Offering Memorandum (2006)Full Document 

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SPARTA, INC.
OFFERING MEMORANDUM
     SPARTA, Inc., a Delaware corporation (the “Company”, “SPARTA”, “we” or “us”) is offering to acquire shares of its common stock from employees of its wholly-owned subsidiary, Spiral Technology, Inc., a California corporation (“Spiral”), in exchange for all of the outstanding stock of Spiral, which is currently owned by SPARTA, upon and subject to the terms and conditions described in this Offering Memorandum and the related Letter of Transmittal (which together, as they may be amended or supplemented from time to time, constitute the “Offer”).
     THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 9:00 P.M. LAKE FOREST, CA TIME ON DECEMBER 27, 2006, UNLESS THE OFFER IS EXTENDED.
     The Offer is conditioned on a minimum number of shares being tendered, and certain other conditions described in this Offering Memorandum.
     We make no recommendation to you as to whether to tender or refrain from tendering your shares, and we have not authorized any person to make any such recommendation on our behalf. You must make your own decision as to whether to tender your shares and, if so, how many shares to tender. If anyone makes any recommendation, you must not rely upon that recommendation as having been authorized by us.
     You should read carefully the information set forth or incorporated by reference in this Offering Memorandum and the related Letter of Transmittal and instructions thereto. You should rely only on the information contained in those documents or to which we have referred you. We have not authorized anyone to provide you with information or to make any representations in connection with the Offer other than the information contained in this Offering Memorandum or the related Letter of Transmittal and the instructions thereto. If anyone gives any other information or representation, you must not rely upon that information or representation as having been authorized by us.
     SEE THE INFORMATION UNDER THE CAPTION “RISK FACTORS” FOR CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN DECIDING WHETHER TO TENDER YOUR SHARES.
     The Securities and Exchange Commission has not approved or disapproved of this transaction or passed upon the merits or fairness of the transaction, or passed upon the adequacy or accuracy of the information contained in this document. Any representation to the contrary is a criminal offense.
     You may direct questions and requests for assistance in completing and submitting a Letter of Transmittal to Jerry R. Fabian, whose address and telephone number are as follows: SPARTA, Inc., 25531 Commercentre Drive, Suite 120, Lake Forest, CA 92630, (949) 768-8161 Ext. 305.
November 29, 2006

 


 

OFFERING MEMORANDUM
TABLE OF CONTENTS
             
I.
  SUMMARY TERM SHEET     1  
 
           
II.
  EXECUTIVE SUMMARY     7  
 
           
III.
  FORWARD-LOOKING STATEMENTS     10  
 
           
IV.
  RISK FACTORS     10  
 
           
V.
  DESCRIPTION OF SPLIT-OFF TRANSACTION     21  
 
           
VI.
  UNAUDITED SELECTED SPIRAL FINANCIAL DATA     30  
 
           
VII.
  MANAGEMENT’S DISCUSSION AND ANALYSIS OF SPIRAL’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS     30  
 
           
VIII.
  BUSINESS OF SPIRAL     37  
 
           
IX.
  MANAGEMENT OF SPIRAL     47  
 
           
X.
  DESCRIPTION OF SPIRAL’S CAPITAL STOCK     51  
 
           
XI.
  PRICE RANGE OF SPARTA COMMON STOCK     54  
 
           
XII.
  CERTAIN SPARTA FINANCIAL INFORMATION     55  
 
           
XIII.
  INTEREST OF SPARTA DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS CONCERNING SHARES     56  
 
           
XIV.
  ADDITIONAL INFORMATION CONCERNING SPARTA     60  
 
           
XV.
  ADDITIONAL INFORMATION CONCERNING THE OFFER AND SPLIT-OFF TRANSACTION     61  
 
           
XVI.
  LIST OF ACRONYMS     61  
 
           
XVII.
  INDEX TO UNAUDITED SPIRAL FINANCIAL STATEMENTS     63  
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Exhibits
A.   Letter of Transmittal
 
