicago, Illinois. Certain
legal matters in connection with the Offering are being passed upon for the
Underwriters by Drinker Biddle & Reath, Philadelphia, Pennsylvania. Certain
legal matters in connection with the Offering are being passed upon for
Safeguard by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Gordon &
Glickson P.C., general counsel to the Company, was granted by the Company on
November 18, 1996, a fully vested option to acquire 13,035 shares of Common
Stock, at an exercise price of $3.18 per share.

EXPERTS

The financial statements and schedule of Diamond Technology Partners
Incorporated as of March 31, 1995 and 1996 and for the period from January 28,
1994 (inception) through March 31, 1994 and for the years ended March 31, 1995
and 1996 have been included herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing herein, and elsewhere in the Registration
Statement, and upon the authority of said firm as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Act with respect to the Common Stock and Rights offered hereby. As permitted
by the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock and Rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549,
and the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and copies of all or any part thereof may be
obtained from the reference section of the Commission, Washington, D.C. 20549,
upon payment of the prescribed fees. In addition, the Commission maintains a
site on the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission.

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

[Download Table]

PAGE
----

Audited Financial Statements:
Independent Auditors' Report............................................ F-2
Balance Sheets at March 31, 1995 and 1996............................... F-3
Statements of Operations for the period from January 28, 1994
(inception) through March 31, 1994 and years ended March 31, 1995 and
1996................................................................... F-4
Statements of Stockholders' Equity for the period from January 28, 1994
(inception) through March 31, 1994 and years ended March 31, 1995 and
1996................................................................... F-5
Statements of Cash Flows for the period from January 28, 1994
(inception) through March 31, 1994 and years ended March 31, 1995 and
1996................................................................... F-6
Notes to Financial Statements........................................... F-7
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at December 31, 1996......................... F-13
Consolidated Statements of Operations for nine-month periods ended
December 31, 1995 and 1996............................................. F-14
Consolidated Statements of Cash Flows for nine-month periods ended
December 31, 1995 and 1996............................................. F-15
Notes to Unaudited Consolidated Financial Statements.................... F-16

F-1

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INDEPENDENT AUDITORS' REPORT

The Board of Directors
Diamond Technology Partners Incorporated:

We have audited the accompanying balance sheets of Diamond Technology
Partners Incorporated as of March 31, 1995 and 1996, and the related
statements of operations, stockholders' equity and cash flows for the period
from January 28, 1994 (inception) through March 31, 1994 and for the years
ended March 31, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Diamond Technology
Partners Incorporated as of March 31, 1995 and 1996, and the results of its
operations and its cash flows for the period from January 28, 1994 (inception)
through March 31, 1994 and for the years ended March 31, 1995 and 1996 in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
April 19, 1996, except for the first two paragraphs
of Note 7 which are as of February 18, 1997

F-2

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

BALANCE SHEETS
MARCH 31, 1995 AND 1996

[Download Table]

1995 1996
----------- -----------

ASSETS
Current assets:
Cash and cash equivalents.......................... $ 4,690,260 $ 4,634,594
Accounts receivable, net of allowance of $512,000
and $269,812 as of March 31, 1995 and 1996,
respectively...................................... 1,435,432 3,304,255
Prepaid expenses................................... 319,899 1,179,988
Note receivable from stockholder................... -- 225,819
Deferred income taxes.............................. 119,276 98,725
----------- -----------
Total current assets............................. 6,564,867 9,443,381
Computers, equipment, and training software, net..... 573,413 2,010,424
Note receivable from stockholder..................... 162,943 --
Deferred organization costs, net..................... 211,889 161,216
----------- -----------
Total assets..................................... $ 7,513,112 $11,615,021
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................... $ 150,000 $ 125,000
Accounts payable................................... 556,969 1,155,002
Accrued compensation............................... 159,844 1,089,000
Deferred compensation.............................. 621,991 1,452,022
Income taxes payable............................... 119,276 82,641
Other accrued liabilities.......................... 611,860 1,143,308
----------- -----------
Total current liabilities........................ 2,219,940 5,046,973
Notes payable........................................ 106,364 --
----------- -----------
Total liabilities................................ 2,326,304 5,046,973
----------- -----------
Stockholders' equity:
Preferred Stock, $1.00 par value, 2,000,000 shares
authorized, no shares issued...................... -- --
Class A common stock, $.001 par value, 40,000,000
shares authorized, 3,320,625 issued in 1995 and
3,370,125 issued in 1996.......................... 3,321 3,371
Class B common stock, $.001 par value; 20,000,000
shares authorized, 4,392,092 issued in 1995 and
4,505,119 issued in 1996.......................... 4,392 4,505
Additional paid-in capital......................... 6,532,635 6,843,972
Notes receivable from sale of common stock......... (90,957) (257,323)
Accumulated deficit................................ (1,262,583) (26,477)
----------- -----------
Total stockholders' equity....................... 5,186,808 6,568,048
----------- -----------
Total liabilities and stockholders' equity....... $ 7,513,112 $11,615,021
=========== ===========

