<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1998
REGISTRATION NO. 333-46157
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PROVANT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8742 04-3395167
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
67 BATTERYMARCH STREET, SUITE 500
BOSTON, MA 02110
(617) 261-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PAUL M. VERROCHI
PROVANT, INC.
67 BATTERYMARCH STREET, SUITE 500
BOSTON, MA 02110
(617) 261-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
CONSTANTINE ALEXANDER, ESQUIRE KEITH F. HIGGINS, ESQUIRE
JAMES E. DAWSON, ESQUIRE ROPES & GRAY
NUTTER MCCLENNEN & FISH, LLP ONE INTERNATIONAL PLACE
ONE INTERNATIONAL PLACE BOSTON, MA 02110
BOSTON, MA 02110 TELEPHONE: (617) 951-7000
TELEPHONE: (617) 439-2000 FACSIMILE: (617) 951-7050
FACSIMILE: (617) 973-9748
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If the Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION, DATED APRIL 27, 1998
2,600,000 SHARES
[PROVANT LOGO]
COMMON STOCK
All of the 2,600,000 shares of Common Stock offered hereby are being sold
by PROVANT, Inc.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company. It is currently estimated that the initial
public offering price of the Common Stock will be between $11.00 and $13.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market ("Nasdaq") under the symbol
"POVT."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
=======================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $2,750,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 390,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will
total $ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of NationsBanc Montgomery Securities LLC on or about
, 1998.
------------------------
NationsBanc Montgomery Securities LLC
Salomon Smith Barney
Piper Jaffray Inc.
, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 3
[Left side of page has four square boxes that read, respectively, "Employee,
Selection, Recruitment & Retention; Employee Work Skills; Employee Management &
Leadership Skills; and Organizational Assessment, Direction & Change." Text
below the four square boxes reads "Web Site: www.provant.com." Right side of
page has a montage of photos with textual overlay that reads "Provant offers a
broad range of training and development services and products through multiple
delivery channels to corporate and government clients seeking to measurably
enhance employees' effectiveness."]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Simultaneous with and as a condition to the consummation of the Offering
made by this Prospectus, PROVANT, Inc. will acquire in separate combination
transactions (collectively, the "Combination") seven providers of training and
development services and products (each, a "Founding Company," and collectively,
the "Founding Companies"). See "Combination." Unless otherwise indicated, all
references to the "Company" herein mean PROVANT, Inc. and the Founding
Companies, and references to "PROVANT" mean PROVANT, Inc. and its wholly-owned
subsidiaries prior to the consummation of the Combination. Investors should
carefully consider the information set forth under the heading "Risk Factors."
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Unless otherwise
indicated, (i) all share, per share and financial information in this
Prospectus: (a) has been adjusted to give effect to the Combination (excluding
the issuance of up to 1,050,000 shares of Common Stock as Additional
Consideration (as defined herein) for five of the Founding Companies, the
issuance in Common Stock of the J. Howard Contingent Consideration (as defined
herein) for the sixth Founding Company and the payment in Common Stock and cash
of the Star Mountain Contingent Consideration (as defined herein) for the
seventh Founding Company), (b) assumes an initial public offering price of
$12.00 per share, (c) gives effect to a stock dividend (assumed to be
894.68358-for-1) that will be declared by PROVANT prior to the consummation of
the Offering and (d) assumes no exercise of the Underwriters' over-allotment
option; and (ii) all references to fiscal years mean the Company's or a Founding
Company's fiscal year ending on June 30 in the same calendar year (e.g., "fiscal
1997" means the fiscal year ended June 30, 1997).
THE COMPANY
The Company provides a broad range of training and development services and
products to Fortune 1000 companies, other large and medium-sized corporations
and government entities. The Company's services and products are designed to
increase the productivity of organizations by improving employee selection,
recruitment and retention; enhancing employee work skills; developing employee
management and leadership skills; and facilitating organizational assessment,
direction and change. The Company offers both customized and "off-the-shelf"
services and products that are designed to provide measurable improvements in
employee performance and productivity. The Company delivers its services and
products through multiple delivery methods, including instructor-led classroom
training and seminars, certification of client employees as instructors
("train-the-trainer"), interactive multimedia software (such as CD-ROM) and
distance-based media (such as video conferencing, intranets and the Internet).
The seven Founding Companies are recognized leaders in their respective fields
and have developed a wide range of services and products, a substantial
knowledge base created from years of research and development, and a
well-established client base. The Company's objective is to become a leading
single source provider of high-quality training and development services and
products that are distributed through multiple delivery methods.
The Company provided training and development services and products to more
than 1,700 companies and 75 government entities in fiscal 1997, including Abbott
Laboratories, Bank of America, Conoco, Inc., Eli Lilly and Company, Federal
Express, Federated Department Stores, Inc., Hewlett-Packard Company,
Metropolitan Life Insurance Company, Mobil Corporation, the Department of
Defense, the Immigration and Naturalization Service and the Internal Revenue
Service. During this period, the Company generated revenues of more than
$100,000 from each of 75 different corporate clients and from over 15 different
federal government entities. For fiscal 1997, the Company had pro forma revenue
of $68.8 million and pro forma income from operations of $7.9 million. From
fiscal 1995 through fiscal 1997, the historical combined revenue of the Founding
Companies grew at a compound annual rate of 21.8%.
The Company believes that the corporate and government training and
development market is large and growing. According to Training Magazine,
domestic corporations with over 100 employees budgeted approximately $58.6
billion on training in 1997, compared to approximately $45.0 billion in 1992,
representing a compound annual growth rate of approximately 5.4%. The Department
of Defense's training and development budget alone was approximately $23.9
billion for its 1997 fiscal year. The portion of the market
3
<PAGE> 5
devoted to external training is increasing, as corporations and government
agencies focus on their core competencies, shift fixed training costs to
variable costs, and obtain training and development services, products,
technology and expertise that may not be available internally. The Company
believes that corporations and government entities seek external providers that
can meet their overall training and development needs by: (i) providing a broad
range of high-quality services and products in both customized and off-the-shelf
formats; (ii) delivering training through multiple delivery methods capable of
reaching large and geographically dispersed work forces; and (iii) utilizing the
most current technology available.
The Company intends to capitalize on these industry trends and enhance its
position as a leading provider of training and development services and products
by pursuing a multi-faceted growth strategy. The Company intends to seek
internal growth by: (i) capitalizing on cross-selling opportunities among the
Founding Companies; (ii) implementing an aggressive sales and marketing
strategy; (iii) expanding its service and product offerings; and (iv) leveraging
investments in technology and deploying leading technologies. In addition, the
Company intends to pursue strategic acquisitions of providers of training and
development services and products in order to expand its service and product
offerings, delivery methods and client base. The Company believes that its
senior management team, particularly Paul M. Verrochi, its Chairman and Chief
Executive Officer and co-founder and former Chairman of American Medical
Response, Inc., and John H. Zenger, its President and former Chairman of Times
Mirror Training Group, one of the nation's largest training companies, will
provide the Company with a competitive advantage in implementing its growth
strategy.
PROVANT is a Delaware corporation. Its principal executive offices are
located at 67 Batterymarch Street, Suite 500, Boston, Massachusetts 02110, and
its telephone number at that location is (617) 261-1600. The Founding Companies'
principal offices are located in: Alexandria, Virginia; Lexington,
Massachusetts; Memphis, Tennessee; North Hollywood and San Francisco,
California; Provo, Utah; and Ridgewood, New Jersey. See "Combination -- The
Founding Companies."
4
<PAGE> 6
THE OFFERING
Common Stock offered by the Company......... 2,600,000 shares
Common Stock to be outstanding after the
Offering.................................... 9,405,558 shares (1)
Use of proceeds............................. To pay the cash portion of the
purchase price for the Founding
Companies and to repay certain
indebtedness. See "Use of
Proceeds."
Proposed Nasdaq Symbol...................... POVT
- ---------------
(1) Includes 3,747,626 shares of Common Stock to be issued to the stockholders
of the Founding Companies in connection with the Combination. Excludes: (i)
up to an aggregate of 1,050,000 shares of Common Stock that may be issued as
Additional Consideration to the stockholders of five of the Founding
Companies (assuming an initial public offering price of $12.00 per share) as
well as shares of Common Stock that may be issued as J. Howard Contingent
Consideration and Star Mountain Contingent Consideration; (ii) 1,100,000
shares of Common Stock reserved for issuance under the Company's 1998 Equity
Incentive Plan (of which options to purchase 898,834 shares will be
outstanding upon the consummation of the Offering at an exercise price per
share equal to the initial public offering price); (iii) 100,000 shares of
Common Stock reserved for issuance under the Company's Stock Plan for
Non-Employee Directors (of which options to purchase 15,000 shares will be
outstanding upon the consummation of the Offering at an exercise price per
share equal to the initial public offering price); (iv) 500,000 shares of
Common Stock reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan; (v) 10,000 shares of Common Stock reserved for issuance upon
the exercise of an outstanding option having an exercise price of $5.00 per
share; and (vi) an aggregate of 846,498 shares of Common Stock reserved for
issuance upon the exercise of warrants granted to two of the Company's
executive officers, as more fully described under "Certain
Transactions -- Other Transactions; American Business Partners LLC."
5
<PAGE> 7
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PROVANT has conducted operations to date only in connection with the
Combination and the Offering, and will acquire the Founding Companies
simultaneously with and as a condition to the consummation of this Offering. For
financial statement presentation purposes, PROVANT has been designated as the
accounting acquiror. The following table presents summary pro forma combined
financial data of the Company, as adjusted for: (i) the consummation of the
Combination; (ii) certain pro forma adjustments to the historical financial
statements of the Founding Companies; and (iii) the consummation of the Offering
and the application of the net proceeds. See the Company's Unaudited Pro Forma
Combined Financial Statements, each of the Founding Companies' financial
statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED (1)
-----------------------------------
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1997 DECEMBER 31, 1997
------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................... $68,846 $35,958
Cost of revenue........................................... 30,967 15,948
---------- -------------
Gross profit.............................................. 37,879 20,010
Selling, general and administrative expenses (2).......... 28,663 16,327
Goodwill amortization (3)................................. 1,282 641
---------- -------------
Income from operations.................................... 7,934 3,042
Interest and other income (expense), net.................. (73) (50)
---------- -------------
Income before income taxes................................ 7,861 2,992
Provision for income taxes (4)............................ 3,763 1,991
---------- -------------
Net income................................................ $ 4,098 $ 1,001
========== =============
Net income per share...................................... $ 0.50 $ 0.11
========== =============
Shares used in computing net income per share (5)......... 8,130,104 9,072,206
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
PRO FORMA
COMBINED (6) AS ADJUSTED (7)
------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (8)....................................... $(19,564) $ 6,549
Total assets.............................................. 76,654 75,883
Long-term debt, net of current maturities................. 1,276 1,276
Stockholders' equity...................................... 35,390 60,703
</TABLE>
- ---------------
(1) The pro forma combined statement of operations data assumes that the
Combination and the Offering were consummated on July 1, 1996, and is not
necessarily indicative of the results the Company would have obtained if
these events actually then occurred or of the Company's future results. The
pro forma combined statement of operations data is based on preliminary
estimates, available information and assumptions that management deems
appropriate, and should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus.
(2) Reflects pro forma adjustments to salary, bonuses and benefits paid to
certain of the owners of the Founding Companies to which they have agreed
prospectively (the "Compensation Differential"). For the year ended June 30,
1997 and the six months ended December 31, 1997, the Compensation
Differential was approximately $5.6 million and $4.1 million, respectively.
Includes for the six months ended December 31, 1997 approximately $485,000
of non-cash compensation expense related to the issuance of Common Stock to
officers of and consultants to the Company.
6
<PAGE> 8
(3) Reflects amortization of the goodwill to be recorded as a result of the
Combination over a 40-year period and computed on the basis described in the
Notes to the Unaudited Pro Forma Combined Financial Statements.
(4) Assumes that all income is subject to an effective corporate income tax rate
of 40%, and all goodwill from the Combination is non-deductible.
(5) Assumes an initial public offering price of $12.00 per share. Consists of:
(i) 3,747,626 shares to be issued to the stockholders of the Founding
Companies (without giving effect to the issuance of Additional
Consideration, the J. Howard Contingent Consideration or the Star Mountain
Contingent Consideration); (ii) the weighted average shares outstanding,
after giving effect to a stock split to be effective prior to the
consummation of the Offering, of 1,782,478 shares during the period ended
June 30, 1997 and 2,724,580 shares during the period ended December 31,
1997; and (iii) 2,600,000 shares to be sold in the Offering.
(6) The pro forma combined balance sheet data assumes that the Combination was
consummated on December 31, 1997. The pro forma combined balance sheet data
is based upon preliminary estimates, available information and assumptions
that management deems appropriate and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(7) Adjusted for the sale of 2,600,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $12.00 per share) and the
application of the net proceeds therefrom as described under "Use of
Proceeds."
(8) The pro forma combined data gives effect to $22.4 million representing the
cash portion of the consideration for the Combination to be paid from a
portion of the net proceeds of the Offering.
RECENT DEVELOPMENTS
For the nine months ended March 31, 1998, the Founding Companies had
combined revenue of $54,484 and combined income from operations of $7,935,
compared to combined revenue of $43,201 and combined income from operations of
$6,248 for the nine months ended March 31, 1997, representing increases of 26.1%
and 27.0%, respectively. This combined statement of operations data does not
reflect any pro forma adjustments, other than an adjustment for the Compensation
Differential, and otherwise has been prepared on the same basis as the other
combined results of operations data contained in this Prospectus. For the nine
months ended March 31, 1997 and 1998, the Compensation Differential was
approximately $4.9 million and $4.9 million, respectively.
7
<PAGE> 9
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents summary data for each of the Founding
Companies on a historical (and, with respect to Star Mountain, consolidated)
basis for the periods indicated. (See "Combination" for the complete name of
each Founding Company.) Three of the Founding Companies, J. Howard, LSS and Star
Mountain, historically operated with fiscal years ending on dates other than
June 30. For purposes of the table below, their operating results have been
recast to reflect a June 30 fiscal year end, although they have been derived
from financial statements prepared on the same basis as the audited financial
statements. As a result of this presentation, the operating results for these
three companies do not conform with their audited financial statements contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------- ----------------
1995 1996 1997 1996 1997
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
BTI:
Revenue......................................... $ 3,803 $ 5,685 $ 7,096 $3,439 $ 3,850
Gross profit.................................... 2,754 4,190 5,608 2,560 3,075
Income (loss) from operations................... 439 142 497 (656) (1,331)
Pro forma income from operations (1)............ 350 705 1,439 346 1,052
Basic net income (loss) per share............... 5,780 2,510 5,680 (5,980) (12,650)
DECKER:
Revenue......................................... $ 8,550 $ 8,620 $ 8,410 $4,047 $ 5,160
Gross profit.................................... 6,131 5,965 6,135 2,881 3,820
Income (loss) from operations (2)............... 461 249 (311) (525) 406
Pro forma income from operations (1)............ 653 441 854 420 626
Basic net income (loss) per share............... 2.53 1.63 (2.55) (3.55) 2.96
J. HOWARD:
Revenue......................................... $ 5,444 $ 7,388 $ 7,317 $3,157 $ 3,524
Gross profit.................................... 3,646 5,084 5,157 2,187 2,368
Income (loss) from operations................... 519 720 602 (397) (409)
Pro forma income from operations (1)............ 701 1,265 1,548 429 74
Basic net income (loss) per share............... 6.45 8.96 7.12 (4.36) (4.52)
LSS (3):
Revenue......................................... $ 2,983 $ 4,233 $ 5,599 $2,689 $ 2,771
Gross profit.................................... 1,903 2,549 3,671 1,842 1,650
Income (loss) from operations................... 209 381 610 (111) 532
Pro forma income from operations (1)............ 573 940 1,928 997 622
Basic net income (loss) per share............... 118 313 615 (110) 525
MOHR:
Revenue......................................... $ 1,459 $ 2,171 $ 3,015 $1,114 $ 1,534
Gross profit.................................... 1,288 1,494 2,190 762 1,011
Income (loss) from operations................... (26) 343 445 19 (39)
Pro forma income from operations (1)............ 47 487 779 111 120
Basic net income (loss) per share............... 280 3,390 4,410 210 (370)
NOVATIONS:
Revenue......................................... $ 7,175 $ 9,039 $ 9,018 $4,658 $ 5,256
Gross profit.................................... 3,290 4,306 4,179 2,155 2,579
Income from operations.......................... 123 212 864 487 517
Pro forma income from operations (1)............ 1,331 1,683 1,525 860 1,192
Basic net income per share...................... 3 74 292 396 230
STAR MOUNTAIN:
Revenue......................................... $11,875 $14,361 $20,790 $9,459 $12,444
Gross profit.................................... 4,507 5,704 8,188 4,061 5,144
Income from operations.......................... 1,286 292 1,127 748 995
Pro forma income from operations (1)............ 1,116 696 1,368 899 1,085
Basic and diluted net income per share.......... 0.14 0.02 0.08 0.05 0.06
</TABLE>
- ---------
(1) Reflects adjustments to the compensation of certain executives of the
Founding Company to reflect the portion of the Compensation Differential
attributable to such company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Includes for the fiscal year ended June 30, 1997 approximately $825,000 of
non-cash compensation expense related to the repurchase of common stock from
a former officer of Decker.
(3) Includes 1995 data for LSS for the 12 months ended August 31, 1995.
8
<PAGE> 10
RISK FACTORS
The following factors should be considered, together with the other
information in this Prospectus, in evaluating an investment in the Company. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ significantly from the results discussed in the forward-looking
statements as a result of any number of factors, including the risk factors set
forth below and other factors discussed elsewhere in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
PROVANT has conducted no operations and generated no revenues to date.
PROVANT has entered into definitive agreements to acquire the Founding Companies
simultaneously with, and as a condition to, the consummation of the Offering. To
date, the Founding Companies have operated independently of one another.
Currently, the Company has no centralized financial reporting system and
initially will rely on the existing reporting systems of the Founding Companies.
The Company's senior management group has been assembled only recently, and
there can be no assurance that this group will be successful in managing the
combined operations of the Founding Companies or in implementing the Company's
business and growth strategies. Any failure to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management."
The Founding Companies offer different services and products, use different
capabilities and technologies, target different clients and have different
management styles. Although the Company believes that there are substantial
opportunities to cross-market and integrate the Founding Companies' businesses,
these differences increase the risk inherent in integration. There can be no
assurance that the Company will be able to integrate successfully the operations
of the Founding Companies or institute the necessary Company-wide systems and
procedures to manage successfully the combined enterprise on a profitable basis.
The Company intends to operate the Founding Companies and subsequently acquired
businesses on a decentralized basis. If proper overall business incentives and
controls are not implemented, this decentralized operating strategy could result
in inconsistent operating and financial practices and the Company's overall
profitability could be adversely affected. The failure of the Company to
integrate successfully the operations of the Founding Companies could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Business Strategy."
RISKS RELATED TO INTERNAL GROWTH STRATEGY
The central objective of the Company's growth strategy is to increase the
revenues and profitability of the Founding Companies. One of the key components
of this strategy is to cross-sell the services and products of each Founding
Company to other clients of the Company. There can be no assurance that the
Company will be able to expand its sales of services and products to its
existing clients and those of any subsequently acquired businesses. The
Company's growth strategy of broadening its service and product offerings,
implementing an aggressive marketing plan, pursuing strategic acquisitions and
deploying leading technologies has inherent risks and uncertainties. There can
be no assurance that the Company's growth strategy will be successful or that
the Company will be able to generate cash flow sufficient to fund its operations
and to support internal growth. The Company's inability to achieve internal
earnings growth or otherwise execute its growth strategy could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Growth Strategy."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company intends to increase its revenues and its service and product
offerings in part through the acquisition of additional providers of training
and development services and products. There can be no assurance that the
Company will be able to identify and acquire additional businesses or integrate
and manage any acquired businesses without substantial costs, delays or other
operational or financial problems. Certain risks inherent in an acquisition
strategy, such as potentially increasing leverage and debt service requirements,
difficulties associated with combining disparate business systems and cultures,
and the failure to retain key
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personnel, could adversely affect the Company's operating results. The process
of integrating acquired companies may involve unforeseen difficulties and
require a disproportionate amount of management's attention and financial and
other resources. Moreover, increased competition for acquisition candidates may
develop, in which event fewer acquisition opportunities may be available to the
Company and acquisition costs may increase. There can be no assurance that any
business acquired in the future will achieve anticipated revenues and earnings.
In addition, the size, timing and integration of acquisitions may cause
substantial fluctuations in the Company's operating results from quarter to
quarter. The inability of the Company to acquire, integrate and manage
successfully providers of training and development services and products could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Growth Strategy."
MANAGEMENT OF GROWTH
The Company expects to grow internally and through acquisitions. The
Company expects to spend significant time and effort in expanding its existing
business and identifying, completing and integrating acquisitions. There can be
no assurance that the Company's systems, procedures and controls will be
adequate to support the Company's operations as they expand. Any future growth
also will impose significant added responsibilities on members of senior
management, including the need to identify, recruit and integrate new senior
level managers and executives. There can be no assurance that such additional
management can be identified and retained by the Company. The inability of the
Company to manage its growth or recruit and retain additional qualified
management could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Growth Strategy"
and "Management."
DEPENDENCE ON KEY PERSONNEL
The Company's operations will depend on the continuing efforts of its
executive officers and the senior management of the Founding Companies. In
particular, the Company will depend on: Paul M. Verrochi, Chairman and Chief
Executive Officer; John H. Zenger, President; and Dominic J. Puopolo, Executive
Vice President and Chief Financial Officer. In addition, the Company relies on
many of the executives of the Founding Companies, whose reputations and client
relationships have contributed in large part to those companies' success. While
the Company will enter into employment agreements with most of these
individuals, there can be no assurance that the Company will be able to retain
the services of any of them. A loss of the services of any of these individuals
following the Offering could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management."
DEPENDENCE ON AVAILABILITY OF QUALIFIED PERSONNEL
A significant portion of the Company's revenue is derived from services and
products that are delivered by instructors and consultants. The Company's
success depends upon its ability to continue to attract and retain instructors
and consultants who possess the skills and experience required to meet the
staffing needs of its clients. In order to initiate and develop client
relationships and execute its growth strategy, the Company must maintain and
continue to hire qualified salespeople. There can be no assurance that qualified
personnel will continue to be available to the Company in sufficient numbers,
and any failure to attract or retain qualified instructors, consultants and
salespeople in sufficient numbers could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS
The Company's revenues and profitability are related to general levels of
economic activity and employment in the United States. As a result, any
significant economic downturn or recession in the United States could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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FLUCTUATIONS IN OPERATING RESULTS
The Founding Companies have experienced and expect to continue to
experience fluctuations in quarterly operating results. Results for any quarter
therefore are not necessarily indicative of the results that the Company may
achieve for any subsequent quarter or a full fiscal year. Quarterly results may
vary materially as a result of, among other factors, the level of training and
development services and products sold, the gain or loss of material client
relationships, the timing, structure and magnitude of acquisitions, or the
utilization rates of the Company's salaried trainers, consultants and certain
other employees. The timing or completion of client engagements or custom
services and products also could result in fluctuations in the Company's results
of operations for particular quarterly periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RELIANCE ON FEDERAL GOVERNMENT CONTRACTING
Approximately 31% of the Company's pro forma revenue in fiscal 1997 was
generated from services and products provided to over 75 federal government
entities. A general reduction in expenditures by the federal government for
training and development, a Congressional budget impasse, a reduction or
elimination of the use of third party contractors by the federal government, or
an inability of the Company to maintain its relationship with these government
entities could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the government
typically shares equally in the ownership of courseware and materials that the
Company develops with government funds, and may share such courseware or
materials with other entities including the Company's competitors. Risks unique
to contracts with federal government entities including potential government
audits and retroactive downward repricing of sales could, if realized, have a
material adverse effect on the Company's business, financial condition and
results of operations.
Some of the Company's contracts require a security clearance from the
federal government. Foreign beneficial ownership of Common Stock following the
Offering in excess of 5% of outstanding amounts may require the Company to place
restrictions on foreign ownership, control, or influence over these contracts.
If the government deems such controls to be inadequate to prevent foreign
control or influence and terminates the classified contracts, there could be a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY
The Company regards many of its training and development services and
products as proprietary and relies primarily on a combination of statutory and
common law copyright, trademark, service mark and trade secret laws, customer
licensing agreements, employee and third-party nondisclosure agreements and
other methods to protect its proprietary rights. Notwithstanding the foregoing,
a third party or parties could copy or otherwise obtain and use the Company's
products, services or training methodologies in an unauthorized manner or use
these products, services or methodologies to develop training and development
processes that are substantially similar to those of the Company. The Company's
products generally do not include any mechanisms to prohibit or prevent
unauthorized use by third parties. If substantial unauthorized use of the
Company's products, services or methodologies were to occur, there could be a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar training products and
delivery methods. Additionally, there can be no assurance that third parties
will not claim that the Company's current or future products or services
infringe on the proprietary rights of others. The Company expects that it will
be increasingly subject to such claims as the number of products and competitors
increases in the future. Any such claim could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Intellectual Property."
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TECHNOLOGICAL RISK
Traditionally, most of the Company's training and development services and
products have been delivered through instructors, written materials or video.
The Company intends to deliver many of its training and development services and
products, including certain services and products previously delivered in
"traditional" formats, via interactive multimedia software (such as CD-ROM) and
distance-based media (such as video conferencing, intranets and the Internet).
There can be no assurance that the Company will be successful in marketing its
services and products in multimedia software and distance-based media formats,
nor can there be assurance that services and products delivered in the newer
formats will provide comparable training results. In addition, there can be no
assurance that any successful expansion of the methods of distribution of the
Company's services and products will not be rendered moot by subsequent
technological advances. Adding new distribution channels for its services and
products also may entail significant costs, and the new formats may be more
susceptible to unauthorized use. The inability of the Company to develop new
distribution channels due to capital, personnel, technological or other
constraints could result in a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Growth
Strategy."
RISKS RELATED TO ACQUISITION FINANCING
The Company may choose to finance future acquisitions by issuing shares of
Common Stock for all or a portion of the consideration to be paid. In the event
that the Common Stock does not maintain a sufficient market value, or potential
acquisition candidates otherwise are unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company might not be
able to utilize Common Stock as consideration for acquisitions and would be
required to utilize more of its cash resources, if available, in order to
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it could obtain additional capital
through debt or equity financings. The inability of the Company to use its
Common Stock as consideration for future acquisitions or to obtain additional
financing for acquisitions could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that future issuances of Common Stock in connection with
acquisitions will not be dilutive to the Company's stockholders.
INDEPENDENT CONTRACTOR STATUS
The Company uses many contract instructors who are not employees of the
Company. As a result, the Company does not pay federal employment taxes or
withhold income taxes on behalf of such individuals, or include them in its
employee benefit plans. If state or federal taxing authorities were to require
the Company to treat some or all of its contract instructors as employees, the
Company would become responsible for the taxes required to be paid or withheld
and could incur additional costs associated with employee benefits and other
employee costs on both a current and retroactive basis. The aggregate impact of
such costs could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Independent
Contractors."
COMPETITION
The training and development industry is highly fragmented and competitive,
with low barriers to entry and no single competitor accounting for a significant
market share. The Company's competitors include several large publicly traded
and privately held companies, and thousands of small privately held training
providers and individuals. In addition, many of the Company's clients maintain
internal training departments. Some of the Company's competitors offer services
and products that are similar to those of the Company at lower prices, and some
competitors have significantly greater financial, managerial, technical,
marketing and other resources than the Company. Moreover, the Company expects
that it will face additional competition from new entrants into the training and
development market due, in part, to the evolving nature of the market and the
relatively low barriers to entry. There can be no assurance that the Company
will be successful against such competition. See "Business -- Competition."
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CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND PROMOTERS
Upon completion of the Offering, the Company's directors, executive
officers and promoters will beneficially own approximately 50.5% of the
Company's outstanding shares of Common Stock (approximately 48.5% if the
Underwriters exercise their over-allotment option in full). If all of the
Additional Consideration is paid, then, assuming such payment had taken place
immediately upon the completion of the Offering, the Company's directors,
executive officers and promoters would have beneficially owned on such date
approximately 49.7% of the Company's outstanding shares of Common Stock
(approximately 47.9% if the Underwriters exercise their over-allotment option in
full). As a result, these stockholders, if they were to act together, would have
the ability as a practical matter to determine the outcome of corporate actions
requiring stockholder approval, including the election of directors and the
approval of significant corporate transactions, such as a merger or sale of
substantially all of the Company's assets, regardless of how other stockholders
of the Company may vote. This concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Management" and
"Principal Stockholders."
POSSIBLE FUTURE SALES OF SHARES
Sales of substantial amounts of Common Stock in the public market after the
Offering under Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), or otherwise, or the perception that such sales could occur,
may adversely affect prevailing market prices of the Common Stock and could
impair the future ability of the Company to raise capital through an offering of
its equity securities or to effect acquisitions using shares of its Common
Stock. The shares of Common Stock outstanding prior to the Offering and the
shares to be issued in the Combination will be "restricted securities" within
the meaning of Rule 144. Unless the resale of the shares is registered under the
Securities Act, these shares may not be sold in the open market until after the
first anniversary of the transaction in which they were acquired, and then only
in compliance with the applicable requirements of Rule 144. See "Shares Eligible
for Future Sale." Notwithstanding their right under the Securities Act to sell
shares pursuant to Rule 144, the stockholders of the Founding Companies and the
holders of PROVANT's Common Stock prior to the Combination and the Offering have
agreed with the Company to certain transfer restrictions for a two-year period
following the Offering on the Common Stock held by them as of the closing of the
Offering and on the Common Stock that may be purchased by them under options and
warrants outstanding as of the closing of the Offering. See "Certain
Transactions -- Organization of the Company" and "-- Other Transactions
Involving Officers and Directors."
The Company, the holders of all shares outstanding prior to the Offering
and substantially all of the stockholders of the Founding Companies have agreed
with the Representatives of the Underwriters not to sell or otherwise dispose of
any shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, for a period of 180 days after the date
of this Prospectus without the written consent of the Representatives, except
for: (i) in the case of the Company, the grant of options under the Company's
benefit plans or in connection with acquisitions and (ii) in the case of all
such holders, the exercise of stock options pursuant to benefit plans described
herein and shares of Common Stock disposed of as bona fide gifts, subject, in
each case, to any remaining portion of the 180-day period applying to any shares
so issued or transferred. See "Shares Eligible for Future Sale" and
"Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation requires that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. Special meetings of stockholders may be
called only by the Chairman of the Board or President of the Company or by the
Board of Directors. In addition, the Board of Directors has the authority,
without further action by the stockholders, to fix the rights and preferences
and issue up to 5,000,000 shares of Preferred Stock. These provisions and other
provisions of the Certificate of Incorporation and By-laws may have the effect
of deterring unsolicited acquisition proposals or hostile takeovers or delaying
or preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium over the
then current market price for their shares
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of Common Stock. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. The Company also is subject to Section 203 of the Delaware General
Corporation Law (the "DGCL"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder. See
"Description of Capital Stock."
NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or continue after the Offering. The initial public offering
price of the Common Stock will be determined by negotiations between the Company
and the Representatives of the Underwriters, and may not be indicative of the
market price for the Common Stock after the Offering. See "Underwriting" for a
description of the factors to be considered in determining the initial public
offering price. After the Offering, the market price of the Common Stock may be
subject to significant fluctuations in response to numerous factors, including
variations in the annual or quarterly financial results of the Company or its
competitors, changes by financial research analysts in their estimates of the
earnings of the Company or the failure of the Company to meet such estimates,
conditions in the economy in general or the training and development industry in
particular, or unfavorable publicity affecting the Company or the industry. The
equity markets have, on occasion, experienced significant price and volume
fluctuations that have affected the market prices for many companies' securities
and have been unrelated to the operating performance of those companies. Any
such fluctuations following completion of the Offering may adversely affect the
prevailing market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $11.00 per share, and may experience
further dilution in that value from issuances of Common Stock in connection with
future acquisitions. See "Dilution."
ABSENCE OF DIVIDENDS
PROVANT has never paid dividends on the Common Stock and does not
anticipate paying any dividends in the foreseeable future. Declarations of
dividends on the Common Stock will depend upon, among other things, future
earnings, if any, the operating and financial condition of the Company, its
capital requirements and general business conditions. The Company anticipates
that its proposed credit facility will prohibit dividend payments. See "Dividend
Policy."
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COMBINATION
PROVANT's objective is to become a leading provider of training and
development services and products. Although PROVANT has conducted no operations
to date, it has entered into agreements to acquire the Founding Companies
simultaneously with, and as a condition to, the consummation of the Offering.
For a description of the transactions pursuant to which the Founding Companies
will be acquired by PROVANT, see "Certain Transactions -- Organization of the
Company."
THE FOUNDING COMPANIES
The seven Founding Companies are recognized leaders in their respective
fields and have developed a broad array of services and products, a substantial
knowledge base created from years of research and development, and a
well-established client base. Set forth below is a brief description of each of
the Founding Companies.
Behavioral Technology, Inc.: Behavioral Technology, Inc. ("BTI") was
founded by Paul C. Green, Ph.D. in 1978. BTI helps clients improve employee
selection and provides managers with a methodology for assessing strengths and
weaknesses of current employees. BTI trains clients to use candidates' and
employees' past actions both as indicators of future performance and as a basis
for discussion regarding improvement in performance. BTI's training services are
delivered through instructor-led training and train-the-trainer programs. The
company's lead product, Behavioral Interviewing(R), accounted for approximately
90% of the company's revenue in fiscal 1997. Dr. Green is credited with
developing the concepts behind behavioral-based interviewing and is widely
acknowledged as a leader in the field. BTI's clients include Hewlett-Packard
Company, Federal Express and Royal Bank of Canada. BTI is headquartered in
Memphis, Tennessee. In its most recent fiscal year, BTI generated revenue of
approximately $7.1 million.
Decker Communications, Inc.: Decker Communications, Inc. ("Decker") was
founded by Bert Decker in 1979. Decker provides training to improve employees'
business communication skills and communications between management and
employees. Decker's services range from helping senior management to communicate
corporate change to working with employees to improve the effectiveness of their
communication skills. Decker's training services are delivered primarily through
instructor-led workshops, some of which are tailored to meet specific client
objectives. Decker's flagship program, Effective Communicating(TM), and its
custom versions of the same product, accounted for approximately 84% of the
company's revenue in fiscal 1997. Decker's clients include Bank of America,
Coopers & Lybrand L.L.P. and Hewlett-Packard Company. Decker is located in San
Francisco, California and has regional offices in New York, Los Angeles and
Chicago. In its most recent fiscal year, Decker generated revenue of
approximately $8.4 million.
J. Howard & Associates, Inc.: J. Howard & Associates, Inc. ("J. Howard")
was founded by Jeffrey P. Howard, Ph.D. in 1977. Marc S. Wallace joined the
company in 1983, and became its President in 1991. J. Howard assists clients in
identifying and addressing potential obstacles to improving workplace
productivity, including race and gender issues, sexual harassment and failure of
employees to take measured risks. J. Howard's training services are delivered
primarily through instructor-led seminars that incorporate small and large group
discussions and self-assessment and skills-building exercises. The company's
lead product, Managing Inclusion, which accounted for approximately 57% of the
company's revenue in its fiscal year ended December 31, 1996, is a two-day
program designed to help individual managers and client companies understand the
ways in which diversity in the work force contributes to the productivity of an
organization. Other related programs include Risk Taking for Professional
Development, Efficacy for Professionals of Color, Efficacy for Women and
Exploring Diversity. J. Howard's clients include Abbott Laboratories, Bank of
America and Northwest Airlines, Inc. J. Howard is located in Lexington,
Massachusetts. In its fiscal year ended December 31, 1997, J. Howard generated
revenue of approximately $7.7 million.
Learning Systems Sciences: Robert Steinmetz, Ph.D., and Associates, Inc.,
d/b/a Learning Systems Sciences ("LSS"), was founded in 1979 by Robert A.
Steinmetz, Ph.D. In 1990, John F. King joined the company as President and a 50%
stockholder. LSS designs custom training products primarily for retailers using
multimedia, computer-based formats. LSS's products are designed to facilitate
faster learning of customer interface devices and higher productivity of retail
associates. LSS's training products are delivered
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primarily through interactive multimedia software and distance-based media.
LSS's clients include Federated Department Stores, Inc., J.C. Penney Company,
Inc. and The Kroger Co. LSS is located in North Hollywood, California. In its
fiscal year ended December 31, 1997, LSS generated revenue of approximately $5.7
million.
MOHR Retail Learning Systems, Inc.: MOHR Retail Learning Systems, Inc.
("MOHR") was the retail training division of MOHR Development, Inc. ("MOHR
Development") from 1981 to 1991, when the division was purchased by Michael
Patrick and one of MOHR Development's founders, Herbert Cohen. MOHR's services
and products are designed to help clients in the retail industry improve
productivity by fostering a customer-oriented focus at the sales management and
sales associate levels. MOHR offers its services and products through
train-the-trainer seminars and by licensing its text-based and video-based
materials to its clients. MOHR's Retail Management Series III and Creating Loyal
Customers programs, which together accounted for more than 60% of the company's
revenue in fiscal 1997, utilize well-established learning designs, instructional
systems and feedback mechanisms to train clients' employees to provide superior
customer service. In addition, the company's Bottom-Line Buying Plus program
provides negotiation skills training for buyers at retail organizations. MOHR's
clients include Eckerd Corporation, Victoria's Secret Stores and The Sports
Authority, Inc. MOHR is headquartered in Ridgewood, New Jersey. In its most
recent fiscal year, MOHR generated revenue of approximately $3.0 million.
Novations Group, Inc.: Novations Group, Inc. ("Novations") was founded in
1986 by Norman Smallwood, Jonathan Younger, Joe Folkman and Randy Stott. Joe
Hanson joined the company in 1989 and became a Managing Director in 1997.
Novations assists clients in, among other things, clarifying and communicating
their business strategies and re-designing their organizations and business
processes. Novations also provides its clients with a variety of organizational
assessment tools that are designed to gather and analyze feedback on either an
organizational or individual basis and to initiate change in response to such
feedback. In its most recent fiscal year, approximately 60% of Novations'
revenue was derived from strategic consulting services provided to organizations
in industries such as the petrochemical, financial services, consumer products,
transportation and telecommunications industries. The balance of the company's
revenue resulted from sales to clients of organizational assessment tools
including the Organizational Analysis Survey, the Strategic Alignment Survey,
Total Quality Survey, Customer Service Survey and Leadership and Managerial
Profiles. Novations' clients include Eli Lilly and Company, Motorola, Inc. and
Yellow Corporation. Novations is headquartered in Provo, Utah, and has offices
in New York and Dallas. In its most recent fiscal year, Novations generated
revenue of approximately $9.0 million.
Star Mountain, Inc.: Star Mountain, Inc. (together with its subsidiaries,
"Star Mountain") was founded by A. Carl von Sternberg in 1987. Star Mountain's
core business consists of providing customized training services and products to
individuals within federal, state and local government entities and
corporations. In addition, Star Mountain provides a limited amount of computer
network design, sales, installation and support, and computer network security
research and development. Star Mountain delivers its training courseware to
clients in a variety of formats (including written materials and interactive
multimedia software), but typically does not directly train its clients.
Approximately 32% of Star Mountain's revenue in its fiscal year ended December
31, 1996 was derived from the United States Department of Defense, 43% from
other federal entities, 1% from state and local government entities, and the
remainder from corporations. In addition to the Department of Defense, Star
Mountain's largest government clients include the Internal Revenue Service and
the Immigration and Naturalization Service. Star Mountain is headquartered in
Alexandria, Virginia and has 17 branch offices located throughout the United
States. In its fiscal year ended December 31, 1997, Star Mountain generated
revenue of approximately $23.8 million. In addition, Star Mountain acquired
three businesses during 1997 that, had they been acquired on January 1, 1997,
would have contributed an additional $4.6 million to Star Mountain's revenue in
the 1997 calendar year.
MERGER CONSIDERATION
The aggregate consideration to be paid by PROVANT at the closing of the
Combination is $67.4 million, consisting of $22.4 million in cash (representing
approximately 85.3% of the net proceeds of the Offering) and 3,747,626 shares of
Common Stock (assuming an initial public offering price of $12.00 per share). If
the initial public offering price is other than $12.00 per share, the number of
shares issued to the former
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stockholders of the Founding Companies will be increased or decreased so that
such stockholders receive an aggregate of $45.0 million of Common Stock valued
at the initial public offering price. However, the total number of shares of
Common Stock outstanding following the Combination will not vary as a result of
an initial public offering price of other than $12.00 per share because the size
of the stock dividend that will be declared by PROVANT prior to the consummation
of the Combination will increase as the initial offering price increases and
decrease as the initial offering price decreases. As a result, upon the
consummation of the Combination (but without giving effect to the Offering),
there will be outstanding a total of 6,805,558 shares of Common Stock.
Each of the mergers in the Combination is conditioned upon the applicable
Founding Company meeting certain specified financial standards (which vary among
the Founding Companies) as of the closing, including a specified minimum net
worth. If a Founding Company's net worth as of the closing is higher than the
specified minimum, then the cash portion of the purchase price set forth above
will be increased by a dollar amount equal to the excess. If a Founding
Company's net worth as of the closing is lower than the specified minimum, then
all or a portion of the shortfall will be repaid to the Company by certain
stockholders of such Founding Company through an indemnification payment based
upon their percentage of stock ownership in the Founding Company. As of December
31, 1997, the Founding Companies had an aggregate net worth shortfall of $2.5
million.
In addition to the consideration described above, the former stockholders
of five of the Founding Companies will be eligible to receive up to an aggregate
of 1,050,000 additional shares of Common Stock (assuming an initial public
offering price of $12.00 per share) (the "Additional Consideration"), and the
former stockholders of a sixth Founding Company, J. Howard, will be eligible to
receive up to an aggregate of $4.3 million of Common Stock (the "J. Howard
Contingent Consideration"), if specified levels of earnings before interest and
taxes ("EBIT") are reached by their respective companies. Each merger agreement
with a Founding Company (other than Star Mountain) contains a targeted pro forma
EBIT amount for fiscal 1998 (fiscal 1999 in the case of J. Howard) in excess of
a baseline figure which, if achieved by the Founding Company, will result in the
payment by the Company to the former stockholders of the Founding Company of the
maximum Additional Consideration or J. Howard Contingent Consideration
(consisting of a multiple of the excess EBIT amount). To the extent the Founding
Company does not achieve the targeted amount, its former stockholders will
receive a lesser amount of Additional Consideration or J. Howard Contingent
Consideration proportionately related to the excess above the baseline figure.
Shares of Common Stock issued as Additional Consideration will be valued at the
initial public offering price, and shares issued as J. Howard Contingent
Consideration will be valued based on the average of the last sale prices of the
Common Stock on Nasdaq during the 20 business days immediately following
PROVANT's first public announcement of its financial results for fiscal 1999.
In the case of the seventh Founding Company, Star Mountain, PROVANT has
agreed to make a future payment in cash or shares of Common Stock based on Star
Mountain's EBIT for fiscal 1999 (the "Star Mountain Contingent Consideration").
In particular, if Star Mountain's EBIT for fiscal 1999 exceeds a specified base,
then (i) Star Mountain's former non-voting stockholders will receive cash equal
to a multiple of the excess EBIT and (ii) Star Mountain's former voting
stockholders will receive, at their election, either cash equal to a multiple of
the excess EBIT or a number of shares of Common Stock equal to a multiple of the
excess EBIT divided by 80% of the average of the last sale prices of the Common
Stock on Nasdaq during the month of July 1999.
In connection with the Combination, PROVANT will assume indebtedness of the
Founding Companies aggregating approximately $6.4 million as of December 31,
1997. The consideration to be paid by PROVANT for each Founding Company was
determined by arm's length negotiations between PROVANT and representatives of
each Founding Company and was based primarily on the pro forma EBIT of each
Founding Company. Additional Consideration paid for a Founding Company, the J.
Howard Contingent Consideration and the Star Mountain Contingent Consideration
represent, in effect, an upward adjustment in purchase price. For a more
detailed description of these transactions, see "Certain
Transactions -- Organization of the Company."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,600,000 shares of
Common Stock offered hereby (assuming an initial public offering price of $12.00
per share), after deducting the estimated underwriting discount and estimated
Offering expenses, are estimated to be approximately $26.3 million ($30.6
million if the Underwriters' over-allotment option is exercised in full). Of the
net proceeds, approximately $22.4 million will be used to pay the cash portion
of the purchase price for the Founding Companies. In addition, the Company
currently intends to use approximately $2.9 million of the net proceeds to repay
certain indebtedness of the Founding Companies assumed in connection with the
Combination (which indebtedness bears interest at a weighted average interest
rate of 9.0% and matures at various dates through February 2001). The Company
also intends to use $750,000 to pay a fee due upon the closing of the Offering
to a third party for information provided to PROVANT relating to the training
and development industry.
The Company intends to use approximately $953,000 to repay in part a note
payable of the Company to Paul M. Verrochi and Dominic J. Puopolo. See "Certain
Transactions -- Other Transactions; American Business Partners LLC." Of this
amount, approximately $800,000 is attributable to expenses relating to the
Offering. Pending the use of the net proceeds of the Offering for the purposes
described above, the Company will invest such proceeds in short-term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. Any future determination as to the payment of
dividends on the Common Stock will be at the discretion of the Board of
Directors and will depend upon, among other things, the Company's future
earnings, if any, the operating and financial condition of the Company, its
capital requirements, general business conditions and any other factors the
Board of Directors of the Company may consider. In addition, the Company's
proposed credit facility includes restrictions on the Company's ability to pay
dividends without the consent of the lender.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the short-term debt, including the current
maturities of long-term debt, and capitalization of the Company at December 31,
1997: (i) on a pro forma combined basis to give effect to the Combination, the
increase in the Company's authorized shares of Common Stock, the authorization
of a class of preferred stock and the declaration of a stock dividend; and (ii)
as further adjusted to give effect to the issuance of the 2,600,000 shares of
Common Stock offered hereby and the application of the estimated net proceeds.