B.   Stockholder’s Agreement
 
C.   Lost Certificate Affidavit
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I. SUMMARY TERM SHEET
     We are providing this Summary Term Sheet for your convenience. It highlights certain material information in this Offering Memorandum, but you should realize that it does not describe all of the details of the Offer to the same extent described elsewhere in this Offering Memorandum. We urge you to read the entire Offering Memorandum and the related Letter of Transmittal (including the instructions thereto) because they contain the full details of the Offer. We have included references to the sections of this document where you will find more complete information.
What is the Split-Off Transaction?
     The Split-Off Transaction is a transaction in which we are offering SPARTA stockholders who are Spiral employees the opportunity to exchange their shares of SPARTA common stock for shares of Spiral common stock. See “Description of Split-Off Transaction” beginning on page 21.
What will be the effect of the Split-Off Transaction?
     Upon completion of the Split-Off Transaction, Spiral will be a company independent from SPARTA, and will be wholly owned by those Spiral employees who elect to participate in the Split-Off Transaction by tendering all, or any portion, of the SPARTA stock that they now own.
Why is SPARTA conducting the Split-Off Transaction?
     In many of the business areas in which Spiral operates, a majority of the contracts are set aside for small businesses. Even though Spiral has been a wholly-owned subsidiary of SPARTA, Spiral qualified as a small business for purposes of those set-aside programs, because SPARTA qualified as a small business. However, in 2004 SPARTA lost its status as a small business for purposes of most of the small business set-aside programs in which it and Spiral had previously participated. As a result, Spiral, as a wholly-owned subsidiary of SPARTA, is not considered a small business for those set-aside programs, but would qualify as a small business if it is spun-off as a company independent from SPARTA. Further, Spiral’s ability to compete in the business areas in which it operates has been negatively impacted by the fact that its indirect rates, which are a component of the amount that Spiral charges to its customers, are higher than the indirect rates of many of the small businesses with which Spiral competes. We believe that, as a company independent of SPARTA, Spiral would be able to reduce its indirect rates and thereby compete more effectively.
Who will be the senior managers of Spiral after completion of the Split-Off Transaction?
     The names and positions of Spiral’s senior managers following completion of the Split-Off Transaction are shown in the following table:
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Name   Position(s)   Age
Archie L. Moore
  President   62
 