See accompanying notes to financial statements

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 28, 1994 (INCEPTION) THROUGH MARCH 31, 1994
AND YEARS ENDED MARCH 31, 1995 AND 1996

[Download Table]

1994 1995 1996
----------- ----------- -----------

Net revenues........................... $ 261,166 $12,842,670 $26,338,732
----------- ----------- -----------
Operating expenses:
Project personnel and related ex-
penses.............................. 633,405 8,351,461 15,312,436
Professional development and recruit-
ing................................. 105,767 1,394,432 4,586,682
Marketing and sales.................. 94,186 450,848 605,639
Management and administrative sup-
port................................ 317,135 3,108,314 4,459,820
----------- ----------- -----------
Total operating expenses........... 1,150,493 13,305,055 24,964,577
----------- ----------- -----------
Income (loss) from operations.......... (889,327) (462,385) 1,374,155
Interest income........................ 3,285 136,940 251,084
Interest expense....................... -- (51,096) (87,403)
----------- ----------- -----------
Income (loss) before taxes............. (886,042) (376,541) 1,537,836
Income taxes........................... -- -- (301,730)
----------- ----------- -----------
Net income (loss)...................... $ (886,042) $ (376,541) $ 1,236,106
=========== =========== ===========
Pro forma net income (loss) per share
of Common Stock....................... $ (0.35) $ (0.05) $ 0.13
=========== =========== ===========
Shares used in computing pro forma net
income (loss) per share of Common
Stock................................. 2,511,408 8,272,205 9,823,563
=========== =========== ===========

See accompanying notes to financial statements

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 28, 1994 (INCEPTION) THROUGH MARCH 31, 1994
AND YEARS ENDED MARCH 31, 1995 AND 1996

[Enlarge/Download Table]

NOTES TOTAL
CLASS A CLASS B ADDITIONAL RECEIVABLE ACCU- STOCK-
CLASS A CLASS B COMMON COMMON PAID-IN FROM SALE OF MULATED HOLDERS
SHARES SHARES STOCK STOCK CAPITAL COMMON STOCK DEFICIT EQUITY
--------- --------- ------- ------- ---------- ------------ ----------- ----------

Issuance of stock....... 1,100,000 825,000 $1,100 $ 825 $1,649,986 $ -- $ -- $1,651,911
Net loss................ -- -- -- -- -- -- (886,042) (886,042)
--------- --------- ------ ------ ---------- --------- ----------- ----------
Balance at March 31,
1994................... 1,100,000 825,000 1,100 825 1,649,986 -- (886,042) 765,869
Issuance of stock....... 2,220,625 3,608,342 2,221 3,608 4,920,108 (90,957) -- 4,834,980
Purchase of stock....... -- (41,250) -- (41) (37,459) -- -- (37,500)
Net loss................ -- -- -- -- -- -- (376,541) (376,541)
--------- --------- ------ ------ ---------- --------- ----------- ----------
Balance at March 31,
1995................... 3,320,625 4,392,092 3,321 4,392 6,532,635 (90,957) (1,262,583) 5,186,808
Issuance of stock....... -- 746,627 -- 747 866,753 (257,323) -- 610,177
Purchase of stock....... -- (584,100) -- (584) (555,416) -- -- (556,000)
Conversion to Class A... 49,500 (49,500) 50 (50) -- -- -- --
Repayment of notes...... -- -- -- -- -- 90,957 -- 90,957
Net income.............. -- -- -- -- -- -- 1,236,106 1,236,106
--------- --------- ------ ------ ---------- --------- ----------- ----------
Balance at March 31,
1996................... 3,370,125 4,505,119 $3,371 $4,505 $6,843,972 $(257,323) $ (26,477) $6,568,048
========= ========= ====== ====== ========== ========= =========== ==========