See "Use of Proceeds." This table should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements of the Company and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
PRO FORMA
COMBINED (1) AS ADJUSTED
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities of long-term
debt (2).................................................. $ 5,096 $ 2,196
======= =======
Long-term debt, less current maturities (2)................. $ 1,276 $ 1,276
Notes payable to stockholders (3)........................... $23,184 $ --
Stockholders' Equity:
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized, none issued or outstanding, pro forma and
as adjusted............................................ -- --
Common Stock, $0.01 par value; 40,000,000 shares
authorized, 6,805,558 shares issued and outstanding,
pro forma; and 9,405,558 shares issued and outstanding,
as adjusted (4)........................................ 68 94
Additional paid-in capital................................ 36,618 62,858
Retained earnings (deficit)............................... (1,296) (2,249)
------- -------
Total stockholders' equity............................. 35,390 60,703
------- -------
Total capitalization.............................. $59,850 $61,979
======= =======
</TABLE>
- ---------------
(1) Combines the respective accounts of PROVANT and the Founding Companies at
December 31, 1997 and gives effect to the reclassification of the Founding
Companies' common stock as additional paid-in capital.
(2) For a description of the Company's debt, see the notes to the financial
statements of each of the Founding Companies.
(3) Consists of $22.4 million to be paid to the stockholders of the Founding
Companies in the Combination and approximately $768,000 (net of discount of
approximately $203,000) due under a note to Paul M. Verrochi and Dominic J.
Puopolo. See "Certain Transactions."
(4) Excludes: (i) up to an aggregate of 1,050,000 shares of Common Stock
(assuming an initial public offering price of $12.00 per share) that may be
issued as Additional Consideration to the former stockholders of five of the
Founding Companies as well as shares of Common Stock that may be issued as
J. Howard Contingent Consideration and Star Mountain Contingent
Consideration; (ii) 1,100,000 shares of Common Stock reserved for issuance
under the Company's 1998 Equity Incentive Plan (of which options to purchase
898,834 shares will be outstanding upon the consummation of the Offering at
an exercise price per share equal to the initial public offering price);
(iii) 100,000 shares of Common Stock reserved for issuance under the
Company's Stock Plan for Non-Employee Directors (of which options to
purchase 15,000 shares will be outstanding upon the consummation of the
Offering at an exercise price per share equal to the initial public offering
price); (iv) 500,000 shares of Common Stock reserved for issuance under the
Company's 1998 Employee Stock Purchase Plan; (v) 10,000 shares of Common
Stock reserved for issuance upon the exercise of an outstanding option
having an exercise price of $5.00 per share; and (vi) an aggregate of
846,498 shares of Common Stock reserved for issuance upon the exercise of
warrants granted to certain of the Company's executive officers, as more
fully described under "Certain Transactions -- Other Transactions; American
Business Partners LLC."
19
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company as of December 31,
1997 was approximately $(15.9) million, or $(2.34) per share. Net tangible book
value per share represents the book value of the Company's pro forma net
tangible assets less total liabilities divided by the number of shares of Common
Stock outstanding (after giving effect to the Combination). After giving effect
to the sale by the Company of 2,600,000 shares of Common Stock in the Offering
(after deducting the estimated underwriting discount and estimated Offering
expenses) and the application of the net proceeds therefrom, the pro forma net
tangible book value at December 31, 1997 would have been approximately $9.4
million, or $1.00 per share. This represents an immediate increase in pro forma
net tangible book value per share of $3.34 to stockholders as of December 31,
1997, and an immediate dilution in pro forma net tangible book value per share
of $11.00 to new investors purchasing shares of Common Stock in the Offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $12.00
------
Pro forma net tangible book value per share before
Offering............................................... $(2.34)
Increase in pro forma net tangible book value per share
attributable to new investors............................. 3.34
------
Pro forma net tangible book value per share after
Offering............................................... 1.00
------
Dilution per share to new investors....................... $11.00
======
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Combination, the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid by the
Company's existing stockholders and by investors purchasing shares of Common
Stock offered hereby:
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
--------------------- TOTAL PRICE
NUMBER PERCENT CONSIDERATION (1) PER SHARE
---------- ------- ----------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders....... 6,805,558 72.4% $(15,896,000) $(2.34)
New investors............... 2,600,000 27.6 31,200,000 12.00
---------- ----- ------------
Total............. 9,405,558 100.0% $ 15,304,000
========== ===== ============
</TABLE>
- ---------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before the Offering, adjusted
to reflect: (i) the cash portion of the consideration payable to the
stockholders of the Founding Companies in connection with the Combination;
and (ii) the payment of distributions estimated at approximately $560,000
which certain of the Founding Companies are expected to make to their
stockholders prior to the closing of the Combination. See "Use of Proceeds"
and "Capitalization."
20
<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PROVANT will acquire the Founding Companies simultaneously with and as a
condition to the consummation of the Offering. For financial reporting purposes,
PROVANT has been designated as the accounting acquiror. To date, PROVANT has
conducted operations only in connection with the Combination and the Offering.
As a result, PROVANT has generated no revenue. The following data presents
selected historical financial data for PROVANT as well as selected unaudited pro
forma combined financial data for the Company that is adjusted for: (i) the
consummation of the Combination; (ii) certain pro forma adjustments to the
historical financial statements of the Founding Companies; and (iii) the
consummation of the Offering and the application of the net proceeds. See
PROVANT's financial statements, the Company's Unaudited Pro Forma Combined
Financial Statements, each of the Founding Companies' financial statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PROVANT HISTORICAL PRO FORMA COMBINED (1)
--------------------------------------- ------------------------------
PERIOD FROM SIX MONTHS
NOVEMBER 16, 1996 ENDED
(DATE OF INCEPTION) SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
TO JUNE 30, 1997 DECEMBER 31, 1997 JUNE 30, 1997 1997
------------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ -- $ -- $68,846 $35,958
Cost of revenue.................. -- -- 30,967 15,948
-------------- -------------- ---------- -----------
Gross profit..................... -- -- 37,879 20,010
Selling, general and
administrative expenses (2)... 149 1,099 28,663 16,327
Goodwill amortization (3)........ -- -- 1,282 641
-------------- -------------- ---------- -----------
Income (loss) from operations.... (149) (1,099) 7,934 3,042
Interest and other income
(expense), net................ -- (48) (73) (50)
-------------- -------------- ---------- -----------
Income (loss) before provision
for income taxes.............. (149) (1,147) 7,861 2,992
Provision for income taxes (4)... -- -- 3,763 1,991
-------------- -------------- ---------- -----------
Net income (loss)................ $ (149) $ (1,147) $ 4,098 $ 1,001
============== ============== ========== ===========
Net income (loss) per share...... $(74.79) $(376.65) $ 0.50 $ 0.11
============== ============== ========== ===========
Shares used in computing net
income per share (5).......... 1,992.3 3,045.3 8,130,104 9,072,206
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL COMBINED (6) AS ADJUSTED (7)
------- ------------ ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (8)................................... $(1,535) $(19,564) $ 6,549
Total assets.......................................... 951 76,654 75,883
Long-term debt, net of current maturities............. -- 1,276 1,276
Stockholders' equity (deficit)........................ (587) 35,390 60,703
</TABLE>
- ---------------
(1) The pro forma combined statement of operations data assumes that the
Combination and the Offering were consummated on July 1, 1996, and is not
necessarily indicative of the results the Company would have obtained if
these events actually then occurred or of the Company's future results. The
pro forma combined statement of operations data is based on preliminary
estimates, available information and assumptions that management deems
appropriate, and should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus.
(2) Reflects in the pro forma data adjustments to salary, bonuses and benefits
paid to certain of the owners of the Founding Companies for the Compensation
Differential, which for the year ended June 30, 1997 and the six months
ended December 31, 1997 was approximately $5.6 million and $4.1 million,
respectively. Includes for the six months
21
<PAGE> 23
ended December 31, 1997 approximately $485,000 of non-cash compensation
expense related to the issuance of Common Stock to officers of and
consultants to the Company.
(3) Reflects in the pro forma data amortization of the goodwill to be recorded
as a result of the Combination over a 40-year period and computed on the
basis described in the Notes to the Unaudited Pro Forma Combined Financial
Statements.
(4) Assumes in the pro forma data that all income is subject to an effective
corporate income tax rate of 40%, and all goodwill from the Combination is
non-deductible.
(5) Assumes in the pro forma data an initial public offering price of $12.00 per
share. Consists of: (i) 3,747,626 shares to be issued to the stockholders of
the Founding Companies (without giving effect to the issuance of Additional
Consideration, the J. Howard Contingent Consideration or the Star Mountain
Contingent Consideration); (ii) the weighted average shares outstanding,
after giving effect to a stock split to be effective prior to the
consummation of the Offering, of 1,782,478 shares during the period ended
June 30, 1997 and 2,724,580 shares during the period ended December 31,
1997; and (iii) 2,600,000 shares to be sold in the Offering.
(6) The pro forma combined balance sheet data assumes that the Combination was
consummated on December 31, 1997. The pro forma combined balance sheet data
is based upon preliminary estimates, available information and assumptions
that management deems appropriate and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
(7) Adjusted for the sale of 2,600,000 shares of Common Stock offered hereby
(assuming an initial public offering price of $12.00 per share) and the
application of the net proceeds therefrom as described under "Use of
Proceeds."
(8) The pro forma combined data gives effect to $22.4 million representing the
cash portion of the consideration for the Combination to be paid from a
portion of the net proceeds of the Offering.
22
<PAGE> 24
STAR MOUNTAIN SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PROVANT reports operating results commencing with its inception on November
16, 1996. For the purpose of providing five full years of selected historical
financial data, as required under the Securities Act, the following historical
selected financial data for Star Mountain is presented. The selected data for
the years ended December 31, 1995, 1996 and 1997 are derived from, and should be
read in conjunction with, Star Mountain's audited financial statements (and the
notes thereto) appearing elsewhere in this Prospectus. The selected data for the
years ended December 31, 1993 and 1994 are derived from Star Mountain's audited
financial statements for those years. The data presented below is neither
comparable to nor indicative of the Company's post-Combination financial
position or results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................... $8,293 $9,731 $14,306 $16,313 $23,775
Cost of revenue.................................. 5,418 6,350 8,668 9,457 14,504
------ ------ ------- ------- -------
Gross profit..................................... 2,875 3,381 5,638 6,856 9,271
Selling, general and administrative expenses..... 2,619 2,973 4,411 5,476 7,591
------ ------ ------- ------- -------
Income from operations........................... 256 408 1,227 1,380 1,680
Interest and other income (expense), net (150) (194) (235) (379) (406)
------ ------ ------- ------- -------
Income before provision for income taxes......... 106 214 992 1,001 1,274
Provision for income taxes(1).................... -- -- -- 397 546
------ ------ ------- ------- -------
Net income....................................... $ 106 $ 214 $ 992 $ 604 $ 728
====== ====== ======= ======= =======
Weighted average shares outstanding.............. 8,443 8,821 8,825 8,422 8,078
Weighted average shares and potentially dilutive
shares outstanding............................ 9,271 9,058 8,963 8,565 8,823
Basic income per share........................... $ 0.01 $ 0.02 $ 0.11 $ 0.07 $ 0.09
====== ====== ======= ======= =======
Diluted income per share......................... $ 0.01 $ 0.02 $ 0.11 $ 0.07 $ 0.08
====== ====== ======= ======= =======
BALANCE SHEET DATA:
Working capital.................................. $ 583 $ 847 $ 942 $ 871 $ 64
Total assets..................................... 3,231 3,507 4,775 5,983 10,677
Long term debt, net of current maturities........ -- -- -- -- 304
Stockholders' equity............................. 1,021 1,274 1,859 2,010 2,778
</TABLE>
- ---------------
(1) Through December 31, 1995, Star Mountain had elected to be treated as an S
corporation and, accordingly, there was no provision for income taxes for
periods ending on or prior to that date.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated or the context otherwise requires in this
section, each reference to a year is to the Company's or a Founding Company's
fiscal year which (with the exception of J. Howard, LSS and Star Mountain) ends
on June 30 of the same calendar year (e.g., "1997" means the fiscal year ended
June 30, 1997). The following discussion should be read in conjunction with the
Company's Unaudited Pro Forma Combined Financial Statements and the Founding
Companies' Financial Statements and the related notes thereto appearing
elsewhere in this Prospectus.
INTRODUCTION
The Company provides a broad range of training and development services and
products to Fortune 1000 companies, other large and medium-sized corporations
and government entities. The Company's services and products are designed to
increase the productivity of organizations by improving employee selection,
recruitment and retention; enhancing employee work skills; developing employee
management and leadership skills; and facilitating organizational assessment,
direction and change. The Company offers both customized and off-the-shelf
services and products that are designed to provide measurable improvements in
employee performance and productivity. The Company delivers its services and
products through multiple delivery methods, including instructor-led and
train-the-trainer seminars, interactive multimedia software (such as CD-ROM) and
distance-based media (such as video conferencing, intranets and the Internet).
See "Business -- Delivery Methods."
The Company receives revenue from five main areas: (i) instructor-led and
train-the-trainer seminars; (ii) license fees; (iii) custom services and
products; (iv) consulting services; and (v) off-the-shelf products. The Company
recognizes revenue from instructor-led training and train-the-trainer seminars,
usually on a participant basis, when the training is delivered. From its
train-the-trainer arrangements, the Company also recognizes license fees on a
per-participant basis when a certified client trainer delivers the Company's
courses and materials to other employees of the client. The Company recognizes
revenue from a site license at the time the license is granted. The Company
generally recognizes revenue from its custom services and products based on the
percentage-of-completion method. The Company recognizes revenue from fees for
its consulting services, for which it charges an hourly or per diem rate, when
the consulting is provided. The Company also recognizes revenue for its
off-the-shelf products, such as books or videotapes, when the products are
delivered.
Cost of revenue primarily consists of: (i) salaries and benefits for the
Company's instructors, consultants and course designers and costs of independent
contractors; and (ii) the cost of developing, designing and producing training
courses and materials, including materials costs. As a result, the Company's
gross margins are affected by the number of instructors, consultants and course
designers and the utilization of such employees during any given period.
Selling, general and administrative expenses consist primarily of salaries,
benefits and bonuses for the Company's corporate, sales, marketing and
administrative personnel, and marketing and advertising expenses for the
Company's services and products. Selling, general and administrative expenses
also include incentive and discretionary bonuses paid to owners and other key
employees. Other selling, general and administrative expenses include travel
expenses, rent, depreciation, telecommunication costs, postage and other
operating costs.
The Founding Companies have operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
varying tax structures (S corporations or C corporations) which have influenced
the historical level of owners' compensation. The owners and key employees of
the Founding Companies have agreed to certain adjustments in their annual
historical salaries, bonuses and benefits in connection with the Combination.
The difference (positive or negative) between the base salary of the owners and
key employees of the Founding Companies immediately after the Combination and
their salaries, bonuses and benefits during any comparable period is referred to
as the "Compensation Differential." The aggregate Compensation Differentials for
1995, 1996 and 1997 and for the six months ended December 31, 1996 and 1997 were
$1.8 million, $3.9 million, $5.6 million, $3.7 million and $4.1 million,
respectively, and have been reflected as a pro forma adjustment in the Unaudited
Pro Forma Combined
24
<PAGE> 26
Statements of Operations. The Unaudited Pro Forma Combined Statements of
Operations include a provision for income tax as if the Company was taxed as a C
corporation.
Following the Combination, the Company expects to realize certain savings
as a result of: (i) consolidation of certain expenses, such as travel and
lodging, advertising, employee benefits, communications, insurance and other
general and administrative expenses; and (ii) the Company's ability to borrow at
lower interest rates than most of the Founding Companies. The Company cannot
quantify these savings until the completion of the Combination. It is
anticipated that these savings will be offset partially by the costs of being a
publicly held company and the incremental increase in costs related to the
Company's new management. However, these costs, like the savings that they
offset, cannot be quantified accurately. Neither the anticipated savings nor the
anticipated costs have been included in the pro forma financial information of
the Company.
In July 1996, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 97 ("SAB 97"), relating to business combinations
immediately prior to an initial public offering, which required that business
combinations like the Combination be accounted for using the purchase method of
acquisition accounting. Under the purchase method, PROVANT has been designated
as the accounting acquiror. Approximately $51.3 million, representing the excess
of the fair value of the consideration received in the Combination over the fair
value of the net assets to be acquired, will be recorded as goodwill on the
Company's balance sheet. Goodwill will be amortized as a non-cash charge to the
Company's income statement over a 40-year period. The pro forma impact of this
amortization expense is approximately $1.3 million per year. The amount
amortized, however, will not be deductible for tax purposes. See "Certain
Transactions -- Organization of the Company."
RESULTS OF OPERATIONS -- COMBINED
The summary combined statement of operations data for 1995, 1996 and 1997
and the six months ended December 31, 1996 and 1997 set forth in the table below
do not purport to present the combined Founding Companies and PROVANT in
accordance with generally accepted accounting principles, but represent merely a
summation of the data of the individual Founding Companies and PROVANT on a
historical basis and do not include the effects of pro forma adjustments. This
data will not be comparable to and may not be indicative of the Company's
post-Combination results of operations because (i) the Founding Companies
historically were not under common control or management and had different tax
structures during the periods presented; (ii) the Company used the purchase
method of accounting to reflect the Combination, resulting in the recording of
goodwill which will be amortized over 40 years; (iii) the Company will incur
incremental costs related to its new corporate management and the costs of being
a public company; and (iv) the combined data does not reflect potential benefits
and cost savings the Company expects to realize when operating as a combined
entity.
25
<PAGE> 27
The following table sets forth certain unaudited combined statement of
operations data of the Founding Companies and PROVANT on a historical basis and
as a percentage of revenue and excludes the effects of pro forma adjustments for
the periods indicated. Three of the Founding Companies, J. Howard, LSS and Star
Mountain, historically operated with fiscal years ending on dates other than
June 30. For purposes of the table below, their operating results have been
recast to reflect a June 30 fiscal year end, although they have been derived
from financial statements prepared on the same basis as the audited financial
statements. As a result of this presentation, the operating results for these
three companies do not conform with their audited financial statements contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
----------------------------------------------------- ----------------------------------
1995 (1) 1996 1997 1996 1997
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $41,289 100.0% $51,497 100.0% $61,245 100.0% $28,563 100.0% $34,539 100.0%
Cost of revenue...... 17,770 43.0 22,205 43.1 26,117 42.6 12,115 42.4 14,892 43.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit......... 23,519 57.0 29,292 56.9 35,128 57.4 16,448 57.6 19,647 56.9
Selling, general and
administrative
expenses........... 20,508 49.7 26,953 52.3 31,443 51.3 16,883 59.1 20,075 58.1
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) from
operations......... $ 3,011 7.3% $ 2,339 4.6% $ 3,685 6.0% $ (435) (1.5)% $ (428) (1.2)%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Compensation
differential....... $ 1,760 4.3% $ 3,878 7.5% $ 5,607 9.2% $ 4,497 15.7% $ 4,100 11.9%
</TABLE>
- ---------------
(1) Includes 1995 data for LSS for the 12 months ended August 31, 1995.
COMBINED RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 (THE "1998 PERIOD")
COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 1996 (THE "1997 PERIOD")
Revenue. Revenue increased $6.0 million, or 20.9%, from $28.6 million in
the 1997 Period to $34.5 million in the 1998 Period. This increase primarily was
attributable to an increased number of government contracts and acquired
businesses at Star Mountain and an increase in the number of seminars delivered
by Decker.
Cost of Revenue. Cost of revenue increased $2.8 million, or 22.9%, from
$12.1 million in the 1997 Period to $14.9 million in the 1998 Period. As a
percentage of revenue, cost of revenue increased from 42.4% in the 1997 Period
to 43.1% in the 1998 Period, primarily due to the increased use of
subcontractors at Star Mountain and increased video production costs at LSS.
Gross Profit. Gross profit increased $3.2 million, or 19.4%, from $16.4
million in the 1997 Period to $19.6 million in the 1998 Period. As a percentage
of revenue, gross profit decreased from 57.6% in the 1997 Period to 56.9% in the
1998 Period, primarily due to the increased costs described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.2 million, or 18.9%, from $16.9 million in
the 1997 Period to $20.1 million in the 1998 Period. Excluding the Compensation
Differential of $4.5 million and $4.1 million in the 1997 Period and the 1998
Period, respectively, selling, general and administrative expenses would have
increased $3.6 million, or 29.0%, from $12.4 million in the 1997 Period to $16.0
million in the 1998 Period. As a percentage of revenue, selling, general and
administrative expenses would have increased on an adjusted basis from 43.4% in
the 1997 Period to 46.3% in the 1998 Period. The increase as a percentage of
revenue on an adjusted basis was primarily due to an increase in operating
expenses associated with PROVANT of $1.1 million.
COMBINED RESULTS FOR 1997 COMPARED TO 1996
Revenue. Revenue increased $9.7 million, or 18.9%, from $51.5 million in
1996 to $61.2 million in 1997. This increase primarily was attributable to
increased revenues from acquired businesses at Star Mountain and expanded sales
forces at BTI, LSS and MOHR.
Cost of Revenue. Cost of revenue increased $3.9 million, or 17.6%, from
$22.2 million in 1996 to $26.1 million in 1997. As a percentage of revenue, cost
of revenue decreased from 43.1% in 1996 to 42.6% in 1997, primarily due to a
decrease in the unit cost of participant materials at BTI, a reduction in the
number of
26
<PAGE> 28
trainers and improved utilization of trainers at Decker, and an increase in
repeat or follow-on engagements (which generally are less costly) at LSS.
Gross Profit. Gross profit increased $5.8 million, or 19.9%, from $29.3 in
1996 to $35.1 million in 1997. As a percentage of revenue, gross profit
increased slightly from 56.9% in 1996 to 57.4% in 1997, primarily due to a
decrease in the unit cost of participant materials at BTI, a reduction in the
number of trainers and improved utilization of trainers at Decker, and an
increase in repeat or follow-on engagements (which generally are less costly) at
LSS.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.5 million, or 16.7%, from $26.9 million in
1996 to $31.4 million in 1997. Excluding the Compensation Differential of $3.9
million and $5.6 million in 1996 and 1997, respectively, selling, general and
administrative expenses would have increased $2.8 million, or 12.0%, from $23.1
million in 1996 to $25.8 million in 1997. As a percentage of revenue, selling,
general and administrative expenses would have decreased on an adjusted basis
from 44.8% in 1996 to 42.2 % in 1997. The decrease as a percentage of revenue on
an adjusted basis was primarily due to the larger aggregate revenue base.
COMBINED RESULTS FOR 1996 COMPARED TO 1995
Revenue. Revenue increased $10.2 million, or 24.7%, from $41.3 million in
1995 to $51.5 million in 1996. This increase primarily was attributable to
increased revenues from acquired businesses at Star Mountain, an increase in the
number of client engagements at J. Howard, an expansion of the sales force at
BTI and the introduction of new services and the hiring of additional
consultants at Novations.
Cost of Revenue. Cost of revenue increased $4.4 million, or 25.0%, from
$17.8 million in 1995 to $22.2 million in 1996. As a percentage of revenue, cost
of revenue increased slightly from 43.0% in 1995 to 43.1% in 1996, primarily due
to higher salaries paid to trainers at Decker and increased production and
delivery costs at MOHR and LSS.
Gross Profit. Gross profit increased $5.8 million, or 24.5%, from $23.5
million in 1995 to $29.3 million in 1996. As a percentage of revenue, gross
profit decreased slightly from 57.0% in 1995 to 56.9% in 1996, primarily due to
the increases in the costs of revenue at Decker, MOHR and LSS described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $6.4 million, or 31.4%, from $20.5 million in
1995 to $27.0 million in 1996. Excluding the Compensation Differential of $1.8
million and $3.9 million in 1995 and 1996, respectively, selling, general and
administrative expenses would have increased $4.3 million, or 23.1%, from $18.7
million in 1995 to $23.1 million in 1996. As a percentage of revenue, selling,
general and administrative expenses would have decreased on an adjusted basis
from 45.4% in 1995 to 44.8 % in 1996. The decrease as a percentage of revenue on
an adjusted basis was primarily due to the larger aggregate revenue base.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company has received a commitment letter from a bank for a revolving
credit facility, the material terms of which are summarized as follows. The
facility will provide the Company with a revolving line of credit of up to $40.0
million, guaranteed by all of the Company's wholly-owned operating subsidiaries
and secured by a pledge of the capital stock of the Company's significant
wholly-owned operating subsidiaries. The credit facility may be used for
refinancing of existing indebtedness, post-Offering acquisitions and working
capital. Loans made under the credit facility will bear interest, at the
Company's option, at a rate based on either a LIBOR rate or the bank's prime
rate. In addition, a commitment fee will be payable on the unused portion of the
revolving line of credit at a rate of between 0.15% and 0.375% depending on the
ratio of the Company's debt to earnings before interest, taxes, depreciation and
amortization. The credit facility will terminate three years following the
closing of the Offering, and all amounts outstanding thereunder (if any) will be
due at such time. The credit facility (i) will prohibit the payment of dividends
and other distributions by the Company, (ii) generally will not permit the
Company to incur or assume other indebtedness, and (iii) will require the
Company to comply with certain financial covenants. The ability of the Company
to obtain the credit facility is subject to the completion of negotiations with
the bank as well as the satisfaction of certain
27
<PAGE> 29
conditions, including the closing of the Offering and the execution of
appropriate loan documentation. In the event that the Company is unable to
obtain the credit facility, the Company believes that sufficient alternative
sources of financing will be available on reasonable terms.
After the consummation of the Combination and the Offering, the Company
will have approximately $1.4 million in cash and approximately $3.5 million of
indebtedness outstanding. The Company anticipates that its cash flow from
operations and borrowings under the credit facility will provide cash sufficient
to satisfy the Company's working capital needs, debt service requirements and
planned capital expenditures for the next 12 months. The Company made capital
expenditures of approximately $903,000 in 1997 and approximately $699,000 in the
six months ended December 31, 1997 and currently intends to make capital
expenditures aggregating $1.5 million in 1998, principally for information
systems, facilities, furnishings and equipment. After the Combination, the
Company intends to study the feasibility of upgrading and integrating certain
systems of the Founding Companies. Consequently, the Company has not yet
established its capital needs for such integration and upgrades. The Company has
assessed its various information and technology systems and does not believe
that it will be required to incur significant costs to correct any Year 2000
deficiencies. To the extent that the Company is incorrect in this assessment and
significant costs will be incurred, the Company's business, financial condition
and results of operations could be materially adversely affected.
The Company intends to pursue selected acquisition opportunities. The
timing, size or success of any acquisition and the associated potential capital
commitments are unpredictable. The Company expects to fund future acquisitions
primarily through a combination of cash flow from operations and borrowings, as
well as issuances of additional equity. The Company plans to register an
additional 3,000,000 shares of its Common Stock under the Securities Act after
completion of the Offering for use as consideration for future acquisitions.
RESULTS OF OPERATIONS -- BTI
BTI primarily provides train-the-trainer programs designed to help its
clients improve employee selection and to provide managers with a methodology
for assessing strengths and weaknesses of current employees. BTI's revenue is
derived primarily from the licensing to clients of the right to use its training
materials.
The following table sets forth certain selected financial data for BTI on a
historical basis and as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
-------------------------------------------------- ---------------------------------
1995 1996 1997 1996 1997
-------------- -------------- -------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................ $3,803 100.0% $5,685 100.0% $7,096 100.0% $3,439 100.0% $ 3,850 100.0%
Cost of revenue........ 1,049 27.6 1,495 26.3 1,488 21.0 879 25.6 775 20.1
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Gross profit........... 2,754 72.4 4,190 73.7 5,608 79.0 2,560 74.4 3,075 79.9
Selling, general and
administrative
expenses............. 2,315 60.9 4,048 71.2 5,111 72.0 3,216 93.5 4,406 114.4
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Income (loss) from
operations........... $ 439 11.5% $ 142 2.5% $ 497 7.0% $ (656) (19.1)% $(1,331) (34.5)%
====== ===== ====== ===== ====== ===== ====== ===== ======= =====
Compensation
differential......... $ (89) (2.3)% $ 563 9.9% $ 942 13.3% $1,002 29.1% $ 2,383 61.9%
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1997 (THE "1998 PERIOD") COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1996 (THE "1997 PERIOD") -- BTI
Revenue. Revenue increased approximately $411,000, or 12.0%, from $3.4
million in the 1997 Period to $3.9 million in the 1998 Period, primarily due to
increased sales of existing products as a result of the expansion of the sales
force and an increase in participant fees as a result of an increased base of
certified trainers at the company's clients.
Cost of Revenue. Cost of revenue decreased approximately $104,000, or
11.8%, from approximately $879,000 in the 1997 Period to approximately $775,000
in the 1998 Period. As a percentage of revenue, cost of
28
<PAGE> 30
revenue decreased from 25.6% in the 1997 Period to 20.1% in the 1998 Period,
primarily due to a decrease in the average unit cost of participant materials.
Gross Profit. Gross profit increased approximately $515,000, or 20.1%,
from $2.6 million in the 1997 Period to $3.1 million in the 1998 Period. As a
percentage of revenue, gross profit increased from 74.4% in the 1997 Period to
79.9% in the 1998 Period, primarily due to the cost savings described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.2 million, or 37.0%, from $3.2 million in
the 1997 Period to $4.4 million in the 1998 Period. Excluding the Compensation
Differential attributable to BTI of $1.0 million and $2.4 million in the 1997
Period and 1998 Period, respectively, selling, general and administrative
expenses would have decreased approximately $191,000, or 8.6%, from $2.2 million
in the 1997 Period to $2.0 million in the 1998 Period. As a percentage of
revenue, selling, general and administrative expenses would have decreased on an
adjusted basis from 64.4% in the 1997 Period to 52.5% in the 1998 Period,
primarily due to the company's larger revenue base.
RESULTS FOR 1997 COMPARED TO 1996 -- BTI
Revenue. Revenue increased $1.4 million, or 24.8%, from $5.7 million in
1996 to $7.1 million in 1997, primarily due to increased sales of existing
products as a result of the expansion of the sales force and an increase in
participant fees as a result of an increased base of certified trainers at the
company's clients.
Cost of Revenue. Cost of revenue remained relatively constant at $1.5
million in 1996 and 1997. As a percentage of revenue, cost of revenue decreased
from 26.3% in 1996 to 21.0% in 1997, primarily due to a decrease in the average
unit cost of participant materials.
Gross Profit. Gross profit increased $1.4 million, or 33.8%, from $4.2
million in 1996 to $5.6 million in 1997. As a percentage of revenue, gross
profit increased from 73.7% in 1996 to 79.0% in 1997, primarily due to the
increase in revenue combined with the decrease in the average unit cost of
participant materials.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.1 million, or 26.3%, from $4.0 million in
1996 to $5.1 million in 1997. Excluding the Compensation Differential
attributable to BTI of approximately $563,000 and approximately $942,000 in 1996
and 1997, respectively, selling, general and administrative expenses would have
increased approximately $684,000, or 19.6%, from $3.5 million in 1996 to $4.2
million in 1997. As a percentage of revenue, selling, general and administrative
expenses would have decreased on an adjusted basis from 61.3% in 1996 to 58.8%
in 1997. The decrease as a percentage of revenue on an adjusted basis primarily
was due to the company's larger revenue base.
RESULTS FOR 1996 COMPARED TO 1995 -- BTI
Revenue. Revenue increased $1.9 million, or 49.5%, from $3.8 million in
1995 to $5.7 million in 1996, primarily due to increased sales of existing
products as a result of the expansion of the sales force and an increase in
participant fees as a result of an increased base of certified trainers at the
company's clients.
Cost of Revenue. Cost of revenue increased approximately $446,000, or
42.5%, from $1.0 million in 1995 to $1.5 million in 1996. As a percentage of
revenue, cost of revenue decreased slightly from 27.6% in 1995 to 26.3% in 1996.
Gross Profit. Gross profit increased $1.4 million, or 52.1%, from $2.8
million in 1995 to $4.2 million in 1996. As a percentage of revenue, gross
profit increased from 72.4% in 1995 to 73.7% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 74.9%, from $2.3 million in
1995 to $4.0 million in 1996. Excluding the Compensation Differential
attributable to BTI of approximately $(89,000) and approximately $563,000 in
1995 and 1996, selling, general and administrative expenses would have increased
$1.1 million, or 45.0%, from $2.4 million in 1995 to $3.5 million in 1996. As a
percentage of revenue, selling, general and administrative expenses would have
decreased slightly on an adjusted basis from 63.2% in 1995 to 61.3% in 1996.
29
<PAGE> 31
LIQUIDITY AND CAPITAL RESOURCES -- BTI
BTI generated net cash from operating activities of approximately $641,000
in 1997. In the 1998 Period, BTI used $1.2 million in operating activities,
primarily for the payment of bonuses to key employees. Net cash used in
investing activities was approximately $33,000 in 1997 and approximately $61,000
in the 1998 Period for purchases of property and equipment. At December 31,
1997, BTI had working capital of approximately $456,000.
RESULTS OF OPERATIONS -- DECKER
Decker provides instructor-led training to businesses to improve employees'
business communication skills and communications between management and
employees. Decker's revenue is derived primarily from fees charged to
participants in its instructor-led training programs.
The following table sets forth certain selected financial data for Decker
on a historical basis and as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
-------------------------------------------------- --------------------------------
1995 1996 1997 1996 1997
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $8,550 100.0% $8,620 100.0% $8,410 100.0% $4,047 100.0% $5,160 100.0%
Cost of revenue......... 2,419 28.3 2,655 30.8 2,275 27.1 1,166 28.8 1,340 26.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit............ 6,131 71.7 5,965 69.2 6,135 72.9 2,881 71.2 3,820 74.0
Selling, general and
administrative
expenses.............. 5,670 66.3 5,716 66.3 6,446 76.6 3,406 84.2 3,414 66.1
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income (loss) from
operations............ $ 461 5.4% $ 249 2.9% $ (311) (3.7)% $ (525) (13.0)% $ 406 7.9%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Compensation
differential.......... $ 192 2.2% $ 192 2.2% $1,165 13.9% $ 945 23.4% $ 220 4.3%
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1997 (THE "1998 PERIOD") COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1996 (THE "1997 PERIOD") -- DECKER
Revenue. Revenue increased $1.1 million, or 27.5%, from $4.0 million in
the 1997 Period to $5.2 million in the 1998 Period, primarily due to an increase
in the sales force and organizational initiatives undertaken in 1997 as
described below, which resulted in an increase in the number of seminars
delivered during the 1998 Period compared to the 1997 Period.
Cost of Revenue. Cost of revenue increased approximately $174,000, or
14.9%, from $1.2 million in the 1997 Period to $1.3 million in the 1998 Period.
As a percentage of revenue, cost of revenue decreased from 28.8% in the 1997
Period to 26.0% in the 1998 Period due primarily to increased utilization of
trainers.
Gross Profit. Gross profit increased approximately $939,000, or 32.6%,
from $2.9 million in the 1997 Period to $3.8 million in the 1998 Period. As a
percentage of revenue, gross profit increased from 71.2% in the 1997 Period to
74.0% in the 1998 Period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained relatively constant at $3.4 million in the 1997
and 1998 Periods. Excluding the Compensation Differential of approximately
$945,000 and approximately $220,000 attributable to Decker in the 1997 Period
and 1998 Period, respectively, selling, general and administrative expenses
would have increased approximately $733,000, or 29.8%, from $2.5 million in the
1997 Period to $3.2 million in the 1998 Period. As a percentage of revenue,
selling, general and administrative expenses would have increased on an adjusted
basis from 60.8% in the 1997 Period to 61.9% in the 1998 Period.
RESULTS FOR 1997 COMPARED TO 1996 -- DECKER
Revenue. Revenue decreased approximately $210,000, or 2.4%, from $8.6
million in 1996 to $8.4 million in 1997, primarily due to a temporary shift in
the focus of Decker's business. During the first six months of 1997, Decker
increased its focus on providing consulting services rather than its traditional
training. This shift
30
<PAGE> 32
in focus resulted in a decline in training revenue and a high degree of sales
force turnover. During the second half of 1997, the company returned to a
business model focused on instructor-led training, and launched several
organizational initiatives, including the hiring of a new president and the
implementation of a new salary structure for its sales force.
Cost of Revenue. Cost of revenue decreased approximately $380,000, or
14.3%, from $2.7 million in 1996 to $2.3 million in 1997. As a percentage of
revenue, cost of revenue decreased from 30.8% in 1996 to 27.1% in 1997,
primarily due to a reduction in the number of trainers and increased utilization
of trainers.
Gross Profit. Gross profit increased approximately $170,000, or 2.8%, from
$6.0 million in 1996 to $6.1 million in 1997. As a percentage of revenue, gross
profit increased from 69.2% in 1996 to 72.9% in 1997, primarily due to increased
utilization of trainers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $730,000, or 12.8%, from $5.7
million in 1996 to $6.4 million in 1997. Excluding the Compensation Differential
attributable to Decker of approximately $192,000 and $1.2 million in 1996 and
1997, respectively, selling, general and administrative expenses would have
decreased approximately $243,000, or 4.4%, from $5.5 million in 1996 to $5.3
million in 1997. As a percentage of revenue, selling, general and administrative
expenses would have decreased on an adjusted basis from 64.1% in 1996 to 62.8%
in 1997.
RESULTS FOR 1996 COMPARED TO 1995 -- DECKER
Revenue. Revenue increased approximately $70,000, or 0.8%, from $8.5
million in 1995 to $8.6 million in 1996.
Cost of Revenue. Cost of revenue increased approximately $236,000, or
9.8%, from $2.4 million in 1995 to $2.7 million in 1996. As a percentage of
revenue, cost of revenue increased from 28.3% in 1995 to 30.8% in 1996,
primarily due to higher salaries paid to the company's trainers in 1996.
Gross Profit. Gross profit decreased approximately $166,000, or 2.7%, from
$6.1 million in 1995 to $6.0 million in 1996. As a percentage of revenue, gross
profit decreased from 71.7% in 1995 to 69.2% in 1996, primarily due to the
higher salaries discussed above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained relatively constant at $5.7 million 1995 and
1996. Excluding the Compensation Differential attributable to Decker of
approximately $192,000 in both 1995 and 1996, selling, general and
administrative expenses would have remained relatively constant at $5.5 million
in 1995 and 1996. As a percentage of revenue, selling, general and
administrative expenses would have remained constant on an adjusted basis at
64.1% in 1995 and 1996.
LIQUIDITY AND CAPITAL RESOURCES -- DECKER
Decker generated net cash from operating activities of approximately
$446,000 in 1997 and approximately $467,000 in the 1998 Period. Net cash used in
investing activities was approximately $11,000 in 1997, primarily for purchases
of property and equipment, and approximately $298,000 in the 1998 Period,
primarily for the purchase of marketable securities. Net cash used in financing
activities was approximately $241,000 in 1997, primarily for the payment of
dividends, and approximately $27,000 in the 1998 Period for payments on notes
payable. At December 31, 1997, Decker had working capital of $1.5 million and
approximately $607,000 of long-term debt.
RESULTS OF OPERATIONS -- J. HOWARD
J. Howard provides instructor-led training to individual managers and
client companies to identify and address potential obstacles to improving
workplace productivity, including race and gender issues, sexual harassment and
failure of employees to take measured risks. J. Howard's revenue is derived
primarily from fees from instructor-led seminars and, to a lesser extent, from
the rendering of consulting services. J. Howard
31
<PAGE> 33
also occasionally enters into license agreements and then delivers its programs
in the train-the-trainer format; in these instances, revenue from the license
agreements is recognized when the license is signed. Revenue from the trainer
certifications is recognized on a per event basis when the training is
delivered.
The following table sets forth certain selected financial data for J.
Howard on a historical basis and as a percentage of revenue for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................... $6,251 100.0% $7,110 100.0% $7,684 100.0%
Cost of revenue............................ 1,964 31.4 2,166 30.5 2,346 30.5
------ ----- ------ ----- ------ -----
Gross profit............................... 4,287 68.6 4,944 69.5 5,338 69.5
Selling, general and administrative
expenses................................. 4,158 66.5 4,559 64.1 4,748 61.8
------ ----- ------ ----- ------ -----
Income from operations..................... $ 129 2.1% $ 385 5.4% $ 590 7.7%
====== ===== ====== ===== ====== =====
Compensation differential.................. $ 522 8.4% $ 944 13.3% $ 603 7.8%
</TABLE>
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER
31, 1996 --
J. HOWARD
Revenue. Revenue increased approximately $574,000, or 8.1%, from $7.1
million in the year ended December 31, 1996 to $7.7 million in the year ended
December 31, 1997, primarily due to increased license revenue generated from one
of the company's clients during the year ended December 31, 1997.
Cost of Revenue. Cost of revenue increased approximately $180,000, or
8.3%, from $2.2 million in the year ended December 31, 1996 to $2.3 million in
the year ended December 31, 1997. As a percentage of revenue, cost of revenue
remained constant at 30.5% in both periods.
Gross Profit. Gross profit increased approximately $394,000, or 8.0%, from
$4.9 million in the year ended December 31, 1996 to $5.3 million in the year
ended December 31, 1997. As a percentage of revenue, gross profit remained
constant at approximately 69.5% in both periods.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $189,000, or 4.1%, from $4.6
million in the year ended December 31, 1996 to $4.7 million in the year ended
December 31, 1997. Excluding the Compensation Differential of approximately
$944,000 and approximately $603,000 attributable to J. Howard in the year ended
December 31, 1996 and the year ended December 31, 1997, respectively, selling,
general and administrative expenses would have increased approximately $530,000,
or 14.7%, from $3.6 million in the year ended December 31, 1996 to $4.1 million
in the year ended December 31, 1997. As a percentage of revenue, selling,
general and administrative expenses would have increased on an adjusted basis
from 50.8% in the year ended December 31, 1996 to 53.9% in the year ended
December 31, 1997, primarily due to compensation paid to additional salespeople
hired during the year ended December 31, 1997 who did not generate material
revenue during that year.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER
31, 1995 -- J. HOWARD
Revenue. Revenue increased approximately $859,000, or 13.7%, from $6.3
million in the year ended December 31, 1995 to $7.1 million in the year ended
December 31, 1996, primarily due to a general increase in the number of client
engagements.
Cost of Revenue. Cost of revenue increased approximately $202,000, or
10.3%, from $2.0 million in the year ended December 31, 1995 to $2.2 million in
the year ended December 31, 1996. As a percentage of revenue, cost of revenue
decreased slightly from 31.4% in the year ended December 31, 1995 to 30.5% in
the year ended December 31, 1996.
32
<PAGE> 34
Gross Profit. Gross profit increased approximately $657,000, or 15.3%,
from $4.3 million in the year ended December 31, 1995 to $4.9 million in the
year ended December 31, 1996. As a percentage of revenue, gross profit increased
slightly, from 68.6% in the year ended December 31, 1995 to 69.5% in the year
ended December 31, 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $401,000, or 9.6%, from $4.2
million in the year ended December 31, 1995 to $4.6 million in the year ended
December 31, 1996. Excluding the Compensation Differential attributable to J.
Howard of approximately $522,000 and approximately $944,000 in the year ended
December 31, 1995 and the year ended December 31, 1996, respectively, selling,
general and administrative expenses would have remained relatively constant at
$3.6 million. As a percentage of revenue, selling, general and administrative
expenses would have decreased on an adjusted basis from 58.2% in the year ended
December 31, 1995 to 50.8% in the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES -- J. HOWARD
J. Howard generated net cash from operating activities of approximately
$464,000 in the year ended December 31, 1996 and approximately $402,000 in the
year ended December 31, 1997. Net cash used in investing activities was
approximately $248,000 in the year ended December 31, 1996 and approximately
$287,000 in the year ended December 31 1997, primarily for purchases of property
and equipment and advances to related parties. Net cash used in financing
activities was approximately $481,000 in the year ended December 31, 1996 and
approximately $108,000 in the year ended December 31, 1997, for distributions to
stockholders. At December 31, 1997, J. Howard had working capital of $1.1
million.
RESULTS OF OPERATIONS -- LSS
LSS creates customized training products that generally are designed to
facilitate faster learning of customer interface devices and higher productivity
of retail associates. LSS's training products are delivered to clients primarily
through interactive multimedia software and, to a lesser extent, through
distance-based media. LSS derives revenue from the design, development and
delivery of its products.
The following table sets forth certain selected financial data for LSS on a
historical basis and as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue....................................... $3,332 100.0% $5,123 100.0% $5,681 100.0%
Cost of revenue............................... 1,390 41.7 1,696 33.1 2,202 38.8
------ ----- ------ ----- ------ -----
Gross profit.................................. 1,942 58.3 3,427 66.9 3,479 61.2
Selling, general and administrative
expenses.................................... 1,767 53.0 3,079 60.1 2,226 39.2
------ ----- ------ ----- ------ -----
Income from operations........................ $ 175 5.3% $ 348 6.8% $1,253 22.0%
====== ===== ====== ===== ====== =====
Compensation differential..................... $ 415 12.5% $1,379 26.9% $ 300 5.3%
</TABLE>
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER
31, 1996 -- LSS
Revenue. Revenue increased approximately $558,000, or 10.9%, from $5.1
million in the year ended December 31, 1996 to $5.7 million in the year ended
December 31, 1997, primarily due to the expansion of the sales force.
Cost of Revenue. Cost of revenue increased approximately $506,000, or
29.8%, from $1.7 million in the year ended December 31, 1996 to $2.2 million in
the year ended December 31, 1997. As a percentage of revenue, cost of revenue
increased from 33.1% in the year ended December 31, 1996 to 38.8% in the year
ended December 31, 1997, primarily due to increased video production costs
associated with certain of the company's products during the year ended December
31, 1997.
33
<PAGE> 35
Gross Profit. Gross profit increased approximately $52,000, or 1.5%, from
$3.4 million in the year ended December 31, 1996 to $3.5 million in the year
ended December 31, 1997. As a percentage of revenue, gross profit decreased from
66.9% in the year ended December 31, 1996 to 61.2% in the year ended December
31, 1997, primarily due to the increased video production costs described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $853,000, or 27.7%, from $3.1
million in the year ended December 31, 1996 to $2.2 million in the year ended
December 31, 1997. Excluding the Compensation Differential of $1.4 million and
approximately $300,000 attributable to LSS in the year ended December 31, 1996
and the year ended December 31, 1997, respectively, selling, general and
administrative expenses would have increased approximately $226,000, or 13.3%,
from $1.7 million in the year ended December 31, 1996 to $1.9 million in the
year ended December 31, 1997. As a percentage of revenue, selling, general and
administrative expenses would have increased slightly on an adjusted basis from
33.2% in the year ended December 31, 1996 to 33.9% in the year ended December
31, 1997.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER
31, 1995 -- LSS
Revenue. Revenue increased $1.8 million, or 53.8%, from $3.3 million in
the year ended December 31, 1995 to $5.1 million in the year ended December 31,
1996, primarily due to increased productivity from the company's expanded sales
force.