       
Michael A. Scardello
  Senior Vice President, Secretary and    
 
  Treasurer   58
 
       
R. Stephen McCarter
  Senior Vice President and Chief Financial    
 
  Officer   75
 
       
Michael L. Orlando
  Vice President of Operations   60
 
       
Lawanna S. Wheatley
  Human Relations Coordinator   29
 
       
Deborah K. Schuppe
  Facility Security Officer   42
 
       
Curtis A. Curry
  Director, New Business Development   53
 
       
Keith L. Krake
  Manager, NASA DFRC ETS Program   40
 
       
George L. Penick
  Manager, AFMC J-Tech Program   59
 
       
James B. Eckmann
  Manager, AFRL ARES Program   46
     See “Management of Spiral” beginning on page 48 and “Risk Factors – Key Personnel” on page 16.
How was the value of Spiral determined for purposes of the Split-Off Transaction?
     The value of Spiral for purposes of the Split-Off Transaction was determined by negotiations between SPARTA, on behalf of itself, and Messrs. Archie Moore, Steve McCarter and Michael Scardello, on behalf of themselves and all other Spiral employees who elect to participate in the Split-Off Transaction. No independent appraisal of the value of Spiral has been obtained.
How do I decide whether to participate in the Split-Off Transaction?
     Whether you should participate in the Split-Off Transaction depends on whether you would prefer to exchange your shares of SPARTA common stock for shares of Spiral common stock, or sell your shares of SPARTA common stock back to SPARTA for cash following the Split-Off Transaction (should SPARTA elect to repurchase such shares). If you participate in the Split-Off Transaction, you will receive shares of Spiral common stock in a transaction that is intended to be tax-free to stockholders for U.S. federal income tax purposes. If you do not participate in the Split-Off Transaction, or if you do not exchange all of your shares of SPARTA common stock for shares of Spiral common stock, you will be required, at SPARTA’s option, to sell your remaining shares of SPARTA common stock back to SPARTA for cash. That repurchase will constitute a taxable transaction (except for shares repurchased from your account in the Spiral Profit Sharing Plan).
     You should consider all of the factors described under “Risk Factors” beginning on page 11. We make no recommendation to you as to whether to participate in the Split-Off Transaction, and we have not authorized any person to make any such recommendation on our behalf.
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Who is eligible to participate in the Split-Off Transaction?
     Only SPARTA stockholders who are employees of Spiral, and Steve McCarter, who will become a Spiral employee concurrent with the Split-Off Transaction, are eligible to participate in the Split-Off Transaction.
Can I participate in the Split-Off Transaction with only a portion of my SPARTA stock?
     Yes, you may tender some or all of your shares of SPARTA common stock. However, following the Split-Off Transaction, you will be required, at SPARTA’s option, to sell any SPARTA common stock you then hold back to SPARTA.
If I participate in the Split-Off Transaction, how will the number of shares of Spiral stock that I receive be determined?
     The total number of shares of Spiral common stock outstanding is 1,000,000. If you elect to participate in the Split-Off Transaction, you will receive a percentage of those 1,000,000 shares (rounded to the nearest whole share) equal to the percentage that the number of shares of SPARTA common stock tendered by you comprises of the total number of shares of SPARTA common stock tendered by all Spiral employees who elect to participate in the Split-Off Transaction. For example, if you tender 900 shares of SPARTA common stock for participation in the Split-Off Transaction, and a total of 60,000 shares of SPARTA common stock are tendered by all Spiral employees who elect to participate in the Split-Off Transaction, your tendered SPARTA shares would constitute 1.5% of the total SPARTA shares tendered, and you would receive 15,000 shares of Spiral stock in the Split-Off Transaction (1.5% of 1,000,000).
What will happen if more SPARTA shares are tendered by Spiral employees electing to participate in the Split-Off Transaction than will be exchanged for Spiral stock in the Split-Off Transaction?
     The total number of SPARTA shares to be exchanged in the Split-Off Transaction will be calculated by dividing the value of Spiral for purposes of the Split-Off Transaction ($2.2 million), by the Formula Price per share of SPARTA’s common stock as of the date on which the Split-Off Transaction is consummated. If the number of shares tendered for exchange in the Split-Off Transaction by all participating Spiral employees exceeds that number, then the number of shares of SPARTA common stock that each participating Spiral employee will exchange will be equal to his or her pro rata share (rounded to the nearest whole share) based on the ratio of the number of shares tendered by such employee to the total number of shares tendered by all Spiral employees.
What will happen if shares of SPARTA common stock with an aggregate value of less than $2.2 million are tendered by all Spiral employees who elect to participate in the Split-Off Transaction?
     As noted above, the total number of SPARTA shares to be exchanged in the Split-Off Transaction will be calculated by dividing the value of Spiral for purposes of the Split-Off
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Transaction ($2.2 million), by the Formula Price per share of SPARTA’s common stock as of the date on which the Split-Off Transaction is consummated. If less than that number of shares is initially tendered for exchange by Spiral employees electing to participate in the Split-Off Transaction, then Messrs. Archie Moore, Steve McCarter and Michael Scardello have agreed to tender additional SPARTA shares to make up the shortfall. However, Messrs. Moore, McCarter and Scardello will not be obligated to do so unless at least 25% of the total number of shares of SPARTA common stock to be exchanged in the Split-Off Transaction is tendered by other Spiral employees.
Do I have to do anything if I do not want to exchange my SPARTA shares in the Split-Off Transaction?
     No, you do not have to do anything if you do not want to exchange your shares of SPARTA common stock for shares of Spiral common stock in the Split-Off Transaction. However, following the Split-Off Transaction, you will be required, at SPARTA’s option, to sell any shares of SPARTA common stock that you then hold back to SPARTA.
How do I participate in the Split-Off Transaction?