See accompanying notes to financial statements

F-5

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 28, 1994 (INCEPTION) THROUGH MARCH 31, 1994
AND YEARS ENDED MARCH 31, 1995 AND 1996

[Download Table]

1994 1995 1996
----------- ----------- -----------

Cash flows from operating activities
Net income (loss)..................... $ (886,042) $ (376,541) $ 1,236,106
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization....... 7,238 74,486 367,365
Deferred compensation............... 136,279 1,704,169 830,031
Deferred income taxes............... -- (119,276) 20,551
Changes in assets and liabilities:
Accounts receivable............... (68,550) (1,366,882) (1,868,823)
Prepaid expenses.................. (30,977) (288,922) (860,089)
Accounts payable.................. 440,565 116,404 598,033
Accrued compensation.............. 23,047 136,797 929,156
Income taxes payable.............. -- 119,276 (36,635)
Other accrued liabilities......... 90,386 321,474 531,448
----------- ----------- -----------
Net cash provided by (used in) operating
activities............................. (288,054) 320,985 1,747,143
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures.................. (15,062) (600,335) (1,753,703)
Organization costs.................... (200,454) (51,175) --
Notes receivable...................... -- (162,943) (62,876)
----------- ----------- -----------
Cash flows used in investing activi-
ties................................... (215,516) (814,453) (1,816,579)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........... -- 300,000 175,000
Repayment of notes payable............ -- (43,636) (306,364)
Stock issuance costs.................. (98,089) (173,125) --
Issuance of common stock.............. 1,750,000 3,989,648 701,134
Repurchase of common stock............ -- (37,500) (556,000)
----------- ----------- -----------
Net cash provided by financing activi-
ties................................... 1,651,911 4,035,387 13,770
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 1,148,341 3,541,919 (55,666)
Cash and cash equivalents at beginning
of period.............................. -- 1,148,341 4,690,260
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 1,148,341 $ 4,690,260 $ 4,634,594
=========== =========== ===========
Supplemental disclosure of cash flow in-
formation:
Cash paid during the year for inter-
est.................................. $ -- $ 51,096 $ 54,753
Cash paid during the year for income
taxes................................ -- -- 317,814
Supplemental disclosure for noncash
investing and financing activities:
Issuance of common stock for notes.... -- 90,957 257,323
Deferred and incentive compensation
applied to payment for common stock.. -- 1,218,457 --

See accompanying notes to financial statements

F-6

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

NOTES TO FINANCIAL STATEMENTS

(1) DESCRIPTION OF BUSINESS

Diamond is a management consulting firm that devises business strategies
enabled by information technology ("IT") and manages the implementation of
those strategies. The Company's clients are generally located throughout the
United States.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

The Company recognizes revenues on contracts as work is performed, net of
provisions for estimated uncollectible amounts. Actual uncollectible amounts
are charged against this reserve when they become known. Out-of-pocket
expenses are reimbursed by clients and are offset against expenses incurred.

Computers, Equipment and Training Software

Computers, equipment and training software are stated at cost less
accumulated depreciation. Depreciation is based on the estimated useful lives
of the assets (generally three years) and is computed using the straight-line
method. Costs capitalized for internally developed software include external
consulting fees and employee salaries. Depreciation and amortization expense
was $1,408 for the period from January 28, 1994 (inception) through March 31,
1994 and $40,576 and $316,692 for the years ended March 31, 1995 and 1996,
respectively.

Organization Costs

Organization costs consist of legal fees related to the start-up of the
Company. They are being amortized using the straight-line method over five
years. Accumulated amortization at March 31, 1995 and 1996 was $39,740 and
$90,413, respectively.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with original maturities of
three months or less and are stated at cost, which approximates fair value.
Cash equivalents consist of money market funds and demand deposits.