Cost of Revenue. Cost of revenue increased approximately $306,000, or
22.0%, from $1.4 million in the year ended December 31, 1995 to $1.7 million in
the year ended December 31, 1996. As a percentage of revenue, cost of revenue
decreased from 41.7% in the year ended December 31, 1995 to 33.1% in the year
ended December 31, 1996, primarily due to several follow-on client engagements
which generally result in lower production costs.
Gross Profit. Gross profit increased $1.5 million, or 76.5%, from $1.9 in
the year ended December 31, 1995 to $3.4 million in the year ended December 31,
1996. As a percentage of revenue, gross profit increased from 58.3% in the year
ended December 31, 1995 to 66.9% in the year ended December 31, 1996, primarily
due to the lower production costs described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.3 million, or 74.3%, from $1.8 million in
the year ended December 31, 1995 to $3.1 million in the year ended December 31,
1996. Excluding the Compensation Differential attributable to LSS of
approximately $415,000 and $1.4 million in the year ended December 31, 1995 and
the year ended December 31, 1996, respectively, selling, general and
administrative expenses would have increased approximately $348,000, or 25.7%,
from $1.4 million in the year ended December 31, 1995 to $1.7 million in the
year ended December 31, 1996. As a percentage of revenue, selling, general and
administrative expenses would have decreased on an adjusted basis from 40.6% in
the year ended December 31, 1995 to 33.2% in the year ended December 31, 1996,
primarily due to the company's larger revenue base.
LIQUIDITY AND CAPITAL RESOURCES -- LSS
LSS generated net cash from operating activities of approximately $315,000
and $482,000 in the years ended December 31, 1996 and 1997, respectively. Net
cash used in investing activities was approximately $85,000 and $86,000 in the
years ended December 31, 1996 and 1997, respectively, for purchases of property
and equipment. Cash used in financing activities was approximately $496,000
during the year ended December 31, 1997 for dividends paid to stockholders. At
December 31, 1997, LSS had working capital of approximately $962,000.
RESULTS OF OPERATIONS -- MOHR
MOHR offers train-the-trainer seminars to help clients in the retail
industry primarily to improve productivity by fostering a customer-oriented
focus at the sales management and sales associate levels. In some of its
programs, MOHR trains employees directly through instructor-led seminars. MOHR's
revenue is
34
<PAGE> 36
derived primarily from the licensing to clients of the right to use its training
programs on a participant or site basis.
The following table sets forth certain selected financial data for MOHR on
a historical basis and as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
-------------------------------- --------------------------------
1996 1997 1996 1997
-------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue....................... $2,171 100.0% $3,015 100.0% $1,114 100.0% $1,534 100.0%
Cost of revenue............... 677 31.2 825 27.4 352 31.6 523 34.1
------ ----- ------ ----- ------ ----- ------ -----
Gross profit.................. 1,494 68.8 2,190 72.6 762 68.4 1,011 65.9
Selling, general and
administrative expenses..... 1,151 53.0 1,745 57.9 743 66.7 1,050 68.4
------ ----- ------ ----- ------ ----- ------ -----
Income (loss) from
operations.................. $ 343 15.8% $ 445 14.7% $ 19 1.7% $ (39) (2.5)%
====== ===== ====== ===== ====== ===== ====== =====
Compensation differential..... $ 144 6.6% $ 334 11.1% $ 92 8.3% $ 159 10.4%
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1997 (THE "1998 PERIOD") COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1996 (THE "1997 PERIOD") -- MOHR
Revenue. Revenue increased approximately $420,000, or 37.7%, from $1.1
million in the 1997 Period to $1.5 million in the 1998 Period, primarily due to
an increase in the number of salespeople and an increase in license fees
received during the 1998 Period.
Cost of Revenue. Cost of revenue increased approximately $171,000, or
48.6%, from approximately $352,000 in the 1997 Period to approximately $523,000
in the 1998 Period. As a percentage of revenue, cost of revenue increased from
31.6% in the 1997 Period to 34.1% in the 1998 Period, primarily due to increased
new product development costs.
Gross Profit. Gross profit increased approximately $249,000, or 32.7%,
from approximately $762,000 in the 1997 Period to $1.0 million in the 1998
Period. As a percentage of revenue, gross profit decreased from 68.4% in the
1997 Period to 65.9% in the 1998 Period, primarily due to the new product
development costs described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $307,000, or 41.3%, from
approximately $743,000 in the 1997 Period to $1.1 million in the 1998 Period.
Excluding the Compensation Differential of approximately $92,000 and
approximately $159,000 attributable to MOHR in the 1997 Period and 1998 Period,
respectively, selling, general and administrative expenses would have increased
approximately $240,000, or 36.9%, from approximately $651,000 in the 1997 Period
to approximately $891,000 in the 1998 Period. As a percentage of revenue,
selling, general and administrative expenses would have decreased slightly on an
adjusted basis from 58.4% in the 1997 Period to 58.1% in the 1998 Period,
primarily due to the Company's larger revenue base partially offset by
compensation paid to additional salespeople during the 1998 Period.
RESULTS FOR 1997 COMPARED TO 1996 -- MOHR
Revenue. Revenue increased approximately $844,000, or 38.9%, from $2.2
million in 1996 to $3.0 million in 1997, primarily due to the hiring of two
additional salespeople and the increase in license fees during 1997.
Cost of Revenue. Cost of revenue increased approximately $148,000, or
21.9%, from approximately $677,000 in 1996 to approximately $825,000 in 1997. As
a percentage of revenue, cost of revenue decreased from 31.2% in 1996 to 27.4%
in 1997, primarily due to the increase in license fees, which result in higher
margins than train-the-trainer seminars.
35
<PAGE> 37
Gross Profit. Gross profit increased approximately $696,000, or 46.6%,
from $1.5 million in 1996 to $2.2 million in 1997. As a percentage of revenue,
gross profit increased from 68.8% in 1996 to 72.6% in 1997, primarily due to
increased license fees.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $594,000, or 51.6%, from $1.2
million in 1996 to $1.7 million in 1997. Excluding the Compensation Differential
attributable to MOHR of approximately $144,000 and approximately $334,000 in
1996 and 1997, respectively, selling, general and administrative expenses would
have increased approximately $404,000, or 40.1%, from $1.0 million in 1996 to
$1.4 million in 1997. As a percentage of revenue, selling, general and
administrative expenses would have increased slightly from 46.4% in 1996 to
46.8% in 1997.
LIQUIDITY AND CAPITAL RESOURCES -- MOHR
MOHR generated net cash from operating activities of approximately $80,000
in 1997. In the 1998 Period, MOHR used approximately $247,000 in operating
activities. Net cash used in investing activities was approximately $41,000 in
1997 and approximately $13,000 in the 1998 Period, for purchases of property and
equipment. At December 31, 1997, MOHR had working capital of approximately
$420,000.
RESULTS OF OPERATIONS -- NOVATIONS
Novations assists clients in, among other things, clarifying and
communicating their business strategies and re-designing their organizations and
work systems. Novations also provides its clients with a variety of
organizational assessment tools that are designed to gather and analyze feedback
on either an organizational or individual basis and to initiate change within
the client's organization in response to such feedback. Novations' revenue is
derived primarily from fees from professional services and, to a lesser extent,
from the sale of services and products to support human resource management.
The following table sets forth certain selected financial data for
Novations on a historical basis and as a percentage of revenue for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ -------------------------------
1995 1996 1997 1996 1997
-------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.................. $7,175 100.0% $9,039 100.0% $9,018 100.0% $4,658 100.0% $5,256 100.0%
Cost of revenue.......... 3,885 54.1 4,733 52.4 4,839 53.7 2,503 53.7 2,677 50.9
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit............. 3,290 45.9 4,306 47.6 4,179 46.3 2,155 46.3 2,579 49.1
Selling, general and
administrative
expenses............... 3,167 44.2 4,094 45.3 3,315 36.7 1,668 35.8 2,062 39.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income from operations... $ 123 1.7% $ 212 2.3% $ 864 9.6% $ 487 10.5% $ 517 9.9%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Compensation
differential........... $1,208 16.8% $1,471 16.3% $ 661 7.3% $ 373 8.0% $ 675 12.8%
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1997 (THE "1998 PERIOD") COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1996 (THE "1997 PERIOD") -- NOVATIONS
Revenue. Revenue increased approximately $598,000, or 12.8%, from $4.7
million in the 1997 Period to $5.3 million in the 1998 Period, primarily due to
an increase in organizational assessment revenues in the 1998 Period.
Cost of Revenue. Cost of revenue increased approximately $174,000, or 7.0%
from $2.5 million in the 1997 Period to $2.7 million in the 1998 Period. As a
percentage of revenue, cost of revenue decreased from 53.7% in the 1997 Period
to 50.9% in the 1998 Period, primarily due to the increased utilization of the
company's consultants.
Gross Profit. Gross profit increased approximately $424,000, or 19.7%,
from $2.2 million in the 1997 Period to $2.6 million in the 1998 Period. As a
percentage of revenue, gross profit increased from 46.3% in the 1997 Period to
49.1% in the 1998 Period, primarily due to the increased utilization rate
described above.
36
<PAGE> 38
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $394,000, or 23.6%, from $1.7
million in the 1997 Period to $2.1 million in the 1998 Period. Excluding the
Compensation Differential attributable to Novations of approximately $373,000
and approximately $675,000 in the 1997 Period and 1998 Period, respectively,
selling, general and administrative expenses would have increased approximately
$92,000, or 7.1%, from $1.3 million in the 1997 Period to $1.4 million in the
1998 Period. As a percentage of revenue, selling, general and administrative
expenses would have decreased on an adjusted basis from 27.8% in the 1997 Period
to 26.4% in the 1998 Period, primarily due to the company's larger revenue base.
RESULTS FOR 1997 COMPARED TO 1996 -- NOVATIONS
Revenue. Revenue remained relatively constant at $9.0 million in 1996 and
1997.
Cost of Revenue. Cost of revenue increased approximately $106,000, or
2.2%, from $4.7 million in 1996 to $4.8 million in 1997. As a percentage of
revenue, cost of revenue increased from 52.4% in 1996 to 53.7% in 1997,
primarily due to an increase in the size of the consulting staff.
Gross Profit. Gross profit decreased approximately $127,000, or 2.9%, from
$4.3 million in 1996 to $4.2 million in 1997. As a percentage of revenue, gross
profit decreased from 47.6% in 1996 to 46.3% in 1997, primarily due to the staff
increase described above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $779,000 or 19.0%, from $4.1
million in 1996 to $3.3 million in 1997. Excluding the Compensation Differential
attributable to Novations of $1.5 million and approximately $661,000 in 1996 and
1997, respectively, selling, general and administrative expenses would have
increased slightly from $2.6 million in 1996 to $2.7 million in 1997. As a
percentage of revenue, selling, general and administrative expenses would have
increased slightly on an adjusted basis from 29.0% in 1996 to 29.4% in 1997.
RESULTS FOR 1996 COMPARED TO 1995 -- NOVATIONS
Revenue. Revenue increased $1.9 million, or 26.0%, from $7.2 million in
1995 to $9.0 million in 1996, primarily due to the introduction and marketing of
new services and the hiring of additional consultants.
Cost of Revenue. Cost of revenue increased approximately $848,000, or
21.8%, from $3.9 million in 1995 to $4.7 million in 1996. As a percentage of
revenue, cost of revenue decreased slightly from 54.1% in 1995 to 52.4% in 1996.
Gross Profit. Gross profit increased $1.0 million, or 30.9%, from $3.3
million in 1995 to $4.3 million in 1996. As a percentage of revenue, gross
profit increased from 45.9% in 1995 to 47.6% in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $927,000, or 29.3%, from $3.2
million in 1995 to $4.1 million in 1996. Excluding the Compensation Differential
attributable to Novations of $1.2 million and $1.5 million in 1995 and 1996,
respectively, selling, general and administrative expenses would have increased
approximately $664,000, or 33.9%, from $2.0 million in 1995 to $2.6 million in
1996. As a percentage of revenue, selling, general and administrative expenses
would have increased on an adjusted basis from 27.3% in 1995 to 29.0%, primarily
due to an expansion of the company's infrastructure to support revenue growth.
LIQUIDITY AND CAPITAL RESOURCES -- NOVATIONS
Novations generated net cash from operating activities of approximately
$153,000 in 1997. Net cash used by operating activities was approximately
$114,000 in the 1998 Period due to an increase in accounts receivable. Net cash
used in investing activities was approximately $137,000 and approximately
$35,000 in 1997 and the 1998 Period, respectively, for purchases of property and
equipment. Net cash provided by financing activities was approximately $55,000
in 1997, from net proceeds of long-term debt partially offset by distributions
to stockholders. Net cash provided by financing activities was approximately
$84,000 in the 1998 Period, from net proceeds of long-term debt. At December 31,
1997, Novations had working capital of approximately $197,000 and approximately
$365,000 of long term debt.
37
<PAGE> 39
RESULTS OF OPERATIONS -- STAR MOUNTAIN
Star Mountain provides customized training and development services and
products to train individuals primarily within agencies of federal, state and
local government. Star Mountain delivers its courseware to clients in a variety
of formats (including written materials and interactive multimedia software),
but typically does not directly train its clients. Star Mountain's revenue is
derived primarily from fees received from the provision of training services as
a contractor or subcontractor under government contracts.
The following table sets forth certain selected financial data for Star
Mountain on a historical basis and as a percentage of revenue for the periods
indicated. For all periods presented below, selling, general and administrative
expenses include amounts classified as "Other, net" in Star Mountain's
historical financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................. $14,306 100.0% $16,313 100.0% $23,775 100.0%
Cost of revenue.......................... 8,668 60.6 9,457 58.0 14,504 61.0
------- ----- ------- ----- ------- -----
Gross profit............................. 5,638 39.4 6,856 42.0 9,271 39.0
Selling, general and administrative
expenses............................... 4,611 32.2 5,815 35.6 7,897 33.2
------- ----- ------- ----- ------- -----
Income from operations................... $ 1,027 7.2% $ 1,041 6.4% $ 1,374 5.8%
======= ===== ======= ===== ======= =====
Compensation differential................ $ 64 0.4% $ 304 1.9% $ 180 0.8%
</TABLE>
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER
31, 1996 -- STAR MOUNTAIN
Revenue. Revenue increased $7.5 million, or 45.7%, from $16.3 million in
the year ended December 31, 1996 to $23.8 million in the year ended December 31,
1997, primarily due to an increase in the number of federal government contracts
undertaken, as well as revenue of $5.6 million contributed by businesses
acquired during the third quarter of the year ended December 31, 1996 and the
first and fourth quarters of the year ended December 31, 1997. Revenue was
significantly lower during the first half of the year ended December 31, 1996 as
a result of a decline in new client engagements due to prolonged Congressional
budget negotiations.
Cost of Revenue. Cost of revenue increased $5.0 million, or 53.4%, from
$9.5 million in the year ended December 31, 1996 to $14.5 million in the year
ended December 31, 1997. As a percentage of revenue, cost of revenue increased
from 58.0% in the year ended December 31, 1996 to 61.0% in the year ended
December 31, 1997, primarily due to the increased use of subcontractors during
the year ended December 31, 1997.
Gross Profit. Gross profit increased $2.4 million, or 35.2%, from $6.9
million in the year ended December 31, 1996 to $9.3 million in the year ended
December 31, 1997. As a percentage of revenue, gross profit decreased from 42.0%
in the year ended December 31, 1996 to 39.0% in the year ended December 31,
1997, primarily due to increased subcontracting costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.1 million, or 35.8%, from $5.8 million in
the year ended December 31, 1996 to $7.9 million in the year ended December 31,
1997. Excluding the Compensation Differential of approximately $304,000 and
approximately $180,000 attributable to Star Mountain in the year ended December
31, 1996 and the year ended December 31, 1997, respectively, selling, general
and administrative expenses would have increased $2.2 million, or 40.0%, from
$5.5 million in the year ended December 31, 1996 to $7.7 million in the year
ended December 31, 1997. As a percentage of revenue, selling, general and
administrative expenses would have decreased on an adjusted basis from 33.8% in
the year ended December 31, 1996 to 32.5% in the year ended December 31, 1997,
primarily due to the company's larger revenue base.
38
<PAGE> 40
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER
31, 1995 -- STAR MOUNTAIN
Revenue. Revenue increased $2.0 million, or 14.0%, from $14.3 million in
the year ended December 31, 1995 to $16.3 million in the year ended December 31,
1996, due to revenue of $3.6 million contributed by businesses acquired by Star
Mountain in the third quarters of the years ended December 31, 1995 and 1996.
The revenue from the acquired businesses was offset partially by the decline in
business generated from federal government entities as a result of the
Congressional budget negotiations described above.
Cost of Revenue. Cost of revenue increased approximately $789,000, or
9.1%, from $8.7 million in the year ended December 31, 1995 to $9.5 million in
the year ended December 31, 1996. As a percentage of revenue, cost of revenue
decreased from 60.6% in the year ended December 31, 1995 to 58.0% in the year
ended December 31, 1996, primarily due to the acquisition in the third quarter
of the year ended December 31, 1996 of a business with higher gross profit
margins than Star Mountain's core business.
Gross Profit. Gross profit increased $1.2 million, or 21.6%, from $5.6
million in the year ended December 31, 1995 to $6.9 million in the year ended
December 31, 1996. As a percentage of revenue, gross profit increased from 39.4%
in the year ended December 31, 1995 to 42.0% in the year ended December 31,
1996, primarily due to the acquisition in the third quarter of the year ended
December 31, 1996 of a business with higher gross profit margins than Star
Mountain's core business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.2 million, or 26.1%, from $4.6 million in
the year ended December 31, 1995 to $5.8 million in the year ended December 31,
1996. Excluding the Compensation Differential attributable to Star Mountain of
approximately $64,000 and approximately $304,000 in the years ended December 31,
1995 and 1996, respectively, selling, general and administrative expenses would
have increased approximately $964,000, or 21.2%, from $4.5 million in the year
ended December 31, 1995 to $5.5 million in the year ended December 31, 1996. As
a percentage of revenue, selling, general and administrative expenses would have
increased on an adjusted basis from 31.8% in the year ended December 31, 1995 to
33.8% in the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES -- STAR MOUNTAIN
Star Mountain generated net cash from operating activities of $1.1 million
and approximately $864,000 in the years ended December 31, 1996 and 1997,
respectively. Net cash used in investing activities was approximately $565,000
and $2.3 million in the years ended December 31, 1996 and 1997, respectively,
primarily for acquisitions. Net cash used in financing activities was
approximately $478,000 in the year ended December 31, 1996, primarily for
purchases of treasury stock. Net cash provided by financing activities was $1.8
million in the year ended December 31, 1997, primarily from borrowings on the
company's line of credit. At December 31, 1997, Star Mountain had working
capital of approximately $64,000, and long-term debt of approximately $304,000.
39
<PAGE> 41
BUSINESS
COMPANY OVERVIEW
The Company provides a broad range of training and development services and
products to Fortune 1000 companies, other large and medium-sized corporations
and government entities. The Company's services and products are designed to
increase the productivity of organizations by improving employee selection,
recruitment and retention; enhancing employee work skills; developing employee
management and leadership skills; and facilitating organizational assessment,
direction and change. The Company offers both customized and off-the-shelf
services and products that are designed to provide measurable improvements in
employee performance and productivity. The Company delivers its services and
products through multiple delivery methods, including instructor-led classroom
training and seminars, certification of client employees as instructors
("train-the-trainer"), interactive multimedia software (such as CD-ROM) and
distance-based media (such as video conferencing, intranets and the Internet).
The seven Founding Companies are recognized leaders in their respective fields
and have developed a wide range of services and products, a substantial
knowledge base created from years of research and development, and a
well-established client base. The Company's objective is to become a leading
single source provider of high-quality training and development services and
products that are distributed through multiple delivery methods.
The Company provided training and development services and products to more
than 1,700 companies and 75 government entities in fiscal 1997, including Abbott
Laboratories, Bank of America, Conoco, Inc., Eli Lilly and Company, Federal
Express, Federated Department Stores, Inc., Hewlett-Packard Company,
Metropolitan Life Insurance Company, Mobil Corporation, the Department of
Defense, the Immigration and Naturalization Service and the Internal Revenue
Service. During this period, the Company generated revenues of more than
$100,000 from each of 75 different corporate clients and from over 15 different
federal government entities. For fiscal 1997, the Company had pro forma revenue
of $68.8 million and pro forma income from operations of $7.9 million. From
fiscal 1995 through fiscal 1997, the historical combined revenue of the Founding
Companies grew at a compound annual rate of 21.8%.
MARKET OVERVIEW
The Company believes that the corporate and government training and
development market is large and growing. According to Training Magazine,
domestic corporations with over 100 employees budgeted approximately $58.6
billion on training in 1997, compared to approximately $45.0 billion in 1992,
representing a compound annual growth rate of approximately 5.4%. The Department
of Defense's training and development budget alone was approximately $23.9
billion for its 1997 fiscal year. The Company believes that growth in the
training and development market has been and will continue to be driven by: (i)
the evolution from a manufacturing-based to a service-based economy; (ii) the
increasing recognition by businesses that education, training and effective
human resource management are competitive necessities rather than optional
expenses; and (iii) the expanding use of technology throughout all levels of
organizations, which has increased the overall amount of training required and
the number of employees participating in such training.
Corporations and government entities increasingly are utilizing external
providers to meet their training and development needs. Expenditures on external
training and development by domestic corporations with over 100 employees have
increased from approximately $8.8 billion in 1992 to a budgeted $13.6 billion in
1997, representing a compound annual growth rate of 9.1%, and have increased as
a percentage of the total training budgets of such corporations from
approximately 19.6% in 1992 to 23.2% in 1997. The Department of Defense's budget
for external training and development was approximately $3.1 billion in its 1997
fiscal year. The Company believes that the growth in the external training and
development market has been driven by the desire of organizations to: (i) focus
on their core competencies; (ii) shift fixed training costs to variable costs;
and (iii) obtain training and development services, products, technology and
expertise that may not be available internally.
As a result of significant advances in computer and communications
technology, the training and development industry is experiencing rapid change
in the delivery of services and products. Historically, training and development
organizations delivered services and products primarily through instructor-led
seminars. Technological advances, however, now permit organizations to provide
training at distant and
40
<PAGE> 42
multiple locations as well as self-paced training, allowing a far greater number
of participants to learn conveniently and efficiently. Interactive multimedia
software (such as CD-ROM) and distance-based learning media (such as video
conferencing, intranets and the Internet) overcome many of the cost and space
constraints of traditional instructor-led training. The Company believes that
corporations increasingly are using technology-driven alternatives due to their
ability to: (i) increase learning and retention; (ii) minimize the opportunity
costs of time spent away from the job by employees; (iii) provide access to
training and development services and products "on demand"; (iv) lower overall
training and development costs, including travel expenses of employees; and (v)
measure and track employees' progress. Although instructor-led training
currently is the primary means of delivery of training and development services
and products, the Company believes that technology-based delivery increasingly
will be used to both supplement and, in some cases, replace instructor-led
training.
The training and development industry is highly fragmented. The Company
believes that no company in the industry has more than a one percent share of
the external training market. Many companies in the industry provide a narrow
range of services and products through limited delivery methods. The Company
believes that these companies generally have made limited investments in content
development, marketing and the technology necessary to develop or utilize
alternative delivery methods. As corporations and government entities
increasingly use external training providers, the Company believes that they
will seek providers that can meet their overall training and development needs
by: (i) providing a broad range of high-quality services and products in both
customized and off-the-shelf formats; (ii) delivering training through multiple
delivery methods capable of reaching large and geographically dispersed work
forces; and (iii) utilizing the most current technology available. As a result,
the Company believes that significant opportunities are available for
well-capitalized companies capable of meeting these needs on a national and
international basis.
BUSINESS STRATEGY
The Company's objective is to meet a significant portion of the training
and development needs of Fortune 1000 companies, other large and medium-sized
corporations and government entities. To achieve this objective, the Company
intends to pursue a business strategy with the following key elements:
OFFER VALUE-ADDED, HIGH-QUALITY TRAINING. The Company is committed to
providing value-added training and development services and products that result
in measurable improvement in the workplace performance of employees. The
Company's services and products are based upon well-researched methodologies,
processes and content, and typically have been developed, refined and used
successfully over many years. Most of the Founding Companies' executives have
advanced degrees and are regarded as leaders in their respective areas. The
Company strives to offer high-quality training by continually updating its
content to reflect changing industry trends and client preferences.
PROVIDE A BROAD RANGE OF SERVICES AND PRODUCTS. The Company seeks to
provide its clients with a broad range of high-quality training and development
services and products in both customized and off-the-shelf formats. These
services and products cover: employee selection, recruitment and retention;
employee work skills enhancement; employee management and leadership skills; and
organizational assessment, direction and change. Specifically, the Company
assists organizations and their employees in, among other things, determining
and implementing hiring criteria, increasing workplace diversity awareness,
improving communication skills, increasing point-of-sale efficiencies, working
in a team environment and soliciting and analyzing employee feedback. In
addition, the Company provides strategic consulting services to its clients,
which are enhanced by the Company's ability to offer complementary training and
development services and products.
UTILIZE MULTIPLE DELIVERY METHODS. The Company offers multiple delivery
methods for its services and products, including instructor-led seminars,
train-the-trainer, interactive multimedia software (such as CD-ROM) and
distance-based media (such as video conferencing, intranets and the Internet).
Two of the Founding Companies, LSS and Star Mountain, have substantial expertise
in delivery technology which the Company intends to apply to many of the
services and products of the other Founding Companies. By offering
41
<PAGE> 43
multiple delivery methods, the Company believes that it can better serve the
needs, resource constraints and cost requirements of its clients.
DEVELOP LONG-TERM CLIENT RELATIONSHIPS. The Company seeks to develop
long-term relationships with clients to whom it can provide a full complement of
services and products on a recurring basis. Many of the Company's long-term
clients purchase its services and products on an on-going basis after the
initial delivery of services and products. For example, after a
train-the-trainer seminar where the Company certifies a client's instructors,
the Company continues to receive a fee on a participant or site basis as the
certified instructors continue to train the client's employees. The Company also
offers updated, related or new services and products to its clients in order to
generate recurring revenue.
EMPLOY A DECENTRALIZED MANAGEMENT STRUCTURE. The Company believes that the
experienced management teams of the Founding Companies have a valuable
understanding of their respective training and development markets and have
established strong client relationships. The Company intends to operate with a
decentralized management structure under which management at each of the
Founding Companies will make most of the day-to-day operating decisions and will
have primary responsibility for the profitability and growth of their business.
The Company intends to utilize stock ownership as well as appropriate incentive
compensation to ensure that management's objectives at each of the Founding
Companies are aligned with those of the Company.
IMPLEMENT BEST PRACTICES AND ACHIEVE OPERATING EFFICIENCIES. The Company
intends to evaluate the operating policies and procedures of the Founding
Companies in order to identify and implement Company-wide best practices in
areas such as marketing, sales, product development, human resource policies and
recruiting. In addition, the Company believes that it can achieve operating
efficiencies and cost savings by more efficiently utilizing the Company's
facilities and gaining greater purchasing power in areas such as travel,
employee benefits and communications.
GROWTH STRATEGY
The Company's objective is to become the leading single source provider of
high-quality training and development services and products to Fortune 1000
companies, other large and medium-sized corporations and government entities.
Key elements of the Company's growth strategy include:
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company believes that
significant opportunities exist for each Founding Company to cross-sell its
services and products to clients of the other Founding Companies. Each of the
Founding Companies has established strong relationships with its clients but
historically has offered its clients only a limited selection of training and
development services and products. The Company provided training and development
services to more than 1,700 companies and more than 75 government entities in
fiscal 1997, and during that period generated revenue of more than $100,000 from
each of 75 different companies and over 15 different federal government
agencies. The Company intends to capitalize on the services and products of each
of the Founding Companies by emphasizing and aggressively cross-selling its
broad range of training and development services and products to its collective
client base.
IMPLEMENT AGGRESSIVE SALES AND MARKETING STRATEGY. The Company intends to
pursue an aggressive sales and marketing strategy designed to establish new
client relationships and expand existing relationships. Specifically, the
Company intends to: (i) hire additional salespeople to supplement the existing
sales efforts of the Founding Companies; (ii) establish a nationwide
telemarketing program focusing primarily on medium-sized corporations; and (iii)
participate in a greater number of conferences and trade shows. The Company
intends to direct its centralized marketing campaign to both new clients and
additional contacts within existing clients (e.g., targeting upper levels of
management if previous services provided by a Founding Company were marketed to
middle management). In addition, the Company intends to pursue relationships
with regional colleges and vocational/technical schools in order to market its
services and products to small and medium-sized companies and their employees.
The Company also intends to establish a national brand identification under the
PROVANT name, while preserving the value of the established names, trademarks
and client relationships of the Founding Companies.
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<PAGE> 44
EXPAND SERVICE AND PRODUCT OFFERINGS. The Company intends to broaden its
offerings of training and development services and products by developing or
acquiring new or complementary services and products. For example, the Company
currently is introducing a new employee recruitment product, based upon its
Behavioral Interviewing(R) process, that teaches clients how to recruit in a
tight labor market. In addition, the Company intends to capitalize on its
expertise in certain industries, such as the retail industry, by customizing
services and products for other similar industries, such as the hospitality,
transportation and healthcare industries.
PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue strategic
acquisitions in order to: (i) offer services or products complementary to those
it currently offers; (ii) gain expertise in new areas of training and
development; (iii) access new technology to expand the scope and quality of
delivery methods; and (iv) establish or enhance client relationships. The
Company seeks to acquire companies with strong management, profitable operating
results and leading positions within their respective markets. The Company
believes that acquisitions of this nature will improve its ability to be a
single source provider of high-quality training and development services and
products.
LEVERAGE INVESTMENTS IN TECHNOLOGY AND DEPLOY LEADING TECHNOLOGIES. A key
element of the Company's strategy is to capitalize on the technology investments
of the Founding Companies in order to deliver training and development services
and products to its clients in the most effective manner. For example, the
Company intends to apply the technical expertise of LSS and Star Mountain, which
provide training through interactive multimedia software, to convert certain
products of other Founding Companies to interactive multimedia software formats,
such as CD-ROM. The Company expects to deploy leading technologies in the
delivery of many of its services and products, including delivery through
distance-based media, such as video conferencing, intranets and the Internet,
that can provide interactive training to employees at multiple locations.
TRAINING AND DEVELOPMENT SERVICES AND PRODUCTS
The Company's training and development services and products assist
organizations in four principal areas: (i) employee recruitment, selection and
retention; (ii) employee work skills; (iii) employee management and leadership
skills; and (iv) organizational assessment, direction and change. Through these
services and products, the Company's clients can improve the quality of
employees entering the organization, the performance of employees within the
organization, and the ability of the organization as a whole to undergo change.
The Company offers services and products which are off-the-shelf as well as
customized to meet the specialized needs of particular clients. The following
table illustrates the principal training and development areas covered by the
Company's services and products:
<TABLE>
<CAPTION>
EMPLOYEE RECRUITMENT, EMPLOYEE MANAGEMENT ORGANIZATIONAL ASSESSMENT,
SELECTION AND RETENTION EMPLOYEE WORK SKILLS AND LEADERSHIP SKILLS DIRECTION AND CHANGE
- ----------------------- ----------------------- ----------------------- --------------------------
<S> <C> <C> <C>
Interviewing candidates Customer service Analyzing employee Strategic consulting
Identifying specific training feedback Understanding employee
job competencies Public speaking Presentation skills perceptions
Retaining employees Spoken communication training Assessing organizational
Addressing sexual training Coaching peers and abilities and direction
harassment Buyer negotiating colleagues Measuring customer
Facilitating diversity Point-of-sale training Managing retail stores satisfaction
General retail sales Communicating with Designing quality control
training subordinates processes
Specialized government Understanding diversity Changing corporate
job training issues culture
Industrial skills
training
</TABLE>
EMPLOYEE RECRUITMENT, SELECTION AND RETENTION. The Company offers services
and products designed to assist clients in hiring and retaining effective
employees. In particular, the Company helps clients understand the skills
required of their employees, implement more effective recruitment, selection and
retention processes to maximize employee productivity, and reduce turnover
rates. Through one of the Company's products,
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<PAGE> 45
Behavioral Interviewing(R), managers learn how to identify specific job
competencies required for success, interview prospective candidates and evaluate
their skills. For example, when the Behavioral Interviewing(R) process was
implemented at a large accounting firm seeking to refine its employee selection
process, the Company worked with the firm to determine critical skills and
competencies required of candidates and to develop interview forms designed to
elicit information pertaining to those skills and competencies. Client
recruiting directors were certified, and those certified instructors then taught
the Behavioral Interviewing(R) process to the client's interviewers nationwide.
In the year following the implementation of Behavioral Interviewing(R), the
number of candidates invited for office visits who received offers of employment
increased by 10%, reflecting an increase in the effectiveness and efficiency of
the screening and evaluation process. SkilMatch(R), a related product, is an
interactive software program designed to streamline the process of developing
structured interviews and ensure a consistent selection process. Complementing
these products are the Company's outplacement services, which it provides to
several federal government agencies to assist in work force restructuring, and
its diversity enhancement services, which facilitate employee retention and
development.
EMPLOYEE WORK SKILLS. The Company offers services and products designed to
provide or improve the skills necessary to perform a particular task or job.
These skills include public speaking/presentation, negotiation, general retail
sales, point-of-sale device operation, direct store delivery (receiving) and
customer service. Several of the Company's products, including The POS
Simulator, Direct Store Delivery Simulator, Cashier Ready and Produce
Identification Trainer, are designed to increase employee productivity in the
retail workplace by simulating important retail situations and environments in
interactive multimedia formats. Many of these products allow clients to measure
the effectiveness of the training. For example, a large grocery chain that used
The POS Simulator to improve the efficiency of its cashier training program
reduced the average number of hours required to train cashiers in certain key
competencies from 16 hours of traditional classroom training to six hours with
The POS Simulator. Another Company product, Effective Communicating(TM), is a
two-day workshop designed to enable clients' key staff members to become more
effective in public speaking, sales and other types of oral communication. The
Company also offers specialized industrial skills training for government and
corporate clients.
The Company provides customized work skills training to numerous federal
government entities and various state and local government entities. Most of the
services and products offered in this area involve the training of employees to
perform tasks that are unique to certain government jobs. For instance, the
Company has prepared courses for the Department of Defense covering topics from
technology applications for military aircrews to basic medical care and medical
management information systems for Army and Navy healthcare personnel. Courses
prepared for other federal agencies include Reengineering and Process Mapping
for the Department of Education, Principles of Purchasing for the Postal
Service, Introductory Correctional Training for the Bureau of Prisons, and
Training in the Use of Traffic Records for Problem Identification for the
National Highway Traffic Safety Administration. Typically, these training
courses and course materials are custom-designed by experts from the Company
working closely with members of the respective government entities.
EMPLOYEE MANAGEMENT AND LEADERSHIP SKILLS. The Company offers services and
products that are designed to improve employees' operational management,
supervisory and leadership skills. In particular, the Company helps managers to
create constructive feedback processes, operate retail stores, monitor, motivate
and communicate with subordinates and understand diversity issues. Managing
Individual and Team Effectiveness (MITE(R)), one of the Company's products, is
designed to provide managers in complex work environments with "360-degree"
feedback on their management skills. Another product, Retail Management Series
III (RMSIII), is a multi-component and highly adaptable program designed to
enhance their retail communication and coaching skills in order to improve the
productivity and profitability of managers' salespeople. For example, RMSIII was
used by a national specialty retailer seeking to increase the productivity of
its sales associates by focusing on its sales managers. The Company tailored
RMSIII to cover the sales management skills important to the retailer's
business, including sales management standards, commitment to goals and coaching
skills. The Company trained and certified district managers of the client to
teach RMSIII, and those certified instructors trained sales managers and
assistant managers in over 200 of the client's stores.
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Three months following the introduction of the Company's RMSIII product, stores
using RMSIII reported an average increase in sales of 27%, as compared to 14% in
stores not using RMSIII. A third product, Managing Inclusion, is a multi-day
session designed to help individual managers and client companies enhance
understanding of workplace diversity, build morale and satisfaction in the work
force, and increase productivity through more effective team relationships.
ORGANIZATIONAL ASSESSMENT, DIRECTION AND CHANGE. The Company provides
services and products designed to help organizations assess their strategic
direction and implement and manage change. The Company provides strategic
consulting services that help improve overall workplace performance by assisting
clients in, among other things, clarifying and communicating their business
strategies and redesigning their organizations and business processes. For
example, the Company assisted a large trucking company in developing alternative
organization designs and cost reduction initiatives. By using the Company's
recommendations to clarify its operating strategy and determine the core work of
its business, the trucking company was able to undertake significant structural
changes and implement cost-cutting measures that were responsible for
significantly increasing overall efficiency. The Company also provides its
clients with a variety of survey tools by which feedback can be gathered and
analyzed on either an organizational or individual basis. The Company develops
the survey forms and methodologies, conducts the surveys, and collects and
analyzes the data for its corporate clients.
DELIVERY METHODS
The Company offers multiple delivery methods for its training services and
products. By doing so, the Company believes that it can better serve the
particular needs, resource constraints, cost requirements and cultures of its
clients. Most of the Company's services and products currently are delivered
through instructor-led and train-the-trainer seminars; however, the Company also
delivers certain of its products on interactive multimedia software or through
distance-based methods. The Company's primary delivery methods are described
below.
INSTRUCTOR-LED TRAINING AND SEMINARS. The Company delivers its programs to
clients' employees primarily through the use of either dedicated Company
instructors or certified contract instructors. Most of the Company's
instructor-led training is delivered at clients' facilities, although the
Company also delivers certain programs at its own training facilities. In some
cases, the Company's programs are delivered in a public seminar format to a
small group of individuals from multiple client companies. The Company provides
textual materials and, in some cases, video tapes as a part of its
instructor-led programs. In addition, the Company sells related published
materials in connection with these programs. The Company also develops custom
courseware that ultimately is delivered by instructors (often client employees)
who are not certified by or otherwise affiliated with the Company. The Company's
courses and programs generally range in length from a few hours to several days
and include from one to hundreds of participants.
TRAIN-THE-TRAINER. For several of its services and products, the Company's
instructors train and certify qualified employees of clients in an
instructor-led program. The certified client employees then are licensed to use
the Company's methodologies and materials to train other employees of the client
in instructor-led classes at client sites. The Company supplies training
materials for these classes and on-going training for the certified trainers.
The Company receives fees for the employee-led classes on either a participant
or site basis.
INTERACTIVE MULTIMEDIA SOFTWARE. The Company delivers several of its
products on interactive multimedia software, such as CD-ROMs. Because of the
demonstrated higher rates of learning and retention achieved through interactive
multimedia training, the Company plans to convert to CD-ROM and other
interactive multimedia software several of its products that to date have been
offered only in the instructor-led or train-the-trainer formats.
DISTANCE-BASED MEDIA. The Company currently delivers a limited number of
its products through distance-based media, such as satellite or other video
conferencing, intranets and the Internet. The Company intends to seek new
technologies that will allow it to deliver its product offerings to clients more
effectively. In particular, the Company believes that more of its products will
be offered through the Internet and more clients will seek Internet-delivered
training as the bandwidth of Internet access increases.
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OTHER SERVICES AND PRODUCTS
In addition to the Company's training and development services and
products, one of the Founding Companies, Star Mountain, also provides certain
other services and products including computer network security research and
development (primarily for federal government entities) and computer network
design, sales, installation and support (primarily for corporations). These
services and products contributed 7.3% of pro forma revenue and (4.6)% of pro
forma income from operations for fiscal 1997. The Company does not anticipate
that sales of these services and products will have a material impact on its
future operating results.
CLIENTS
The Company seeks to establish long-term relationships with Fortune 1000
companies, other large and medium-sized corporations and government entities
with substantial training and development needs. The Company has developed a
broad client base of over 1,700 corporations, with no corporate client
accounting for more than 5% of the Company's pro forma revenue during fiscal
1997 or the six months ended December 31, 1997. The Company generated revenue of
more than $100,000 from each of 75 different corporate clients during fiscal
1997. The top corporate clients of the Founding Companies by revenue generated
during fiscal 1997 include those presented below.
<TABLE>
<S> <C> <C>
Abbott Laboratories Exxon Corporation Motorola, Inc.
Ameritech Corporation Federal Express Northwest Airlines, Inc.
Amoco Corporation Federated Department Stores, Norwest Mortgage Inc.
Bank of America Inc. PepsiCo., Inc.
BOC Gases Flexsys Royal Bank of Canada
Canadian-Hunter Exploration Ltd. Fujitsu Business Communication Siemens Business
Canadian Imperial Bank of Systems, Inc. Communication Systems, Inc.
Commerce Hewlett-Packard Company U.S. West, Inc.
Conoco, Inc. J.C. Penney Company, Inc. Victoria's Secret Stores
Consolidated Rail Corporation The Kroger Co. Wakefern Food Corporation
Coopers & Lybrand L.L.P. Lukens Steel Company Yellow Corporation
Dayton Hudson Corporation McDonnell-Douglas Corporation
Deloitte & Touche LLP Metropolitan Life Insurance
Eli Lilly and Company Company
Mobil Corporation
</TABLE>
Star Mountain derives a substantial majority of its revenues from
customized training and development services and products delivered to entities
affiliated with the federal government. During fiscal 1997 and the six months
ended December 31, 1997, Star Mountain's training and development work for
federal government clients generated approximately 31.1% and 31.4%,
respectively, of the Company's pro forma combined revenue. Star Mountain also
provides services and products to state and local government entities. The
Company's top federal government clients by revenue generated during fiscal 1997
include the following:
<TABLE>
<S> <C>
Defense Commissary Agency Food Safety and Inspection
Defense Logistics Agency General Accounting Office
Department of Army General Services Office
Department of Energy Immigration and Naturalization Service
Department of Navy Indian Health Service
Drug Enforcement Administration Internal Revenue Service
Federal Aviation Administration Pension Benefit Guarantee Corporation
Federal Highway Administration United States Marshals Service
Federal Law Enforcement Training Center United States Postal Service
</TABLE>
SALES AND MARKETING
Historically, the Founding Companies have used a variety of sales
strategies. The majority of the Founding Companies maintain dedicated
salespersons who seek to identify leads, qualify prospects and close sales
related to their specific training services and products. In some instances, the
salespersons also serve as the instructors or consultants for such services and
products. Generally, each of the Founding Companies
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<PAGE> 48
targets its prospects primarily through direct sales, public seminars, client
referrals and a variety of media, including direct mailings, the Founding
Companies' web sites and trade publications. In addition, several of the
Founding Companies are able to obtain clients as a result of the visibility of
their principals, who have published articles and books, appeared on television
news shows or otherwise created a strong reputation in their various fields of
training. The Company currently markets its services and products to its clients
mainly through their human resources personnel, business unit managers or
regional managers and, to a lesser extent, through senior executives. However,
the Company intends to focus increasingly on marketing to senior executives of
both existing and targeted clients through initial contacts made by members of
the Company's Board of Directors and senior management, as well as by the
principals of the Founding Companies.
The Company generates significant revenues through sales of services and
products to government entities. Typically, these sales occur through a
competitive bidding process started by a government entity's issuance of a
request for proposal ("RFP") for a contemplated project. The Company may submit
a proposal on its own behalf or as a subcontractor to another company. Many
services and products delivered to federal government agencies are provided
through orders placed under a General Services Administration ("GSA") Supply
Schedule contract and under Office of Personnel Management/Training Management
Assistance ("OPM"). The Company is one of only a few training providers
authorized under both funding mechanisms. The Company (through Star Mountain)
benefits from its status as a preferred provider under certain funding
mechanisms (including the GSA and OPM vehicles) which allow it to negotiate
contracts without an RFP.
Following the consummation of the Offering, the Company expects to
capitalize on cross-selling opportunities among the clients of the Founding
Companies. The Company intends to hire additional salespeople to supplement the
existing sales efforts of the Founding Companies and establish a nationwide
telemarketing program focusing on medium-sized corporations. In addition, the
Company is developing a marketing and advertising program to establish a
national brand identification under the PROVANT name, while preserving the value
of the established names, trademarks and customer relationships of the Founding
Companies.
COMPETITION
The training and development industry is highly fragmented and competitive,
and the Company expects this competition to increase. The Company believes the
principal competitive factors in the industry are the strength of client
relationships, quality, price and breadth of service and product offerings,
quality and number of delivery methods, reputation, and the ability to provide
customized services and products. Some of the Company's competitors have
significantly greater financial, managerial, technical, marketing and other
resources than the Company. Moreover, the Company expects that it will face
additional competition from new entrants into the training and development
market due, in part, to the evolving nature of the market and the relatively low
barriers to entry.
The Company competes with thousands of privately-held training companies,
most of which provide a limited range of services and products. In addition to
these small competitors, a number of larger companies are engaged in the
business of providing training and development services and products, including
Times Mirror Training Group (a subsidiary of the Times Mirror Company), The
Forum Corporation, Development Dimensions International, Wilson Learning
Corporation and several large publishers of professional reference materials who
recently have entered the industry. The Company also competes with large
professional service companies such as Andersen Consulting, Ernst & Young LLP,
Towers Perrin and others that generally offer training services in conjunction
with strategic consulting and other client assignments of larger scope. In
addition, many of the Company's clients and potential clients have internal
training departments. See "Business -- Market Overview."
The Company's competitors for government contracts include service
companies such as Booz Allen, as well as contract suppliers of equipment to the
government such as Raytheon Company, McDonnell-Douglas Corporation and Lockheed
Martin Corporation.
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INTELLECTUAL PROPERTY
The Company regards many of its training and development services and
products as proprietary and relies primarily on a combination of statutory and
common law copyright, trademark, service mark and trade secret laws, customer
licensing agreements, employee and third-party nondisclosure agreements and
other methods to protect its proprietary rights. Notwithstanding this, a third
party or parties could copy or otherwise obtain and use the Company's products
in an unauthorized manner or use these products to develop training and
development processes that are substantially similar to those of the Company.
The Company's products generally do not include any mechanisms to prohibit or
prevent unauthorized use by third parties. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar training
products and delivery methods. Additionally, there can be no assurance that
third parties will not claim that the Company's current or future products
and/or services infringe on the proprietary rights of others. See "Risk
Factors -- Risks Associated with Intellectual Property."