     Complete the Letter of Transmittal designating the number of shares of SPARTA common stock you wish to tender for exchange in the Split-Off Transaction. Send it, together with your stock certificate and any other documents required by the Letter of Transmittal, so that it is received by SPARTA at the address set forth in the instructions to the Letter of Transmittal, before the expiration of the Offer. See “Description of Split-Off Transaction – Procedures for Tendering Shares” beginning on page 27.
Can I change my mind after I tender my shares of SPARTA stock?
     Yes. You may withdraw the tender of your shares any time before the expiration of the Offer, by following the withdrawal procedures set forth in the Offering Memorandum. See “Description of the Split-Off Transaction – Withdrawal Rights” on page 29.
Are there any conditions to SPARTA’s obligation to complete the Split-Off Transaction?
SPARTA reserves the right to abandon the Split-Off Transaction at any time prior to the completion of the transaction. See “Description of Split-Off Transaction – Conditions Precedent to Closing” on page 22 and “Description of Split-Off Transaction – Extension of Offer; Termination” on page 29.
When does the offer to participate in the Split-Off Transaction expire?
     The offer to exchange your shares of SPARTA stock for shares of Spiral stock in the Split-Off Transaction, and your right to withdraw any shares previously tendered by you, will expire at 9:00 p.m., Lake Forest, CA time on December 27, 2006 (the “Expiration Time”), unless extended. You must tender your shares of SPARTA common stock prior to the Expiration Time if you wish to participate in the Split-Off Transaction.
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Can I exchange SPARTA shares in my account in the retirement plan and how will that work?
     Yes. However, in the event that you elect to participate in the Split-Off Transaction and you own shares of SPARTA stock directly and also hold shares of SPARTA stock in your account in the Spiral Profit Sharing Plan, unless you instruct us otherwise, the shares of SPARTA stock tendered for exchange by you will be taken first from the shares of SPARTA stock that you own directly, before any shares are taken from your account in the Spiral Profit Sharing Plan. Any shares of Spiral common stock exchanged in the Split-Off Transaction for shares of SPARTA stock held in your account in the Spiral Profit Sharing Plan will be issued in the name of, and delivered to, the Special Trustee under the Spiral Profit Sharing Plan.
Will SPARTA distribute fractional shares of Spiral stock in the Split-Off Transaction?
     No. As an administrative and cost-saving convenience, no fractional shares of Spiral common stock will be issued in the Split-Off Transaction. To the extent a fractional share of Spiral common stock would otherwise be issued to a holder of SPARTA common stock in the Split-Off Transaction, SPARTA will round that fractional share to the nearest whole share.
Will shares of Spiral common stock be transferable?
     Each Spiral employee who elects to participate in the Split-Off Transaction will be required, as a condition to such participation, to sign a Stockholder’s Agreement. Under those agreements, the Spiral common stock will be subject to substantial transfer restrictions. Further, in the event of the termination of the employment of any Spiral stockholder, his or her shares will be subject to repurchase by Spiral, at its option. See “Description of Spiral’s Capital Stock” beginning on page 51.
Will there be a market for the Spiral stock that I receive in the Split-Off Transaction?
     No. There will be no public market for Spiral’s common stock, and the Spiral Management Team currently has no intention of listing Spiral’s common stock on a public market in the foreseeable future. Moreover, all Spiral stockholders will be required, as a condition to their participation in the Split-Off Transaction, to execute a Stockholder’s Agreement that will impose significant restrictions on the ability of those stockholders to transfer or sell the shares of Spiral common stock that they own. See “Risk Factors – Risks Related to Spiral’s Common Stock and Capital Structure” beginning on page 11, and “Description of Spiral’s Capital Stock” beginning on page 51.
Will I be taxed on the shares of Spiral common stock that I receive in the Split-Off Transaction?
     You generally will not recognize taxable gain or loss for U.S. federal income tax purposes on your receipt of shares of Spiral common stock in exchange for shares of SPARTA
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common stock. See “Description of the Split-Off Transaction – Tax Treatment” beginning on page 23.
What will be the tax basis and holding period of shares of Spiral common stock I receive in the Split-Off Transaction for U.S. federal income tax purposes?
     For U.S. federal income tax purposes, the tax basis of the shares of Spiral common stock that you receive generally will be the same as the tax basis of the shares of SPARTA common stock exchanged, and your holding period for the shares of Spiral common stock that you receive will include the period during which you held the shares of SPARTA common stock exchanged, provided that you held the SPARTA common stock as a capital asset. See “Description of the Split-Off Transaction – Tax Treatment” beginning on page 23.
What will be the tax basis in the shares of SPARTA common stock that are not exchanged in the Split-Off Transaction for U.S. federal income tax purposes?
     For U.S. federal income tax purposes, the tax basis of any shares of SPARTA common stock that are not exchanged will remain the same. You will be required, at SPARTA’s option, to sell such shares to SPARTA for cash. That sale will constitute a taxable transaction (except with respect to shares purchased by SPARTA from your account in the Spiral Profit Sharing Plan). Accordingly, if you participate in the exchange, you will generally want to exchange your older shares (which will generally have a lower tax basis) and retain your newer shares (which will generally have a higher tax basis). See “Description of the Split-Off Transaction – Tax Treatment” beginning on page 23.
Whom should I call with questions about the Split-Off Transaction?
     Before the completion of the Split-Off Transaction, stockholders with questions concerning the transaction should contact:
Jerry R. Fabian
Chief Administrative Officer
SPARTA, Inc.
25531 Commercentre Drive, Suite 120
Lake Forest, CA 92630
(949) 768-8161 Ext. 305
     After completion of the Split-Off Transaction, Spiral stockholders with questions concerning their investment in Spiral stock should contact:
Steve McCarter
Spiral Stock Administrator
244 East Avenue K-4

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