Significant Customers

The Company had four customers which individually accounted for more than
10% of accounts receivable and revenues as of and for the year ended March 31,
1995. Collectively, these customers accounted for approximately 68% of
accounts receivable and 65% of revenues as of and for the year ended March 31,
1995. The Company had three customers which individually accounted for more
than 10% of accounts receivable and revenues as of and for the year ended
March 31, 1996. Collectively, these customers accounted for 56% of accounts
receivable and 51% of revenues as of and for the year ended March 31, 1996.

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the use of the liability method in accounting for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be reversed or settled.

Pro Forma Net Income (Loss) Per Share

Pro forma net income (loss) per share is computed using the weighted average
number of shares of common and common equivalent shares (stock options and
warrants) outstanding unless anti-dilutive. As required by Staff

F-7

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Accounting Bulletin No. 83 issued by the Securities and Exchange Commission,
common and common equivalent shares issued by the Company during the twelve-
month period preceding the initial filing of the Registration Statement for
the Offering have been included in the calculation as if they were outstanding
for all periods presented (using the treasury stock method and assuming the
initial public offering price).

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Financial Instruments

The fair value of the Company's financial instruments approximates their
carrying value.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), was issued in October 1995. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock issued to Employees"
("APB 25"), with pro forma disclosures of net income and net income per share
as if the fair value method had been applied. The Company intends to continue
to apply APB 25 for future stock options and stock based awards, and
accordingly, does not anticipate that the adoption of SFAS 123 will have a
material impact on its results of operations or financial position.

Long-lived Assets

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" ("SFAS 121") was issued in
March 1995. SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company anticipates the adoption of
SFAS 121 will not have a material impact on its results of operation or
financial position.

(3) COMPUTERS, EQUIPMENT AND TRAINING SOFTWARE

Computers, equipment and training software at March 31, 1995 and 1996 are
summarized as follows:

[Download Table]

1995 1996
---------- ----------

Computers and equipment.............................. $ 480,431 $1,131,540
Training software.................................... 134,966 1,237,560
---------- ----------
615,397 2,369,100
Less accumulated depreciation and amortization....... (41,984) (358,676)
---------- ----------
$ 573,413 $2,010,424
========== ==========

(4) NOTE RECEIVABLE FROM STOCKHOLDER

The Company has advanced money to an officer under a note arrangement that
allows for advances up to $500,000 bearing interest at a floating rate based
on the applicable federal rate under the Internal Revenue Code of 1986.
Current settlement discussions in connection with certain litigation involving
the Stockholder have caused this note to become repayable on demand,
accordingly, such amounts have been classified as current at March 31, 1996.
The note and accumulated interest totaled $162,943 and $225,819 at March 31,
1995 and 1996, respectively.

F-8

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(5) COMMITMENTS

The Company leases office space and equipment under various operating
leases. As of March 31, 1996, the minimum future lease payments under
operating leases with noncancelable terms in excess of one year are as
follows:

[Download Table]

YEAR ENDING MARCH 31, AMOUNT
--------------------- ----------

1997.............................................................. $ 515,316
1998.............................................................. 432,957
1999.............................................................. 318,802
2000.............................................................. 297,571
2001.............................................................. 212,822
Thereafter........................................................ 299,248
----------
$2,076,716
==========

Rent expense under operating leases amounted to $21,015 for the period from
January 28, 1994 (inception) through March 31, 1994 and for the years ended
March 31, 1995 and 1996 amounted to $140,426 and $477,930, respectively.

The Company is party to a standby letter of credit with a bank in support of
the minimum future lease payments under the lease for permanent office space
dated March 31, 1995 in the amount of $917,908, declining annually during the
lease term. This letter is guaranteed by Safeguard Scientifics, Inc.
("Safeguard") until the effective date of the Registration Statement filed in
connection with the initial public offering of the shares of the Company.

(6) NOTES PAYABLE AND LINE OF CREDIT

Notes payable at March 31, 1995 consisted of two term loans in the amount of
$180,000 (10.10%) and $76,364 (10.05%) payable in monthly installments
including interest, maturing January 1, 1997. These notes were repaid in
November 1995.

Notes payable at March 31, 1996 consisted of an 8.4% term loan in the amount
of $125,000, payable in monthly installments, including interest, that matures
on December 31, 1996.