EMPLOYEES
The Company currently employs approximately 675 full-time and part-time
employees and believes that its relationships with its employees are good.
INDEPENDENT CONTRACTORS
The Company provides certain of its services and products through
approximately 200 independent contractors. The Company does not pay federal
employment taxes or withhold income taxes with respect to these independent
contractors or include them in the Company's employee benefit plans. See "Risk
Factors -- Independent Contractor Status."
FACILITIES
The Company leases its principal executive office located in Boston,
Massachusetts, and maintains 23 additional leased office locations in 12 states
and one in Canada. The remaining terms of the Company's leases are less than
eight years. The Founding Companies' principal offices are located in:
Alexandria, Virginia; Lexington, Massachusetts; Memphis, Tennessee; North
Hollywood and San Francisco, California; Provo, Utah; and Ridgewood, New Jersey.
Certain of the Founding Companies also maintain branch offices. The Company
believes that its facilities are adequate to serve its current level of
operations. If additional facilities are required, the Company believes that
suitable additional or alternative space will be available as needed on
commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of business. Management believes that no pending legal
proceeding will have a material adverse effect on the business, financial
condition or results of operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers, and those persons who will become directors
and executive officers upon or immediately following the consummation of the
Offering.
<TABLE>
<CAPTION>
NAME AGE POST-OFFERING POSITION
- ------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Paul M. Verrochi..................... 49 Chairman and Chief Executive Officer
John H. Zenger....................... 66 President and Director
Dominic J. Puopolo................... 54 Executive Vice President, Chief Financial Officer and
Director
Rajiv Bhatt.......................... 40 Senior Vice President, Treasurer and Chief Accounting
Officer
Philip Gardner....................... 35 Vice President
Herbert A. Cohen..................... 61 Chairman - MOHR, Director
Bert Decker.......................... 58 Chairman - Decker, Director
Paul C. Green........................ 56 Chairman and CEO - BTI, Director
Joe Hanson........................... 41 Managing Director - Novations, Director
John F. King......................... 43 Chairman - LSS, Director
A. Carl von Sternberg................ 69 Chairman and President - Star Mountain, Director
Marc S. Wallace...................... 51 President - J. Howard, Director
Michael J. Davies.................... 53 Director
David B. Hammond..................... 53 Director
John R. Murphy....................... 64 Director
Esther T. Smith...................... 59 Director
</TABLE>
Paul M. Verrochi will become Chairman of the Board and Chief Executive
Officer of the Company upon the consummation of the Offering. Prior to the
Offering, Mr. Verrochi has been President and a director of PROVANT. Mr.
Verrochi also is Chairman, co-founder and a principal of American Business
Partners LLC ("ABP"). In 1992, Mr. Verrochi co-founded American Medical
Response, Inc. ("AMR"), which prior to its acquisition by Laidlaw Inc. in
January 1997 was the largest provider of ambulance services in the United
States. From August 1992 to January 1996, Mr. Verrochi served as AMR's President
and Chief Executive Officer, and until January 1997 he also served as the
Chairman of the Board of Directors. Mr. Verrochi was selected as the 1995
National Entrepreneur of the Year for Emerging Growth Companies by Inc.
Magazine. Mr. Verrochi serves as an advisory board member to numerous charitable
foundations, including the New England Aquarium and the Boston Symphony
Orchestra. Mr. Verrochi is Chairman of BridgeStreet Accommodations, Inc. and a
director of Coach USA, Inc. Mr. Verrochi received his Bachelor of Science degree
from the United States Merchant Marine Academy at Kings Point, New York.
John H. Zenger will become President and a director of the Company upon the
consummation of the Offering. Prior to the Offering, since May 1997, Mr. Zenger
has been a consultant to PROVANT. From April 1992 to November 1996, Mr. Zenger
was employed in various capacities, including Vice President and Chairman, by
the Times Mirror Training Group, one of the nation's largest training companies,
consisting of Kaset, Learning International and Zenger Miller, the company that
he founded in 1977. Mr. Zenger has taught at the University of Southern
California School of Business and the Stanford Graduate School of Business. Mr.
Zenger received his Doctorate degree in Business Administration from the
University of Southern California, his Masters in Business Administration from
the University of California, Los Angeles and his Bachelor of Science degree
from Brigham Young University.
Dominic J. Puopolo will become Executive Vice President and Chief Financial
Officer of the Company upon the consummation of the Offering. Prior to the
Offering, Mr. Puopolo has been Treasurer and a director of PROVANT. Mr. Puopolo
is a co-founder and principal of ABP. In 1992, Mr. Puopolo co-founded AMR. From
August 1992 to January 1996, Mr. Puopolo served as Executive Vice President,
Chief Financial Officer, Treasurer and a member of the Board of Directors of
AMR. Mr. Puopolo serves as a member of the Board of
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<PAGE> 51
Trustees of Emerson College of Communications and is Chairman of its Resource
Development Committee. Mr. Puopolo also serves on the Executive Committee of the
Boston University School of Medicine and is a member of the Board of Trustees of
Northeastern University. Mr. Puopolo, a Certified Public Accountant, is a member
of the Massachusetts Society of Certified Public Accountants, The American
Institute of Certified Public Accountants and the National Association of
Accountants. Mr. Puopolo received his Masters in Business Administration degree
from Suffolk University and his Bachelor of Science degree in Business
Administration from Northeastern University.
Rajiv Bhatt will become Senior Vice President, Treasurer and Chief
Accounting Officer of the Company upon the consummation of the Offering. Prior
to the Offering, since August 1997, Mr. Bhatt has been a consultant to PROVANT.
From September 1994 to August 1997, Mr. Bhatt was Executive Vice President,
Chief Financial Officer and Treasurer of Summit Technology, Inc., a
publicly-traded manufacturer of ophthalmic laser systems. From September 1988 to
September 1994, Mr. Bhatt was Chief Financial Officer, Secretary and a member of
the Board of Directors of Carlisle Plastics, Inc., a publicly-traded plastics
manufacturer. Also from September 1988 to September 1994, Mr. Bhatt was Chief
Financial Officer of Carlisle Capital Corporation, a privately held mergers and
acquisitions company. Mr. Bhatt serves as a director of Big Brothers Association
of Boston. Mr. Bhatt, a Certified Public Accountant, received his Masters in
Business Administration degree from the University of Michigan and his Bachelor
of Commerce degree from the University of Bombay.
Philip Gardner will become Vice President of the Company upon the
consummation of the Offering. Prior to the Offering, since February 1997, Mr.
Gardner has been a consultant to PROVANT. From August 1994 to December 1996, Mr.
Gardner was a consultant for McKinsey & Company ("McKinsey"), a management
consulting firm. Prior to joining McKinsey, from 1985 to 1992, Mr. Gardner was
an officer and a highly decorated strike fighter pilot in the United States
Navy. Mr. Gardner received his Masters in Business Administration degree from
Harvard Graduate School of Business Administration and his Bachelor of Arts
degree in Government from Harvard College.
Herbert A. Cohen will become a director of the Company immediately
following the consummation of the Offering. Mr. Cohen has been Chief Executive
Officer of MOHR since February 1991. From September 1978 to January 1991, Mr.
Cohen was a partner and one of the original principals of MOHR Development,
Inc., a training and consulting company. Mr. Cohen has served as President and
Director of the Instructional Systems Association, an association of over 150
training companies dedicated to improving performance through training. Mr.
Cohen received his Bachelor of Science degree in Psychology from the University
of Maine.
Bert Decker will become a director of the Company immediately following the
consummation of the Offering. Mr. Decker has been Chairman and Chief Executive
Officer of Decker since October 1979. Mr. Decker is the author of the
best-selling books You've Got to be Believed to be Heard and Creating Messages
That Motivate. Mr. Decker also is the personal communications trainer for
Charles Schwab and Olympic gold medalist Bonnie Blair. Mr. Decker has appeared
on several national television programs, including The Today Show and 20/20. Mr.
Decker received his Bachelor of Arts degree in Psychology from Yale University.
Paul C. Green, Ph.D. will become a director of the Company immediately
following the consummation of the Offering. Dr. Green has been Chief Executive
Officer of BTI since May 1979. Dr. Green developed the Behavioral
Interviewing(R) seminar, which has been attended by several hundred thousand
managers worldwide. Dr. Green has also served as Assistant Professor in the
Marketing Department at Memphis State University, where he taught courses in
salesmanship, sales promotion, sales management and consumer behavior. Dr. Green
received his Doctorate degree in Industrial-Organizational Psychology from
Memphis State University, his Master of Science degree in Psychology from
Memphis State University and his Bachelor of Arts degree from Lambuth College.
Joe Hanson will become a director of the Company immediately following the
consummation of the Offering. Mr. Hanson has been a Managing Director of
Novations since May 1997. Previously, from May 1989 to April 1997, Mr. Hanson
was employed by Novations in a variety of capacities including consultant,
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<PAGE> 52
Director and Chief Financial Officer. From September 1983 to March 1987, Mr.
Hanson was a consultant for KPMG Peat Marwick LLP. Mr. Hanson is a Certified
Public Accountant. Mr. Hanson received his Masters in Business Administration
degree from Brigham Young University and his Bachelor of Science degree in
Accounting from Brigham Young University.
John F. King will become a director of the Company immediately following
the consummation of the Offering. Mr. King has been Chief Executive Officer of
LSS since December 1990. From October 1981 to November 1988, Mr. King was
employed by Wilson Learning where he served in various capacities including
Regional Sales Manager, Account Executive, and Performance Consultant. Mr. King
previously served as Professor of Communications Studies at McKendree College.
Mr. King received his Master of Arts degree in Communication Studies, Mass
Communications from Purdue University and his Bachelor of Arts degree from
California State University, Long Beach.
A. Carl von Sternberg will become a director of the Company immediately
following the consummation of the Offering. Mr. von Sternberg has been President
of Star Mountain since September 1987. In 1975, Mr. von Sternberg founded Allen
Corporation of America ("Allen") a firm specializing in training, human factors,
engineering and logistics services. From October 1975 to May 1986, Mr. von
Sternberg was President and Chairman of Allen, which was selected in 1982 by
Inc. Magazine as one of America's 500 fastest growing private companies. Prior
to founding Allen, Mr. von Sternberg served as Executive Vice President and
Chief Operating Officer of Essex Corporation, a behavioral science research
company, which he co-founded in 1969. Mr. von Sternberg received his Bachelor of
Science degree in Industrial Administration from Yale University.
Marc S. Wallace will become a director of the Company immediately following
the consummation of the Offering. Mr. Wallace has been President of J. Howard
since January 1991 and Treasurer since April 1983. Mr. Wallace serves on the
Boards of Directors of Belmont Hill School and the Berklee School of Music, on
the Board of Advisors of First Community Bank in Boston and as a member of the
Northeastern University Corporation. Mr. Wallace also is a member of the Boston
Chamber of Commerce. Mr. Wallace received his Masters in Business Administration
degree with a concentration in Finance from Central Michigan University and his
Bachelor of Arts degree from Adams State College.
Michael J. Davies will become a director of the Company upon the
consummation of the Offering. Mr. Davies has been a consultant to PROVANT since
February 1997, and will continue to be a consultant following the Offering. From
April 1994 to June 1997, Mr. Davies was a Managing Director of Legg Mason Wood
Walker, Incorporated, specializing in media and communications. From September
1990 to March 1993, Mr. Davies was publisher of The Baltimore Sun. Mr. Davies is
a member of the Board of Directors of Mecklermedia Corporation, a provider of
Internet news, information and analysis through its magazines, trade shows and
web site. Mr. Davies received his Master of Science degree in Journalism from
the Medill School of Journalism at Northwestern University and his Bachelor of
Science degree from Georgia State University.
David B. Hammond will become a director of the Company upon the
consummation of the Offering. Mr. Hammond has been Chairman of Integrated
Transport Systems Limited, a European vehicle auctioneer, since December 1995.
Previously, from 1988 until April 1996, he served as Deputy Chairman of ADT
Limited, an electronic security company. Mr. Hammond is a Fellow of the
Institute of Chartered Accountants in England. Mr. Hammond is a director of BHI
Corporation, and served as a director and Chairman of the Audit Committee of AMR
from 1993 until 1997.
John R. Murphy will become a director of the Company upon the consummation
of the Offering. Since March 1998, Mr. Murphy has served as Vice Chairman of the
National Geographic Society ("National Geographic"). Mr. Murphy has served
National Geographic in several capacities, including as its President and Chief
Executive Officer from May 1995 until March 1998, and as its Executive Vice
President from May 1993 until May 1995. Previously, from July 1981 until January
1991, Mr. Murphy served as President and publisher of The Baltimore Sun. Mr.
Murphy is a past President of the United States Golf Association, and currently
serves as a director of Omnicom Group and MSD&T Mutual Funds.
Esther T. Smith will become a director of the Company upon the consummation
of the Offering. Since October 1996, Ms. Smith has been a management consultant
in corporate positioning and internet enterprise
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<PAGE> 53
development. From October 1996 to December 1997, she was Editor-at-Large of
TechNews Inc. ("TechNews"). Previously, from September 1985 to September 1996
she was President and a director of TechNews. From January 1995 to September
1996, she also served as that company's Chief Executive Officer. Now
Post-Newsweek Business Information, Inc., TechNews was acquired by The
Washington Post Co. in 1996. Ms. Smith is an advisor to the Netpreneur Program
of the Morino Institute, Reston, Virginia, and is a member of the Board of
Directors of Women's Connection Online Inc. and of a number of technology
industry associations.
MANAGEMENT OF THE COMPANY FOLLOWING THE COMBINATION
Upon the consummation of the Offering, the Company intends to operate with
a decentralized management structure. Messrs. Verrochi, Zenger, Puopolo, Bhatt
and Gardner will manage the Company's operations and be responsible for areas
including strategic planning, acquisitions, resource allocation, capital
financing, financial reporting, marketing efforts and human resources. They will
work closely with the Founding Companies to coordinate, integrate and expand
their service and product offerings. Messrs. Cohen, Decker, Green, Hanson, King,
von Sternberg and Wallace (together with the other key executives of the
Founding Companies) will continue to make day-to-day operating decisions and be
primarily responsible for the operations of their respective Founding Companies.
BOARD OF DIRECTORS
After consummation of the Combination and the Offering, the Board of
Directors will consist of 14 directors. The term of office of each director of
the Company ends at the next annual meeting of the Company's stockholders and
when his or her successor is elected and qualified. Following the Offering, the
Board of Directors will establish an Audit Committee, a Compensation Committee
and such other committees as the Board may determine. The Audit Committee, a
majority of which will be outside directors, will make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans for and results of the Company's annual
audit, approve professional services provided by and the independence of the
independent public accountants, consider the range of audit and non-audit fees,
and review the adequacy of the Company's internal accounting controls. The
Compensation Committee, all of which will be outside directors, will establish a
general compensation policy for the Company, approve increases in directors'
fees and salaries paid to officers and senior employees of the Company,
administer the Company's 1998 Equity Incentive Plan, Stock Plan for Non-Employee
Directors and 1998 Employee Stock Purchase Plan, and determine, subject to the
provisions of the Company's employee benefit plans, the directors, officers and
employees of the Company eligible to participate in any of the plans, the extent
of such participation and the terms and conditions under which benefits may be
vested, received or exercised.
Officers of the Company serve at the pleasure of the Board of Directors,
subject to the terms of any employment agreements with the Company.
DIRECTOR COMPENSATION
Members of the Board of Directors who also serve as officers of or
full-time consultants to the Company or its subsidiaries do not receive
compensation for serving on the Board. Each other member of the Board will
receive a fee of $3,000 for each Board of Directors meeting attended and an
additional fee of $500 for each committee meeting attended. All directors will
receive reimbursement of reasonable expenses incurred in attending Board and
committee meetings and otherwise carrying out their duties. Non-employee
directors also are entitled to receive an option grant as described in "-- Stock
Plan for Non-Employee Directors."
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
The Company was incorporated in 1996 and has conducted no operations and
paid no compensation to its officers in fiscal 1997. The Company has entered
into employment agreements, the terms of which are effective upon the closing of
the Offering, with its executive officers. The material terms of these
agreements are summarized below.
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<PAGE> 54
The Company's employment agreement with each of Messrs. Verrochi, Zenger,
Puopolo, Bhatt and Gardner has a term of three years, and provides for an
initial base salary (subject to upward adjustment in the sole discretion of the
Company's Board of Directors) and participation in the Company's bonus and
benefit plans. The initial base salaries for Messrs. Verrochi, Zenger, Puopolo,
Bhatt and Gardner are $50,000, $150,000, $50,000, $200,000 and $125,000,
respectively. The salaries to be paid to Messrs. Verrochi and Puopolo after the
first year of the term of their employment agreements will be determined by the
Company's Board of Directors. Each of the five agreements may be terminated
prior to the expiration of the three-year term either in the event of disability
or for cause (as defined). If any of the individuals does not continue to be
employed by the Company upon the expiration of the agreement, the individual is
entitled to receive six months' severance at his base salary as in effect at the
time of expiration. Each of Messrs. Verrochi, Zenger, Puopolo, Bhatt and Gardner
has agreed not to compete with the Company for a period of five years from the
closing date of the Offering. Under their employment agreements, Messrs.
Verrochi and Puopolo are entitled to receive options to purchase 34,027 shares
of Common Stock each. See "-- Equity Incentive Plan."
The principals of the Founding Companies who will become directors of the
Company immediately following the closing of the Combination will enter into
three-year employment agreements with the Company or a subsidiary of the
Company, the material terms of which are described in "Certain Transactions --
Organization of the Company."
EQUITY INCENTIVE PLAN
The Company has adopted the 1998 Equity Incentive Plan (the "Equity
Incentive Plan"), which provides for the award of up to 1,100,000 shares of
Common Stock in the form of incentive stock options ("ISOs"), non-qualified
stock options, stock appreciation rights, performance shares, restricted stock
or stock units (each, an "Award"). All directors and employees of, and all
consultants and advisors to, the Company (including its subsidiaries) are
eligible to participate in the Equity Incentive Plan.
The Equity Incentive Plan will be administered by the Compensation
Committee (the "Committee"), which determines who shall receive Awards from
those individuals eligible to participate in the Equity Incentive Plan, the type
of Award to be made, the number of shares of Common Stock that may be acquired
pursuant to the Award and the specific terms and conditions of each Award,
including the purchase price, term, vesting schedule, restrictions on transfer
and any other conditions and limitations applicable to the Awards or their
exercise. Options that are ISOs may be exercisable for not more than 10 years
after the date the option is awarded. The Committee may at any time accelerate
the exercisability of all or any portion of an option.
In the event a transaction occurs that results in the Common Stock not
being registered under Section 12 of the Exchange Act, all Awards shall
terminate upon the completion of the transaction. If the transaction is intended
to be treated as a pooling-of-interests for accounting purposes, then the
Committee or the Board of Directors shall cause the acquiring or surviving
corporation or one of its affiliates to grant replacement Awards to
participants. Otherwise, the Committee or the Board of Directors may either
accelerate the exercisability of all outstanding Awards (subject to completion
of the transaction) or terminate all Awards in exchange for a cash payment.
The Equity Incentive Plan may be amended from time to time or terminated in
its entirety by the Board of Directors; however, no amendment may be made
without stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement.
In connection with the Offering, the Company will grant Messrs. Verrochi,
Zenger, Puopolo, Bhatt and Gardner options to purchase 47,027, 100,000, 47,027,
50,000 and 10,000 shares of Common Stock, respectively, each of which will have
a per share exercise price equal to the initial offering price. The options
granted to Messrs. Zenger, Bhatt and Gardner will become exercisable with
respect to one-third of the underlying shares of Common Stock on each of the
first three anniversaries of the date of grant, and the options granted to
Messrs. Verrochi and Puopolo will become exercisable with respect to all of the
underlying shares of Common Stock upon the closing of the Offering. Mr. Davies
also will be granted an option to
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<PAGE> 55
purchase 50,000 shares of Common Stock, the terms of which are described in
"Certain Transactions." All of these options will expire seven years from the
date of grant.
In addition to the options to be granted to Messrs. Verrochi, Zenger,
Puopolo, Bhatt, Gardner and Davies, the Company will award to employees and
consultants of the Founding Companies and PROVANT options under the Equity
Incentive Plan to purchase an aggregate of 594,780 shares of Common Stock. Each
such option will have a per share exercise price equal to the initial public
offering price, will expire seven years from the date of grant and generally
will become exercisable with respect to one-third of the shares of Common Stock
issuable thereunder on each of the first three anniversaries of the date of
grant (except for options to purchase 30,000 shares of Common Stock which will
become exercisable with respect to all of the underlying Common Stock upon the
closing of the Offering).
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
The Company's Board of Directors has adopted the Stock Plan for
Non-Employee Directors (the "Directors' Plan"). Subject to adjustment for stock
splits and similar events, a total of 100,000 shares of Common Stock have been
reserved for issuance under the Directors' Plan. Pursuant to the Directors'
Plan, in connection with the Offering, each director and director nominee who is
not an employee of or consultant to the Company or one of its subsidiaries (a
"non-employee director") and is not a stockholder of the Company prior to the
Offering will receive an option to purchase 7,500 shares of Common Stock with a
per share exercise price equal to the initial public offering price. Each
non-employee director initially elected following the Offering will be granted
upon such election an option to purchase 7,500 shares of Common Stock. The per
share exercise price of options granted following the Offering will be the fair
market value of the Common Stock on the date of grant. Each option will be
non-transferable except upon death (unless otherwise approved by the Board),
will expire 10 years after the date of grant and will become exercisable with
respect to all of the shares of Common Stock issuable thereunder on the date
that is six months following the date of grant if the individual is a director
at such time. If the director dies or otherwise ceases to be a director prior to
the expiration of an option, the option (if exercisable) will remain exercisable
for a period of one year (following death) or three months (following other
termination of the individual's status as a director), but in no event beyond
the tenth anniversary of the date of grant. The Board of Directors may at any
time or times amend the Directors' Plan for any purpose that at the time may be
permitted by law.
As of the date of the closing of the Offering, options to purchase 15,000
shares of Common Stock will have been granted under the Directors' Plan.
STOCK PURCHASE PLAN
The 1998 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
has been approved by the Board of Directors and stockholders of the Company. The
Employee Stock Purchase Plan is designed to enable eligible employees to
purchase shares of Common Stock at a discount on a periodic basis. All employees
working more than 20 hours per week, other than employees owning 5% or more of
the combined voting power of all classes of stock of the Company, will be
eligible to participate. Purchases will occur at the end of option periods, each
of six months' duration. The first such option period will begin on June 1,
1998. The purchase price of Common Stock under the Employee Stock Purchase Plan
will be 85% of the lesser of the last sale price of the Common Stock on the day
prior to the beginning of an option period and the last sale price of the Common
Stock on the day prior to the end of the option period. Participants may elect
under the Employee Stock Purchase Plan to have from 2% to 10% of their pay
applied to the purchase of shares at the end of the option period.
Subject to adjustment for stock splits and similar events, a total of
500,000 shares of Common Stock has been reserved for issuance under the Employee
Stock Purchase Plan. None of these shares has been issued to date.
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<PAGE> 56
LIMITATION OF CERTAIN LIABILITY OF OFFICERS AND DIRECTORS
As permitted by the DGCL, the Company's Certificate of Incorporation
provides for the elimination, subject to certain conditions, of the personal
liability of directors of the Company for monetary damages for breach of their
fiduciary duties. The directors, however, remain subject to equitable remedies
and to liability for breach of their duty of loyalty to the Company or its
stockholders. The Company's Certificate of Incorporation and By-laws also
provide that the Company will indemnify its directors and officers. In addition,
the Company maintains an indemnification insurance policy covering all directors
and officers of the Company. In general, the Company's Certificate of
Incorporation, By-laws and the indemnification insurance policy attempt to
provide the maximum protection permitted by Delaware law with respect to
indemnification and exculpation of directors and officers.
Under the indemnification provisions of the Company's Certificate of
Incorporation and By-laws and the indemnification insurance policy, the Company
will repay certain expenses incurred by a director or officer in connection with
any civil or criminal action or proceeding, specifically including actions by or
in the name of the Company (derivative suits), where the individual's
involvement is by reason of the fact that he or she is or was a director or
officer of the Company. Such indemnifiable expenses include, to the maximum
extent permitted by law, attorney's fees, judgments, civil or criminal fines,
settlement amounts, and other expenses customarily incurred in connection with
legal proceedings. A director or officer will not receive indemnification if he
or she is found not to have acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
Company.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, after giving effect to the Combination,
by (i) each director and director nominee of the Company, (ii) certain executive
officers of the Company, (iii) all directors, director nominees and executive
officers as a group, and (iv) each person or entity known to the Company to own
beneficially more than 5% of the outstanding Common Stock. The persons named in
this table have an address c/o the Company's principal executive offices, and,
except as indicated in the footnotes below, have sole investment and voting
power with respect to the shares beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OWNED (1)
----------------------
BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES (2) OFFERING OFFERING
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Paul M. Verrochi (3)(4).................................... 1,128,389 16.0% 11.7%
John H. Zenger (5)......................................... 179,294 2.6 1.9
Dominic J. Puopolo (3)(6).................................. 1,059,230 15.0 11.0
Rajiv Bhatt................................................ 90,989 1.3 *
Philip Gardner............................................. 310,544 4.6 3.3
Herbert A. Cohen (7)....................................... 121,862 1.8 1.3
Bert Decker................................................ 222,328 3.3 2.4
Paul C. Green.............................................. 425,352 6.3 4.5
Joe Hanson................................................. 74,059 1.1 *
John F. King (8)........................................... 316,627 4.7 3.4
A. Carl von Sternberg (9).................................. 538,084 7.9 5.7
Marc S. Wallace............................................ 105,803 1.6 1.1
Michael J. Davies (10)..................................... 343,008 5.0 3.6
David B. Hammond (11)...................................... 40,797 * *
John R. Murphy............................................. -- -- --
Esther T. Smith............................................ -- -- --
All directors, director nominees and executive officers as
a group (16 persons) (12)................................ 4,956,366 67.7 49.9
</TABLE>
- ---------------
* Less than 1%.
(1) Percentages in the table are based upon 6,805,558 and 9,405,558 shares of
Common Stock assumed to be outstanding as of the closing of the Combination
and the Offering, respectively.
(2) Share information assumes an initial public offering price of $12.00 per
share. The Founding Companies' merger agreements specify the aggregate
dollar values, but not the share amounts, of the Common Stock to be
received by their stockholders in the Combination. As a result, if the
initial public offering price is less or greater than $12.00, the Founding
Companies' stockholders (and in particular, Messrs. Cohen, Decker, Green,
Hanson, King, von Sternberg and Wallace) will receive a larger or smaller
number of shares of Common Stock, respectively. In addition, PROVANT will
declare a stock dividend (currently assumed to be 894.68358-for-1) on all
outstanding Common Stock prior to the closing of the Combination such that,
without giving effect to the Offering (but giving effect to the
Combination), there will be outstanding a total of 6,805,558 shares of
Common Stock. The size of the stock dividend (and as a result, the number
of shares of Common Stock held by Messrs. Verrochi, Zenger, Puopolo, Bhatt,
Gardner and Davies) will vary if the initial offering price is less or
greater than $12.00, with the size of the dividend increasing if the
initial public offering price increases and decreasing if the initial
public offering price decreases.
(3) Includes 188,111 shares (assuming that the individual does not exercise
such warrant prior to the closing of the Offering) issuable pursuant to a
warrant that currently is exercisable, and 47,027 shares issuable upon the
exercise of an option that will become exercisable in full upon the closing
of the Offering. Excludes 235,138 shares issuable upon the exercise of the
Contingent Warrant described in "Certain Transactions."
(4) Includes 55,470 shares held by Mr. Verrochi's wife, and 128,834 shares held
by a trust of which Mr. Verrochi is trustee and as to which Mr. Verrochi
disclaims beneficial ownership.
(5) Shares are held jointly with Mr. Zenger's wife.
(6) Includes 55,470 shares held by Mr. Puopolo's wife, and 128,834 shares held
by a trust of which Mr. Puopolo is trustee and as to which Mr. Puopolo
disclaims beneficial ownership.
(7) Includes 60,931 shares held by Mr. Cohen's wife.
(8) Shares are held jointly with Mr. King's wife.
(9) Includes 33,418 shares held by Mr. von Sternberg's wife.
(10) Includes 50,000 shares issuable upon the exercise of an option that will
become exercisable in full upon the closing of the Offering.
(11) Shares are held by a corporation of which the sole stockholders are Mr.
Hammond and his wife.
(12) See notes 3 through 11 above.
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<PAGE> 58
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Combination will be accomplished through separate mergers of each
Founding Company with a separate, newly formed subsidiary of the Company. As a
result, after the closing of the Combination and the Offering (the "Closing"),
all of the assets, liabilities and business operations formerly held by each
Founding Company will exist in a separate subsidiary of the Company.
Each of the merger agreements provides for the Company to pay the
stockholders of the Founding Company, except as discussed below, (i) a fixed
amount of cash at the Closing (subject to certain adjustments as discussed
below), (ii) shares of Common Stock at the Closing having a fixed dollar value,
with the final number of shares being determined by the Offering price, and
(iii) with respect to six of the Founding Companies, shares of Common Stock
deliverable after the Closing having a value up to a fixed dollar amount. The
Additional Consideration and J. Howard Contingent Consideration will be paid in
shares of Common Stock, with the number of those shares determined by a formula
based on the relationship of the EBIT of that Founding Company (including its
successor following the Closing) for the fiscal year ending June 30, 1998 (June
30, 1999 in the case of J. Howard) to a specified EBIT target. In particular,
each merger agreement with a Founding Company (other than Star Mountain)
contains a targeted pro forma EBIT amount in excess of a baseline figure which,
if achieved by the Founding Company, will result in the payment by the Company
to the former stockholders of the Founding Company of the maximum Additional
Consideration or J. Howard Contingent Consideration (consisting of a multiple of
the excess EBIT amount). To the extent the Founding Company does not achieve the
targeted amount, its former stockholders will receive a lesser amount of
Additional Consideration or J. Howard Contingent Consideration proportionately
related to the excess above the baseline figure. Shares of Common Stock issued
as Additional Consideration will be valued at the initial public offering price,
and shares issued as J. Howard Contingent Consideration will be valued based on
the average of the last sale prices of the Common Stock on Nasdaq during the 20
business days immediately following PROVANT's first public announcement of its
financial results for fiscal 1999.
For the seventh Founding Company, Star Mountain, the stockholders will be
entitled to receive additional shares of Common Stock or cash in accordance with
a formula based on the amount by which the EBIT of Star Mountain following the
Closing for the fiscal year ending June 30, 1999 exceeds a specified EBIT target
(the "Star Mountain Contingent Consideration"). In particular, if Star
Mountain's EBIT for fiscal 1999 exceeds the specified target, then (i) Star
Mountain's former non-voting stockholders will receive cash equal to a multiple
of the excess EBIT and (ii) Star Mountain's former voting stockholders will
receive, at their election, either cash equal to a multiple of the excess EBIT
or a number of shares of Common Stock equal to a multiple of the excess EBIT
divided by 80% of the average of the last sale prices of the Common Stock on
Nasdaq during the month of July 1999.
Holders of options to purchase shares of Star Mountain's non-voting stock
will receive cash in the Combination pursuant to that company's merger
agreement, and holders of options to purchase shares of Star Mountain's voting
stock will receive a combination of cash and Common Stock. All such options will
be treated as if they had been exercised in full (including all unvested
portions) as of the Closing. Holders of Star Mountain's non-voting stock will
receive only cash in connection with the Combination
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<PAGE> 59
The aggregate consideration to be paid by the Company in the Combination to
the stockholders and option holders of the Founding Companies is shown below and
consists of approximately $22.4 million in cash (prior to any adjustments
discussed in the following paragraph) and 3,747,626 shares of Common Stock at
the Closing, and up to a maximum of 1,050,000 shares of Common Stock as
Additional Consideration (assuming the achievement of certain EBIT targets)
following the end of fiscal 1998.
<TABLE>
<CAPTION>
AT CLOSING
----------------------------------------
SHARES ADDITIONAL CONSIDERATION
-------------------------- --------------------------
FOUNDING COMPANY CASH (1) DOLLAR VALUE NUMBER (2) DOLLAR VALUE NUMBER (2)
---------------- ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BTI.......................... $5,000,000 $5,848,644 487,387 $2,000,000 166,666
Decker....................... 1,550,000 4,533,240 377,770 3,000,000 250,000
J. Howard.................... 1,700,000 3,071,988 255,999 4,300,000 *
LSS.......................... 2,625,000 7,677,396 639,783 1,000,000 83,333
MOHR......................... 1,200,000 2,709,648 225,804 2,000,000 166,666
Novations.................... 4,987,500 8,887,080 740,590 4,600,000 383,333
Star Mountain................ 5,353,000 12,243,516 1,020,293 * *
</TABLE>
- ---------------
* Excludes the Star Mountain Contingent Consideration and the number of shares
issuable as J. Howard Contingent Consideration.
(1) Prior to the adjustments discussed below.
(2) Assuming an initial public offering price of $12.00 per share.
Each of the mergers in the Combination is conditioned upon the applicable
Founding Company meeting certain specified financial standards (which vary among
the Founding Companies) as of the Closing, including a specified minimum net
worth. If a Founding Company's net worth as of the Closing is higher than the
specified minimum, the cash portion of the purchase price set forth above will
be increased by a dollar amount equal to the excess. If a Founding Company's net
worth as of the Closing is lower than the specified minimum, then all or a
portion of the shortfall will be repaid to the Company by certain stockholders
of such Founding Company through an indemnification payment based upon their
percentage of stock ownership in the Founding Company. Each Founding Company may
make a cash dividend to its stockholders prior to the Closing so long as doing
so will not prevent such Founding Company from satisfying the financial
standards specified in its merger agreement.
The consideration to be paid for the Founding Companies was determined
through arm's length negotiations between PROVANT and representatives of each
Founding Company. The factors considered by the parties in determining the
consideration to be paid included, among others, the pro forma adjusted EBIT,
net worth and future prospects of the Founding Companies.
In connection with the Combination, the following principals of the
Founding Companies who will become directors of the Company immediately
following the Closing will receive the following amounts, which are reflected in
the table above: Mr. Cohen, $500,022 and 121,862 shares of Common Stock
(including cash and shares issued to his wife); Mr. Decker, $759,625 and 222,328
shares of Common Stock; Dr. Green, $4,495,424 and 425,352 shares of Common
Stock; Mr. Hanson, $498,752 and 74,059 shares of Common Stock; Mr. King,
$968,108 and 316,627 shares of Common Stock; Mr. von Sternberg, $2,538,559 and
538,084 shares of Common Stock (including cash and shares issued to his wife);
and Mr. Wallace, $702,593 and 105,803 shares of Common Stock.
The consummation of the Combination is subject to completion of the
Offering and customary conditions including, among others, the continuing
accuracy at the Closing of the representations and warranties made by the
Founding Companies and the Company in the merger agreements, receipt of all
necessary consents and approvals, delivery of opinions of counsel, the
performance of covenants included in the agreements relating to the Combination,
and the nonexistence of a material adverse change in the business, results of
operations or financial condition of each Founding Company. The merger
agreements provide that certain stockholders of the Founding Companies will
indemnify PROVANT against certain liabilities, including breaches of such
Founding Company's representations and warranties thereunder.
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Pursuant to the agreements entered into in connection with the Combination,
the principal stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing as of the Closing. In addition, the
principal stockholders and certain other employees of each of the Founding
Companies will enter into three-year employment agreements with the Company.
Each such agreement with a Founding Company's director nominee (i.e., Messrs.
Cohen, Decker, Green, Hanson, King, von Sternberg and Wallace) will provide for
an initial base salary of $175,000 (except for Mr. Decker's agreement which will
provide for a base salary of $125,000), subject to upward adjustment in the sole
discretion of the Company, and in most cases participation in the Company's
bonus and benefit plans. Each agreement may be terminated prior to the
expiration of the three-year term either in the event of disability or for cause
(as defined). If the individual does not continue to be employed by the Company
upon the expiration of the agreement, the individual shall be entitled to
receive six months' severance at his base salary as in effect at the time of
expiration.
Certain of the indebtedness of the Founding Companies currently is
personally guaranteed by their respective stockholders. The Company will repay
such indebtedness at the Closing (from the net proceeds of the Offering and from
borrowings under its proposed credit facility), and the guarantees will be
released. In particular, the Company will repay amounts owed by Novations (which
totalled approximately $1.3 million as of December 31, 1997) and Star Mountain
(which totalled approximately $3.3 million as of December 31, 1997) which are
personally guaranteed by Messrs. Hanson and von Sternberg, respectively. In
addition, the Company will assume in the Combination other indebtedness of the
Founding Companies that had an aggregate outstanding balance of $1.8 million as
of December 31, 1997.
The former stockholders of the Founding Companies will agree that, for a
period of two years following the Closing, they will not sell any shares of
Common Stock received by them in connection with the Combination other than
pursuant to an effective registration statement under the Securities Act. The
Company has no obligation to provide such a registration statement but, in the
event the Company decides to register any shares received by any stockholder in
the Combination, or any shares of Common Stock issued or issuable pursuant to
options and warrants granted by PROVANT prior to the Closing, it must give each
of the Company's stockholders (giving effect to the Combination but not the
Offering) the opportunity to register a pro rata amount thereunder. In addition,
between the second and third anniversary of the Closing, these stockholders may
only sell such shares through a broker or brokers designated by the Company.
OTHER TRANSACTIONS
Organization of PROVANT
In connection with the founding and organization of PROVANT, Messrs.
Verrochi, Zenger, Puopolo, Gardner, Davies and Donald W. Glazer purchased the
following shares of Common Stock for an aggregate purchase price of
approximately $3,250: Mr. Verrochi, 893,251 shares; Mr. Zenger, 269,657 shares;
Mr. Puopolo, 824,092 shares; Mr. Gardner, 310,544 shares; Mr. Davies, 293,008
shares; and Mr. Glazer, 351,968 shares. Mr. Glazer will enter into a consulting
agreement with the Company having a term of two years from the Closing and
providing for an annual consulting fee of $125,000.
A consultant to the Company was granted an option in September 1997 to
purchase 10,000 shares of Common Stock at a per share exercise price of $5.00.
The option becomes exercisable with respect to all of the underlying shares of
Common Stock upon the Closing, and expires three years following the Closing.
American Business Partners LLC
During 1997, members of the management team and certain consultants were
assembled by American Business Partners LLC ("ABP") to pursue the consolidation
of companies in the training and development industry. Mr. Verrochi, Chairman of
the Board and Chief Executive Officer of the Company, and Mr. Puopolo, Executive
Vice President and Chief Financial Officer of the Company, are members of ABP.
ABP provided the Company with expertise regarding the consolidation process.
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Expenses paid by the Company prior to the Closing in connection with the
Combination and the Offering have been financed with funds advanced to the
Company by Messrs. Verrochi and Puopolo. Outstanding advanced amounts bear
interest at an annual rate equal to the prime rate of interest as from time to
time published in The Wall Street Journal. The Company will repay certain of the
advanced amounts plus interest to Messrs. Verrochi and Puopolo at the Closing
out of the proceeds of the Offering, and the Company intends to pay the
remaining advanced amounts by borrowings under its proposed credit facility. See
"Use of Proceeds." As of December 31, 1997, Messrs. Verrochi and Puopolo had
advanced approximately $971,000 to the Company for such expenses.
As partial consideration for their commitment to extend the financing
described above, Messrs. Verrochi and Puopolo each received two warrants. The
first warrant entitles the holder to purchase 188,111 shares of Common Stock at
a per share exercise price equal to the initial public offering price. The
second warrant entitles the holder to purchase 235,138 shares of Common Stock
which will become exercisable only if the market price of the Common Stock
increases to certain threshold levels (except as otherwise described below) (the
"Contingent Warrant"). Specifically, 20% of the total number of shares issuable
under the Contingent Warrant will become exercisable on each of the three
occasions that the market price of the Common Stock increases by 100%, 200%,
300%, respectively, from the initial public offering price, and the remaining
40% of the total number of shares issuable under the Contingent Warrant will
become exercisable if the market price of the Common Stock increases by 400%.
However, under certain circumstances involving the merger or sale of the
Company, the Contingent Warrant will become exercisable to purchase all of the
warrant shares. The exercise price of the Contingent Warrant increases on each
anniversary of the closing of the Offering. Specifically, the exercise price is
equal to the initial public offering price for the first 12 months following the
closing of the Offering and, for each 12 month period thereafter, is equal to
the initial public offering price plus 10% of the initial public offering price
multiplied by the number of full 12 month periods elapsed since the closing of
the Offering. However, once a portion of the Contingent Warrant becomes
exercisable, that portion's exercise price is fixed as of that date. All four
warrants expire on the seventh anniversary of the closing of the Offering. The
holders of the warrants have the right to require the Company to register the
resale of the shares that may be acquired upon exercise of the warrants under
the Securities Act.
In June 1997, Messrs. Verrochi and Puopolo sold to the Company furniture
and equipment for its corporate executive offices for an aggregate purchase
price of $150,000. The Company believes that the purchase price approximated the
fair market value of the furniture and equipment.
OTHER TRANSACTIONS INVOLVING OFFICERS AND DIRECTORS
Prior to the Offering, PROVANT had outstanding 3,057,932 shares of Common
Stock. All of such shares currently are beneficially owned by the proposed
management and directors of and consultants to PROVANT or members of their
families. The holders of all such shares have agreed with the Company that, for
a period of two years following the Closing, they will not sell any shares of
Common Stock held by them as of the Closing (or that may be purchased by them
under options and warrants outstanding as of the Closing) other than pursuant to
an effective registration statement under the Securities Act.
Michael J. Davies, who will become a director of the Company upon the
consummation of the Offering, also will become a full-time consultant to the
Company. For the performance of his consulting duties, Mr. Davies will be paid
an annual fee of $125,000. In addition, in consideration for his agreement to
become a consultant, Mr. Davies will receive, prior to the Closing, an option to
purchase 50,000 shares of Common Stock, which will become exercisable upon the
Closing for all of the shares issuable thereunder at a per share exercise price
equal to the initial public offering price. Mr. Davies currently is a consultant
to PROVANT. For information regarding option grants to individuals who will
become executive officers of the Company upon the Closing, see
"Management -- Equity Incentive Plan."
The Company intends to use $750,000 of the net proceeds of the Offering to
pay a fee due upon the Closing to Legg Mason Wood Walker, Incorporated for
information relating to the training and development industry developed by Mr.
Davies while he served as Managing Director at that company. See "Use of
Proceeds."
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As a result of the Combination, the Company will become a party to a
six-year lease of administrative offices, effective January 1, 1996, from Paul
C. Green, Ph.D., who will become a director of the Company immediately after the
Closing. For the years ended June 30, 1995, 1996 and 1997, rent expense paid to
Dr. Green pursuant to the lease was approximately $90,000, $76,000 and $85,000,
respectively. The Company believes that the terms of the lease are no less
favorable to the Company than could be obtained by the Company from
non-affiliated third parties.
As a result of the Combination, the Company will become a party to a
five-year lease of office facilities renewable for an additional five years,
effective March 1997, from Novations Partners, L.L.C., a Utah limited liability
company (the "LLC") which is controlled by the stockholders of Novations. Joe
Hanson, one of the members of the LLC, will become a director of the Company
immediately after the Closing. The annual rent expense to be paid to the LLC is
$300,000 for the first year of the lease and increases 3% per year thereafter.
Following the Combination, the Company will pay the LLC approximately $75,000
per year through April 1, 2001 for the sublease of certain equipment. The
Company believes that the terms of the lease and sublease are no less favorable
to the Company than could be obtained from non-affiliated third parties. In
addition, Novations has the right to receive amounts loaned by Novations to the
LLC. The balance due totalled approximately $192,000 as of December 31, 1997.
All outstanding amounts owed to Novations pursuant to these arrangements will be
paid by the LLC at or before the Closing.
A. Carl von Sternberg was indebted to Star Mountain during 1997 under a
promissory note. Mr. von Sternberg will become a director of the Company
immediately after the Closing. Borrowings by Mr. von Sternberg under the note
totalled approximately $349,000 as of December 31, 1997. Outstanding principal
amounts owed under the note accrue interest from time to time at the prime rate
of interest as reported in The Wall Street Journal. All principal amounts owed
under the note, together with accrued interest, will be repaid by Mr. von
Sternberg on or before the consummation of the Combination.
In December 1997, Marc S. Wallace, who will become a director of the
Company immediately after the Closing, incurred indebtedness to J. Howard
pursuant to two promissory notes in the aggregate principal amount of $75,000.
Outstanding principal amounts owed under the notes accrue interest from time to
time at an annual rate of 7.0%. The notes mature on May 31, 1998.
COMPANY POLICY
The Company's policy is that any future transactions with directors,
officers, employees or affiliates of the Company be approved in advance by a
majority of the Company's Board of Directors, including a majority of the
disinterested members of the Board, and be on terms no less favorable to the
Company than the Company could obtain from non-affiliated parties.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 45,000,000 shares of
capital stock, par value $.01 per share, consisting of 40,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock (the "Preferred Stock").
Without giving effect to the issuance of shares in the Offering (but giving
effect to the Combination), the Company has outstanding 6,805,558 shares of
Common Stock held by 78 stockholders, and no shares of Preferred Stock.
COMMON STOCK
Immediately following the Combination and the Offering, the Company will
have outstanding 9,405,558 shares of Common Stock and options and warrants to
purchase an aggregate of 1,755,332 shares of Common Stock. A total of 1,100,000
shares of Common Stock are reserved for issuance under the Equity Incentive
Plan, 100,000 shares of Common Stock under the Directors' Plan and 500,000
shares of Common Stock under the Employee Stock Purchase Plan. Holders of Common
Stock are entitled to one vote for each share held of
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record on all matters submitted to a vote of the stockholders, and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors of the Company out of funds legally available therefor.
See "Dividend Policy." All outstanding shares of Common Stock are, and the
shares to be issued in the Combination and sold in the Offering when issued and
paid for will be, fully paid and nonassessable, and the holders thereof will
have no preferences or rights of conversion, exchange or pre-emption. In the
event of any liquidation, dissolution or winding-up of the affairs of the
Company, holders of Common Stock will be entitled to share ratably in the assets
of the Company remaining after payment or provision for payment of all of the
Company's debts and obligations and after liquidation payments to holders of
outstanding shares of Preferred Stock, if any.