The Company has an available line of credit of $3,000,000 with a commercial
bank, which has been reduced by letters of credit of $322,590 to account for
letters of credit and other contingent obligations of the Company currently
outstanding. At March 31, 1996, all remaining amounts under this line of
credit were available to the Company at the bank's prime rate. Any borrowings
against this line will be secured by all the assets of the Company. The line
of credit expires July 31, 1997 unless renewed.

(7) STOCKHOLDERS' EQUITY

Stock Split, Stock Recapitalization and Initial Public Offering

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 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. Class A common
stock is entitled to one vote per share and Class B common stock is entitled
to five votes per share on all matters submitted to the vote of holders of
Common Stock. Class B common stock may be owned beneficially or of record by
employees of the Company or by the Company.

F-9

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company's Board of Directors authorized the filing of a Registration
Statement on Form S-1 covering 3,355,000 shares of Class A common stock to be
sold in the initial public offering transaction. The majority of shares
(1,755,000) are being offered by the Company and the remainder (1,600,000) by
selling stockholders. This offering will be conducted as a rights offering to
Safeguard's stockholders, pursuant to Safeguard's right to do so as described
below.

Warrants

In March 1994, the Company granted warrants to Safeguard. The warrants
permit the holder to purchase up to 825,000 shares of stock at an exercise
price of $1.21 per share and expires on March 22, 2001. Safeguard subsequently
transferred 330,000 of these warrants to certain of its affiliates. The
Company has the right to require the warrant holders to exercise the warrants
at any time following the completion of the Company's first full fiscal year
of profitability. The Company has satisfied this requirement during the fiscal
year ended March 31, 1996 and intends to exercise this right subsequent to
fiscal year end by issuing 825,000 shares of Class A common stock in exchange
for $1,000,000 pursuant to the provision of the warrants.

Safeguard also has the right, under certain conditions and with the
Company's consent, to conduct an offering of the Company's Class A common
stock to Safeguard stockholders. One-half of the shares of the Company's
common stock to be offered shall be new shares, and one-half shall be shares
held by Safeguard.

Stock Options

Under the Company's 1994 Stock Option Plan (the Plan), the Company may grant
qualified incentive stock options to officers and employees of the Company.
Options granted to officers vest ratably at the end of each of the three years
following the date of grant and options granted to employees other than
officers fully vest three years following the date of grant. Vested options
expire five years from the date of grant. The Plan provides that options may
not be granted at less than the fair market value of the Company's common
stock at the date of grant. Effective April 1, 1996, the Plan was amended, for
a change in the vesting schedule for options granted to officers to provide
for vesting at the end of each of the five years following the date of grant.
The expiration of these officers' vested options was also changed to seven
years from the date of grant to reflect this change in the vesting schedule.

The following table summarizes the transactions pursuant to the Plan.

[Download Table]

SHARES UNDER RANGE OF
OPTION PRICES
------------ --------------

Fiscal Year 1994
Granted.......................................... 138,600 $ 1.21
Exercised........................................ -- --
Canceled......................................... -- --
------- --------------
Balances, March 31, 1994........................... 138,600 1.21
Granted.......................................... 371,250 1.21
Exercised........................................ -- --
Canceled......................................... -- --
------- --------------
Balances, March 31, 1995........................... 509,850 1.21
Granted.......................................... 474,375 1.21 to 1.82
Exercised........................................ -- --
Canceled......................................... 42,900 1.21
------- --------------
Balances, March 31, 1996........................... 941,325 $1.21 to $1.82
======= ==============

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

At March 31, 1996 , there were 8,250 exercisable options under the Plan, as
amended. During 1996, the Company also issued 174,900 non-qualified stock
options. 82,500 of these options, at an exercise price of $1.82, vest ratably
at the end of each year over the five year period beginning March 31, 1996.
The remaining 92,400, at an exercise price of $1.82, vest in January, 1999.
None of these non-qualified stock options have been canceled or are
exercisable at March 31, 1996.

(8) INCOME TAXES

The provision for income taxes consists of the following:

[Download Table]

1994 1995 1996
-------- -------- --------

Current:
Federal........................................ $ -- $ 79,276 $156,363
Foreign........................................ -- -- 51,430
State.......................................... -- 40,000 73,386
-------- -------- --------
119,276 281,179
Deferred taxes................................... -- (119,276) 20,551
-------- -------- --------
$ -- $ -- $301,730
======== ======== ========

The total tax provision differs from the amount computed by applying the
Federal income tax rate of 34 percent to income (loss) before income taxes for
the following reasons:

[Download Table]

1994 1995 1996
-------- -------- --------

Federal income taxes at statutory rate...... $(301,254) $(128,024) $522,864
Effect of permanent differences............. 3,875 63,490 90,785
State income taxes, net of federal benefit.. -- 26,400 48,435
Effect of deferred tax benefits............. 297,379 73,996 (371,375)
Other....................................... -- (35,862) 11,021
--------- --------- --------
$ -- $ -- $301,730
========= ========= ========

The tax effects of the temporary differences that give rise to the deferred
tax assets and liabilities at March 31, 1995 and 1996 are presented below:

[Download Table]

1995 1996
--------- ---------

Deferred tax assets:
Deferred compensation................................ $ 211,477 $ 580,809
Other accruals....................................... 306,824 372,556
--------- ---------
Total gross deferred tax assets........................ 518,301 953,365
Less valuation allowance............................. (371,375) --
--------- ---------
Deferred tax assets, net of valuation allowance........ 146,926 953,365
--------- ---------
Deferred tax liabilities:
Accelerated depreciation............................. 27,650 45,290
Capitalized assets................................... -- 412,078
Accrued bonuses...................................... -- 340,741
Other accruals....................................... -- 56,531
--------- ---------
Deferred tax liabilities............................... 27,650 854,640
--------- ---------
Net deferred income taxes.............................. $ 119,276 $ 98,725
========= =========

Management believes it is more likely than not that the deferred tax assets
will be realized in the future.

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(9) BENEFIT PLANS

Deferred Compensation

Certain officers of the Company previously agreed to defer a portion of
their annual compensation under a deferred compensation program. The program
provided that amounts deferred cannot be distributed prior to March 31, 1996
without approval by the Board of Directors. Amounts deferred under this
program accrue interest at rates available to the Company from its bank and
are immediately vested. Effective April 1, 1996, the Board of Directors
elected to discontinue this program. This liability will be paid over a period
up to three years.

401(k) Plan

The Company has a noncontributory defined contribution plan covering
substantially all of its employees. This plan is qualified under Section
401(k) of the Internal Revenue Code of 1986. The Company may elect to make
contributions to this plan but to date has not done so.

F-12

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 1996
(UNAUDITED)

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ASSETS
Current assets:
Cash and cash equivalents....................................... $ 7,131,621
Accounts receivable, net of allowance of $829,093............... 3,127,136
Prepaid expenses................................................ 809,378
Accrued and prepaid income taxes................................ 322,817
Deferred income taxes........................................... 98,725
-----------
Total current assets.......................................... 11,489,677
Computers, equipment, and training software, net.................. 2,315,461
Deferred organization costs, net.................................. 123,127
-----------
Total assets................................................ $13,928,265
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................... $ 2,177,083
Accounts payable................................................ 1,179,912
Deferred compensation........................................... 579,464
Other accrued liabilities....................................... 1,241,035
-----------
Total current liabilities..................................... 5,177,494
-----------
Stockholders' equity:
Preferred stock $1.00 par value, 2,000,000 shares authorized, no
shares issued.................................................. --
Class A common stock, $.001 par value, 40,000,000 shares
authorized, 4,271,439 issued................................... 4,271
Class B common stock, $.001 par value: 20,000,000 shares
authorized, 5,281,612 issued................................... 5,282
Additional paid-in capital...................................... 9,293,863
Notes receivable from sale of common stock...................... (146,619)
Accumulated deficit............................................. (406,026)
-----------
Total stockholders' equity.................................... 8,750,771
-----------
Total liabilities and stockholders' equity.................. $13,928,265
===========

See accompanying notes to unaudited consolidated financial statements

F-13

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

NINE-MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1996
(UNAUDITED)

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1995 1996
----------- -----------