PREFERRED STOCK
The Preferred Stock, if issued, would have priority over the Common Stock
with respect to dividends and other distributions, including the distribution of
assets upon liquidation. The Board of Directors has the authority, without
further stockholder authorization, to issue from time to time shares of
Preferred Stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series. Although the
Company has no present plans to issue any shares of Preferred Stock following
the closing of the Offering, the issuance of shares of Preferred Stock, or the
issuance of rights to purchase such shares, could decrease the amount of
earnings and assets available for distribution to the holders of Common Stock,
could adversely affect the rights and powers, including voting rights, of the
Common Stock, and could have the effect of delaying, deterring or preventing a
change in control of the Company or an unsolicited acquisition proposal.
WARRANTS TO PURCHASE COMMON STOCK
The Company has issued warrants to Messrs. Verrochi and Puopolo, the terms
of which are more fully described in "Certain Transactions."
CERTAIN PROVISIONS
Special Meetings of the Stockholders of the Company. The Company's By-laws
provide that a special meeting of the stockholders of the Company only may be
called by the President, the Chairman of the Board or by order of the Board of
Directors. The By-laws do not authorize the stockholders to call a special
meeting of stockholders, potentially limiting the stockholders' ability to offer
proposals between annual meetings if no special meetings are otherwise called by
the President, Chairman or the Board.
No Action by Written Consent. The Company's Certificate of Incorporation
does not permit the Company's stockholders to act by written consent. As a
result, any action to be taken by the Company's stockholders must be taken at a
duly called meeting of the stockholders.
STATUTORY BUSINESS COMBINATIONS PROVISION
The Company is subject to the provisions of Section 203 of the DGCL
("Section 203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person, or an affiliate or associate of such a person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the Board of Directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the
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disinterested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company is BankBoston, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of the Combination and the Offering, the Company will
have 9,405,558 shares of Common Stock issued and outstanding, and 1,755,332
shares of Common Stock issuable upon the exercise of outstanding options and
warrants. Of these shares, 2,600,000 shares sold pursuant to the Offering (or
2,990,000 shares, if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction under the Securities Act,
except any shares purchased by an "affiliate" (as that term is defined under the
rules and regulations of the Securities Act) of the Company, which shares will
be subject to the resale limitations of Rule 144 of the Securities Act. The
remaining shares outstanding upon completion of the Offering may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company and the date on which they were acquired from an affiliate, then the
holder of such restricted securities (including an affiliate) is entitled to
sell that number of shares within any three-month period that does not exceed
the greater of (i) one percent of the then outstanding shares of Common Stock or
(ii) the average weekly reported volume of trading of Common Stock during the
four calendar weeks preceding such sale. Any shares of Common Stock issued as
Additional Consideration, J. Howard Contingent Consideration and Star Mountain
Contingent Consideration will be deemed to have been acquired at the Closing for
purposes of Rule 144. Sales under Rule 144 also are subject to certain
requirements pertaining to the manner of sales, notices of sales and the
availability of current public information concerning the Company. Any shares
not constituting restricted securities sold by affiliates must be sold in
accordance with the foregoing volume limitations and other requirements but
without regard to the one year holding period. Under Rule 144(k), if a period of
at least two years has elapsed from the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from the affiliate, a holder of such restricted securities who is not
an affiliate at the time of the sale and has not been an affiliate for at least
three months prior to the sale would be entitled to sell the shares immediately
without regard to the volume limitations and other conditions described above.
The Company and the holders of substantially all shares outstanding prior
to the Offering (including the holders of shares issued in connection with the
Combination) have agreed with the Representatives of the Underwriters not to
offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
shares of Common Stock, for a period of 180 days after the date of this
Prospectus (the "Lock-up Period") without the prior written consent of the
Representatives, except for: (i) in the case of the Company, Common Stock issued
pursuant to the Company's Equity Incentive Plan, Directors' Plan and Employee
Stock Purchase Plan or in connection with acquisitions; and (ii) in the case of
all such holders, the exercise of stock options pursuant to the benefit plans
described herein and shares of Common Stock disposed of as bona fide gifts,
subject, in each case, to any remaining portion of the Lock-up Period applying
to any shares so issued or transferred. In evaluating any request for a waiver
of the Lock-up Period, NationsBanc Montgomery Securities LLC will consider, in
accordance with its customary practice, all relevant facts and circumstances at
the time of the request, including, without limitation, the recent trading
market for the Common Stock, the size of the request and, with respect to a
request by the Company to issue additional equity securities, the purpose of
such an issuance.
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See "Underwriting." In addition, the stockholders of the Founding Companies and
all stockholders of the Company prior to the Offering have agreed to certain
transfer restrictions for a two-year period on all shares of Common Stock held
or to be held by them. See "Certain Transactions -- Organization of the Company"
and "-- Other Transactions Involving Officers and Directors."
In the aggregate, 100,000 shares of Common Stock are reserved for issuance
under the Directors' Plan, 1,100,000 shares are reserved for issuance under the
Equity Incentive Plan and 500,000 shares are reserved for issuance under the
Employee Stock Purchase Plan. The Company presently intends to file a
registration statement under the Securities Act to register Common Stock to be
issued pursuant to the exercise of options or stock granted or to be granted
under the Directors' Plan, Equity Incentive Plan and Employee Stock Purchase
Plan. Common Stock issued after the effective date of such registration
statement upon the exercise of such options (or the purchase of Common Stock
under the Employee Stock Purchase Plan) would be available for immediate resale
in the open market, subject to compliance with Rule 144 in the case of
affiliates.
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that the
availability of shares for sale or the actual sale of shares will have on market
prices prevailing from time to time. Sales or the availability for sale of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices and the ability of the Company to raise equity capital
in the future.
After the Closing, the Company plans to register an additional 3,000,000
shares of Common Stock under the Securities Act for use as consideration for
future acquisitions. Any such shares issued by the Company to affiliates of
companies acquired by the Company will be subject for one year after the
acquisition to the limitations and restrictions on resale imposed by Rule 145
under the Securities Act.
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UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, Salomon Smith Barney and Piper Jaffray
Inc. (the "Representatives"), have severally agreed, subject to the terms and
conditions in the underwriting agreement (the "Underwriting Agreement") by and
among the Company and the Underwriters, to purchase from the Company the number
of shares of Common Stock indicated below opposite its name, at the initial
public offering price less the underwriting discount set forth on the cover page
of this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock, if
they purchase any.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
Smith Barney Inc............................................
Piper Jaffray Inc...........................................
---------
Total............................................. 2,600,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. After the initial public offering, the
public offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 390,000 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company, its subsidiaries and
certain stockholders of the Founding Companies will indemnify the Underwriters
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make in
respect thereof.
The Company's officers and directors and substantially all of the
stockholders of the Company prior to the Offering (including the holders of
shares issued in connection with the Combination) have agreed that during the
Lock-up Period they will not, without the prior written consent of NationsBanc
Montgomery Securities LLC, directly or indirectly sell, offer, contract or grant
any option to sell, pledge, transfer, establish an open put equivalent position
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock. The Company also has agreed not to
issue, offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities during the Lock-up Period without the prior written
consent of NationsBanc Montgomery Securities LLC, except for securities issued
by the Company in connection with acquisitions and for grants and exercises of
stock options, subject in each case to any remaining portion of the Lock-up
Period applying to shares issued or transferred. In evaluating any request for a
waiver of the Lock-up Period, NationsBanc Montgomery Securities LLC will
consider, in accordance with its customary practice, all relevant facts and
circumstances at the time of the request, including, without limitation, the
recent trading market for the Common Stock, the size of the request, and, with
respect to a request by the Company to issue additional equity securities, the
purpose of such an issuance. See "Shares Eligible for Future Sale."
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In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act"), pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Common Stock in connection with the Offering than they are committed to purchase
from the Company and, in such case, may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 390,000 shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to above. In addition, NationsBanc Montgomery
Securities LLC, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the Offering), for the account of the
other Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations will be
the results of operations of the Founding Companies in recent periods, the
prospects for the Company and the industry in which the Company competes, an
assessment of the Company's management, its financial condition, the prospects
for future earnings of the Company, the present state of the Company's
development, the general condition of the economy and the securities markets at
the time of the Offering and the market prices of and demand for publicly traded
common stock of comparable companies in recent periods.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus will
be passed upon for the Company by Nutter, McClennen & Fish, LLP, Boston,
Massachusetts. Certain legal matters related to the Offering will be passed upon
for the Underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The financial statements of PROVANT, Inc. as of June 30, 1997 and for the
period from November 16, 1996 (date of inception) to June 30, 1997, and the
financial statements of Behavioral Technology, Inc., Decker Communications,
Inc., J. Howard & Associates, Inc., Robert Steinmetz, Ph.D., and Associates,
Inc. d/b/a Learning Systems Sciences, MOHR Retail Learning Systems, Inc.,
Novations Group, Inc. and Star Mountain, Inc. and subsidiaries (as of and for
the years ended December 31, 1996 and 1997), have been included herein and in
the Registration Statement in reliance on the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, upon the
authority of said firm as experts in giving said reports.
The financial statements of Star Mountain, Inc. for the year ended December
31, 1995 included in this Prospectus have been audited by Friedman & Fuller,
P.C., independent public accountants, as indicated in its report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including any and all
amendments thereto, the "Registration Statement") under the Securities Act and
the rules and regulations promulgated thereunder, with respect to the Common
Stock offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement and
the exhibits and schedules thereto for further information with respect to the
Company and the Common Stock offered hereby. Statements contained in this
Prospectus concerning the provisions or contents of any contract, agreement or
any other document referred to herein are not necessarily complete with respect
to each such contract, agreement or document filed as an exhibit to the
Registration Statement, and reference is made to such exhibit for a more
complete description of the matters involved, and each such statement shall be
deemed qualified by such reference. Upon completion of the Offering, the Company
will be subject to the information requirements of the Exchange Act, and in
accordance therewith will file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information, as
well as the Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from such offices, upon payment of the fees prescribed
by the Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that submit electronic filings to the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm, and with quarterly reports
for the first three quarters of each fiscal year containing unaudited interim
consolidated financial information.
67
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROVANT, INC. PRO FORMA:
Basis of Presentation..................................... F-3
Unaudited Pro Forma Combined Balance Sheet................ F-4
Unaudited Pro Forma Combined Statements of Operations..... F-5
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-7
PROVANT, INC.:
Independent Auditors' Report.............................. F-13
Balance Sheets............................................ F-14
Statements of Operations.................................. F-15
Statements of Stockholders' Equity........................ F-16
Statements of Cash Flows.................................. F-17
Notes to Financial Statements............................. F-18
BEHAVIORAL TECHNOLOGY, INC.:
Independent Auditors' Report.............................. F-23
Balance Sheets............................................ F-24
Statements of Operations.................................. F-25
Statements of Stockholders' Equity........................ F-26
Statements of Cash Flows.................................. F-27
Notes to Financial Statements............................. F-28
DECKER COMMUNICATIONS, INC.:
Independent Auditors' Report.............................. F-31
Balance Sheets............................................ F-32
Statements of Operations.................................. F-33
Statements of Stockholders' Equity........................ F-34
Statements of Cash Flows.................................. F-35
Notes to Financial Statements............................. F-36
J. HOWARD & ASSOCIATES, INC.:
Independent Auditors' Report.............................. F-40
Balance Sheets............................................ F-41
Statements of Operations.................................. F-42
Statements of Stockholders' Equity........................ F-43
Statements of Cash Flows.................................. F-44
Notes to Financial Statements............................. F-45
LEARNING SYSTEMS SCIENCES (ROBERT STEINMETZ, PH.D., AND
ASSOCIATES, INC. ):
Independent Auditors' Report.............................. F-48
Balance Sheets............................................ F-49
Statements of Operations.................................. F-50
Statements of Stockholders' Equity........................ F-51
Statements of Cash Flows.................................. F-52
Notes to Financial Statements............................. F-53
</TABLE>
F-1
<PAGE> 70
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MOHR RETAIL LEARNING SYSTEMS, INC.:
Independent Auditors' Report.............................. F-56
Balance Sheets............................................ F-57
Statements of Operations.................................. F-58
Statements of Stockholders' Equity........................ F-59
Statements of Cash Flows.................................. F-60
Notes to Financial Statements............................. F-61
NOVATIONS GROUP, INC.:
Independent Auditors' Report.............................. F-64
Balance Sheets............................................ F-65
Statements of Operations.................................. F-66
Statements of Stockholders' Equity........................ F-67
Statements of Cash Flows.................................. F-68
Notes to Financial Statements............................. F-69
STAR MOUNTAIN, INC.:
Independent Auditors' Reports............................. F-73
Consolidated Balance Sheets............................... F-75
Consolidated Statements of Operations..................... F-76
Consolidated Statements of Stockholders' Equity........... F-77
Consolidated Statements of Cash Flows..................... F-78
Notes to Consolidated Financial Statements................ F-80
</TABLE>
F-2
<PAGE> 71
PROVANT, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to (i) the Combination of PROVANT and the Founding Companies, (ii) the
consummation of the Offering and the application of the net proceeds therefrom
and (iii) certain other adjustments described below and in the notes to the
unaudited pro forma combined financial statements. See "Combination" and "Use of
Proceeds" included elsewhere herein. In the Combination, subsidiaries of PROVANT
are merging with the following Founding Companies: Behavioral Technology, Inc.,
Decker Communications, Inc., J. Howard & Associates, Inc., MOHR Retail Learning
Systems, Inc., Novations Group, Inc., Robert Steinmetz, Ph.D., and Associates,
Inc., d/b/a Learning Systems Sciences and Star Mountain, Inc. The Combination
will occur simultaneously with the closing of the Offering and will be accounted
for using the purchase method of accounting. PROVANT has been identified as the
accounting acquiror in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 97. These pro forma statements are based on the
historical financial statements of the Founding Companies included elsewhere in
this Prospectus and the estimates and assumptions set forth below and in the
notes to the unaudited pro forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the
Combination and the Offering as if they had occurred on December 31, 1997. The
unaudited pro forma combined statements of operations give effect to these
transactions as if they had occurred on July 1, 1996.
PROVANT has preliminarily analyzed the benefits that it expects to realize
from reductions in salaries and certain benefits to the owners of the Founding
Companies. To the extent these owners have agreed prospectively to reductions in
salary, bonuses and benefits, these reductions have been reflected in the pro
forma combined statements of operations. With respect to other potential
benefits, PROVANT cannot quantify these benefits until completion of the
Combination. It is anticipated that these benefits will be offset by costs
related to the Company's new corporate management and by the costs associated
with being a public company. However, because these costs cannot be accurately
quantified at this time, they have not been included in the pro forma financial
information of PROVANT.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The unaudited pro forma combined financial data presented herein does
not purport to represent what the Company's financial position or results of
operations actually would have been had such events occurred at the beginning of
the periods presented, as assumed, or to project the Company's financial
position or results of operations for any future period or the future results of
the Founding Companies. The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial statements of
PROVANT and the Founding Companies and the related notes thereto included
elsewhere in this Prospectus. Also see "Risk Factors" included elsewhere herein.
F-3
<PAGE> 72
PROVANT, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
STAR
BTI DECKER J. HOWARD LSS MOHR NOVATIONS MOUNTAIN PROVANT TOTAL
------ ------ --------- ------ ------ --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ -- $ 650 $ 208 $ 174 $ -- $ 23 $ 358 $ 3 $ 1,416
Investments........................ -- 738 -- -- -- -- -- -- 738
Accounts receivable, net........... 1,210 1,255 1,166 984 878 3,211 6,091 -- 14,795
Inventory.......................... -- -- -- -- 137 -- 129 -- 266
Due from related parties........... -- 202 214 -- -- 279 666 -- 1,361
Costs in excess of billings........ -- -- -- 561 -- -- -- -- 561
Prepaid expenses and other current
assets........................... 123 183 42 43 56 80 217 -- 744
------ ------ ------ ------ ------ ------ ------- ------- -------
Total current assets......... 1,333 3,028 1,630 1,762 1,071 3,593 7,461 3 19,881
Property and equipment, net.......... 120 353 301 153 46 437 946 148 2,504
Other assets......................... 8 105 138 104 -- -- 2,270 800 3,425
Goodwill............................. -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------- ------- -------
Total assets................. $1,461 $3,486 $2,069 $2,019 $1,117 $4,030 $10,677 $ 951 $25,810
====== ====== ====== ====== ====== ====== ======= ======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................... $ 422 $ 194 $ 59 $ 185 $ 230 $ 118 $ 1,685 $ 770 $ 3,663
Accrued expenses................... 148 199 105 40 309 160 1,152 -- 2,113
Accrued compensation............... 251 533 139 161 27 1,105 -- -- 2,216
Payable to stockholder/affiliate... -- -- -- -- -- -- -- 768 768
Billings in excess of costs........ -- -- -- 414 -- -- 1,247 -- 1,661
Deferred revenue................... 56 122 88 -- 85 -- -- -- 351
State income taxes................. -- 77 41 -- -- -- -- -- 118
Deferred tax liability............. -- -- -- -- -- 535 -- -- 535
Distributions payable.............. -- -- 103 -- -- -- -- -- 103
Current portion of long-term
debt............................. -- 405 -- -- -- 1,378 3,313 -- 5,096
------ ------ ------ ------ ------ ------ ------- ------- -------
Total current liabilities.... 877 1,530 535 800 651 3,296 7,397 1,538 16,624
Long-term debt, net of current
portion............................ -- 607 -- -- -- 365 304 -- 1,276
Deferred tax liability............... -- -- -- -- -- -- 198 -- 198
------ ------ ------ ------ ------ ------ ------- ------- -------
Total liabilities............ 877 2,137 535 800 651 3,661 7,899 1,538 18,098
Redeemable common stock.............. -- 300 -- -- -- -- -- -- 300
Stockholders' equity:
Common stock....................... 1 313 272 3 4 1 2,147 -- 2,741
Additional paid-in capital......... 182 -- -- -- -- -- -- 709 891
Translation adjustments............ (3) -- -- -- -- -- -- -- (3)
Unrealized gain on short-term
investments...................... -- 9 -- -- -- -- -- -- 9
Note receivable from stock sales... -- (171) -- -- -- -- -- -- (171)
Retained earnings (deficit)........ 404 898 1,262 1,216 462 368 1,257 (1,296) 4,571
Treasury stock..................... -- -- -- -- -- -- (626) -- (626)
------ ------ ------ ------ ------ ------ ------- ------- -------
Total stockholders' equity
(deficit).................. 584 1,049 1,534 1,219 466 369 2,778 (587) 7,412
------ ------ ------ ------ ------ ------ ------- ------- -------
Total liabilities and
stockholders' equity
(deficit).................. $1,461 $3,486 $2,069 $2,019 $1,117 $4,030 $10,677 $ 951 $25,810
====== ====== ====== ====== ====== ====== ======= ======= =======
<CAPTION>
COMBINATION PRO FORMA OFFERING
ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
----------- --------- ----------- -----------
(NOTE 3) (NOTE 3)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ (61) $ 1,355 $ 29 $ 1,384
Investments........................ -- 738 -- 738
Accounts receivable, net........... -- 14,795 -- 14,795
Inventory.......................... -- 266 -- 266
Due from related parties........... (344) 1,017 -- 1,017
Costs in excess of billings........ -- 561 -- 561
Prepaid expenses and other current
assets........................... -- 744 -- 744
------- ------- -------- -------
Total current assets......... (405) 19,476 29 19,505
Property and equipment, net.......... -- 2,504 -- 2,504
Other assets......................... (37) 3,388 (800) 2,588
Goodwill............................. 51,286 51,286 -- 51,286
------- ------- -------- -------
Total assets................. $50,844 $76,654 $ (771) $75,883
======= ======= ======== =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................... $ -- $ 3,663 $ -- $ 3,663
Accrued expenses................... -- 2,113 -- 2,113
Accrued compensation............... -- 2,216 -- 2,216
Payable to stockholder/affiliate... 22,416 23,184 (23,184) --
Billings in excess of costs........ -- 1,661 -- 1,661
Deferred revenue................... -- 351 -- 351
State income taxes................. -- 118 -- 118
Deferred tax liability............. -- 535 -- 535
Distributions payable.............. -- 103 -- 103
Current portion of long-term
debt............................. -- 5,096 (2,900) 2,196
------- ------- -------- -------
Total current liabilities.... 22,416 39,040 (26,084) 12,956
Long-term debt, net of current
portion............................ -- 1,276 -- 1,276
Deferred tax liability............... 750 948 -- 948
------- ------- -------- -------
Total liabilities............ 23,166 41,264 (26,084) 15,180
Redeemable common stock.............. (300) -- -- --
Stockholders' equity:
Common stock....................... (2,673) 68 26 94
Additional paid-in capital......... 35,727 36,618 26,240 62,858
Translation adjustments............ 3 -- -- --
Unrealized gain on short-term
investments...................... (9) -- -- --
Note receivable from stock sales... 171 -- -- --
Retained earnings (deficit)........ (5,867) (1,296) (953) (2,249)
Treasury stock..................... 626 -- -- --
------- ------- -------- -------
Total stockholders' equity
(deficit).................. 27,978 35,390 25,313 60,703
------- ------- -------- -------
Total liabilities and
stockholders' equity
(deficit).................. $50,844 $76,654 $ (771) $75,883
======= ======= ======== =======
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 73
PROVANT, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
STAR
BTI DECKER J. HOWARD LSS MOHR NOVATIONS MOUNTAIN PROVANT TOTAL
------ ------ --------- ------ --------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue...................... $7,096 $8,410 $7,317 $5,599 $3,015 $9,018 $20,790 $ -- $61,245
Cost of revenue.................... 1,488 2,275 2,160 1,928 825 4,839 12,602 -- 26,117
------ ------ -------- ------ -------- -------- ------- ------- -------
Gross profit............. 5,608 6,135 5,157 3,671 2,190 4,179 8,188 -- 35,128
Selling, general and administrative
expenses......................... 5,111 6,446 4,555 3,061 1,745 3,315 7,061 149 31,443
Goodwill amortization.............. -- -- -- -- -- -- -- -- --
------ ------ -------- ------ -------- -------- ------- ------- -------
Income (loss) from
operations............. 497 (311) 602 610 445 864 1,127 (149) 3,685
Other income, net.................. 40 -- 4 -- -- -- -- -- 44
Interest income (expense).......... 31 (9) 26 14 3 (137) (53) -- (125)
------ ------ -------- ------ -------- -------- ------- ------- -------
Income (loss) before
income taxes........... 568 (320) 632 624 448 727 1,074 (149) 3,604
Provision for income taxes......... -- 33 8 9 7 435 429 -- 921
------ ------ -------- ------ -------- -------- ------- ------- -------
Net income (loss)........ $ 568 $ (353) $ 624 $ 615 $ 441 $ 292 $ 645 $(149) $ 2,683
====== ====== ======== ====== ======== ======== ======= ======= =======
Net income per share...............
Shares used in computing net income
per share (Note 6)...............
<CAPTION>
COMBINATION PRO FORMA
ADJUSTMENTS COMBINED
----------- ----------
(NOTE 4)
<S> <C> <C>
Total revenue...................... $ 7,601 $68,846
Cost of revenue.................... 4,850 30,967
------ ------
Gross profit............. 2,751 37,879
Selling, general and administrative
expenses......................... (2,780) 28,663
Goodwill amortization.............. 1,282 1,282
------ ------
Income (loss) from
operations............. 4,249 7,934
Other income, net.................. -- 44
Interest income (expense).......... 8 (117)
------ ------
Income (loss) before
income taxes........... 4,257 7,861
Provision for income taxes......... 2,842 3,763
------ ------
Net income (loss)........ $ 1,415 $ 4,098
------ ------
Net income per share............... $ 0.50
========
Shares used in computing net income
per share (Note 6)............... 8,130,104
==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 74
PROVANT, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
STAR
BTI DECKER J. HOWARD LSS MOHR NOVATIONS MOUNTAIN PROVANT
------- ------ --------- ------ ---- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue...................... $ 3,850 $5,160 $3,524 $2,771 $1,534 $5,256 $12,444 $ --
Cost of revenue.................... 775 1,340 1,156 1,121 523 2,677 7,300 --
------- -------- -------- ------ -------- -------- ------- -------
Gross profit............. 3,075 3,820 2,368 1,650 1,011 2,579 5,144 --
Selling, general and administrative
expenses......................... 4,406 3,414 2,777 1,118 1,050 2,062 4,149 1,099
Goodwill amortization.............. -- -- -- -- -- -- -- --
------- -------- -------- ------ -------- -------- ------- -------
Income (loss) from
operations............. (1,331) 406 (409) 532 (39) 517 995 (1,099)
Other income (expense), net........ 2 -- (3) -- -- -- -- --
Interest income (expense).......... 26 23 11 8 4 (133) (57) (48)
------- -------- -------- ------ -------- -------- ------- -------
Income (loss) before
income taxes........... (1,303) 429 (401) 540 (35) 384 938 (1,147)
Provision for income taxes......... -- 10 1 15 2 154 421 --
------- -------- -------- ------ -------- -------- ------- -------
Net income (loss)........ $(1,303) $ 419 $ (402) $ 525 $ (37) $ 230 $ 517 $(1,147)
======= ======== ======== ====== ======== ======== ======= =======
Net income per share...............
Shares used in computing net income
per share (Note 6)...............
<CAPTION>
COMBINATION PRO FORMA
TOTAL ADJUSTMENTS COMBINED
----- ----------- ---------
(NOTE 4)
<S> <C> <C> <C>
Total revenue...................... $34,539 $1,419 $35,958
Cost of revenue.................... 14,892 1,056 15,948
------- -------- --------
Gross profit............. 19,647 363 20,010
Selling, general and administrative
expenses......................... 20,075 (3,748) 16,327
Goodwill amortization.............. -- 641 641
------- -------- --------
Income (loss) from
operations............. (428) 3,470 3,042
Other income (expense), net........ (1) -- (1)
Interest income (expense).......... (166) 117 (49)
------- -------- --------
Income (loss) before
income taxes........... (595) 3,587 2,992
Provision for income taxes......... 603 1,388 1,991
------- -------- --------
Net income (loss)........ $(1,198) $2,199 $ 1,001
------- -------- --------
Net income per share............... $ 0.11
========
Shares used in computing net income
per share (Note 6)............... 9,072,206
==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 75
PROVANT, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) GENERAL
Concurrently with and as a condition to the closing of the Offering,
PROVANT will acquire the seven Founding Companies in the Combination. The
acquisitions will be accounted for using the purchase method of accounting with
PROVANT being treated as the accounting acquiror.
The historical financial statements reflect the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements where indicated. The periods
included in these financial statements for the individual Founding Companies are
as of and for the six months ended December 31, 1997 and for the year ended June
30, 1997.
(2) ACQUISITION OF FOUNDING COMPANIES
The following table sets forth the consideration to be paid (i) in cash and
(ii) in shares of Common Stock to the stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares is determined using an estimated fair value of
$9.60 per share, which represents a discount of 20% from the assumed initial
public offering price of $12.00 due to restrictions on the sale and
transferability of the shares issued. The total estimated value of the
consideration of $58.4 million for the acquisitions is based upon preliminary
estimates and is subject to certain purchase price adjustments at the closing.
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
CASH SHARES VALUE OF SHARES
------- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BTI............................................. $ 5,000 487,387 $ 4,679
Decker.......................................... 1,550 377,770 3,626
J. Howard....................................... 1,700 255,999 2,457
LSS............................................. 2,625 639,783 6,142
MOHR............................................ 1,200 225,804 2,168
Novations....................................... 4,988 740,590 7,110
Star Mountain................................... 5,353 1,020,293 9,795
------- --------- -------
Total................................. $22,416 3,747,626 $35,977
======= ========= =======
</TABLE>
(3) UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Records the anticipated stock split of 894.68358-for-1 in the form of a
stock dividend that will result in a total amount of outstanding shares
of Common Stock prior to the Offering (but giving effect to the
Combination) of 6,805,558.
(b) Records the distributions estimated at $560,000 which are expected to
be paid from cash on hand by certain Founding Companies prior to the
Closing of the Combination.
(c) Records the receipt of cash from certain stockholders in satisfaction
of certain receivables and transfer of certain assets.
(d) Records the deferred income taxes attributable to the temporary
differences between the financial reporting and tax basis of assets and
liabilities held in S corporations.
(e) Reflects the creation of approximately $51.3 million of goodwill from
the payment of the Common Stock and cash consideration for the Founding
Companies totaling approximately $58.4 million (see note 2) less net
assets of the Founding Companies of approximately $7.1 million, and
records the
F-7
<PAGE> 76
PROVANT, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
liability for the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the
Combination.
(f) Records the cash proceeds of $26.3 million from the issuance of shares
of Common Stock, net of the estimated underwriting discount and
estimated offering costs of $2.8 million (based on an assumed initial
public offering price of $12.00 per share). Offering costs primarily
consist of accounting fees, legal fees and printing expenses. Of the
$2.8 million of offering costs, approximately $800,000 has been
recorded as deferred offering costs paid with funds advanced by two of
the Company's executive officers.
(g) Records the cash portion of the consideration to be paid to
stockholders of the Founding Companies in connection with the
Combination, the repayment of funds advanced to PROVANT by two of its
executive officers of which $800,000 is considered paid as offering
costs, and the repayment of long-term debt of the Founding Companies.
The following table summarizes the adjustments to the unaudited pro forma
combined balance sheet adjustments (in thousands):
<TABLE>
<CAPTION>
Combination Adjustments Total
---------------------------------------- Combination
(a) (b) (c) (d) (e) Adjustments
----- ----- ----- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ -- $(560) $ 499 $ -- $ -- $ (61)
Due from related parties.................... -- -- (344) -- -- (344)
----- ----- ----- ------ ------- -------
Total current assets...................... -- (560) 155 -- -- (405)
Goodwill, net............................... -- -- -- -- 51,286 51,286
Other assets................................ -- -- (110) 73 -- (37)
----- ----- ----- ------ ------- -------
Total assets...................... $ -- $(560) $ 45 $ 73 $51,286 $50,844
===== ===== ===== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to stockholder/affiliate............ $ -- $ -- $ -- $ -- $22,416 $22,416
Deferred tax liability...................... -- -- -- 750 -- 750
----- ----- ----- ------ ------- -------
Total liabilities................. -- -- -- 750 22,416 23,166
Redeemable common stock..................... -- -- -- -- (300) (300)
Stockholders' equity:.......................
Common stock.............................. 31 -- -- -- (2,704) (2,673)
Additional paid-in capital................ (31) (560) -- (677) 36,995 35,727
Translation adjustments..................... -- -- -- -- 3 3
Unrealized gain on short-term investments... -- -- -- -- (9) (9)
Note receivable from stock sales............ -- -- 45 -- 126 171
Retained earnings (deficit)............... -- -- -- -- (5,867) (5,867)
Treasury stock............................ -- -- -- -- 626 626
----- ----- ----- ------ ------- -------
Total stockholders' equity
(deficit)....................... -- (560) 45 (677) 29,170 27,978
----- ----- ----- ------ ------- -------
Total liabilities and
stockholders' equity
(deficit)....................... $ -- $(560) $ 45 $ 73 $51,286 $50,844
===== ===== ===== ====== ======= =======
</TABLE>
F-8
<PAGE> 77
PROVANT, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Offering
Adjustments Total
------------------- Offering
(f) (g) Adjustments
------- -------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................. $26,266 $(26,237) $ 29
------- -------- --------
Total current assets..................................... 26,266 (26,237) 29
Other assets............................................... -- (800) (800)
------- -------- --------
Total assets............................................... $26,266 $(27,037) $ (771)
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.......................... $ -- $ (2,900) $ (2,900)
Payable to stockholders/affiliate.......................... (23,184) (23,184)
------- -------- --------
Total current liabilities........................ -- (26,084) (26,084)
------- -------- --------
Total liabilities................................ -- (26,084) (26,084)
------- -------- --------
Stockholders' equity:
Common stock............................................. 26 -- 26
Additional paid-in capital............................... 26,240 -- 26,240
Retained earnings (deficit).............................. -- (953) (953)
------- -------- --------
Total stockholders' equity (deficit)............. 26,266 (953) 25,313
------- -------- --------
Total liabilities and stockholders' equity
(deficit)...................................... $26,266 $(27,037) $ (771)
======= ======== ========
</TABLE>
(4) UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
YEAR ENDED JUNE 30, 1997
(a) Reflects the reduction in salaries, bonuses and benefits of $5.6 million to
certain of the owners of the Founding Companies to which they have agreed
prospectively. These reductions in salaries, bonuses and benefits are in
accordance with the terms of the owners' employment agreements with the
Company entered into in connection with the Combination. Such employment
agreements are primarily for three years, contain restrictions related to
competition and provide severance under certain circumstances.
(b) Reflects the amortization of goodwill to be recorded as a result of the
Combination over a 40-year estimated life.
(c) Reflects a pro forma provision for income taxes adjusted to reflect the
Company's estimated consolidated effective tax rate subsequent to the
Combination, after considering nondeductible goodwill amortization.
(d) Reflects the historical results of operations of companies acquired by Star
Mountain in February 1997 and October 1997.
(e) Reflects the reduction in interest expense net of income tax benefit,
related to the current portion of bank debt and notes payable to
stockholders that will be repaid with the proceeds of the Offering.
F-9
<PAGE> 78
PROVANT, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the adjustments to the unaudited pro forma
combined statements of operations (in thousands):
<TABLE>
<CAPTION>
Adjustments
----------------------------------------------- Total
(a) (b) (c) (d) (e) Adjustments
------- ------- ------- ------ ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Total revenue................... $ -- $ -- $ -- $7,601 $ -- $ 7,601
Cost of revenue................. -- -- -- 4,850 -- 4,850
Selling, general and
administrative expenses....... (5,607) -- -- 2,827 -- (2,780)
Goodwill amortization........... -- 1,282 -- -- -- 1,282
------- ------- ------- ------ ---- -------
Income (loss) from
operations.......... 5,607 (1,282) -- (76) -- 4,249
Interest expense................ -- -- -- (250) 258 8
------- ------- ------- ------ ---- -------
Income (loss) before
income taxes........ 5,607 (1,282) -- (326) 258 4,257
Provision (benefit) for income
taxes......................... -- -- 2,869 (130) 103 2,842
------- ------- ------- ------ ---- -------
Net (loss) income..... $ 5,607 $(1,282) $(2,869) $ (196) $155 $ 1,415
======= ======= ======= ====== ==== =======
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1997
(a) Reflects the reduction in salaries, bonuses and benefits of $4.1 million to
certain of the owners of the Founding Companies to which they have agreed
prospectively. These reductions in salaries, bonuses and benefits are in
accordance with the terms of the owners' employment agreements with the
Company entered into in connection with the Combination. Such employment
agreements are primarily for three years, contain restrictions related to
competition and provide severance under certain circumstances.
(b) Reflects the amortization of goodwill to be recorded as a result of the
Combination over a 40-year estimated life.
(c) Reflects a pro forma provision for income taxes adjusted to reflect the
Company's estimated effective tax rate subsequent to the combination after
considering nondeductible goodwill amortization.
(d) Reflects the historical results of operations of a company acquired by Star
Mountain in October 1997.
(e) Reflects the reduction in interest expense, net of income taxes, related to
the current portion of bank debt and notes payable to stockholders that will
be repaid with the proceeds of the Offering and records the additional
expense related to the unamortized debt discount on debt payable upon
closing of the Offering.
(f) Reflects the reduction in expense recorded related to the unamortized debt
discount on debt payable upon closing of the Offering.
F-10
<PAGE> 79
PROVANT, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the adjustments to the unaudited pro forma
combined statements of operations (in thousands):
<TABLE>
<CAPTION>
Adjustments
-------------------------------------------------- Total
(a) (b) (c) (d) (e) (f) Adjustments
------- ----- ------- ------ ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue................ $ -- $ -- $ -- $1,419 $ -- $ -- $ 1,419
Cost of revenue.............. -- -- -- 1,056 -- -- 1,056
Selling, general and
administrative expenses.... (4,100) -- -- 352 -- -- (3,748)
Goodwill amortization........ -- 641 -- -- -- -- 641
------- ----- ------- ------ ----- ----- -------
Income (loss) from
operations....... 4,100 (641) -- 11 -- -- 3,470
Other income (expense):
Interest (expense)
income.................. -- -- -- (29) (75) 221 117
------- ----- ------- ------ ----- ----- -------
Income (loss)
before income
taxes............ 4,100 (641) -- (18) (75) 221 3,587
Provision (benefit) for
income taxes............... -- -- 1,337 (7) 58 -- 1,388
------- ----- ------- ------ ----- ----- -------
Net income
(loss)........... $ 4,100 $(641) $(1,337) $ (11) $(133) $ 221 $ 2,199
======= ===== ======= ====== ===== ===== =======
</TABLE>
(5) EXPENSES
The pro forma adjustments to the statements of operations do not include
the payment of $750,000 in fees payable for information provided to the Company
relating to the training and development industry. Such payment will be charged
to expense in the period including the consummation of the Offering. The pro
forma adjustments also do not include approximately $485,000 of non-cash
compensation expense related to the issuance of Common Stock to officers of and
consultants to the Company during the six months ended December 31, 1997.
(6) NET INCOME PER SHARE
The shares used in computing pro forma net income per share consist of (i)
the weighted average shares outstanding, after giving effect to a stock split to
be effective prior to the consummation of the Offering, of 1,782,478 shares
during the period ended June 30, 1997 and 2,724,580 shares during the period
ended December 31, 1997 (ii) 3,747,626 shares issued to owners of the Founding
Companies (excluding shares issuable as Additional Consideration and J. Howard
Contingent Consideration and pursuant to the Star Mountain Contingent
Consideration) and (iii) 2,600,000 shares of Common Stock sold in the Offering.
(7) STOCK-BASED COMPENSATION
At the consummation of the Offering, PROVANT will have three stock-based
compensation plans. The Company will have granted stock options under the Equity
Incentive Plan and the Stock Plan for Non-Employee Directors to purchase an
aggregate of 913,834 shares of Common Stock having a per-share exercise price
equal to the initial offering price. No awards will have been made under the
Stock Purchase Plan.
The Company will apply Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation expense will be recognized for its fixed stock option plans and its
stock purchase plan. If compensation cost for the Company's stock-based
compensation plans were based on the fair value at the grant date for the awards
under the plans consistent with the method of Statement of Financial Accounting
Standards No. 123, the Company's pro forma net income and income per
F-11
<PAGE> 80
PROVANT, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
share for each period presented assuming such options were granted at the
beginning of the periods presented and that the compensation element of options
with immediate vesting was recognized during the year ended June 30, 1997 would
have been reduced to the amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1997 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Net income -- pro forma..................................... $4,098 $1,001
====== ======
Pro forma as adjusted....................... $3,130 $ 701
====== ======
Basic income per share
Pro forma................................... $ 0.50 $ 0.11
====== ======
Pro forma as adjusted....................... $ 0.38 $ 0.08
====== ======
</TABLE>
The fair value of the stock options used to calculate the pro forma as
adjusted amounts was determined using the Minimum Value Method with an expected
option life of 4 years and a risk free interest rate of 5.5%.
F-12
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
The Board of Directors,
PROVANT, Inc.:
We have audited the accompanying balance sheet of PROVANT, Inc., as of June
30, 1997 and the related statements of operations, stockholders' equity and cash
flows for the period from November 16, 1996 (date of inception) to June 30,
1997. 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 audit.
We conducted our audit 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 audit provides 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 PROVANT, Inc. as of June 30,
1997 and the results of its operations and its cash flows for the period from
November 16, 1996 (date of inception) to June 30, 1997, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 9, 1998
F-13
<PAGE> 82
PROVANT, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1997
-------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 1 $ 3
------ ------
Total current assets.............................. 1 3
Property and equipment...................................... 150 148
Deferred offering costs..................................... -- 800
------ ------
Total assets...................................... $ 151 $ 951
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable to stockholders............................... $ 298 $ 768
Accounts payable............................................ -- 770
------ ------
Total current liabilities......................... 298 1,538
Stockholders' equity (deficit):
Common stock, $.01 per value; 10,000 shares authorized;
1,992.3 and 3,417.9 shares issued and outstanding at
June 30, 1997 and December 31, 1997, respectively...... -- --
Paid-in capital........................................... 2 709
Accumulated deficit....................................... (149) (1,296)
------ ------
Total stockholders' equity (deficit).............. (147) (587)
------ ------
Total liabilities and stockholders' equity........ $ 151 $ 951
====== ======
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE> 83
PROVANT, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 16, 1996
(DATE OF
INCEPTION) TO SIX MONTHS ENDED
JUNE 30, 1997 DECEMBER 31, 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Revenue.................................................... $ -- $ --
General and administrative expenses........................ 149 1,099
Interest expense........................................... -- 48
Loss before income taxes................................... (149) (1,147)
Income tax benefit......................................... -- --
-------- --------
Net loss................................................... $ (149) $ (1,147)
======== ========
Net loss per share-basic and diluted....................... $ (74.79) $(376.65)
Weighted average shares outstanding........................ 1,992.3 3,045.3
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE> 84
PROVANT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Initial capitalization.................. 1,992.3 $-- $ 2 $ -- $ 2
Net (loss).................... -- -- (149) (149)
------- -- ---- ------- -------
Balance at June 30, 1997................ 1,992.3 -- 2 (149) (147)
Issuance of management shares, July
1997.................................. 692.5 -- 1 -- 1
Issuance of warrants.................... -- -- 221 -- 221
Issuance of management shares, September
1997.................................. 704.8 -- 466 -- 466
Issuance of management shares, November
1997.................................. 28.3 -- 19 -- 19
Net (loss).................... -- -- -- (1,147) (1,147)
------- -- ---- ------- -------
Balance, December 31, 1997
(Unaudited)........................... 3,417.9 $-- $709 $(1,296) $ (587)
======= == ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 85
PROVANT, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 16, 1996
(DATE OF SIX MONTHS
INCEPTION) TO ENDED
JUNE 30, 1997 DECEMBER 31, 1997
---------------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net (loss)........................................... $ (89) $(1,147)
Depreciation......................................... -- 9
Non-cash interest.................................... -- 18
Non-cash compensation................................ -- 485
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Changes in assets and liabilities:
Deferred offering costs......................... -- (800)
Accounts payable................................ -- 770
----- -------
Net cash used in operating activities........ (149) (665)
----- -------
Cash flows from investing activities:
Acquisition of property and equipment................ (150) (7)
----- -------
Net cash used in investing activities........ (150) (7)
----- -------
Cash flows from financing activities...................
Issuance of stock.................................... 2 2
Increase in notes payable to stockholders............ 298 672
----- -------
Net cash provided by financing activities.... 300 674
----- -------
Net increase in cash and cash equivalents.............. 1 2
Cash and cash equivalents, beginning of period......... -- 1
----- -------
Cash and cash equivalents, end of period............... $ 1 $ 3
===== =======
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 86
PROVANT, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) BUSINESS AND ORGANIZATION
PROVANT, Inc. (the "Company"), a Delaware corporation, was incorporated on
November 16, 1996. The Company intends to acquire seven providers of training
and development services and products in separate merger transactions (the
"Combination") simultaneously with its initial public offering (the "Offering")
of its Common Stock. The consummation of the Combination is conditioned upon the
closing of the Offering.
The Company has not conducted any operations, and all activities to date
have related to the Offering and the Combination. The Company's cash balances
were generated from the initial capitalization of the Company (see Note 3). All
other expenditures to date have been funded by loans from two of the Company's
principal stockholders.
The stockholders have committed to loan the Company the expenses and costs
of the Offering and the Combination. Loans by the stockholders in connection
with the Offering and the Combination amounted to $298 at June 30, 1997 and
$971, before debt discount of $203 at December 31, 1997. Certain costs have been
accounted for as deferred offering costs. There is no assurance that the pending
Combination discussed below will be completed or that the Company will be able
to generate future operating revenues.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The interim financial statements as of December 31, 1997 and for the six
months then ended are unaudited, and certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows with respect to the interim financial statements, have been included.
The results of operations for the interim periods are not necessarily indicative
of the results for the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (FAS 128) Earnings per Share, which changed the
method of computing and presenting income per share. Basic income per share has
been computed using the weighted average number of outstanding common shares. In
computing diluted income per share, the exercise of options and warrants is not
assumed if the result would be antidilutive.
(3) STOCKHOLDERS' EQUITY
In connection with its organization and initial capitalization, the Company
sold 1,992.3 shares of its common stock, $.01 par value per share (the "Common
Stock"), at $1.00 per share. During the six months ended December 31, 1997, the
Company sold 1,425.6 additional shares for $1.00 per share. Holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders, and do not have cumulative voting
rights.
F-18
<PAGE> 87
PROVANT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a fair value based
method of accounting for employee stock options or similar equity instruments
and the current intrinsic, value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 (APB No. 25). Entities electing to
remain with the accounting in APB Opinion No. 25 must make pro forma disclosures
of net income and earnings per share as if the fair value method of accounting
had been applied. The Company will provide pro forma disclosure of net income
and earnings per share, as applicable, in the notes to future consolidated
financial statements.
(4) PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
The following unaudited, pro forma share and per share data is based on the
Company's intentions with respect to the Offering.
In connection with the Offering, the Company will increase the authorized
shares of stock to 45 million, consisting of 40 million shares of Common Stock
and 5 million shares of Preferred Stock, and will declare a stock split of
894.68358-for-1 in the form of a stock dividend that will result in a total
amount of outstanding shares of Common Stock prior to the Offering (but giving
effect to the Combination) of 6,805,558.
The following presents stockholders' equity on an actual and pro forma
basis (to give effect to the increase in the Company's authorized shares of
Common Stock, the authorization of a class of preferred stock and the stock
split) as of December 31, 1997 (in thousands).
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
Preferred Stock
None authorized (5 million shares authorized, none
issued and outstanding pro forma)................ $ -- $ --
Common Stock
10,000 shares authorized (40 million shares
authorized pro forma); 3,417.9 shares issued and
outstanding, (3,057,932 shares issued and
outstanding, pro forma).......................... -- 31
Paid-in capital....................................... 709 678
Accumulated deficit................................... (1,296) (1,296)
------- -------
Total....................................... $ (587) $ (587)
======= =======
</TABLE>
The following presents net loss per share data on a pro forma basis giving
effect to the stock split.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
INCEPTION TO ENDED
JUNE 30, 1997 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Net loss per share -- basic and diluted..... $ (0.08) $ (0.42)
---------- ----------
Weighted average shares outstanding......... 1,782,478 2,724,580
========== ==========
</TABLE>
Preferred Stock
The Preferred Stock, if issued, would have priority over the Common Stock
with respect to dividends and other distributions, including the distribution of
assets upon liquidation. The Board of Directors has the authority, without
further stockholder authorization, to issued from time to time shares of
Preferred Stock in one or more series and to fix the terms, limitations,
relative rights and preferences and variations of each series.
Equity Incentive Plan
The Company will adopt the 1998 Equity Incentive Plan (the "Equity
Incentive Plan"), which provides for the award of up to 1.1 million shares of
Common Stock in the form of incentive stock options ("ISOs"), non-qualified
stock options, stock appreciation rights, performance shares, restricted stock,
or stock units
F-19
<PAGE> 88
PROVANT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(each, an "Award"). All directors and employees of, and all consultants and
advisors to, the Company (including its subsidiaries) are eligible to
participate in the Equity Incentive Plan.
The Equity Incentive Plan will be administered by the Compensation
Committee (the "Committee"), which determines who shall receive Awards from
those individuals eligible to participate in the Equity Incentive Plan, the type
of Award to be made, the number of shares of Common Stock that may be acquired
pursuant to the Award and the specific terms and conditions of each Award,
including the purchase price, term, vesting schedule, restrictions on transfer
and any other conditions and limitations applicable to the Awards or their
exercise. Options that are ISOs may be exercisable for not more than 10 years
after the date the option is awarded. The Committee may at any time accelerate
the exercisability of all or any portion of an option.
Stock Options
On or prior to the date of the final Prospectus used in connection with the
Offering, the Company has agreed to grant options under the Equity Incentive
Plan to purchase an aggregate of 898,834 shares of Common Stock having a
per-share exercise price equal to the initial offering price. Of this amount,
options to purchase 724,780 shares will become exercisable with respect to
one-third of the underlying shares of Common Stock on each of the first three
anniversaries of the date of grant. The remaining options to purchase 174,054
shares will become exercisable with respect to all of the underlying shares of
Common Stock upon the closing of the Offering. The Company issued an option to
purchase 10,000 shares of Common Stock (on an after-split basis) at a purchase
price of $5 per share, exercisable immediately upon the closing of the Offering.
Stock Warrants
As partial consideration for the extension to the Company of the financing
described in Note 5 below, two of the Company's executive officers each received
two warrants. The first warrant is exercisable for 188,111 shares of Common
Stock at a per share exercise price equal to the initial public offering price.
The second warrant is a warrant to purchase 235,138 shares of Common Stock which
will become exercisable only if the market price of the Common Stock increases
to certain threshold levels except as described below (the "Contingent
Warrant"). Specifically, 20% of the total number of shares issuable under the
Contingent Warrants will become exercisable on each of the three occasions that
the market price of the Common Stock increases by 100%, 200%, 300%,
respectively, from the initial public offering price, and the remaining 40% of
the total number of shares issuable under the Contingent Warrant will become
exercisable if the market price of the Common Stock increases by 400%. However,
under certain circumstances involving the merger or sale of the Company, the
Contingent Warrant will become exercisable to purchase all of the warrant
shares. The exercise price of the Contingent Warrant increases on each
anniversary of the closing of the Offering. Specifically, the exercise price is
equal to the initial public offering price for the first 12 months following the
closing of the Offering and, for each 12-month period thereafter, is equal to
the initial public offering price plus 10% of the initial public offering price
multiplied by the number of full 12 month periods elapsed since the closing of
the Offering. However, once a portion of the Contingent Warrant becomes
exercisable, that portion's exercise price is fixed as of that date. All four
warrants expire on the seventh anniversary of the closing of the Offering.
The four warrants have been accounted for in accordance with Opinion No. 14
of the Accounting Principles Board. Accordingly, the fair value allocated to the
warrants has been accounted for as discount on the related debt.
The holders of the warrants have the right to require the Company to
register the resale of the shares that may be acquired upon exercise of the
warrants under the Securities Act of 1933, as amended.
F-20
<PAGE> 89
PROVANT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Stock Purchase Plan
The Company will adopt the 1998 Employee Stock Purchase Plan (the "Plan").
The Plan provides for the sale of shares of Common Stock to employees at a
purchase price that is 85% of the lesser of the value of the Common Stock at the
beginning of a purchase period or at the end of a purchase period. The Company
has reserved 500,000 shares of Common Stock for issuance under the Plan.
Non-Employee Directors' Stock Plan
The Company's Board of Directors has adopted the Stock Plan for
Non-Employee Directors (the "Directors' Plan"). A total of 100,000 shares of
Common Stock are reserved for issuance under the Directors' Plan. Pursuant to
the Directors' Plan, on the date of the final Prospectus used in connection with
the Offering, each director and director nominee, if any, who is neither an
employee of the Company or one of its subsidiaries (a "non-employee director")
and is not a stockholder of the Company prior to the Offering will receive an
option to purchase 7,500 shares of Common Stock with a per-share exercise price
equal to the initial public offering price. Each non-employee director initially
elected following the Offering will be granted upon such election an option to
purchase 7,500 shares of Common Stock. Following his or her initial election,
each non-employee director will be granted, immediately following each annual
meeting of stockholders at which he or she is re-elected (and provided he or she
is still is a non-employee director at such time), an option to acquire an
additional 2,500 shares of Common Stock. The per share exercise price of options
granted following the Offering will be the fair market value of the Common Stock
on the date of grant. Each option will be non-transferable except upon death
(unless otherwise approved by the Board), will expire 10 years after the date of
grant will become exercisable with respect to all of the shares of Common Stock
issuable thereunder on the date that is six months following the date of grant
if the individual is a director at such time. If the director dies or otherwise
ceases to be a director prior to the expiration of an option, the option (if
exercisable) will remain exercisable for a period of one year following death or
three months following other termination of the individual's status as a
director, but in no event beyond the tenth anniversary of the date of grant. The
Board of Directors may at any time or times amend the Directors' Plan for any
purpose that at the time may be permitted by law.
(5) RELATED PARTY TRANSACTION
Expenses paid by the Company prior to the closing of the Offering have been
advanced under a $3 million line of credit issued on October 6, 1997 by two of
the Company's stockholders.
Amounts payable to stockholders under the line of credit, stated net of
debt discount, are due on the earlier of October 6, 2000 or the successful
completion of the Offering and bear interest at the prime rate as from time to
time published in the Wall Street Journal (8.5% at June 30, 1997).
The acquisition of the Company's property and equipment at June 30, 1997,
obtained from stockholders of the Company, was financed under the line of
credit.
(6) SUPPLEMENTAL CASH FLOW INFORMATION (UNAUDITED)
The Company recorded the following non-cash transactions during the six
months ended December 31, 1997:
<TABLE>
<S> <C>
Discount on indebtedness associated with issuance of stock
warrants.................................................. $221
====
Compensation expense in connection with sales of Company
stock at below fair market value.......................... $485
====
</TABLE>
F-21
<PAGE> 90
PROVANT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) SUBSEQUENT EVENT (UNAUDITED)
The Company and wholly-owned subsidiaries of the Company have signed
definitive agreements to acquire by merger seven companies ("the Founding
Companies") to be effective contemporaneously with the Offering. The companies
to be acquired are Behavioral Technology, Inc., Decker Communications, Inc., J.
Howard and Associates, Inc., Robert Steinmetz, Ph.D., and Associates, Inc.,
d/b/a Learning Systems Sciences, MOHR Retail Learning Systems, Inc., Novations
Group, Inc. and Star Mountain, Inc. The aggregate consideration that will be
paid by PROVANT, Inc. to acquire the Founding Companies is approximately $58.4
million, consisting of $22.4 million in cash and 3,747,626 shares of Common
Stock (assuming an initial public offering price of $12.00 per share).
F-22
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Behavioral Technology, Inc.:
We have audited the accompanying balance sheets of Behavioral Technology,
Inc., as of June 30, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1997. 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 Behavioral Technology, Inc.
as of June 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended June 30, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 9, 1998
F-23
<PAGE> 92
BEHAVIORAL TECHNOLOGY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 652 $1,254 $ --
Accounts receivable, net of allowance for doubtful
accounts of $89 at June 30, 1996 and 1997 and December
31, 1997............................................... 940 1,055 1,210
Prepaid expenses.......................................... 67 143 123
------ ------ ------
Total current assets.............................. 1,659 2,452 1,333
------ ------ ------
Property and equipment, net................................. 194 135 120
Other assets................................................ 8 7 8
------ ------ ------
Total assets...................................... $1,861 $2,594 $1,461
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 270 $ 268 $ 422
Accrued expenses.......................................... 123 148 148
Accrued compensation...................................... 316 433 251
Deferred revenue.......................................... 12 43 56
------ ------ ------
Total current liabilities......................... 721 892 877
------ ------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value; 1,000 shares authorized; 100,
99 and 104 shares issued and outstanding at June 30,
1996, June 30, 1997 and December 31, 1997,
respectively........................................... 1 1 1
Additional paid-in capital................................ -- -- 182
Translation adjustment.................................... -- (6) (3)
Retained earnings......................................... 1,139 1,707 404
------ ------ ------
Total stockholders' equity........................ 1,140 1,702 584
------ ------ ------
Total liabilities and stockholders' equity........ $1,861 $2,594 $1,461
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 93
BEHAVIORAL TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- -------------------
1995 1996 1997 1996 1997
------ ------ ------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................... $3,803 $5,685 $7,096 $ 3,439 $ 3,850
Cost of revenue............................ 1,049 1,495 1,488 879 775
------ ------ ------ ------- --------
Gross profit..................... 2,754 4,190 5,608 2,560 3,075
Selling, general and administrative
expenses................................. 2,315 4,048 5,111 3,216 4,406
------ ------ ------ ------- --------
Income (loss) from operations.... 439 142 497 (656) (1,331)
------ ------ ------ ------- --------
Other income:
Royalties................................ 83 82 30 30 --
Interest................................. 13 27 31 16 26
Other income, net........................ 43 -- 10 12 2
------ ------ ------ ------- --------
Total other income............... 139 109 71 58 28
------ ------ ------ ------- --------
Net income (loss)................ $ 578 $ 251 $ 568 $ (598) $ (1,303)
====== ====== ====== ======= ========
Basic income (loss) per share.............. $5,780 $2,510 $5,680 $(5,980) $(12,650)
====== ====== ====== ======= ========
Weighted average shares outstanding........ 100 100 100 100 103
====== ====== ====== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 94
BEHAVIORAL TECHNOLOGY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN TRANSLATION RETAINED
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS TOTAL
------ ------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994.......... 100 $1 $ -- $-- $ 310 $ 311
Net income.................... -- -- -- -- 578 578
--- -- ---- --- ------- -------
Balance, June 30, 1995.......... 100 1 -- -- 888 889
Net income.................... -- -- -- -- 251 251
--- -- ---- --- ------- -------
Balance, June 30, 1996.......... 100 1 -- -- 1,139 1,140
Net income.................... -- -- -- -- 568 568
Translation adjustment........ -- -- -- (6) -- (6)
Stock surrender............... (1) -- -- -- -- --
--- -- ---- --- ------- -------
Balance, June 30, 1997.......... 99 1 -- (6) 1,707 1,702
Net loss...................... -- -- -- -- (1,303) (1,303)
Translation adjustment........ -- -- -- 3 -- 3
Stock grant................... 5 -- 182 -- -- 182
--- -- ---- --- ------- -------
Balance, December 31, 1997
(Unaudited)................... 104 $1 $182 $(3) $ 404 $ 584
=== == ==== === ======= =======
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 95
BEHAVIORAL TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
---------------------- -----------------
1995 1996 1997 1996 1997
----- ----- ------ ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 578 $ 251 $ 568 $(598) $(1,303)
----- ----- ------ ----- -------
Adjustments to reconcile net income (loss) to net
cash
provided by (used in) operating activities:
Depreciation and amortization............... 57 46 92 66 76
Non-cash compensation....................... -- -- -- -- 182
Changes in operating assets and liabilities:
Increase in accounts receivable.......... (176) (195) (115) (229) (155)
Increase in prepaid expenses............. -- (67) (76) (73) 20
Decrease in other assets................. -- -- 1 1 (1)
Increase (decrease) in accounts
payable................................ 90 47 (2) 422 154
Increase (decrease) in accrued
expenses............................... 19 172 142 209 (182)
Increase (decrease) in deferred
revenue................................ 22 (48) 31 (12) 13
----- ----- ------ ----- -------
Total adjustments...................... 12 (45) 73 384 107
----- ----- ------ ----- -------
Net cash provided by (used in)
operating activities................ 590 206 641 (214) (1,196)
----- ----- ------ ----- -------
Cash flows from investing activities:
Purchases of property and equipment.............. (157) (122) (42) (47) (61)
Proceeds from sale of property and equipment..... -- 5 9 -- --
Purchase of trademark............................ -- (7) -- -- --
----- ----- ------ ----- -------
Net cash used in investing
activities.......................... (157) (124) (33) (47) (61)
----- ----- ------ ----- -------
Cash flows from financing activities:
Proceeds received on line of credit.............. -- -- 200 -- --
Principal payments on line of credit............. -- -- (200) -- --
----- ----- ------ ----- -------
Net cash used in financing
activities.......................... -- -- -- -- --
----- ----- ------ ----- -------
Net increase (decrease) in cash and cash
equivalents...................................... 433 82 608 (261) (1,257)
Effect of exchange rate changes on cash............ -- -- (6) -- 3
Cash and cash equivalents, beginning of period..... 137 570 652 652 1,254
----- ----- ------ ----- -------
Cash and cash equivalents, end of period........... $ 570 $ 652 $1,254 $ 391 $ --
===== ===== ====== ===== =======
Supplemental disclosure:
Cash paid for interest........................... $ -- $ -- $ 2 $ -- $ --
===== ===== ====== ===== =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 96
BEHAVIORAL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) NATURE OF OPERATIONS
Behavioral Technology, Inc. (the "Company") was founded in 1978. The
Company primarily provides train-the-trainer programs designed to help its
clients improve employee selection and to provide managers with a methodology
for assessing strengths and weaknesses of current employees. BTI's revenue is
derived primarily from the licensing to clients of the right to use its training
materials.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as services are performed. The Company also licenses
to its clients the use of the Company's behavioral interviewing techniques. The
entire sale price is recognized when the noncancellable contract is signed and
the right to use the intellectual property is transferred. Deferred revenue is
recognized for payments received prior to services being performed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The interim financial statements as of December 31, 1997 and for the six
months ended December 31, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Prepaid Expenses
Prepaid expenses consist of costs incurred in developing videos and
publishing books. The costs of the videos are being amortized over five years
and the costs of the books are expensed as books are sold.
Property and Equipment
Property and equipment are stated at cost and depreciated using an
accelerated method over periods ranging from five to seven years. Leasehold
improvements are amortized over the term of the lease.
F-28
<PAGE> 97
BEHAVIORAL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
Financial instruments of the Company consist primarily of cash and cash
equivalents, short-term certificates of deposit, accounts receivable, accounts
payable and accrued expenses. The carrying value of these financial instruments
approximates their fair value due to the short maturity of these instruments.
Foreign Currency Translation
The Company operates a branch in Canada. Assets and liabilities for the
branch are translated into U.S. Dollars at the end of the year using year-end
exchange rates. Income and expenses are translated using the average exchange
rates for the year. Translation gains and losses are reported as a separate
component of stockholders' equity.
Income Taxes
The Company has elected to be treated as an S corporation. Therefore, the
net income of the Company is reported by the stockholders. Accordingly, no
provision for federal income taxes has been included in the financial
statements. Only certain state taxes are paid by the Company. The Company will
terminate its S corporation status concurrently with the combination described
in note 8.
Income per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (FAS 128), Earnings per Share, which changed the
method of computing and presenting income per share. Basic income per share has
been computed using the weighted average number of outstanding common shares.
The Company has a simple capital structure with no potentially dilutive shares.
Accordingly, only basic income per share has been presented. All periods
presented have been restated in accordance with FAS 128.
(3) RELATED PARTY TRANSACTIONS
The Company conducts its administrative operations in a facility leased
from the principal stockholder of the Company. Lease expense for the years ended
June 30, 1995, 1996 and 1997 was $90, $76 and $85, respectively.
Future minimum lease payments under all noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998.................................................. $ 83
1999.................................................. 86
2000.................................................. 89
2001.................................................. 89
2002.................................................. 45
----
$392
====
</TABLE>
F-29
<PAGE> 98
BEHAVIORAL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Machinery and equipment..................................... $272 $307
Furniture and fixtures...................................... 97 95
Leasehold improvements...................................... 18 18
---- ----
387 420
Accumulated depreciation and amortization................... 193 285
---- ----
Property and equipment, net....................... $194 $135
==== ====
</TABLE>
Depreciation and amortization expense related to property and equipment for
the years ended June 30, 1995, 1996 and 1997 was $57, $46 and $92, respectively.
(5) LINE OF CREDIT
The Company entered into a line of credit agreement on October 15, 1996 for
borrowings up to $500. The line bears interest at prime plus 1%, is secured by
the accounts receivable of the Company, and is personally guaranteed by the
principal stockholder. The line of credit had a maturity date of October 15,
1997 and was renewed until October 15, 1998. There were no amounts outstanding
under this agreement at June 30, 1997.
(6) EMPLOYEE BENEFITS
The Company adopted a 401(k) profit sharing plan on January 1, 1996 that
covers all employees above the age of twenty-one who have completed one year of
service. Company contributions are made each year at the discretion of the Board
of Directors. The Company contributed $66 and $101 to the plan for the years
ended June 30, 1996 and 1997, respectively.
(7) CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily relate to cash and cash equivalents
and accounts receivable. Cash and cash equivalents are primarily held in bank
accounts. Cash deposits in excess of FDIC insurance limits approximated $1,040
at June 30, 1997. The Company has not incurred losses related to these balances
to date.
(8) SUBSEQUENT EVENT (UNAUDITED)
In February 1998, the Company entered into a definitive merger agreement
with PROVANT, Inc. ("PROVANT") and one of its subsidiaries, whereby PROVANT will
acquire the Company upon completion of the proposed initial public offering.
F-30
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Decker Communications, Inc.:
We have audited the accompanying balance sheets of Decker Communications,
Inc., as of June 30, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 1997. 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 Decker Communications, Inc.,
as of June 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended June 30, 1997 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 9, 1998
F-31
<PAGE> 100
DECKER COMMUNICATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 314 $ 508 $ 650
Investments............................................... 565 533 738
Accounts receivable, net of allowance for doubtful
accounts of $23 at June 30, 1996 and $31 at June 30,
1997 and December 31, 1997............................. 1,242 1,608 1,255
Receivables from related parties.......................... -- -- 202
Prepaid expenses and other current assets................. 170 140 183
------ ------ ------
Total current assets.............................. 2,291 2,789 3,028
------ ------ ------
Property and equipment, net................................. 497 338 353
Other assets................................................ 47 59 105
------ ------ ------
Total assets...................................... $2,835 $3,186 $3,486
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 251 $ 111 $ 194
Accrued expenses.......................................... 283 378 199
Accrued compensation...................................... 469 639 533
Taxes payable............................................. 6 -- 77
Current portion of note payable........................... -- 416 405
Deferred revenue.......................................... 92 89 122
------ ------ ------
Total current liabilities......................... 1,101 1,633 1,530
------ ------ ------
Note payable, net of current portion........................ -- 623 607
Redeemable common stock..................................... -- 300 300
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 750,000 shares authorized;
176,972, 138,027 and 143,417 shares issued and
outstanding at June 30, 1996, June 30, 1997 and
December 31, 1997, respectively........................ 397 269 313
Unrealized gain on investments............................ 5 9 9
Note receivable from stock sales.......................... (92) (127) (171)
Retained earnings......................................... 1,424 479 898
------ ------ ------
Total stockholders' equity........................ 1,734 630 1,049
------ ------ ------
Total liabilities and stockholders' equity........ $2,835 $3,186 $3,486
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 101
DECKER COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- ----------------
1995 1996 1997 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue....................................... $8,550 $8,620 $8,410 $4,047 $5,160
Cost of revenue............................... 2,419 2,655 2,275 1,166 1,340
------ ------ ------ ------ ------
Gross profit................................ 6,131 5,965 6,135 2,881 3,820
Selling, general and administrative
expenses.................................... 5,670 5,716 6,446 3,406 3,414
------ ------ ------ ------ ------
Income (loss) from operations............... 461 249 (311) (525) 406
Other (income) expense........................ (54) (74) 9 (13) (23)
------ ------ ------ ------ ------
Income (loss) before income taxes........... 515 323 (320) (512) 429
State income taxes............................ 67 30 33 -- 10
------ ------ ------ ------ ------
Net income (loss)........................... $ 448 $ 293 $ (353) $ (512) $ 419
====== ====== ====== ====== ======
Basic income (loss) per share................. $ 2.53 $ 1.63 $(2.55) $(3.55) $ 2.96
====== ====== ====== ====== ======
Weighted average shares outstanding........... 176,750 180,150 138,352 144,064 141,620
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 102
DECKER COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK UNREALIZED RECEIVABLE
---------------- GAIN ON FROM STOCK RETAINED
SHARES AMOUNT INVESTMENTS SALES EARNINGS TOTAL
------- ------ ----------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994.................. 174,000 $ 314 $-- $ -- $1,257 $1,571
Sale of stock......................... 5,500 49 -- (50) -- (1)
Net income............................ -- -- -- -- 448 448
Dividends............................. -- -- -- -- (300) (300)
------- ----- -- ----- ------ ------
Balance, June 30, 1995.................. 179,500 363 -- (50) 1,405 1,718
Sale of stock......................... 4,000 42 -- (42) -- --
Repurchase of stock................... (6,528) (8) -- -- (59) (67)
Unrealized gain on investments........ -- -- 5 -- -- 5
Net income............................ -- -- -- -- 293 293
Dividends............................. -- -- -- -- (215) (215)
------- ----- -- ----- ------ ------
Balance, June 30, 1996.................. 176,972 397 5 (92) 1,424 1,734
Sale of stock......................... 8,080 35 -- (35) -- --
Repurchase of stock................... (37,850) (163) -- -- (138) (301)
Unrealized gain on investments........ -- -- 4 -- -- 4
Redeemable common stock............... (9,175) -- -- -- (300) (300)
Net loss.............................. -- -- -- -- (353) (353)
Dividends............................. -- -- -- -- (154) (154)
------- ----- -- ----- ------ ------
Balance, June 30, 1997.................. 138,027 269 9 (127) 479 630
Sale of stock......................... 5,390 44 -- (44) -- --
Net income............................ -- -- -- -- 419 419
------- ----- -- ----- ------ ------
Balance, December 31, 1997
(Unaudited)........................... 143,417 $ 313 $9 $(171) $ 898 $1,049
======= ===== == ===== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 103
DECKER COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30, ENDED DECEMBER 31,
----------------------- -------------------
1995 1996 1997 1996 1997
----- ----- ----- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 448 $ 293 $(353) $(512) $ 419
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............. 127 223 194 118 78
Non-cash compensation..................... -- -- 825 825 --
(Gain) loss on disposal of property and
equipment.............................. -- (3) 12 20 --
Changes in operating assets and
liabilities:...........................
(Increase) decrease in accounts
receivable, trade.................... (210) 62 (366) 219 353
(Increase) decrease in prepaid expenses
and other current assets............. 12 20 30 (152) (245)
(Increase) decrease in other assets.... (18) 6 (12) (11) (46)
Increase (decrease) in accounts payable
and accrued expenses................. 247 (30) 119 (211) (125)
Increase (decrease) in deferred
revenue.............................. (40) (61) (3) (22) 33
----- ----- ----- ----- -----
Total adjustments.................... 118 217 799 786 48
----- ----- ----- ----- -----
Net cash provided by operating
activities........................ 566 510 446 274 467
----- ----- ----- ----- -----
Cash flows from investing activities:
Net change in investments...................... (344) 131 36 84 (205)
Purchases of property and equipment............ (136) (443) (56) (26) (96)
Proceeds from sale of property and equipment... -- 9 9 -- 3
----- ----- ----- ----- -----
Net cash (used in) provided by
investing activities.............. (480) (303) (11) 58 (298)
----- ----- ----- ----- -----
Cash flows from financing activities:
Dividends...................................... (300) (215) (154) -- --
Repurchase of stock............................ -- (67) (35) -- --
Payments of notes payable...................... (6) -- (52) (27) (27)
----- ----- ----- ----- -----
Net cash used in financing
activities........................ (306) (282) (241) (27) (27)
----- ----- ----- ----- -----
Net (decrease) increase in cash and cash
equivalents.................................... (220) (75) 194 305 142
Cash and cash equivalents, beginning of period... 609 389 314 314 508
----- ----- ----- ----- -----
Cash and cash equivalents, end of period......... $ 389 $ 314 $ 508 $ 619 $ 650
===== ===== ===== ===== =====
Supplemental disclosure:
Cash paid for interest......................... $ -- $ -- $ 80 $ 20 $ 38
===== ===== ===== ===== =====
Supplemental disclosure of non-cash item:
Increase (decrease) in market value of
investments................................. $ 19 $ (11) $ 4 $ -- $ --
===== ===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 104
DECKER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) NATURE OF OPERATIONS
Decker Communications, Inc. (the "Company") was founded in 1979. The
Company provides instructor-led training to businesses to improve employees'
business communication skills and communication between management and
employees. Revenue is derived primarily from fees charged to participants in its
instructor-led training programs.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized as products and services are provided.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The interim financial statements as of December 31, 1997 and for the six
months ended December 31, 1996 and 1997 are unaudited, and certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been omitted.
In the opinion of management, all adjustments consisting only of normal
recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows with respect to the interim financial
statements have been included. The results of operations for the interim periods
are not necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Investments
Marketable investment securities consist of U.S. treasury bills and equity
securities in various mutual funds. The investments are stated at fair market
value and are accounted for as available for sale securities under the
provisions of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities. Unrealized gains are
included as a separate component of stockholders' equity.
Property and Equipment
Property and equipment are stated at cost and depreciated using an
accelerated method over periods ranging from five to seven years. Leasehold
improvements are amortized over the lease term.
Fair Value of Financial instruments
Financial instruments of the Company consist of cash and cash equivalents,
investments, accounts and notes receivable, accounts payable and accrued
liabilities. The carrying value of these financial instruments
F-36
<PAGE> 105
DECKER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
approximates their fair value because of the short maturity of these
instruments. Based upon borrowing rates currently available to the Company for
issuance of similar debt with similar terms and remaining maturities, the
estimated fair value of the long-term debt approximates its carrying amount.
Income Taxes
The Company has elected to be treated as an S corporation. Therefore, the
net income of the Company is reported by the stockholders. Accordingly, no
provision for federal income taxes has been included in the financial
statements. Only certain state taxes are paid by the Company. The Company will
terminate its S corporation status concurrently with the combination described
in note 11.
Library of Copyrighted Materials
The Company derives a substantial portion of its revenue from training
programs which are based on its library of copyrighted materials and other
materials developed within the Company. Costs associated with the development of
these materials have been expensed as incurred.
Income per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (FAS 128), Earnings per Share, which changed the
method of computing and presenting income per share. Basic income per share has
been computed using the weighted average number of outstanding common shares.
The Company has a simple capital structure with no potentially dilutive shares.
Accordingly, only basic income per share has been presented. All periods
presented have been restated in accordance with FAS 128.
(3) RELATED PARTY TRANSACTIONS
The Company has a note receivable from a stockholder and officer of the
Company for the purchase of stock. The balance of this note was $92 and $127 at
June 30, 1996 and 1997, respectively. The note bears interest at the prevailing
rate and is secured by shares of Company stock and may be repaid by cash or
redemption of the stock to the Company. The note is reflected as a reduction of
stockholders' equity in the accompanying balance sheets.
(4) INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
U.S. Treasury Bills......................................... $433 $381
Mutual Funds................................................ 127 143
---- ----
Total cost........................................ $560 $524
Unrealized gain............................................. 5 9
---- ----
Total fair value.................................. $565 $533
==== ====
</TABLE>
F-37
<PAGE> 106
DECKER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1996 1997
------ ------
<S> <C> <C>
Equipment.................................................. $ 665 591
Furniture and fixtures..................................... 336 334
Software................................................... 129 143
Leasehold improvements..................................... 17 19
------ ------
1,147 1,087
Accumulated depreciation and amortization.................. 650 749
------ ------
Property and equipment, net...................... $ 497 338
====== ======
</TABLE>
Depreciation and amortization expense related to property and equipment for
the years ended June 30, 1995, 1996 and 1997 was $127, $223 and $194,
respectively.
(6) NOTE PAYABLE
In July 1996, the Company entered into a stock repurchase agreement with a
stockholder of the Company to repurchase 33,350 shares of common stock. In
connection with the agreement, the Company issued a secured promissory note to
the stockholder in the amount of $1,091. Of the total purchase price, $825 has
been attributed to compensation expense. The balance has been treated as a
repurchase of common stock. The note bears interest at 7.5%, with principal and
interest due monthly through June 30, 2009. The note is secured by all tangible
and intangible assets of the Company.
In connection with the stock repurchase agreement, the stockholder has the
option to accelerate the payment of a portion of the outstanding balance upon
the occurrence of certain events. One such event has occurred, as discussed in
note 11 (unaudited), giving the stockholder the right to accelerate
approximately $416 of the principal balance. This amount has been classified as
current in the accompanying balance sheet at June 30, 1997. The stockholder has
not yet chosen to accelerate the note.
Also in connection with the stock repurchase agreement, the Company issued
a put option to the stockholder which gave him the right, upon occurrence of a
triggering event, to sell his remaining 9,175 shares of common stock to the
Company at an arbitrated value per share. Payment pursuant to this put option
would be made by amending the principal balance of the note payable by the
amount of the purchase price, effective July 1, 1999. The stockholder has not
yet chosen to exercise the put option. Common shares held under this option have
been reflected as redeemable common stock in the June 30, 1997 balance sheet.
Principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998.......................................... $ 410
1999.......................................... 60
2000.......................................... 64
2001.......................................... 69
2002.......................................... 75
Thereafter.................................... 347
------
Total..................................... $1,025
======
</TABLE>
F-38
<PAGE> 107
DECKER COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) LINE OF CREDIT
The Company has a $250 line of credit agreement with a bank, with interest
payable at prime plus 1.5%. The line of credit is secured by substantially all
of the Company's assets and is guaranteed by the principal stockholder of the
Company. At June 30, 1996 and 1997, there were no amounts outstanding under the
agreement.
(8) OPERATING LEASES
The Company leases all of its facilities under cancelable and noncancelable
operating leases that expire on various dates through fiscal 2002. Most of these
leases generally provide for rent escalation based upon changes in real estate
taxes and operating expenses.
Future minimum lease payments under all noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998.......................................... $ 494
1999.......................................... 502
2000.......................................... 382
2001.......................................... 374
2002.......................................... 108
------
Total $1,860
======
</TABLE>
Rent expense for the years ended June 30, 1995, 1996 and 1997 was $505,
$561 and $510, respectively.
(9) EMPLOYEE BENEFITS
The Company has a 401(k) plan in which it matches 50% of employee annual
contributions up to $1 per employee. The Company contributed $29, $20 and $28 to
the plan for the years ended June 30, 1995, 1996 and 1997, respectively.
(10) CONCENTRATION OF CREDIT RISK
The Company's three largest customers accounted for approximately 16%, 30%,
and 16% of total revenues for the years ended June 30, 1995, 1996 and 1997,
respectively. Accounts receivable from these customers represented approximately
13% and 16% of the total accounts receivable balance at June 30, 1996 and 1997,
respectively.
(11) SUBSEQUENT EVENT (UNAUDITED)
In February 1998, the Company entered into a definitive merger agreement
with PROVANT, Inc. ("PROVANT") and one of its subsidiaries, whereby PROVANT will
acquire the Company upon completion of the proposed initial public offering.
F-39
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
The Board of Directors
J. Howard & Associates, Inc.:
We have audited the accompanying balance sheets of J. Howard & Associates,
Inc., as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. 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 J. Howard & Associates,
Inc., as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
April 3, 1998
F-40
<PAGE> 109
J. HOWARD & ASSOCIATES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 201 $ 208
Accounts receivable, net of allowance for doubtful
accounts of $84 at December 31, 1996 and $74 at
December 31, 1997...................................... 724 1,166
Due from employees and related parties.................... 17 214
Prepaid expenses.......................................... 14 42
------ ------
Total current assets.............................. 956 1,630
------ ------
Property and equipment, net................................. 365 301
Other assets................................................ 44 138
------ ------
Total assets...................................... $1,365 $2,069
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12 $ 59
Accrued expenses.......................................... 106 105
Accrued compensation...................................... 32 139
Deferred revenue.......................................... 135 88
Accrued state income taxes................................ 38 41
Distributions payable..................................... -- 103
------ ------
Total current liabilities......................... 323 535
------ ------
Commitments and contingencies
Stockholders' equity:
Class A voting common stock, no par value; authorized
100,000 shares; issued and outstanding 72,533 shares at
December 31, 1996 and 1997............................. 175 175
Class B non-voting common stock, no par value; authorized
25,000 shares; issued and outstanding 16,267 shares at
December 31, 1996 and 1997............................. 97 97
Retained earnings......................................... 770 1,262
------ ------
Total stockholders' equity........................ 1,042 1,534
------ ------
Total liabilities and stockholders' equity........ $1,365 $2,069
====== ======
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE> 110
J. HOWARD & ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenue..................................................... $6,251 $7,110 $7,684
Cost of revenue............................................. 1,964 2,166 2,346
------ ------ ------
Gross profit.............................................. 4,287 4,944 5,338
Selling, general, and administrative expenses............... 4,158 4,559 4,748
------ ------ ------
Income from operations.................................... 129 385 590
------ ------ ------
Other income (expense):
Interest and dividend income.............................. 6 31 15
Interest expense.......................................... (9) -- --
Other income.............................................. -- 3 --
------ ------ ------
Total other income (expense)...................... (3) 34 15
------ ------ ------
Income before income taxes........................ 126 419 605
State income taxes.......................................... 10 8 5
------ ------ ------
Net income........................................ $ 116 $ 411 $ 600
====== ====== ======
Basic income per share...................................... $ 1.45 $ 4.81 $ 6.76
====== ====== ======
Weighted average shares outstanding......................... 80,000 85,500 88,800
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE> 111
J. HOWARD & ASSOCIATES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A VOTING CLASS B NON-VOTING
COMMON STOCK COMMON STOCK
---------------- ------------------ RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ------ ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.......... 66,667 $ 64 13,333 $ 42 $1,059 $1,165
Net income........................ -- -- -- -- 116 116
Distributions to stockholders..... -- -- -- -- (473) (473)
------ ---- ------ ---- ------ ------
Balance, December 31, 1995.......... 66,667 64 13,333 42 702 808
Net income........................ -- -- -- -- 411 411
Distributions to stockholders..... -- -- -- -- (343) (343)
Stock grant....................... 5,866 111 2,934 55 -- 166
------ ---- ------ ---- ------ ------
Balance, December 31, 1996.......... 72,533 175 16,267 97 770 1,042
Net income........................ -- -- -- -- 600 600
Distributions to stockholders..... -- -- -- -- (108) (108)
------ ---- ------ ---- ------ ------
Balance, December 31, 1997.......... 72,533 $175 16,267 $ 97 $1,262 $1,534
====== ==== ====== ==== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE> 112
J. HOWARD & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 116 $ 411 $ 600
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 95 104 139
Non-cash compensation................................ -- 166 --
Loss on sale of property and equipment............... -- -- 15
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........ (116) 37 (442)
(Increase) decrease in prepaid expenses........... 10 (10) (28)
(Increase) decrease in other assets............... 12 9 (94)
Increase (decrease) in accounts payable and
accrued expenses................................ 153 (282) 256
Increase (decrease) in state income taxes......... 8 11 3
Increase (decrease) in deferred revenue........... 91 18 (47)
----- ----- -----
Total adjustments............................... 253 53 (198)
----- ----- -----
Net cash provided by operating activities....... 369 464 402
----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment....................... (50) (299) (101)
Proceeds from sale of property and equipment.............. -- -- 11
Net (increase) decrease in amounts due from employees and
related parties........................................ (8) 51 (197)
----- ----- -----
Net cash used in investing activities........... (58) (248) (287)
----- ----- -----
Cash flows from financing activities:
Payments on long-term debt................................ (42) -- --
Distributions to stockholders............................. (335) (481) (108)
----- ----- -----
Net cash used in financing activities........... (377) (481) (108)
----- ----- -----
Net increase (decrease) in cash and cash equivalents........ (66) (265) 7
Cash and cash equivalents, beginning of year................ 532 466 201
----- ----- -----
Cash and cash equivalents, end of year...................... $ 466 $ 201 208
===== ===== =====
Supplemental disclosure:
Cash paid for interest.................................... $ 9 $ -- $ --
===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE> 113
J. HOWARD & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) NATURE OF OPERATIONS
J. Howard & Associates, Inc. (the "Company") was founded in 1977. The
Company provides instructor-led training to individual managers and client
companies to identify and address potential obstacles to improving workplace
productivity, including race and gender issues, sexual harassment and failure of
employees to take measured risks. Revenue is derived primarily from
instructor-led seminars and, to a lesser extent, from rendering consulting
services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as products and services are provided.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and depreciated using accelerated
and straight-line methods over periods ranging from three to seven years.
Leasehold improvements are amortized over the term of the lease.
Fair Value of Financial Instruments
Financial instruments of the Company consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses. The
carrying value of these financial instruments approximates their fair value
because of the short maturity of these instruments.
Income Taxes
The Company has elected to be treated as an S corporation. Therefore, the
net income of the Company is reported by the stockholders. Accordingly, no
provision for federal income taxes has been included in the financial
statements. Only certain state taxes are paid by the Company. The Company will
terminate its S corporation status concurrently with the combination described
in note 11.
Income per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (FAS 128), Earnings per Share, which changed the
method of computing and presenting income per share. Basic income per share has
been computed using the weighted average number of outstanding common shares.
The Company has a simple capital structure with no potentially dilutive shares.
Accordingly, only basic income per share has been presented. All periods
presented have been restated in accordance with FAS 128.
F-45
<PAGE> 114
J. HOWARD & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RELATED PARTY TRANSACTIONS
Due from employees and related parties consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Due from The Efficacy Institute, Inc........................ $14 $ 39
Due from (to) stockholders.................................. (9) 173
Due from employees.......................................... 12 2
--- ----
$17 $214
=== ====
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Equipment.................................................. $ 677 $ 631
Furniture and fixtures..................................... 255 270
Leasehold improvements..................................... 49 49
Investment art............................................. 21 21
Computer software.......................................... 113 207
Vehicles................................................... 38 38
------ ------
1,153 1,216
Accumulated depreciation and amortization.................. 788 915
------ ------
Property and equipment, net...................... $ 365 $ 301
====== ======
</TABLE>
Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1995, 1996 and 1997 was $95, $104 and $139,
respectively.
(5) LINE OF CREDIT
The Company has a secured revolving line of credit agreement which permits
borrowings of up to $500 at the bank's base rate plus one percent. No amounts
were outstanding under this agreement at December 31, 1995, 1996 and 1997.
Substantially all assets of the Company are pledged as collateral under this
agreement.
(6) DISTRIBUTIONS TO STOCKHOLDERS
As discussed in note 2, the stockholders are taxed on their proportionate
share of the Company's taxable income. It has been the Company's policy to make
distributions to the stockholders for the purpose of funding these income tax
obligations.
(7) LEASE COMMITMENTS
The Company is committed under various noncancelable operating leases for
office space and equipment through June 2005. Lease expense charged to
operations was $256 in 1995, $247 in 1996 and $149 in 1997.
F-46
<PAGE> 115
J. HOWARD & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under all noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998................................................ $ 344
1999................................................ 616
2000................................................ 617
2001................................................ 577
2002................................................ 554
------
Thereafter.......................................... $1,372
======
$4,080
</TABLE>
(8) STOCKHOLDERS' EQUITY
During the year ended December 31, 1996, 5,866 shares of Class A common
stock (voting) no par value and 2,934 shares of Class B common stock
(non-voting) no par value were issued 50% each to two new shareholders in
recognition of compensation expense of $111 and $55, respectively.
On June 30, 1995, the Company approved an increase in the authorized common
stock Class A (voting) from 12,500 shares to 100,000 shares and common stock
Class B (non-voting) from 1,000 shares to 25,000 shares. Additionally, the
Company approved an exchange of 40 shares of the newly authorized shares for
each share of the previously authorized shares (or a 40 for 1 stock split). All
share data has been retroactively adjusted to reflect the stock split.
(9) EMPLOYEE BENEFITS
The Company maintains a defined contribution retirement plan for all
eligible employees. Company contributions are at the discretion of the Board of
Directors, but cannot exceed the maximum amount deductible under applicable
provisions of the Internal Revenue Code.
Contributions to the plan amounted to $34 for each of the years ended
December 31, 1995, 1996 and 1997.
(10) CONCENTRATION OF CREDIT RISK
The Company's three largest customers accounted for approximately 30%, 63%
and 34% of net program revenues for the years ended December 31, 1995, 1996 and
1997, respectively. Accounts receivable from these customers approximated $514
and $280 at December 31, 1996 and 1997, respectively.
The Company maintains cash deposits in two banks located in eastern
Massachusetts and in a money market mutual fund account sponsored by a
registered broker-dealer. Cash deposits in excess of FDIC insurance limits
approximated $140 and $46 at December 31, 1996 and 1997, respectively.
(11) SUBSEQUENT EVENTS
In February 1998, the Company entered into a definitive merger agreement
with PROVANT, Inc. ("PROVANT") and one of its subsidiaries, whereby PROVANT will
acquire the Company upon completion of the proposed initial public offering.
F-47
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Robert Steinmetz, Ph.D., and Associates, Inc.
d/b/a Learning Systems Sciences:
We have audited the accompanying balance sheets of Robert Steinmetz, Ph.D.,
and Associates, Inc., d/b/a Learning Systems Sciences as of December 31, 1997
and 1996 and the related statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
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 Robert Steinmetz, Ph.D., and
Associates, Inc., d/b/a Learning Systems Sciences as of December 31, 1997 and
1996 and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1997 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
April 3, 1998
F-48
<PAGE> 117
ROBERT STEINMETZ, PH.D., AND ASSOCIATES, INC.
D/B/A LEARNING SYSTEMS SCIENCES
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------ ------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 274 $ 174
Accounts receivable, net of allowance for doubtful
accounts of $88........................................ 703 984
Costs in excess of billings............................... 267 561
Prepaid expenses and other current assets................. 53 43
------ ------
Total current assets.............................. 1,297 1,762
------ ------
Property and equipment, net................................. 129 153
Other assets................................................ 103 104
------ ------
Total assets...................................... $1,529 $2,019
====== ======
Current liabilities:
Accounts payable.......................................... $ 64 $ 185
Accrued expenses.......................................... 166 40
Accrued compensation...................................... 124 161
Billings in excess of costs............................... 710 414
------ ------
Total current liabilities......................... 1,064 800
------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, $3 par value; 1,000 shares authorized,
issued and outstanding................................. 3 3
Retained earnings......................................... 462 1,216
------ ------
Total stockholders' equity........................ 465 1,219
------ ------
Total liabilities and stockholders' equity........ $1,529 $2,019
====== ======
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE> 118
ROBERT STEINMETZ, PH.D., AND ASSOCIATES, INC.
D/B/A LEARNING SYSTEMS SCIENCES
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenue..................................................... $3,332 $5,123 $5,681
Cost of revenue............................................. 1,390 1,696 2,202
------ ------ ------
Gross profit.............................................. 1,942 3,427 3,479
Selling, general and administrative expenses................ 1,767 3,079 2,226
------ ------ ------
Income from operations............................ 175 348 1,253
------ ------ ------
Other income (expense):
Other..................................................... (49) -- --
Interest income, net...................................... 2 9 15
------ ------ ------
Total other income (expense)...................... (47) 9 15
------ ------ ------
Income before income taxes........................ 128 357 1,268
Income taxes................................................ 86 7 18
------ ------ ------
Net income........................................ $ 42 $ 350 $1,250
====== ====== ======
Basic income per share...................................... $ 42 $ 350 $1,250
====== ====== ======
Weighted average shares outstanding......................... 1,000 1,000 1,000
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 119
ROBERT STEINMETZ, PH.D., AND ASSOCIATES, INC.
D/B/A LEARNING SYSTEMS SCIENCES
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- ------
<S> <C> <C> <C> <C>
Balance, December 31, 1994.............................. 1,000 $3 $ 70 $ 73
Net income............................................ -- -- 42 42
----- -- ------ ------
Balance, December 31, 1995.............................. 1,000 3 112 115
Net income............................................ -- -- 350 350
----- -- ------ ------
Balance, December 31, 1996.............................. 1,000 3 462 465
Dividend -- -- (496) (496)
Net income............................................ -- -- 1,250 1,250
----- -- ------ ------
Balance, December 31, 1997.............................. 1,000 $3 $1,216 $1,219
===== == ====== ======
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE> 120
ROBERT STEINMETZ, PH.D., AND ASSOCIATES, INC.
D/B/A LEARNING SYSTEMS SCIENCES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 42 $ 350 $1,250
----- ----- ------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 48 43 62
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........ (467) (195) (281)
(Increase) decrease in prepaid expenses and other
current assets.................................. 12 (30) 10
(Increase) decrease in costs in excess of
billings........................................ (184) 14 (294)
(Increase) decrease in other assets............... (17) (19) (1)
Increase (decrease) in accounts payable and
accrued expenses................................ 50 115 32
Increase (decrease) in billings in excess of
costs........................................... 560 37 (296)
----- ----- ------
Total adjustments............................... 2 (35) (768)
----- ----- ------
Net cash provided by operating activities....... 44 315 482
----- ----- ------
Cash flows from investing activity:
Purchases of property and equipment....................... (84) (85) (86)
----- ----- ------
Cash flows from financing activity:
Dividend.................................................. -- -- (496)
Net (decrease) increase in cash and cash
equivalents.................................. (40) 230 (100)
Cash and cash equivalents, beginning of year................ 84 44 274
----- ----- ------
Cash and cash equivalents, end of year...................... $ 44 $ 274 $ 174
===== ===== ======
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE> 121
ROBERT STEINMETZ, PH.D., AND ASSOCIATES, INC.