Net revenues........................................ $18,755,666 $26,244,969
----------- -----------
Operating expenses:
Project personnel and related expenses............ 10,710,258 16,306,849
Professional development and recruiting........... 3,507,390 4,478,104
Marketing and sales............................... 430,216 1,188,490
Management and administrative support............. 3,162,553 4,840,359
----------- -----------
Total operating expenses........................ 17,810,417 26,813,802
----------- -----------
Income (loss) from operations....................... 945,249 (568,833)
Interest income..................................... 182,143 121,629
Interest expense.................................... (63,853) (39,348)
----------- -----------
Income (loss) before taxes.......................... 1,063,539 (486,552)
Income taxes........................................ (209,000) 107,004
----------- -----------
Net income (loss)................................... $ 854,539 $ (379,548)
=========== ===========
Pro forma net income (loss) per share of common
stock.............................................. $ 0.09 $ (0.04)
=========== ===========
Shares used in computing pro forma net income (loss)
per share of common stock.......................... 9,761,514 10,439,495
=========== ===========

See accompanying notes to unaudited consolidated financial statements

F-14

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE-MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1996
(UNAUDITED)

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1995 1996
----------- -----------

Cash flows from operating activities
Net income (loss).................................. $ 854,539 $ (379,548)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 207,454 883,896
Deferred compensation............................ 584,290 (709,174)
Cancellation of note receivable.................. -- 225,819
Changes in assets and liabilities:
Accounts receivable............................ (857,035) 143,735
Prepaid expenses and other..................... (396,440) 370,610
Accounts payable............................... 270,044 24,910
Accrued compensation........................... 559,395 (1,089,000)
Income taxes................................... (82,237) (405,458)
Other accrued liabilities...................... 742,101 97,727
----------- -----------
Net cash provided by (used in) operating activities.. 1,882,111 (836,483)
----------- -----------
Cash flows from investing activities:
Capital expenditures............................... (1,411,642) (1,150,845)
Note receivable from stockholder................... (5,193) --
----------- -----------
Cash flows used in investing activities.............. (1,416,835) (1,150,845)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........................ 175,000 2,250,000
Repayment of notes payable......................... (277,228) (197,917)
Repurchase of Common Stock......................... (453,000) --
Issuance of Common Stock........................... 236,832 2,432,272
----------- -----------
Net cash provided by (used in) financing activities.. (318,396) 4,484,355
----------- -----------
Net decrease in cash and cash equivalents............ 146,880 2,497,027
Cash and cash equivalents at beginning of period..... 4,690,260 4,634,594
----------- -----------
Cash and cash equivalents at end of period........... $ 4,837,140 $ 7,131,621
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............. $ 37,878 $ 42,676
Cash paid during the year for income taxes......... 213,176 298,454
Supplemental disclosure of noncash investing and
financing activities:
Issuance of common stock for notes................. 275,668 201,413
Deferred and incentive compensation applied to
payment for common stock.......................... 1,218,457 130,000

See accompanying notes to unaudited consolidated financial statements

F-15

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DIAMOND TECHNOLOGY PARTNERS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION

The consolidated balance sheet as of December 31, 1996 and the consolidated
statements of operations and cash flows for the nine months ended December 31,
1995 and 1996 contained herein, which are unaudited, include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
accounts have been eliminated in consolidation. In the opinion of management,
all adjustments necessary for a fair presentation of such financial statements
have been included. Adjustments consist only of normal recurring items. The
results of operations for the nine months ended December 31, 1995 and 1996 are
not necessarily indicative of the results to be expected for the full fiscal
year.

The consolidated financial statements do not include all information and
footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. Reference is made to the Company's 1995 and 1996 audited financial
statements and related notes which provide additional disclosure and a further
description of accounting policies.

(2) SUBSEQUENT EVENTS

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 reflect this
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 the Board of Directors authorized 2,000,000 shares of Preferred
Stock, par value $1.00 per share, the terms of which may be determined by the
Board. Class A common stock is entitled to one vote per share and Class B
common stock is entitled to five votes per share on all matters submitted to
vote by holders of Common Stock. Class B common stock may be owned by
employees of the Company or by the Company.

The Company's Board of Directors authorized the filing of a Registration
Statement on Form S-1 covering 3,355,000 shares of Class A common stock to be
sold in an initial public offering. The majority of shares (1,755,000) are
being offered by the Company and the remainder (1,600,000) by selling
stockholders. This offering will be conducted as a rights offering to
Safeguard's stockholders.

(3) DEBT

The Company entered into a $2.0 million subordinated loan agreement with
Safeguard on November 8, 1996 for general working capital purposes. In
connection with this loan, the Company issued warrants to Safeguard for the
purchase of 526,597 shares of the Company's Class A Common Stock at $5.50 per
share. The loan has a maturity date of November 1, 2001 but must be repaid in
full upon the consummation of an initial public offering and bears interest at
rates which escalate 1% annually, starting at 6% in the initial year. The
Company anticipates repayment of this loan from the proceeds of this Offering
and accordingly is recognizing interest expense on the basis of 6% annually.

F-16

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TABLE OF CONTENTS

[Download Table]

PAGE
----

Prospectus Summary....................................................... 5
Risk Factors............................................................. 9
The Offering............................................................. 15
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 31
Management............................................................... 42
Certain Transactions..................................................... 48
Principal and Selling Stockholders....................................... 50
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Information................................................... 58
Index to Consolidated Financial Statements............................... F-1

---------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH
IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY SUCH SECURITIES IN ANY STATE IN WHICH SUCH OFFER OR SO-
LICITATION IS UNLAWFUL.

UNTIL APRIL 25, 1997 (25 DAYS AFTER THE EXPIRATION DATE OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN CLASS A COMMON STOCK, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DE-
LIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

3,355,000 SHARES

[LOGO OF DIAMOND TECHNOLOGY PARTNERS APPEARS HERE]

CLASS A COMMON STOCK

---------------
PROSPECTUS

---------------

FEBRUARY 24, 1997

Tucker Anthony
Incorporated

Robert W. Baird & Co.
Incorporated

--------------------------------------------------------------------------------
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A two-page gatefold with a depiction of the Company's Service Delivery
Process (which also appears on Page 34) appears on the inside front cover with
the following text:

Explore & Exploit the possibilities of the digital future. Strategy is
the bridge between exploring and exploiting the possibilities of the digital
future. Diamond can help you develop detailed plans that have strategic vision
and sound performance goals. Competitive and financial analyses integrate the
results of learning, collaborating and prototyping. Executive alignment is the
most important results of Exploration. Diamond can help your company's executive
to confront together the new realities of the digital age and commit to a
winning strategy. Program management maintains executive alignment and keeps the
process of implementation energized and focused on results. Diamond's seven-
point methodology monitors key variables and points of stress. Brutally honest
measurement and reporting identify every opportunity for improvement.

Navigating the Digital Future [Diamond logo]

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B1’ Filing	Date	First	Last	Other Filings

	10/31/03	46
	3/31/03	46		10-K
	11/1/01	20	73
	3/22/01	67
	9/30/97	25		10-Q, DEF 14A
	7/31/97	66
	6/30/97	25		10-K405, 10-Q
	4/25/97	74
	4/8/97	3		424B3
	3/31/97	2	52	10-K/A, 10-K405
Filed on:	2/25/97	15
	2/24/97	1	74
	2/21/97	1	5	S-1/A
	2/18/97	4	73
	2/10/97	6	53	8-A12G
	1/31/97	48
	1/1/97	66
	12/31/96	4	73	11-K
	11/18/96	57
	11/8/96	23	73
	11/1/96	46
	9/30/96	25	48
	6/30/96	25
	4/19/96	59
	4/1/96	4	69
	3/31/96	23	69
	12/31/95	26	73
	11/1/95	45
	4/14/95	48
	4/1/95	44
	3/31/95	23	68
	9/30/94	28
	6/30/94	4	28
	4/18/94	45
	3/31/94	23	67
	2/1/94	45
	1/28/94	8	66
				List all Filings

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Filing Submission 0000950109-97-001542 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Diamond Management & Technology Consultants, Inc. – IPO: ‘424B1’ on 2/25/97

As of: Tuesday, 2/25/97 · Accession #: 950109-97-1542 · File #: 333-17785

Initial Public Offering (IPO): Prospectus — Rule 424(b)(1)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Initial Public Offering (IPO): Prospectus — Rule 424(b)(1)
Filing Table of Contents