D/B/A LEARNING SYSTEMS SCIENCES
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) NATURE OF OPERATIONS
Robert Steinmetz, Ph.D., and Associates, Inc., d/b/a Learning Systems
Sciences, was founded in 1979. The Company creates customized training products
that generally are designed to facilitate faster learning of customer interface
devices and higher productivity of retail associates. Revenue is derived
primarily from the design, development and delivery of its products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company follows the percentage-of-completion method of accounting for
contracts. Accordingly, income is recognized in the ratio that costs incurred
bear to estimated total costs. Adjustments to cost estimates are made
periodically, and losses expected to be incurred on contracts in progress are
charged to operations in the period such losses are determined. The aggregate of
costs incurred and income recognized on uncompleted contracts in excess of
related billings is shown as a current asset, and the aggregate of billings on
uncompleted contracts in excess of related costs incurred and income recognized
is shown as a current liability.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and depreciated using an
accelerated method over periods ranging from five to seven years. Leasehold
improvements are amortized over the term of the lease.
Fair Value of Financial Instruments
Financial instruments of the Company consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities. The
carrying value of these financial instruments approximates their fair value
because of the short maturity of these instruments.
Income Taxes
Effective August 31, 1995, the Company elected to be treated as an S
corporation. Therefore, the net income of the Company is reported by the
stockholders. Accordingly, no provision for federal income taxes has been
included in the financial statements for the periods subsequent to that date.
Only certain state income taxes are paid by the Company. The Company will
terminate its S corporation status concurrently with the combination described
in note 7.
F-53
<PAGE> 122
ROBERT STEINMETZ, PH.D., AND ASSOCIATES, INC.
D/B/A LEARNING SYSTEMS SCIENCES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Income per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (FAS 128), Earnings per Share, which changed the
method of computing and presenting income per share. Basic income per share has
been computed using the weighted average number of outstanding common shares.
The Company has a simple capital structure with no potentially dilutive shares.
Accordingly, only basic income per share has been presented. All periods
presented have been restated in accordance with FAS 128.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Machinery and equipment..................................... $248 $328
Furniture and fixtures...................................... 48 54
Automobiles................................................. 10 10
Leasehold improvements...................................... 12 12
---- ----
318 404
Less accumulated depreciation and amortization.............. 189 251
---- ----
Property and equipment, net....................... $129 $153
==== ====
</TABLE>
Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1995, 1996 and 1997 was $48, $43 and $62,
respectively.
(4) OPERATING LEASES
Operating lease commitments consist of facility and automobile rentals.
Future minimum lease payments under all noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998................................................ $135
1999................................................ 39
----
$174
====
</TABLE>
Lease expense for the years ended December 31, 1995, 1996 and 1997 totaled
$93, $112 and $136, respectively.
(5) EMPLOYEE BENEFITS
The Company has established a profit sharing plan for the benefit of its
employees. Company contributions are made at the discretion of the Board of
Directors. The Company contributed $83 to the plan in 1995. No contribution was
made for the years ended December 31, 1996 or 1997.
(6) CONCENTRATION OF CREDIT RISK
The Company had three customers that accounted for 41% of total revenue and
two customers that accounted for 27% of total revenue for the years ended
December 31, 1996 and 1997, respectively. Accounts receivable from these
customers represented approximately 50% and 28% of the total accounts receivable
balance at December 31, 1996 and 1997, respectively.
F-54
<PAGE> 123
ROBERT STEINMETZ, PH.D., AND ASSOCIATES, INC.
D/B/A LEARNING SYSTEMS SCIENCES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(7) SUBSEQUENT EVENT
In February 1998, the Company entered into a definitive merger agreement
with PROVANT, Inc. ("PROVANT") and one of its subsidiaries, whereby PROVANT will
acquire the Company upon completion of the proposed initial public offering.
F-55
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MOHR Retail Learning Systems, Inc.:
We have audited the accompanying balance sheets of MOHR Retail Learning
Systems, Inc., as of June 30, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended June 30, 1997. These financial statements are the
responsibility of MOHR Retail Learning Systems, Inc.'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 MOHR Retail Learning
Systems, Inc. as of June 30, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the two-year period ended June 30,
1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 9, 1998
F-56
<PAGE> 125
MOHR RETAIL LEARNING SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $221 $260 $ --
Accounts receivable, net of allowance for doubtful
accounts of $46 at June 30, 1996 and 1997 and December
31, 1997............................................... 211 548 878
Inventory................................................. 99 133 137
Prepaid expenses.......................................... 11 14 56
---- ---- ------
Total current assets.............................. 542 955 1,071
Property and equipment, net................................. 18 44 46
---- ---- ------
Total assets...................................... $560 $999 $1,117
==== ==== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $118 $ 74 $ 230
Accrued expenses.......................................... 320 295 309
Accrued compensation...................................... 12 54 27
Deferred revenue.......................................... 48 73 85
---- ---- ------
Total current liabilities......................... 498 496 651
---- ---- ------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 2,500 shares authorized; 100
shares issued and outstanding.......................... 4 4 4
Retained earnings......................................... 58 499 462
---- ---- ------
Total stockholders' equity........................ 62 503 466
---- ---- ------
Total liabilities and stockholders' equity........ $560 $999 $1,117
==== ==== ======
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 126
MOHR RETAIL LEARNING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
---------------- ------------------
1996 1997 1996 1997
------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue............................................... $2,171 $3,015 $ 1,114 $ 1,534
Cost of revenue....................................... 677 825 352 523
------ ------ ------- -------
Gross profit........................................ 1,494 2,190 762 1,011
Selling, general and administrative expenses.......... 1,151 1,745 743 1,050
------ ------ ------- -------
Income (loss) from operations....................... 343 445 19 (39)
Interest income (expense)............................. (3) 3 2 4
------ ------ ------- -------
Income (loss) before income taxes................... 340 448 21 (35)
State income taxes.................................... 1 7 -- 2
------ ------ ------- -------
Net income (loss)........................... $ 339 $ 441 $ 21 $ (37)
====== ====== ======= =======
Basic income (loss) per share......................... $3,390 $4,410 $ 210 $ (370)
====== ====== ======= =======
Weighted average shares outstanding................... 100 100 100 100
====== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 127
MOHR RETAIL LEARNING SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED EARNINGS
SHARES AMOUNT (ACCUMULATED DEFICIT) TOTAL
------ ------ --------------------- -----
<S> <C> <C> <C> <C>
Balance, June 30, 1995......................... 100 $ 4 $(281) $(277)
Net income................................... -- -- 339 339
--- --- ----- -----
Balance, June 30, 1996......................... 100 4 58 62
Net income................................... -- -- 441 441
--- --- ----- -----
Balance, June 30, 1997......................... 100 4 499 503
Net loss..................................... -- -- (37) (37)
--- --- ----- -----
Balance, December 31, 1997 (Unaudited)......... 100 $ 4 $ 462 $ 466
=== === ===== =====
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 128
MOHR RETAIL LEARNING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
-------------- ----------------
1996 1997 1996 1997
----- ----- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 339 $ 441 $ 21 $ (37)
----- ----- ----- -----
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 10 15 4 11
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable...... (99) (337) (213) (330)
(Increase) decrease in inventory................ 4 (34) (23) (4)
(Increase) decrease in prepaid expenses......... 3 (3) (24) (42)
Increase (decrease) in accounts payable......... (1) (44) 4 156
Increase (decrease) in accrued expenses......... (15) 17 (8) (13)
Increase (decrease) in deferred revenue......... (29) 25 37 12
----- ----- ----- -----
Total adjustments............................. (127) (361) (223) (210)
----- ----- ----- -----
Net cash provided by (used in) operating
activities................................. 212 80 (202) (247)
----- ----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment..................... (8) (41) (19) (13)
----- ----- ----- -----
Net cash used in investing activities......... (8) (41) (19) (13)
----- ----- ----- -----
Net increase (decrease) in cash and cash equivalents...... 204 39 (221) (260)
Cash and cash equivalents, beginning of period............ 17 221 221 260
----- ----- ----- -----
Cash and cash equivalents, end of period.................. $ 221 $ 260 $ -- $ --
===== ===== ===== =====
Supplemental disclosure:
Cash paid for interest.................................. $ -- $ 3 $ -- $ --
===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 129
MOHR RETAIL LEARNING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) NATURE OF OPERATIONS
MOHR Retail Learning Systems, Inc. (the "Company") was founded in 1991. The
Company offers train-the-trainer seminars to help clients in the retail industry
to improve productivity by fostering a customer oriented focus at the sales
management and associate levels. In some of its programs, the Company trains
employees directly through instructor-led seminars. Revenue is derived primarily
from the licensing to clients of the right to use the Company's training
programs. Revenue is received on a participant or site basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as services are performed. The Company contracts with
customers to provide materials and training seminars. Deferred revenue is
recognized for payments received prior to services being performed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The interim financial statements as of December 31, 1997 and for the six
months ended December 31, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventory
The Company owns training supplies and manuals which are accounted for
using the lower of cost first-in, first-out (FIFO) or market basis of
accounting.
Property and Equipment
Property and equipment are stated at cost and depreciated using an
accelerated method over five years. Leasehold improvements are amortized over
the term of the lease.
F-61
<PAGE> 130
MOHR RETAIL LEARNING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses. The
carrying amount of these financial instruments approximates fair value because
of the short maturity of those instruments.
Income Taxes
The Company has elected to be treated as an S corporation. Therefore, the
net income of the Company is reported by the stockholders. Accordingly, no
provision for federal income taxes has been included in the financial
statements. Only certain state taxes are paid by the Company. The Company will
terminate its S corporation status concurrently with the combination discussed
in note 7.
Income per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (FAS 128), Earnings per Share, which changed the
method of computing and presenting income per share. Basic income per share has
been computed using the weighted average number of outstanding common shares.
The Company has a simple capital structure with no potentially dilutive shares.
Accordingly, only basic income per share has been presented. All periods
presented have been restated in accordance with FAS 128.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
JUNE 30,
------------
1996 1997
---- ----
<S> <C> <C>
Equipment................................................... $34 61
Furniture................................................... 9 19
Leasehold improvements...................................... -- 4
--- --
43 84
Accumulated depreciation and amortization................... 25 40
--- --
Property and equipment, net....................... $18 44
=== ==
</TABLE>
Depreciation and amortization expense related to property and equipment was
$10 and $15 in the years ended June 30, 1996 and 1997, respectively.
(4) LEASE COMMITMENTS
The Company is committed under various noncancelable operating leases for
office space and equipment through February 2000. Lease expense for the years
ended June 30, 1996 and 1997 was $18 and $34, respectively. Future minimum lease
payments under all noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
<S> <C>
1998............................................. $41
1999............................................. 40
2000............................................. 1
---
Total....................................... $82
===
</TABLE>
F-62
<PAGE> 131
MOHR RETAIL LEARNING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) EMPLOYEE BENEFITS
Eligible employees of the Company participate in a profit sharing plan
sponsored by the Company. The Plan provides that the Company make discretionary
contributions to the Plan. The Company made contributions of $145 and $104 for
the years ended June 30, 1996 and 1997, respectively.
(6) CONCENTRATION OF CREDIT RISK
The Company's credit risks primarily relate to cash and cash equivalents
and accounts receivable. Cash and cash equivalents are primarily held in bank
accounts. Cash deposits in excess of FDIC insurance limits approximated $108 at
June 30, 1997. The Company has not incurred losses related to these balances to
date.
For the year ended June 30, 1996, the Company had one customer that
accounted for 11 percent of total revenue. For the year ended June 30, 1997, no
customer represented greater than 10 percent of total revenue.
(7) SUBSEQUENT EVENT (UNAUDITED)
In February 1998, the Company entered into a definitive merger agreement
with PROVANT, Inc. ("PROVANT") and one of its subsidiaries, whereby PROVANT will
acquire the Company upon completion of the proposed initial public offering.
F-63
<PAGE> 132
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Novations Group, Inc.:
We have audited the accompanying balance sheets of Novations Group, Inc.,
as of June 30, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 1997. 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 Novations Group, Inc., as of
June 30, 1997 and 1996, and the results of its operations and its cash flows for
each of the years in the three-year period ended June 30, 1997 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 9, 1998
F-64
<PAGE> 133
NOVATIONS GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 17 $ 88 $ 23
Accounts receivable, net of allowance for doubtful
accounts of $158....................................... 1,976 2,202 3,211
Receivable from related parties........................... 179 414 279
Prepaid expenses.......................................... 63 115 80
------ ------ ------
Total current assets.............................. 2,235 2,819 3,593
Property and equipment, net................................. 552 492 437
------ ------ ------
Total assets...................................... $2,787 $3,311 $4,030
====== ====== ======
Current liabilities:
Current portion of notes payable.......................... 1,079 1,298 1,378
Accounts payable.......................................... 225 118 118
Accrued compensation...................................... 836 803 1,105
Accrued expenses.......................................... 275 177 160
Deferred income taxes..................................... -- 415 535
------ ------ ------
Total current liabilities......................... 2,415 2,811 3,296
------ ------ ------
Notes payable............................................... 459 361 365
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value; 1,000,000 shares
authorized; 1,000 shares issued and outstanding at June
30, 1996, 1997 and December 31, 1997, respectively..... 1 1 1
Retained earnings......................................... (88) 138 368
------ ------ ------
Total stockholders' equity........................ (87) 139 369
------ ------ ------
Total liabilities and stockholders' equity........ $2,787 $3,311 $4,030
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-65
<PAGE> 134
NOVATIONS GROUP, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- ----------------
1995 1996 1997 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue....................................... $7,175 $9,039 $9,018 $4,658 $5,256
Cost of revenue............................... 3,885 4,733 4,839 2,503 2,677
------ ------ ------ ------ ------
Gross profit........................ 3,290 4,306 4,179 2,155 2,579
Selling, general, and administrative
expenses.................................... 3,167 4,094 3,315 1,668 2,062
------ ------ ------ ------ ------
Income from operations.............. 123 212 864 487 517
Interest expense, net......................... 98 98 137 89 133
------ ------ ------ ------ ------
Income before income taxes.......... 25 114 727 398 384
Income taxes.................................. 22 40 435 2 154
------ ------ ------ ------ ------
Net income.......................... $ 3 $ 74 $ 292 $ 396 $ 230
====== ====== ====== ====== ======
Basic income per share........................ $ 3 $ 74 $ 292 $ 396 $ 230
====== ====== ====== ====== ======
Weighted average shares outstanding........... 1,000 1,000 1,000 1,000 1,000
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-66
<PAGE> 135
NOVATIONS GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
---------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
------ ------ ------------ -----
<S> <C> <C> <C> <C>
Balance, June 30, 1994............................... 1,000 $ 1 $ (45) $ (44)
Net income......................................... -- -- 3 3
Distributions to stockholders...................... -- -- (79) (79)
------ --- ----- -----
Balance, June 1995................................... 1,000 1 (121) (120)
Net income......................................... -- -- 74 74
Distributions to stockholders...................... -- -- (41) (41)
------ --- ----- -----
Balance, June 30, 1996............................... 1,000 1 (88) (87)
Net income......................................... -- -- 292 292
Distributions to stockholders...................... -- -- (66) (66)
------ --- ----- -----
Balance, June 30, 1997............................... 1,000 1 138 139
Net income......................................... -- -- 230 230
------ --- ----- -----
Balance, December 31, 1997 (Unaudited)............... 1,000 $ 1 $ 368 $ 369
====== === ===== =====
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE> 136
NOVATIONS GROUP, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------- -----------------
1995 1996 1997 1996 1997
----- ----- ----- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 3 $ 74 $ 292 $ 396 $ 230
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 203 167 197 111 90
Deferred income taxes............................. -- -- 415 -- 120
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable...... (670) (357) (226) 101 (1,009)
(Increase) decrease in prepaid expenses and
other current assets......................... (250) 86 (287) 3 170
Increase (decrease) in accounts payable and
accrued expenses............................. 358 (88) (238) (318) 285
----- ----- ----- ----- -------
Total adjustments............................ (359) (192) (554) (103) (464)
----- ----- ----- ----- -------
Net cash (used by) provided by operating
activities................................. (356) (118) 153 293 (114)
----- ----- ----- ----- -------
Cash flows from investing activities:
Purchases of property and equipment.................. (217) (427) (137) (143) (35)
----- ----- ----- ----- -------
Cash flows from financing activities:
Net repayments/proceeds from long-term debt.......... 340 117 121 (111) 84
Capital distribution................................. (40) (41) (66) -- --
----- ----- ----- ----- -------
Net cash provided by financing activities.... 300 76 55 (111) 84
----- ----- ----- ----- -------
Net (decrease) increase in cash and cash equivalents... (273) (469) 71 39 (65)
Cash and cash equivalents, beginning of period......... 759 486 17 17 88
----- ----- ----- ----- -------
Cash and cash equivalents, end of period............... $ 486 $ 17 $ 88 $ 56 $ 23
===== ===== ===== ===== =======
Supplemental disclosure:
Cash paid for interest............................... $ 120 $ 120 $ 151 $ 89 $ 139
===== ===== ===== ===== =======
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE> 137
NOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) NATURE OF OPERATIONS
Novations Group, Inc. (the "Company") was founded in 1986. The Company
assists clients in, among other things, clarifying and communicating their
business strategies and re-designing their organizations and work systems.
Revenue is derived primarily from fees for professional services and, to a
lesser extent, from the sale of services and products to support human resources
management.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as services are performed and products are provided.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The interim financial statements as of December 31, 1997 and for the six
months ended December 31, 1996 and 1997, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over periods ranging from five to seven years. Leasehold
improvements are amortized over the term of the lease.
Fair Value of Financial Instruments
Financial instruments of the Company consist of cash, marketable
securities, accounts receivable, accounts payable and accrued liabilities and
debt. The carrying value of these financial instruments approximates their fair
value due to the short maturity of these instruments. The carrying value of debt
approximates fair value because the interest rates on the debt approximate the
rates currently available to the Company.
F-69
<PAGE> 138
NOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
For periods prior to January 1, 1997, the Company elected to be treated as
an S corporation. Therefore, in such periods the net income of the Company was
reported by the stockholders, and no provision for federal income taxes was
included in the financial statements for such periods, and only certain state
taxes were paid by the Company. The Company terminated its S corporation status
effective January 1, 1997. Accordingly, for periods subsequent to January 1,
1997, the Company accounted for income taxes using the asset and liability
method. Under the asset and liability method, 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
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Income per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (FAS 128), Earnings per Share which changed the
method of computing and presenting income per share. Basic income per share has
been computed using the weighted average number of outstanding common shares.
The Company has a simple capital structure with no potentially dilutive shares.
Accordingly, only basic income per share has been presented. All periods
presented have been restated in accordance with FAS 128.
(3) RELATED PARTY TRANSACTIONS
The Company advanced cash to an entity controlled by the stockholders of
the Company. The balance due to the Company as of June 30, 1996, 1997 and
September 30, 1997 was $140, $332 and $192, respectively. Also included in
receivables from related parties are employee advances of $39, $82 and 149 at
June 30, 1996, 1997 and September 30, 1997, respectively.
The Company leases certain office facilities from a partnership controlled
by the Company's stockholders.
The terms of the lease require annual payments of $300,000, increasing by
3% per year, through March 2002. The Company has an option to renew the lease
for an additional five-year term. The Company has guaranteed a $1.2 million note
payable to a financial institution by the partnership.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1996 1997
------ ------
<S> <C> <C>
Computer equipment and software............................ $ 922 945
Leasehold improvements..................................... 167 198
Office equipment........................................... 108 170
Furniture and fixtures..................................... 94 115
------ ------
1,291 1,428
Accumulated depreciation and amortization.................. 739 936
------ ------
Property and equipment, net........................... $ 552 492
====== ======
</TABLE>
Depreciation and amortization expense related to property and equipment for
the years ended June 1995, 1996 and 1997, was $203, $167 and $197, respectively.
F-70
<PAGE> 139
NOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) NOTES PAYABLE
Notes payable consist of notes to former stockholders, with interest
imputed at 8.75%. Payments are due monthly or annually through March 2002.
Aggregate maturities required on these notes at June 30, are as follows:
<TABLE>
<S> <C>
1998.................................................. $ 59
1999.................................................. 97
2000.................................................. 98
2001.................................................. 98
2002.................................................. 68
----
Total............................................ $420
====
</TABLE>
(6) OPERATING LEASES
The Company leases all of its facilities and certain office equipment under
cancelable and noncancelable operating leases that expire on various dates
through 2003.
Future minimum lease payments under all noncancelable operating leases,
including leases to related parties, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
--------------------
<S> <C>
1998.................................................. $ 585
1999.................................................. 654
2000.................................................. 632
2001.................................................. 534
2002.................................................. 334
Thereafter............................................ 48
------
Total............................................ $2,787
======
</TABLE>
Lease expense for the years ended June 30, 1995, 1996 and 1997 was $71,
$211 and $385, respectively.
(7) LINE OF CREDIT
The Company has a $1,500 line of credit agreement with a bank, with
interest payable at the bank's prime rate. The interest rate at June 30, 1996
and 1997 was 10 percent. The line of credit is secured by substantially all of
the Company's assets and is guaranteed by the principal stockholders of the
Company.
The Company had $1,000 and $1,239 at June 30, 1996 and 1997, respectively,
outstanding under the agreement.
(8) INCOME TAXES
As discussed in note 2, the Company terminated its S corporation election
effective January 1, 1997. The effect of the termination is to reduce net income
and income per share by $415 and $415, respectively, for the year ended June 30,
1997.
F-71
<PAGE> 140
NOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense for the year ended June 30, 1997 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Federal................................... $-- $380 $380
State..................................... 20 35 55
--- ---- ----
$20 $415 $435
=== ==== ====
</TABLE>
Income tax expense for the year ended June 30, 1997 differs from the amount
computed by applying the U.S. federal tax rate of 34% to pretax income as a
result of the following:
<TABLE>
<S> <C>
Computed "expected" tax expense............................. $ 247
Income (reduction) in income taxes resulting from:
Change from S corporation status.......................... 310
Income earned during S corporation period................. (135)
State taxes net of federal benefit........................ 36
Other..................................................... (23)
-----
$ 435
=====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at June 30, 1997
are presented below.
<TABLE>
<S> <C>
Deferred tax assets:
Accounts payable and accrued expenses..................... $ 450
Net operating loss carryforward........................... 93
-----
Total gross deferred tax assets................... 543
Deferred tax liability:
Accounts receivable and prepaid expenses.................. (958)
-----
Net deferred tax liability.................................. $(415)
=====
</TABLE>
The net operating loss carryforward is subject to limitation in the event
of a greater than 50% change in ownership.
(9) EMPLOYEE BENEFITS
The Company has a 401(k) plan in which it matches 50% of employee
contributions up to a maximum of 4%. The Company contributed $44, $60 and $75 to
the plan for the years ended June 30, 1995, 1996 and 1997, respectively.
(10) CONCENTRATION OF CREDIT RISK
For the year ended June 30, 1995, the Company had two customers that each
accounted for greater than 10 percent of revenue. For each of the years ended
June 30, 1996 and 1997, the Company had one customer that accounted for greater
than 10 percent of revenue.
(11) SUBSEQUENT EVENT (UNAUDITED)
In February 1998, the Company entered into a definitive merger agreement
with PROVANT, Inc. ("PROVANT") and one of its subsidiaries, whereby PROVANT will
acquire the Company upon completion of the proposed initial public offering.
F-72
<PAGE> 141
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Star Mountain, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity, and cash flows of Star Mountain, Inc. for the year ended December 31,
1995. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Star
Mountain, Inc. for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Friedman & Fuller, P.C.
Rockville, Maryland
February 16, 1996
F-73
<PAGE> 142
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Star Mountain, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Star
Mountain, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1997.
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 Star Mountain, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
April 3, 1998
F-74
<PAGE> 143
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 39 $ 358
Accounts receivable....................................... 4,395 6,091
Current portion of notes receivable, related parties...... 181 666
Inventory................................................. 100 129
Other current assets...................................... 71 100
Deferred income taxes..................................... 29 117
------ -------
Total current assets.............................. 4,815 7,461
------ -------
Property and equipment:
Furniture and fixtures.................................... 65 531
Office equipment.......................................... 746 1,444
Computer software......................................... 69 114
Leasehold improvements.................................... 16 87
Automobiles............................................... 31 73
------ -------
927 2,249
Less accumulated depreciation and amortization............ 423 1,303
------ -------
504 946
------ -------
Other assets:
Notes receivable, related parties, net of current
portion................................................ 267 --
Other assets.............................................. 140 459
Land held for investment.................................. 110 110
Goodwill, net of accumulated amortization of $23 and
$88.................................................... 147 1,701
------ -------
664 2,270
------ -------
$5,983 $10,677
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, bank........................................ $ 905 $ 2,858
Current portion of notes payable.......................... 95 455
Accounts payable.......................................... 1,295 1,685
Accrued expenses.......................................... 573 1,152
Billings in excess of costs and earnings.................. 1,076 1,247
------ -------
Total current liabilities......................... 3,944 7,397
------ -------
Long-term liabilities:
Notes payable, net of current portion..................... -- 304
Deferred income taxes..................................... 29 198
------ -------
Total long-term liabilities....................... 29 502
------ -------
Total liabilities................................. 3,973 7,899
------ -------
Commitments and contingencies
Stockholders' equity:
Common stock.............................................. 8 2,147
Additional paid-in capital................................ 2,058 --
Retained earnings......................................... 529 1,257
------ -------
2,595 3,404
Less common stock held in treasury at cost................ (585) (626)
------ -------
2,010 2,778
------ -------
$5,983 $10,677
====== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-75
<PAGE> 144
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenue..................................................... $14,306 $16,313 $23,775
Direct costs................................................ 8,668 9,457 14,504
------- ------- -------
Gross profit.............................................. 5,638 6,856 9,271
Operating expenses.......................................... 4,411 5,476 7,591
------- ------- -------
Income from operations...................................... 1,227 1,380 1,680
------- ------- -------
Other income (expense):
Interest income........................................... 19 25 44
Interest expense.......................................... (54) (65) (144)
Other, net................................................ (200) (339) (306)
------- ------- -------
(235) (379) (406)
------- ------- -------
Income before income taxes.................................. 992 1,001 1,274
Income taxes................................................ -- 397 546
------- ------- -------
Net income.................................................. $ 992 $ 604 $ 728
======= ======= =======
Basic income per share...................................... $ 0.11 $ 0.07 $ 0.09
======= ======= =======
Diluted income per share.................................... $ 0.11 $ 0.07 $ 0.08
======= ======= =======
Weighted average shares outstanding......................... 8,825 8,422 8,078
======= ======= =======
Weighted average shares and potentially dilutive shares
outstanding............................................... 8,963 8,565 8,823
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-76
<PAGE> 145
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
------------------ PAID-IN EARNINGS -------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT TOTAL
--------- ------ ---------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994..... 740,852 $ 8 $ 1,955 $ (688) -- $ -- $1,275
Issuance of common stock upon
exercise of options.......... 11,827 -- 36 -- -- -- 36
Distributions to
shareholders................. -- -- -- (379) -- -- (379)
Purchase of treasury stock..... -- -- -- -- 22,700 (65) (65)
Net income..................... -- -- -- 992 -- -- 992
--------- ------ ------- ------ ---------- ----- ------
Balance, December 31, 1995..... 752,679 8 1,991 (75) 22,700 (65) 1,859
Issuance of common stock upon
exercise of options.......... 9,414 -- 67 -- -- -- 67
Purchase of treasury stock..... -- -- -- -- 65,671 (520) (520)
Net income..................... -- -- -- 604 -- -- 604
--------- ------ ------- ------ ---------- ----- ------
Balance, December 31, 1996..... 762,093 8 2,058 529 88,371 (585) 2,010
Issuance of common stock upon
exercise of options.......... 87,621 32 -- -- -- -- 32
Purchase of treasury stock..... -- -- -- -- 12,584 (41) (41)
Stock split, conversion to no
par stock.................... 8,383,023 2,058 (2,058) -- 1,110,505 -- --
Issuance of common stock....... 50,735 49 -- -- -- -- 49
Net income..................... -- -- -- 728 -- -- 728
--------- ------ ------- ------ ---------- ----- ------
Balance, December 31, 1997..... 9,283,472 $2,147 $ -- $1,257 1,211,460 $(626) $2,778
========= ====== ======= ====== ========== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-77
<PAGE> 146
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.............................. $ 13,419 $ 16,428 $ 23,529
Cash paid to suppliers and employees...................... (12,620) (14,890) (22,083)
Interest received......................................... 19 25 44
Interest paid............................................. (54) (65) (144)
Income taxes paid......................................... -- (420) (482)
-------- -------- --------
Net cash provided by operating activities......... 764 1,078 864
-------- -------- --------
Cash flows from investing activities:
Issuance of notes receivable.............................. (64) (96) (218)
Acquisition of property and equipment..................... (159) (61) (358)
Business acquisitions..................................... (100) (300) (1,752)
Purchase of land held for investment...................... -- (110) --
Other..................................................... (8) 2 --
-------- -------- --------
Net cash used in investing activities............. (331) (565) (2,328)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) on line-of-credit............... (15) (86) 1,953
Principal payments on long-term debt...................... -- -- (210)
Proceeds from other notes payable......................... 25 95 --
Payments on other notes payable........................... (34) (35) --
Proceeds from issuance of common stock.................... 36 68 81
Purchase of treasury stock................................ (65) (520) (41)
Distributions to shareholders............................. (379) -- --
-------- -------- --------
Net cash provided by (used in) financing
activities....................................... (432) (478) 1,783
-------- -------- --------
Net increase in cash........................................ 1 35 319
Cash, beginning of year..................................... 3 4 39
-------- -------- --------
Cash, end of year........................................... $ 4 $ 39 $ 358
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-78
<PAGE> 147
STAR MOUNTAIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income................................................ $ 992 $ 604 $ 728
------- ------ ------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 96 139 314
Loss on sale of assets.................................... -- 4 11
Deferred income taxes..................................... -- -- (9)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................... (1,053) (637) (417)
Inventory.............................................. -- 18 (29)
Other current assets................................... 47 (34) 24
Other assets........................................... (25) (69) (237)
Increase (decrease) in:
Accounts payable....................................... 425 168 90
Accrued expenses....................................... 116 133 218
Billings in excess of costs and anticipated profits.... 166 752 171
------- ------ ------
Total adjustments......................................... (228) 474 136
------- ------ ------
Net cash provided by operating activities................. $ 764 $1,078 $ 864
======= ====== ======
</TABLE>
Non-cash investing and financing activities: In February 1997, the Company
issued a note payable of $506,000 for a portion of the purchase price of ORA. In
October 1997, the Company issued a note payable of $325,000 for a portion of the
purchase price of SED.
See accompanying notes to consolidated financial statements
F-79
<PAGE> 148
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) NATURE OF OPERATIONS
Star Mountain, Inc. (the "Company") was founded in 1987. The Company is
primarily engaged in contracting with the U.S. Government to provide technical
and professional services in the form of computer-based training, software
development and computer applications support. In August 1996, the Company
formed a wholly-owned subsidiary, Star Digital, Inc. to acquire the assets of
Computer Visions, Inc. Star Digital, Inc. is primarily a value added distributor
of computer equipment. In February 1997, the Company acquired the stock of
Odyssey Research Associates, Inc. ("ORA"). ORA is primarily engaged in
contracting with the U.S. Government to perform research relating to computer
access and security. ORA includes the accounts of 168004 Canada, Inc. ("ORA
Canada"), a wholly-owned subsidiary, which had performed similar contracts for
the Canadian Government, but currently had minimal activity. Effective October
1, 1997, the Company acquired the net assets of the SED Division of Essex
Corporation, which now operates as a division of the Company. This division
provides weapons handling training for the U.S. Department of Defense.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
A major portion of the Company's revenue results from services performed
under U.S. government contracts, either directly or through subcontracts. The
majority of the Company's contracts are fixed-price contracts. Revenue on fixed
price contracts is recognized using the percentage of completion method based on
costs incurred in relation to total estimated costs. Revenue on
time-and-materials contracts is recognized to the extent of fixed billable rates
for hours delivered plus reimbursable costs. Revenue on cost-plus-fee contracts
is recognized based on reimbursable costs incurred plus estimated fees earned
thereon. At the time it is recognized that it is probable that a contract will
result in a loss and the loss can be reasonably estimated, the entire estimated
loss is included in the determination of net income. In accordance with industry
practice, amounts relating to long-term contracts are classified as current
assets although an indeterminable portion of these amounts is not expected to be
realized within one year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Credit Risk
The Company's accounts receivable consist principally of unsecured amounts
due from the U.S. Government.
Cash Equivalents
Cash equivalents are defined as highly liquid short-term investments whose
maturity dates do not extend past three months from the original date of
purchase. The Company has held no such instruments.
Property and Equipment
Property and equipment are stated at cost and include additions and major
replacements or betterments. Depreciation and amortization are provided for in
amounts which amortize the cost of properties utilizing the straight-line method
over estimated useful lives of three to seven years. Maintenance, repairs and
minor renewals are expensed as incurred. Any gain or loss on disposition is
included in the determination of net income.
F-80
<PAGE> 149
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill
Goodwill represents the excess of the cost of business acquisitions,
accounted for by the purchase method, over the fair value of the net assets
thereof. Goodwill is being amortized on a straight-line basis principally over
14 years.
Fair Value of Financial Instruments
Financial instruments of the Company consist primarily of cash, accounts
receivable, note payable, bank, accounts payable and accrued expenses. The
carrying value of these financial instrument approximates their fair value
because of the short maturity of these instruments.
Income Taxes
Through December 31, 1995, the Company had elected to be taxed as an S
Corporation and, accordingly, the financial statements for 1995 do not reflect
any provision for income taxes since elements of income and deduction passed
through directly to the shareholders. Effective January 1, 1996, the Company
terminated its election to be taxed as an S Corporation.
Deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial reporting and
tax bases of assets and liabilities. 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 settled. Future
tax benefits recognized as deferred tax assets must be reduced by a valuation
allowance where it is more likely than not that the benefits may not be
realized.
(3) ACQUISITIONS
On June 19, 1995, the Company acquired all of the assets of BZ Academy,
Inc. (BZ). The acquisition has been accounted for as a purchase and has operated
as the AIT division of the Company. Tangible assets were recorded at their book
value at the date of purchase, which approximated their fair value. The
difference between the purchase price and the assets' book value was recorded as
goodwill.
On August 1, 1996, the Company formed a new corporation, Star Digital,
Inc., to acquire the assets of Computer Visions, Inc. The acquisition has been
accounted for as a purchase. Computer Visions' tangible assets were recorded at
their fair value, which approximated the purchase price. No goodwill was
recorded.
On February 21, 1997, the Company acquired the outstanding stock of ORA.
The acquisition has been accounted for as a purchase. The excess of the purchase
price over the book value of the net assets of ORA at the purchase date has been
recorded as goodwill.
On September 30, 1997, the Company acquired certain assets of Simms
Industries. The acquisition has been accounted for as a purchase. The assets
acquired consisted primarily of accounts receivable and fixed assets.
On October 1, 1997, the Company acquired the net assets of the Systems
Effectiveness Division (SED) of Essex Corporation for a total price of $1,475.
The net assets represent substantially all of the operating assets of the
division. The excess of the purchase price over the book value of the tangible
assets acquired of approximately $930 has been recorded as goodwill.
The following table sets forth the pro forma information assuming that all
acquisitions had occurred on January 1, 1995 (the earliest date information is
available). The pro forma information takes into account amortization of
goodwill and additional interest costs, net of tax benefits.
F-81
<PAGE> 150
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Gross revenue......................................... $22,668 $24,818 $28,383
Operating income...................................... 1,081 1,524 1,298
Net income............................................ 723 529 627
Earnings per share.................................... $ 0.08 $ 0.06 $ 0.08
</TABLE>
(4) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Government contracts:
Billed.................................................... $3,333 $4,828
Unbilled.................................................. 698 926
Other....................................................... 364 337
------ ------
$4,395 $6,091
====== ======
</TABLE>
(5) NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Due from majority shareholder, unsecured, interest at
prime..................................................... $ 131 $ 349
Due from former employee, secured, interest at 10 percent... 317 317
------ ------
448 666
Less current portion........................................ 181 666
------ ------
$ 267 $ --
====== ======
</TABLE>
(6) NOTE PAYABLE, BANK
The Company maintains a bank line of credit arrangement that provides for
borrowings of 90% of billed accounts receivable less than 90 days old, not to
exceed $3,500 in total. Advances bear interest at LIBOR plus 250 basis points.
The line is collateralized by substantially all of the Company's assets. The
agreement requires the Company to meet certain covenants including limitations
on dividends, and maintenance of adjusted tangible net worth, as defined. The
Company has been in compliance with the lender's covenants during each of the
periods presented. At December 31, 1996 and 1997, overdrafts in the payroll and
operating bank accounts amounting to $236 and $259, respectively, have been
included in the outstanding balance on the line since such overdrafts are
automatically covered by the bank as checks are presented for payment.
F-82
<PAGE> 151
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
---- ----
<S> <C> <C>
Note payable, shareholder, representing temporary advances
of working capital, interest at LIBOR plus 250 basis
points, due on demand. Unsecured.......................... $95 $ --
Note payable, purchase of subsidiary, ORA, interest at 9%,
payable in four annual installments of $127 beginning
February 1998. ........................................... 406
--- ----
Note payable, purchase of net assets of SED, interest at 9%,
payable in monthly installments of $23 through December
1998...................................................... -- 284
Note payable, purchase of net assets of SIMMS Industries.... -- 24
Capital leases, payable in monthly installments of $2
including interest at 9% to 17.5% due July 2000........... -- 45
--- ----
Total....................................................... 95 759
Less current portion........................................ 95 455
--- ----
Long-term portion........................................... $-- $304
=== ====
</TABLE>
(8) EMPLOYEE BENEFITS
The Company has a 401(k) plan in which it matches 50% of employee
contributions, up to a maximum of 3% of each employee's gross annual
compensation. In addition, the Company may contribute a discretionary amount
annually. Total expense under the plan for the years ended December 31, 1995,
1996 and 1997, was $121, $123 and $153, respectively.
(9) COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's revenue and costs for all periods since
December 31, 1996, are subject to audit by agencies of the U.S. Government.
Management does not expect the results of these audits to have a material impact
on the financial position or future results of operations of the Company.
The Company leases equipment and office space under various noncancellable
operating leases. The office leases provide for future rental increases based on
the Company's pro-rata share of increases in building operating expenses and
real estate taxes, and for inflation adjustments based on increases in the
Consumer Price Index. Rent expense, including month-to-month leases, for the
years ended December 31, 1995, 1996 and 1997, totalled $557, $595 and $868,
respectively. Future minimum lease commitments under non-cancellable operating
leases for years ending December 31, are as follows:
<TABLE>
<CAPTION>
OFFICE/
WAREHOUSE EQUIPMENT TOTAL
--------- --------- ------
<S> <C> <C> <C>
1998..................................................... $ 523 $236 $ 759
1999..................................................... 522 123 645
2000..................................................... 507 59 566
2001..................................................... 456 2 458
2002..................................................... 233 -- 233
2003..................................................... 76 -- 76
------ ---- ------
$2,317 $420 $2,737
====== ==== ======
</TABLE>
F-83
<PAGE> 152
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) COMMON STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1996 1997
---------- --------- ----------
<S> <C> <C> <C>
Par value....................................... $ .01 .01 N/A
Shares:
Authorized.................................... 1,000,000 1,000,000 15,000,000
Issued........................................ 752,679 762,093 9,283,472
</TABLE>
Effective February 14, 1997, the Company's voting common stock was
increased from 800,000 shares of $.01 par value to 12,000,000 shares of no par
value, and the non-voting stock was increased from 200,000 shares of $.01 par
value to 3,000,000 shares of no par value.
(11) STOCK OPTIONS
The Company offers key employees the opportunity to purchase stock through
the Star Mountain Key Person Stock Option Plan (the "Plan"). Under the Plan, the
Company issues options to eligible employees who must have one year of service
with the Company. The exercise price for the options is at or above the current
market price of the Company's shares, as determined by management. Management
has applied a consistent formula which includes gross revenue and net income in
determining the Company's share price. Options are exercisable upon issuance for
periods of 3 to 5 years from the date of the grant.
The activity in the Plan since 1995 is presented below. All options and
option prices have been restated to reflect the 12:1 stock split in February
1997.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS WEIGHTED
OUTSTANDING AND AVERAGE
EXERCISABLE EXERCISE PRICE
----------------- --------------
<S> <C> <C>
Balance, December 31, 1994............................ 912,000 $0.31
Granted............................................. 384,000 0.47
Forfeited........................................... (360,000) 0.21
---------
Balance, December 31, 1995............................ 936,000 0.42
Granted............................................. 936,000 0.49
Forfeited........................................... (348,000) 0.46
---------
Balance, December 31, 1996............................ 1,524,000 0.45
Granted............................................. 331,000 1.00
Exercised........................................... (73,200) 0.24
Forfeited........................................... (120,000) 0.49
---------
Balance, December 31, 1997............................ 1,661,800 0.52
=========
</TABLE>
The weighted average price for options outstanding and exercisable at
December 31, 1997 was $.52. The weighted average remaining term of the
outstanding options is 3 years.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 defines a "fair value based method" of accounting
for an employee stock option. Under this method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period. The Company has historically accounted for employee stock
options under the "intrinsic value method" as defined by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic value method,
F-84
<PAGE> 153
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date over the amount an employee must pay to acquire the stock. The
Company's Plan, accounted for under APB Opinion No. 25, does not result in any
compensation cost.
SFAS No. 123 allows an entity to continue to use the intrinsic value method
and management has elected to do so. However, entities electing to remain on the
intrinsic value method must make pro forma disclosures of net income, as if the
fair value based method of accounting had been applied. Because the method of
accounting in SFAS No. 123 has not been applied to options granted prior to
January 1, 1994, the resulting pro forma compensation costs may not be
representative of the cost to be expected in future years.
Under SFAS No. 123, net income would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net income, as reported.................................... $ 992 $ 604 $ 728
Pro forma net income....................................... $ 984 $ 586 $ 675
Income per share, as reported.............................. $0.11 $0.07 $0.09
Pro forma income per share................................. $0.11 $0.06 $0.08
</TABLE>
The fair value of each option is estimated on the date of grant using the
following assumptions: no dividend yield, no volatility, risk-free interest
rates approximating 6% and expected lives of 3 to 5 years. The weighted average
grant date fair value of the options was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average fair value.................. $.11 $.13 $.16
</TABLE>
(12) EARNINGS PER SHARE:
Earnings per share is computed based on the weighted average number of
common shares outstanding in each period. The dilutive effect of outstanding
stock options is computed using the treasury stock method. Since there is no
public market for the Company's stock, current market price has been assumed to
be the exercise price of the latest stock options issued. Basic and diluted
earnings per share have been computed as follows:
<TABLE>
<CAPTION>
EFFECT OF DILUTIVE DILUTED BASIC DILUTED
NET INCOME BASIC SHARES STOCK OPTIONS SHARES EPS EPS
---------- ------------ ------------------ ------- ----- -------
(NUMERATOR) (DENOMINATOR) (DENOMINATOR)
<S> <C> <C> <C> <C> <C> <C>
Year ended:
December 31, 1995......... $992 8,824,986 138,404 8,963,390 $0.11 $0.11
December 31, 1996......... 604 8,422,206 143,176 8,565,382 0.07 0.07
December 31, 1997......... 728 8,078,338 744,751 8,823,089 0.09 0.08
</TABLE>
F-85
<PAGE> 154
STAR MOUNTAIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES
Income tax expense consists of the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Current:
Federal.................................................. $313 $426
State.................................................... 84 123
Deferred:
Federal.................................................. -- (3)
---- ----
$397 $546
==== ====
</TABLE>
The differences between the effective income tax rate and the statutory
federal income tax rates are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
----- -----
<S> <C> <C>
Computed "expected" tax on income........................... 34.0% 34.0%
State taxes, net of federal benefit......................... 4.1 4.1
Other, net.................................................. 1.6 4.7
----- -----
Taxes on income............................................. 39.7% 42.8%
===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets result from
accrued employee benefits,
principally vacation...................................... $ 29 $ 90
Accrued expenses.......................................... -- 27
---- ----
$ 29 $117
==== ====
Deferred tax liabilities result from:
Differences in depreciation methods....................... $ 29 $135
Change in accounting method from cash to accrual for
ORA.................................................... -- 63
---- ----
$ 29 $198
==== ====
</TABLE>
(14) SUBSEQUENT EVENT
In February 1998, the Company entered into a definitive merger agreement
with PROVANT, Inc. ("PROVANT") and one of its subsidiaries, whereby PROVANT will
acquire the Company upon completion of the proposed initial public offering.
F-86
<PAGE> 155
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. 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 or that information
contained herein is correct as of any time subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 9
Combination.............................. 15
Use of Proceeds.......................... 18
Dividend Policy.......................... 18
Capitalization........................... 19
Dilution................................. 20
Selected Financial Data.................. 21
Star Mountain Selected Financial Data.... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 24
Business................................. 40
Management............................... 49
Principal Stockholders................... 56
Certain Transactions..................... 57
Description of Capital Stock............. 61
Shares Eligible for Future Sale.......... 63
Underwriting............................. 65
Legal Matters............................ 66
Experts.................................. 66
Additional Information................... 67
Index to Financial Statements............ F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
======================================================
======================================================
2,600,000 SHARES
[PROVANT LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NationsBanc Montgomery
Securities LLC
Salomon Smith Barney
Piper Jaffray Inc.
, 1998
======================================================
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the Nasdaq entry
fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 11,467
NASD filing fee............................................. 4,387
Blue Sky fees and expenses.................................. 1,500
Nasdaq entry fee............................................ 70,625
Printing and engraving expenses............................. 275,000
Legal fees and expenses..................................... 950,000
Accounting fees and expenses................................ 900,000
Transfer agent and registrar fees........................... 5,000
Premium for directors' and officers' insurance.............. 100,000
Miscellaneous............................................... 432,021
----------
Total............................................. $2,750,000
==========
</TABLE>
To the extent the foregoing fees and expenses are incurred prior to the
Closing, certain of the Company's executive officers will advance to the Company
the funds required to pay such fees and expenses, and the Company will reimburse
those individuals for such fees and expenses out of the proceeds of the
Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Reference is made to Section 145 of
the DGCL, as amended, which provides that a corporation may indemnify any person
who was or is a party to or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his or her conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite an adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper. The
Company's Certificate of Incorporation further provides
II-1
<PAGE> 157
that the Company shall indemnify its directors and officers to the full extent
permitted by the law of the State of Delaware.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liability is not permitted under the DGCL as in effect at the
time such liability is determined.
The Certificate of Incorporation and By-laws also provide that each person
who was or is made a party to, or is involved in, any action, suit, proceeding
or claim by reason of the fact that he or she is or was a director or officer of
the Registrant (or is or was serving at the request of the Registrant as a
director or officer of any other enterprise including service with respect to
employee benefit plans) shall be indemnified and held harmless by the
Registrant, to the full extent permitted by Delaware law, as in effect from time
to time, against all expenses (including attorneys' fees and expenses),
judgments, fines, penalties and amounts to be paid in settlement incurred by
such person in connection with the investigation, preparation to defend or
defense of such action, suit, proceeding or claim. The Company's By-laws allow
for similar rights of indemnification to be afforded, in the Company's
discretion, to its employees and agents.
The rights to indemnification and the payment of expenses provided by the
Certificate of Incorporation and By-laws do not apply to any action, suit,
proceeding or claim initiated by or on behalf of a person otherwise entitled to
the benefit of such provisions. Any person seeking indemnification under the
Certificate of Incorporation shall be deemed to have met the standard of conduct
required for such indemnification unless the contrary shall be established. Any
repeal or modification of such indemnification provisions shall not adversely
affect any right or protection of a director or officer with respect to any
conduct of such director or officer occurring prior to such repeal or
modification.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1996, the Company issued (i) 298.8, 762 and 762.1 shares of
Common Stock, respectively, at a purchase price of $1.00 per share, to the
Company's initial stockholders and (ii) 169.4 shares of Common Stock at a
purchase price of $1.00 per share to a consultant. In July 1997, the Company
issued 80.5, 260.4 and 351.6 shares of Common Stock, respectively, at a purchase
price of $1.00 per share, to additional consultants. In September 1997, the
Company issued (i) 134.2 and 201.4 shares of Common Stock, respectively, at a
purchase price of $1.00 per share, to two of the Company's initial stockholders
and (ii) 67.1, 100.7 and 201.4 shares of Common Stock, respectively, at a
purchase price of $1.00 per share, to consultants. In November 1997, the Company
issued 27.3 shares and one share of Common Stock, respectively, at a purchase
price of $1.00 per share, to two consultants.
In September 1997, the Company issued to a consultant an option to purchase
10,000 shares of Common Stock of the Company at a purchase price of $5.00 per
share, exercisable immediately upon the Closing. The option shall terminate
three years following the Closing.
As partial consideration for an agreement to extend financing to the
Company in connection with the Offering and the Combination, on October 6, 1997,
the Company issued two warrants to each of Paul M. Verrochi and Dominic J.
Puopolo. The first warrant entitles the holder to purchase (i) 68 shares of
Common Stock at $1.00 per share prior to the Offering or (ii) following the
Offering 2.0% of the Common Stock outstanding immediately following the Offering
(giving effect to the Combination) at a per share exercise price equal to the
initial public offering price. The second warrant entitles the holder following
the Offering to purchase (i) 68 shares of Common Stock at $1.00 per share prior
to the Offering if certain conditions are met, or (ii) following the Offering,
2.5% of the Common Stock outstanding immediately following the Offering (giving
effect to the Combination). The second warrant will be exercisable following the
Offering only if the market price of the Common Stock increases to certain
threshold levels, or earlier under certain circumstances involving the merger or
sale of the Company.
II-2
<PAGE> 158
The Company entered into merger agreements with the Founding Companies and
certain of their stockholders pursuant to which the Company agreed to issue to
such stockholders shares of Common Stock in the Combination, as described under
"Combination -- Merger Consideration" and "Certain Transactions -- Organization
of the Company."
All such issuances of Common Stock have been made in reliance upon the
exemption from registration afforded by Section 4(2) under the Securities Act.
The foregoing amounts (except with respect to the option granted in
September 1997) have not been adjusted for the stock dividend that will be
declared by the Board of Directors of PROVANT prior to the consummation of the
Offering.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<C> <S> <C>
+1 Form of Underwriting Agreement..............................
**2.1 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Behavioral Acquisition Corp., Paul M. Verrochi,
Dominic J. Puopolo, Behavioral Technology, Inc. and Paul C.
Green, Ph.D. ...............................................
**2.2 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Decker Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, Decker Communications, Inc., Bert Decker and
Kenneth Taylor..............................................
**2.3 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Howard Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, J. Howard & Associates, Inc., Jeffrey P. Howard and
Marc S. Wallace.............................................
**2.4 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., LSS Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, Robert Steinmetz, Ph.D., and Associates, Inc.,
Edwin Bauch as Trustee of the Steinmetz Children's Trust
u/d/t dated December 31, 1996, Edwin Bauch as Trustee of the
King Children's Trust u/d/t dated December 31, 1996, John F.
King and Robert A. Steinmetz, Ph.D. ........................
**2.5 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., MOHR Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, MOHR Retail Learning Systems, Inc., Herbert Cohen,
Judith Cohen and Michael Patrick............................
**2.6 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Paul M. Verrochi, Dominic J. Puopolo, Star Mountain,
Inc., Star Acquisition Corp. and Carl von Sternberg.........
**2.7 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Novations Acquisition Corp., Paul M. Verrochi, Dominic
J. Puopolo, Novations Group, Inc., Joseph Folkman, Joseph
Hanson, Kurt Sandholtz, Norman Smallwood, Randy Stott and
Jonathan Younger............................................
+2.8 Form of First Amendment to Agreement and Plan of Merger (J.
Howard).....................................................
**3.1 Certificate of Incorporation of the Company.................
**3.2 By-laws of the Company......................................
**4.1 Form of Specimen Stock Certificate..........................
**5 Opinion of Nutter, McClennen & Fish, LLP....................
+10.1 1998 Equity Incentive Plan..................................
**10.2 Stock Plan for Non-Employee Directors.......................
+10.3 Form of 1998 Employee Stock Purchase Plan...................
**10.4 Form of Warrants to Messrs. Verrochi and Puopolo............
**10.5 Form of Contingent Warrants to Messrs. Verrochi and
Puopolo.....................................................
**10.6 Form of Employment Agreement between Rajiv Bhatt and
PROVANT, Inc. ..............................................
**10.7 Form of Employment Agreement between MOHR Acquisition Corp.,
Herbert A. Cohen, and PROVANT, Inc. ........................
</TABLE>
II-3
<PAGE> 159
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<C> <S> <C>
**10.8 Form of Employment Agreement between Decker Acquisition
Corp., Bert Decker, and PROVANT, Inc. ......................
**10.9 Form of Employment Agreement between Philip Gardner and
PROVANT, Inc. ..............................................
**10.10 Form of Employment Agreement between Behavioral Acquisition
Corp., Paul C. Green, and PROVANT, Inc. ....................
**10.11 Form of Employment Agreement between Novations Acquisition
Corp., Joe Hanson, and PROVANT, Inc. .......................
**10.12 Form of Employment Agreement between LSS Acquisition Corp.,
John F. King, and PROVANT, Inc. ............................
**10.13 Form of Employment Agreement between Dominic J. Puopolo and
PROVANT, Inc. ..............................................
**10.14 Form of Employment Agreement between A. Carl von Sternberg,
Star Acquisition Corp. and PROVANT, Inc. ...................
**10.15 Form of Employment Agreement between Paul M. Verrochi and
PROVANT, Inc. ..............................................
**10.16 Form of Employment Agreement between Howard Acquisition
Corp., Marc S. Wallace, and PROVANT, Inc. ..................
**10.17 Form of Employment Agreement between John H. Zenger and
PROVANT, Inc. ..............................................
**10.18 Form of Consulting Agreement between Michael J. Davies and
PROVANT, Inc................................................
**10.19 Lease Agreement between Behavioral Technology, Inc. and Paul
C. Green, Ph.D..............................................
**10.20 Lease Agreement between Novations Group, Inc. and Novations
Partners, L.L.C. ...........................................
**10.21 Form of Consulting Agreement between Donald W. Glazer and
PROVANT, Inc................................................
**21 Subsidiaries of the Registrant..............................
+23.1 Consent of KPMG Peat Marwick LLP............................
+23.2 Consent of Friedman & Fuller, P.C...........................
**23.3 Consent of Nutter, McClennen & Fish, LLP (contained in
Exhibit 5)..................................................
**24 Power of Attorney (contained in the signature page to this
Registration Statement).....................................
**27 Financial Data Schedule.....................................
**99.1 Consent of Herbert A. Cohen.................................
**99.2 Consent of Michael J. Davies................................
**99.3 Consent of Bert Decker......................................
**99.4 Consent of Paul C. Green....................................
**99.5 Consent of Joe Hanson.......................................
**99.6 Consent of John F. King.....................................
**99.7 Consent of Dominic J. Puopolo...............................
**99.8 Consent of A. Carl von Sternberg............................
**99.9 Consent of Paul M. Verrochi.................................
**99.10 Consent of Marc S. Wallace..................................
**99.11 Consent of John H. Zenger...................................
**99.12 Consent of David B. Hammond.................................
**99.13 Consent of John R. Murphy...................................
**99.14 Consent of Esther T. Smith..................................
</TABLE>
- ---------------
** Previously filed.
+ Filed herewith.
II-4
<PAGE> 160
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A under the
Securities Act and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston, the
Commonwealth of Massachusetts, on the 27th day of April 1998.
PROVANT, INC.
By: /s/ PAUL M. VERROCHI
------------------------------------
Paul M. Verrochi
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PAUL M. VERROCHI Chief Executive Officer and April 27, 1998
- --------------------------------------------------- Director
Paul M. Verrochi
/s/ DOMINIC J. PUOPOLO* Chief Financial Officer and April 27, 1998
- --------------------------------------------------- Director
Dominic J. Puopolo
/s/ RAJIV BHATT* Chief Accounting Officer April 27, 1998
- ---------------------------------------------------
Rajiv Bhatt
*By: /s/ PAUL M. VERROCHI
- --------------------------------------------------
Paul M. Verrochi
Attorney-in-Fact
</TABLE>
Powers of Attorney have been filed with this Registration Statement.
II-6
<PAGE> 162
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<C> <S> <C>
+1 Form of Underwriting Agreement..............................
**2.1 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Behavioral Acquisition Corp., Paul M. Verrochi,
Dominic J. Puopolo, Behavioral Technology, Inc. and Paul C.
Green, Ph.D. ...............................................
**2.2 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Decker Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, Decker Communications, Inc., Bert Decker and
Kenneth Taylor..............................................
**2.3 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Howard Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, J. Howard & Associates, Inc., Jeffrey P. Howard and
Marc S. Wallace.............................................
**2.4 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., LSS Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, Robert Steinmetz, Ph.D., and Associates, Inc.,
Edwin Bauch as Trustee of the Steinmetz Children's Trust
u/d/t dated December 31, 1996, Edwin Bauch as Trustee of the
King Children's Trust u/d/t dated December 31, 1996, John F.
King and Robert A. Steinmetz, Ph.D. ........................
**2.5 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., MOHR Acquisition Corp., Paul M. Verrochi, Dominic J.
Puopolo, MOHR Retail Learning Systems, Inc., Herbert Cohen,
Judith Cohen and Michael Patrick............................
**2.6 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Paul M. Verrochi, Dominic J. Puopolo, Star Mountain,
Inc., Star Acquisitions Corp. and Carl von Sternberg........
**2.7 Form of Agreement and Plan of Merger by and among PROVANT,
Inc., Novations Acquisition Corp., Paul M. Verrochi, Dominic
J. Puopolo, Novations Group, Inc., Joseph Folkman, Joseph
Hanson, Kurt Sandholtz, Norman Smallwood, Randy Stott and
Jonathan Younger............................................
+2.8 Form of First Amendment to Agreement and Plan of Merger (J.
Howard).....................................................
**3.1 Certificate of Incorporation of the Company.................
**3.2 By-laws of the Company......................................
**4.1 Form of Specimen Stock Certificate..........................
**5 Opinion of Nutter, McClennen & Fish, LLP....................
+10.1 1998 Equity Incentive Plan..................................
**10.2 Stock Plan for Non-Employee Directors.......................
+10.3 Form of 1998 Employee Stock Purchase Plan...................
**10.4 Form of Warrants to Messrs. Verrochi and Puopolo............
**10.5 Form of Contingent Warrants to Messrs. Verrochi and
Puopolo.....................................................
**10.6 Form of Employment Agreement between Rajiv Bhatt and
PROVANT, Inc. ..............................................
**10.7 Form of Employment Agreement between MOHR Acquisition Corp.,
Herbert A. Cohen, and PROVANT, Inc. ........................
**10.8 Form of Employment Agreement between Decker Acquisition
Corp., Bert Decker, and PROVANT, Inc. ......................
**10.9 Form of Employment Agreement between Philip Gardner and
PROVANT, Inc. ..............................................
**10.10 Form of Employment Agreement between Behavioral Acquisition
Corp., Paul C. Green, and PROVANT, Inc. ....................
**10.11 Form of Employment Agreement between Novations Acquisition
Corp., Joe Hanson, and PROVANT, Inc. .......................
**10.12 Form of Employment Agreement between LSS Acquisition Corp.,
John F. King, and PROVANT, Inc. ............................
**10.13 Form of Employment Agreement between Dominic J. Puopolo and
PROVANT, Inc. ..............................................
**10.14 Form of Employment Agreement between A. Carl von Sternberg,
Star Acquisition Corp. and PROVANT, Inc. ...................
</TABLE>
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SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
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**10.15 Form of Employment Agreement between Paul M. Verrochi and
PROVANT, Inc. ..............................................
**10.16 Form of Employment Agreement between Howard Acquisition
Corp., Marc S. Wallace, and PROVANT, Inc. ..................
**10.17 Form of Employment Agreement between John H. Zenger and
PROVANT, Inc. ..............................................
**10.18 Form of Consulting Agreement between Michael J. Davies and
PROVANT, Inc................................................
**10.19 Lease Agreement between Behavioral Technology, Inc. and Paul
C. Green, Ph.D..............................................
**10.20 Lease Agreement between Novations Group, Inc. and Novations
Partners, L.L.C. ...........................................
**10.21 Form of Consulting Agreement between Donald W. Glazer and
PROVANT, Inc................................................
**21 Subsidiaries of the Registrant..............................
+23.1 Consent of KPMG Peat Marwick LLP............................
+23.2 Consent of Friedman & Fuller, P.C...........................
**23.3 Consent of Nutter, McClennen & Fish, LLP (contained in
Exhibit 5)..................................................
**24 Power of Attorney (contained in the signature page to this
Registration Statement).....................................
**27 Financial Data Schedule.....................................
**99.1 Consent of Herbert A. Cohen.................................
**99.2 Consent of Michael J. Davies................................
**99.3 Consent of Bert Decker......................................
**99.4 Consent of Paul C. Green....................................
**99.5 Consent of Joe Hanson.......................................
**99.6 Consent of John F. King.....................................
**99.7 Consent of Dominic J. Puopolo...............................
**99.8 Consent of A. Carl von Sternberg............................
**99.9 Consent of Paul M. Verrochi.................................
**99.10 Consent of Marc S. Wallace..................................
**99.11 Consent of John H. Zenger...................................
**99.12 Consent of David B. Hammond.................................
**99.13 Consent of John R. Murphy...................................
**99.14 Consent of Esther T. Smith..................................
</TABLE>
- ---------------
** Previously filed.
+ Filed herewith.
<PAGE> 1
EXHIBIT 1
--------------
PROVANT, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED , 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Section 1. Representations and Warranties of the Company............................................2
Compliance with Registration Requirements................................................................2
Offering Materials Furnished to Underwriters.............................................................3
Distribution of Offering Material By the Company.........................................................3
The Underwriting Agreement...............................................................................3
Authorization of the Common Shares.......................................................................3
No Applicable Registration or Other Similar Rights.......................................................3
No Material Adverse Change...............................................................................3
Independent Accountants..................................................................................4
Preparation of the Financial Statements..................................................................4
Incorporation and Good Standing of the Company, its Subsidiaries and the Founding Companies..............5
Capitalization and Other Capital Stock Matters...........................................................6
Stock Exchange Listing...................................................................................6
Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required...............6
No Material Actions or Proceedings.......................................................................7
Intellectual Property Rights.............................................................................7
All Necessary Permits, etc...............................................................................7
Title to Properties......................................................................................8
Tax Law Compliance.......................................................................................8
Company Not an "Investment Company"......................................................................8
Insurance................................................................................................8
No Price Stabilization or Manipulation...................................................................9
Related Party Transactions...............................................................................9
No Unlawful Contributions or Other Payments..............................................................9
Accounting Systems.......................................................................................9
Compliance with Environmental Laws.......................................................................9
ERISA Compliance........................................................................................10
Combination Agreements..................................................................................11
Representations in Combination Agreements...............................................................11
Section 2. Purchase, Sale and Delivery of the Common Shares........................................11
The Firm Common Shares..................................................................................11
The First Closing Date..................................................................................11
The Optional Common Shares; the Second Closing Date.....................................................12
Public Offering of the Common Shares....................................................................12
Payment for the Common Shares...........................................................................12
Delivery of the Common Shares...........................................................................13
Delivery of Prospectus to the Underwriters..............................................................13
</TABLE>
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Section 3. Additional Covenants of the Company.....................................................13
Representatives' Review of Proposed Amendments and Supplements..........................................13
Securities Act Compliance...............................................................................13
Amendments and Supplements to the Prospectus and Other Securities Act Matters...........................14
Copies of any Amendments and Supplements to the Prospectus..............................................14
Blue Sky Compliance.....................................................................................14
Use of Proceeds.........................................................................................15
Transfer Agent..........................................................................................15
Earnings Statement......................................................................................15
Periodic Reporting Obligations..........................................................................15
Agreement Not To Offer or Sell Additional Securities....................................................15
Future Reports to the Representatives...................................................................15
Satisfaction of Founding Company Combination Conditions.................................................16
Section 4. Payment of Expenses.....................................................................16
Section 5. Conditions of the Obligations of the Underwriters.......................................17
Accountants' Comfort Letter.............................................................................17
Compliance with Registration Requirements; No Stop Order; No Objection from NASD........................17
No Material Adverse Change or Ratings Agency Change.....................................................18
Opinion of Counsel for the Company......................................................................18
Opinion of Counsel for the Underwriters.................................................................18
Officers' Certificate...................................................................................18
Bring-down Comfort Letter...............................................................................19
Combination Closings....................................................................................19
Combination Agreements..................................................................................19
Lock-Up Agreement from Certain Stockholders of the Company..............................................20
Additional Documents....................................................................................20
Section 6. Reimbursement of Underwriters' Expenses.................................................20
Section 7. Effectiveness of this Agreement.........................................................21
Section 8. Indemnification.........................................................................21
Indemnification of the Underwriters by the Company......................................................21
Indemnification of the Underwriters by the Founders.....................................................22
Indemnification of the Company, its Directors and Officers..............................................23
Notifications and Other Indemnification Procedures......................................................23
Settlements.............................................................................................24
Section 9. Contribution............................................................................25
</TABLE>
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<PAGE> 4
<TABLE>
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Section 10. Default of One or More of the Several Underwriters...........................26
Section 11. Termination of this Agreement................................................27
Section 12. Representations and Indemnities to Survive Delivery..........................27
Section 13. Notices......................................................................28
Section 14. Successors...................................................................28
Section 15. Partial Unenforceability.....................................................28
Section 16. Governing Law Provisions.....................................................29
Section 17. General Provisions...........................................................29
</TABLE>
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<PAGE> 5
UNDERWRITING AGREEMENT
, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INC.
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Provant, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of __________ shares (the "Firm
Common Shares") of its Common Stock, par value $.01 per share (the "Common
Stock"). In addition, the Company has granted to the Underwriters an option to
purchase up to an additional __________ shares (the "Optional Common Shares") of
Common Stock, as provided in Section 2. The Firm Common Shares and, if and to
the extent such option is exercised, the Optional Common Shares are collectively
called the "Common Shares." NationsBanc Montgomery Securities LLC ("NMS"),
Salomon Smith Barney Inc. and Piper Jaffray Inc. have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333- ), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement." Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement," and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus;"
<PAGE> 6
provided, however, if the Company has, with the consent of NMS, elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated , 1998 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
Simultaneously with the closing of the purchase of the Firm
Common Shares by the Underwriters, the Company will acquire in separate
combination transactions (the "Combinations") all of the Common Stock and
ownership interests of the Founding Companies (as hereinafter defined)
(collectively, the "Founding Company Combinations"), the consideration for which
will be a combination of cash and shares of Common Stock as described in the
Registration Statement.
The Company hereby confirms its agreements with the
Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The
Registration Statement and any Rule 462(b) Registration Statement have been
declared effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied as to form in all material respects with the Securities Act and, if
filed by electronic transmission pursuant to EDGAR (except as may be permitted
by Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the time it
became effective and at all subsequent times, complied as to form and will
comply as to form in all material respects with the Securities Act and did not
and will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not
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<PAGE> 7
misleading. The Prospectus, as amended or supplemented, did not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The representations
and warranties set forth in the two immediately preceding sentences do not apply
to statements in or omissions from the Registration Statement, any Rule 462(b)
Registration Statement, or any post-effective amendment thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon and
in conformity with information relating to any Underwriter furnished to the
Company in writing by the Representatives expressly for use therein. There are
no contracts or other documents required to be described in the Prospectus or to
be filed as exhibits to the Registration Statement which have not been described
or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company
has delivered to the Representatives three complete manually signed copies of
the Registration Statement and of each consent and certificate of experts filed
as a part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The
Company has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification and contribution hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There
are no persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement, except for such rights as have
been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus:
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<PAGE> 8
(i) there has been no change, or any development that could reasonably be
expected to result in a change, in the Company, any of its subsidiaries or any
of Behavioral Technologies, Inc., Decker Communications, Inc., J. Howard and
Associates, Inc., Robert Steinmetz, Ph.D., and Associates, Inc. (d/b/a Learning
Systems Sciences), MOHR Retail Learning Systems, Inc., Novations Group, Inc. and
Star Mountain, Inc. (collectively, the "Founding Companies"), which change or
development has had, or could reasonably be expected to result in, a material
adverse effect on the condition, financial or otherwise, or in the earnings,
business, operations or prospects, whether or not arising from transactions in
the ordinary course of business, of the Company, its subsidiaries and the
Founding Companies, considered as one entity (any such change or development is
called a "Material Adverse Change"); (ii) neither the Company, any of its
subsidiaries nor any of the Founding Companies has incurred any liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business or entered into any transaction or agreement not in the ordinary course
of business, which in each case would be material to the Company, its
subsidiaries and the Founding Companies, considered as one entity; (iii) there
has been no adverse change with respect to the goodwill and other intangible
assets (collectively, the "Intangible Assets") such that, as of the date hereof,
the Intangible Assets, net of accumulated amortization, do not have a value at
least equal to the value reflected in the combined financial statements of the
Company and the Founding Companies and no part of the Intangible Assets are
required to be written down in conformity with generally accepted accounting
principles applied on a basis consistent with prior periods; and (iv) except as
disclosed in or contemplated by the Registration Statement, there has been no
dividend or distribution of any kind declared, paid or made by the Company or
any Founding Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company, any of its subsidiaries or any Founding
Company of any class of capital stock.
(h) Independent Accountants. To the Company's knowledge, KPMG
Peat Marwick, LLP, who have expressed their opinion with respect to certain of
the financial statements (which term as used in this Agreement includes the
related notes thereto) and supporting schedules filed with the Commission as a
part of the Registration Statement and included in the Prospectus, are
independent public or certified public accountants with respect to the Company
and each of the Founding Companies on whose financial statements they have
issued their reports, as required by the Securities Act. To the Company's
knowledge, Friedman & Fuller, P.C., who have expressed their opinion with
respect to certain of the financial statements (which term as used in this
Agreement includes the related notes thereto) and supporting schedules of Star
Mountain, Inc. filed with the Commission as a part of the Registration Statement
and included in the Prospectus, are independent public or certified public
accountants with respect to Star Mountain, Inc. as required by the Securities
Act.
(i) Preparation of the Financial Statements. The financial
statements of the Company and the separate financial statements of each of the
Founding Companies, in each case together with related notes and schedules,
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the financial position, results of operations
and cash flows of the Company and of each of such Founding Companies,
respectively, as of and
-4-
<PAGE> 9
at the dates specified and for the periods specified. The supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein. Such financial statements and supporting schedules have
been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto, and all adjustments necessary for
a fair presentation of results for such period have been made. The financial
data set forth in the Prospectus under the captions "Prospectus Summary--Summary
Pro Forma Combined Financial Data" and "--Summary Individual Founding Company
Financial Data," "Capitalization" and "Selected Financial Data" fairly present
the information set forth therein on a basis consistent with that of the audited
and pro forma financial statements contained in the Registration Statement and
the books and records of the Company and the Founding Companies, as applicable.
The pro forma combined financial statements of the Company and the Founding
Companies together with the related notes thereto included under the captions
"Prospectus Summary--Summary Pro Forma Combined Financial Data," "Selected
Financial Data," "Provant, Inc. and Founding Companies Unaudited Pro Forma
Combined Financial Statements" and elsewhere in the Prospectus and in the
Registration Statement present fairly the information contained therein, have
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly presented on
the pro forma bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein. Except for the foregoing, no other financial statements or supporting
schedules are required to be included in the Registration Statement.
(j) Incorporation and Good Standing of the Company, its
Subsidiaries and the Founding Companies. Each of the Company, its subsidiaries
and the Founding Companies has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation and has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and,
in the case of the Company, to enter into and perform its obligations under this
Agreement. Each of the Company, each subsidiary and each Founding Company is
duly qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct of
business, except for such jurisdictions where the failure to so qualify or to be
in good standing would not, individually or in the aggregate, result in a
Material Adverse Change. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or
claim. As of the First Closing Date (as hereinafter defined), after giving
effect to the Founding Company Combinations, all of the outstanding shares of
the capital stock of each corporation into which the Founding Companies will
merge will be owned by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim; and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests in
any of the Founding Companies are outstanding.
-5-
<PAGE> 10
The Company does not own or control, directly or indirectly, any corporation,
association or other entity other than the subsidiaries listed in Exhibit 21 to
the Registration Statement.
(k) Capitalization and Other Capital Stock Matters. The
authorized, issued and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization." The Common Stock
(including the Common Shares) conforms in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable and have been issued in compliance with federal
and state securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. Upon
completion of the Founding Company Combinations in the manner described in the
Registration Statement, the shares of Common Stock of the Company to be issued
in such Combinations will be duly authorized, validly issued and fully paid and
non-assessable. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company or any of its subsidiaries other than those
accurately described in the Prospectus. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been
approved for inclusion on the Nasdaq National Market, subject only to official
notice of issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company or any of its
subsidiaries nor any of the Founding Companies is in violation of its charter or
by-laws or is in default (or, with the giving of notice or lapse of time, would
be in default) ("Default") under any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to which the
Company or any of its subsidiaries or any Founding Company is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries or any Founding Company is subject
(each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary or any Founding Company, (ii) will not conflict with or constitute a
breach of, or Default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries or any Founding Company pursuant to, or require the consent of
any other party to, any Existing Instrument, except for such conflicts,
breaches, Defaults, liens, charges or encumbrances as would not, individually or
in the aggregate, result in a Material Adverse Change; and (iii) will not result
-6-
<PAGE> 11
in any violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary or any Founding
Company. No consent, approval, authorization or other order of, or registration
or filing with, any court or other governmental or regulatory authority or
agency, is required for the Company's execution, delivery and performance of
this Agreement or any Combination Agreement and consummation of the transactions
contemplated hereby or thereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under the
Securities Act, applicable securities or blue sky laws and from the National
Association of Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. Except as disclosed in
the Prospectus, there are no legal or governmental actions, suits or proceedings
pending or, to the Company's knowledge, threatened (i) against or affecting the
Company or any of its subsidiaries or any Founding Company, (ii) which has as
the subject thereof any officer or director of, or property owned or leased by,
the Company or any of its subsidiaries or any Founding Company or (iii) relating
to environmental or discrimination matters, where in any such case (A) there is
a reasonable possibility that such action, suit or proceeding might be
determined adversely to the Company or such subsidiary or such Founding Company
and (B) any such action, suit or proceeding, if so determined adversely, would
reasonably be expected to result in a Material Adverse Change or adversely
affect the consummation of the transactions contemplated by this Agreement. No
material labor dispute with the employees of the Company or any of its
subsidiaries or any Founding Company exists or, to the Company's knowledge, is
threatened or imminent.
(o) Intellectual Property Rights. The Company, its
subsidiaries and the Founding Companies own or possess sufficient trademarks,
trade names, patent rights, copyrights, licenses, approvals, trade secrets and
other similar rights (collectively, "Intellectual Property Rights") reasonably
necessary to conduct their businesses as now conducted; and the expected
expiration of any of such Intellectual Property Rights would not result in a
Material Adverse Change. Neither the Company or any of its subsidiaries nor any
of the Founding Companies has received any notice of infringement or conflict
with asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a Material
Adverse Change.
(p) All Necessary Permits, etc. The Company and each
subsidiary and each Founding Company possess such valid and current
certificates, authorizations, licenses or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies necessary to conduct
their respective businesses, except for these certificates, authorizations,
licenses and permits which, if not held by the appropriate entity, would result
in a Material Adverse Change, and neither the Company or any subsidiary nor any
of the Founding Companies has received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such certificate,
authorization, license or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could result in a
Material Adverse Change.
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<PAGE> 12
(q) Title to Properties. The Company, each of its subsidiaries
and each Founding Company has good and marketable title to all the properties
and assets reflected as owned in the financial statements referred to in Section
1(i) above (or elsewhere in the Prospectus), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except (i) as reflected in the financial statements referred to in
Section 1(i) above or (ii) such as do not result in a Material Adverse Change.
The real property, improvements, equipment and personal property held under
lease by the Company or any subsidiary or any Founding Company are held under
valid and enforceable leases, with such exceptions as are not material and do
not materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company or such
subsidiary or such Founding Company.
(r) Tax Law Compliance. The Company and its subsidiaries and
each of the Founding Companies have filed all necessary federal, state and
foreign income and franchise tax returns and have paid all taxes required to be
paid by any of them and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company,
any of its subsidiaries or any Founding Company has not been finally determined.
The Company has no knowledge of any tax deficiency which might be asserted
against the Company or any of its subsidiaries or any of the Founding Companies
which could result in a Material Adverse Change.
(s) Company Not an "Investment Company" The Company has been
advised of the rules and requirements under the Investment Company Act of 1940,
as amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries and
the Founding Companies are insured by recognized, financially sound and
reputable institutions with policies in such amounts and with such deductibles
and covering such risks as are reasonably believed by the Company to be
generally adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries and the Founding Companies against theft, damage,
destruction, acts of vandalism and earthquakes. The Company has no reason to
believe that it or any subsidiary or any Founding Company will not be able (i)
to renew its existing insurance coverage as and when such policies expire or
(ii) to obtain comparable coverage from similar institutions as may be necessary
or appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company or any
subsidiary nor any Founding Company has been denied any insurance coverage which
it has sought or for which it has applied.
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(u) No Price Stabilization or Manipulation. The Company has
not taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Common Shares.
(v) Related Party Transactions. There are no business
relationships or related-party transactions involving the Company, any
subsidiary, any Founding Company or any other person required to be described in
the Prospectus which have not been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the
Company or any of its subsidiaries nor any Founding Company nor, to the
Company's knowledge, any employee or agent of the Company or any subsidiary or
any Founding Company, has made any contribution or other payment to any official
of, or candidate for, any federal, state or foreign office in violation of any
law or of the character required to be disclosed in the Prospectus.
(x) Accounting Systems. The Company and each of the Founding
Companies maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change: (i)
neither the Company or any of its subsidiaries nor any Founding Company is in
violation of any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including without limitation, laws and regulations relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products (collectively, "Materials of Environmental
Concern"), or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, noncompliance with any permits or other
governmental authorizations required for the operation of the business of the
Company or its subsidiaries or the Founding Companies under applicable
Environmental Laws, or noncompliance with the terms and conditions thereof, nor
has the Company or any of its subsidiaries or any Founding Company received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its subsidiaries
or any Founding Company is in violation of any Environmental Law; (ii) there is
no claim, action or cause of action filed with a court or
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governmental authority with respect to which the Company or any Founding Company
has received written notice, no investigation with respect to which the Company
or any Founding Company has received written notice, and no written notice by
any person or entity received by the Company or any Founding Company alleging
potential liability for investigatory costs, cleanup costs, governmental
responses costs, natural resources damages, property damages, personal injuries,
attorneys' fees or penalties arising out of, based on or resulting from the
presence, or release into the environment, of any location owned, leased or
operated by the Company or any of its subsidiaries or any Founding Company, now
or in the past (collectively, "Environmental Claims"), pending or, to the
Company's knowledge, threatened against the Company or any of its subsidiaries
or any Founding Company or any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries or any Founding
Company has retained or assumed either contractually or by operation of law; and
(iii) to the Company's knowledge, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a violation
of any Environmental Law or form the basis of a potential Environmental Claim
against the Company or any of its subsidiaries or any Founding Company or
against any person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries or any Founding Company has retained or
assumed either contractually or by operation of law.
(z) ERISA Compliance. To the Company's knowledge, each of its
subsidiaries and each of the Founding Companies and any "employee benefit plan"
(as defined under the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, any Founding
Company or their "ERISA Affiliates" (as defined below) are in compliance in all
material respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a Founding Company, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such Founding Company is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company, any Founding Company or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the Company,
any Founding Company or any of their ERISA Affiliates, if such "employee benefit
plan" were terminated, would have any "amount of unfunded benefit liabilities"
(as defined under ERISA). Neither the Company, any Founding Company nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal from,
any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the
Code. Each "employee benefit plan" established or maintained by the Company, any
Founding Company or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification.
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<PAGE> 15
(aa) Combination Agreements. The Company has entered into the
agreements (the "Combination Agreements"), filed as Exhibits 2.1 through 2.7 to
the Registration Statement, pursuant to which the Company will acquire in
separate Combinations all of the capital stock and ownership interests of the
Founding Companies. Each of the Combination Agreements is in full force and
effect, has been duly and validly authorized, executed and delivered by the
Company, the Inside Founders (as defined herein) and, to the Company's
knowledge, the other parties thereto, and is valid and binding on the Company,
the Inside Founders and, to the Company's knowledge, the other parties thereto
in accordance with its terms and none of the Company, the Inside Founders and,
to the Company's knowledge, the other parties thereto is in default in any
respect thereunder. A complete and correct copy of each Combination Agreement
(including exhibits and schedules) has been delivered to the Representatives and
no material changes therein will be made subsequent hereto and prior to the
Closing Date.
(bb) Representations in Combination Agreements. The
representations and warranties made in each Combination Agreement by the
Company, each Founding Company, the Inside Founders and, to the Company's
knowledge by each of the Founding Company's other stockholders are true and
correct in all material respects, except for such changes permitted or
contemplated by such Combination Agreement.
Any certificate signed by an officer of the Company on behalf of the
Company and delivered to the Representatives or to counsel for the Underwriters
shall be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $______ per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of NMS, 600 Montgomery Street, San Francisco, California (or such
other place as may be agreed to by the Company and the Representatives) at 6:00
a.m. San Francisco time, on , 1998 or such other time and date not
later than 10:30 a.m. San Francisco time, on , 1998 as the
Representatives shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Representatives may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the
Representatives
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<PAGE> 16
to recirculate to the public copies of an amended or supplemented Prospectus or
a delay as contemplated by the provisions of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 390,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Common Shares as
soon after this Agreement has been executed as the Representatives, in their
sole judgment, have determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. NMS, individually and not as a Representative of the
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<PAGE> 17
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
(New York City time) on the second business day following the date the Common
Shares are released by the Underwriters for sale to the public, the Company
shall deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY. THE COMPANY FURTHER
COVENANTS AND AGREES WITH EACH UNDERWRITER AS FOLLOWS:
(a) Representatives' Review of Proposed Amendments and
Supplements. During such period beginning on the date hereof and ending on the
later of the First Closing Date or such date, as in the opinion of counsel for
the Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably object.
(b) Securities Act Compliance. After the date of this
Agreement, the Company shall promptly advise the Representatives in writing (i)
of the receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and
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<PAGE> 18
date of any filing of any post-effective amendment to the Registration Statement
or any amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the Registration
Statement becomes effective and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of any order preventing or suspending the
use of any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from any
securities exchange upon which it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any proceedings
for any of such purposes. If the Commission shall enter any such stop order at
any time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as applicable,
under the Securities Act and will use its reasonable efforts to confirm that any
filings made by the Company under such Rule 424(b) were received in a timely
manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters. If, during the Prospectus Delivery Period, any event
shall occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the opinion of the Representatives or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus to
comply with law, the Company agrees to promptly prepare (subject to Section 3(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) Copies of any Amendments and Supplements to the
Prospectus. The Company agrees to furnish the Representatives, without charge,
during the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
Blue Sky or state securities laws or Canadian provincial securities laws of
those jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat
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<PAGE> 19
of any proceeding for any such purpose, and in the event of the issuance of any
order suspending such qualification, registration or exemption, the Company
shall use its best efforts to obtain the withdrawal thereof at the earliest
possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company
will make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering the twelve-month
period ending that satisfies the provisions of Section 11(a) of the
Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act. Additionally, the Company shall include in its Form 10-Q
filed with the Commission all information required under Rule 463 under the
Securities Act.
(j) Agreement Not To Offer or Sell Additional Securities.
During the period of 180 days following the date of the Prospectus, the Company
will not, without the prior written consent of NMS (which consent may be
withheld at the sole discretion of NMS), directly or indirectly, sell, offer,
contract or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-l(h) under the Exchange Act,
or otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act (other than on Forms S-4 and
S-8) in respect of, any shares of Common Stock, options or warrants to acquire
shares of the Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock (other than as contemplated by this
Agreement with respect to the Common Shares); provided, however, that the
Company may (i) issue shares constituting Additional Consideration (as defined
in the Prospectus), (ii) grant options to purchase Common Stock under any stock
option, stock bonus or other stock plan or arrangement described in the
Prospectus, provided that no such options will become exercisable during the
180-day period, (iii) issue shares of Common Stock pursuant to the exercise of
the warrants held by Paul M. Verrochi and Dominic J. Puopolo, and (iv) issue
shares of Common Stock or other securities in connection with the acquisition of
additional training and development companies, but only if the holders of such
shares agree in writing not to sell, offer, dispose of or otherwise transfer any
such shares during such 180-day period without the prior written consent of NMS
(which consent may be withheld at the sole discretion of the NMS).
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<PAGE> 20
(k) Future Reports to the Representatives. During the period
of five years after the date of this Agreement, so long as the Company is
subject to the reporting requirements of the Securities Exchange Act of 1934,
the Company will furnish to the Representatives (i) as soon as practicable after
the mailing thereof to the Company's stockholders, copies of the Annual Report
of the Company containing the balance sheet of the Company as of the close of
the fiscal year covered thereby and statements of income, stockholders' equity
and cash flows for such year and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities exchange;
and (iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its capital stock.
(l) Satisfaction of Founding Company Combination Conditions.
The Company will: (i) use its best efforts to satisfy all conditions to
consummation of the Founding Company Combinations as set forth in the
Combination Agreements with respect thereto; (ii) use its best efforts to cause
each other party to such Combination Agreements to satisfy all conditions to the
consummation of the Founding Company Combinations; and (iii) promptly notify the
Representatives of the occurrence of any event which may result in the
non-consummation of any of the Founding Company Combinations on the First
Closing Date.
NMS, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
under this Agreement and in connection with the transactions contemplated hereby
and in connection with the Founding Company Combinations, including without
limitation (i) all expenses incident to the issuance and delivery of the Common
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Common Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey" or memorandum, and any supplements
thereto, advising the Underwriters of such qualifications, registrations and
exemptions, (vii) the filing fees incident to, and the reasonable fees and
expenses
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<PAGE> 21
of counsel for the Underwriters in connection with, the NASD's review and
approval of the Underwriters' participation in the offering and distribution of
the Common Shares, (viii) the fees and expenses associated with including the
Common Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in Item 14 of Part II of the Registration Statement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof the
Representatives shall have received from each of KPMG Peat Marwick, LLP,
independent public or certified public accountants for the Company, and Friedman
& Fuller, P.C., independent public or certified public accountants for Star
Mountain, Inc., a letter dated the date hereof addressed to the Underwriters, in
form and substance satisfactory to the Representatives, containing statements
and information of the type ordinarily included in accountant's "comfort
letters" to underwriters, delivered according to Statement of Auditing Standards
No. 72 (or any successor bulletin), with respect to the audited and unaudited
financial statements and certain financial information contained in the
Registration Statement and the Prospectus (and the Representatives shall have
received an additional __ conformed copies of such accountants' letter for each
of the several Underwriters). The specified date referred to therein for the
carrying out of procedures shall be no more than three business days prior to
the date of this Agreement.
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective
amendment shall have become effective; or, if the Company elected to
rely upon Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and within the time period
required by such Rule 424(b);
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<PAGE> 22
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For
the period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second Closing
Date:
(i) in the judgment of the Representatives there shall not
have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any securities
of the Company or any of its subsidiaries by any "nationally recognized
statistical rating organization" as such term is defined for purposes
of Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Nutter, McClennen & Fish, LLP, counsel for the Company,
dated as of such Closing Date, the substance of which is set forth in Exhibit A
(and the Representatives shall have received an additional __ conformed copies
of such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the
First Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Ropes & Gray, counsel for the Underwriters,
dated as of such Closing Date, with respect to the matters set forth in
paragraphs (i), (vii) (with respect to subparagraph (a) only), (viii), (ix),
(x), (xiii) (with respect to the captions "Description of Capital Stock" and
"Underwriters" under subparagraph (a) only) and (xi) and the next-to-last
paragraph of Exhibit A (and the Representatives shall have received an
additional __ conformed copies of such counsel's legal opinion for each of the
several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, in his capacity as such officer of the Company, dated as
of such Closing Date, to the effect set forth in subsections (b)(ii) and (c)(ii)
of this Section 5, and further to the effect that:
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(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1 of this Agreement are true and correct
with the same force and effect as though expressly made on and as of
such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received from
KPMG Peat Marwick, LLP independent public or certified public accountants for
the Company, and Friedman & Fuller, P.C., independent public or certified public
accountants for Star Mountain, Inc., a letter dated such date, in form and
substance satisfactory to the Representatives, to the effect that they reaffirm
the statements made in the letter furnished by them pursuant to subsection (a)
of this Section 5, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days prior to
the First Closing Date or Second Closing Date, as the case may be (and the
Representatives shall have received an additional __ conformed copies of such
accountants' letter for each of the several Underwriters).
(h) Combination Closings. With respect to the Founding Company
Combinations:
(i) Each condition to the obligations of the Company set forth
in Section 7 of each of the Combination Agreements shall have been
satisfied, without waiver or modification, except as may be approved by
the Representatives.
(ii) Each certificate delivered to the Company pursuant to
each Combination Agreement shall have also been delivered to the
Representatives.
(iii) Counsel for each of the Founding Companies shall have
furnished to the Representatives a letter, in form and substance
satisfactory to the Representatives, to the effect that they are
entitled to rely on the opinion of such counsel delivered to the
Company pursuant to each Combination Agreement as if such opinion were
addressed to them.
(iv) On the First Closing Date the Representatives shall have
received opinions, in form and substance satisfactory to the
Representatives, from counsel for the Company in the form attached as
Exhibit A and from counsel for each of the Founding Companies, to the
effect that each Combination pursuant to the respective Combination
Agreement has become effective and that such Combination has been duly
authorized by the respective Founding Company and their respective
stockholders.
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(i) Combination Agreements. The Combination Agreements shall
be in full force and effect and none of the parties thereto shall be in default
thereunder. The Representatives shall have received assurances reasonably
satisfactory to it that all documents required to be filed in the respective
states in order to effectuate the consummation of each Combination shall have
been approved for filing by the appropriate authorities in each state and that
all of such Combination documents shall be filed substantially concurrently with
the consummation of the transactions pursuant to this Agreement.
(j) Lock-Up Agreement from Certain Stockholders of the
Company. On the date hereof, the Company shall have furnished to the
Representatives an agreement in the form of Exhibit B hereto from each director,
officer and each beneficial owner of Common Stock (as defined and determined
according to Rule 13d-3 under the Exchange Act, except that a one hundred eighty
day period shall be used rather than the sixty day period set forth therein),
including, without limitation, each person who will receive shares of Common
Stock pursuant to the terms of the Combination Agreements, and such agreement
shall be in full force and effect on each of the First Closing Date and the
Second Closing Date.
(k) Additional Documents. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 5 or Section 11, or if
the sale to the Underwriters of the Common Shares on the First Closing Date is
not consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Common
Shares, including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
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SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall become effective upon the execution of this
Agreement by the parties hereto.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters by the Company. The
Company and its subsidiaries, jointly and severally, agrees to indemnify and
hold harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above, provided that
neither the Company nor any of its subsidiaries shall be liable under this
clause (v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence, bad faith
or willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by NMS) as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing indemnity
agreement shall not apply to any loss, claim, damage, liability or expense to
the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to
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the Company by the Representatives expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company and the subsidiaries may otherwise have.
(b) Indemnification of the Underwriters by the Founders. Each
of the stockholders of the Founding Companies listed on Schedule B (the "Inside
Founders") severally agrees to indemnify and hold harmless each Underwriter, its
officers and employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against any loss,
claim, damage, liability or expense, as incurred, to which such Underwriter or
such controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of the Company), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact relating to the Founding Company of
which such Inside Founder was a stockholder that is contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
relating to such Founding Company that is required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact relating to such
Founding Company that is contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact relating to such Founding Company that is
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common Shares,
or any person controlling such Underwriter, if copies of the Prospectus were
timely delivered to the Underwriter pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Common Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss,
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claim, damage, liability or expense; and provided, further, that the liability
of each Inside Founder under the foregoing indemnity agreement shall be limited
to an amount equal to the cash consideration received by such Inside Founder,
any immediate family member of such Inside Founder and any trust for the direct
or indirect benefit of such Inside Founder or his or her immediate family under
the Combination Agreements. The indemnity agreement set forth in this Section
8(b) shall be in addition to any liabilities that the Inside Founders may
otherwise have.
(c) Indemnification of the Company, its Directors and
Officers. Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its subsidiaries, each of its directors, each of its
officers who signed the Registration Statement, the Inside Founders and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act, against any loss, claim, damage, liability or expense,
as incurred, to which the Company, its subsidiaries, the Inside Founders or any
such director, officer or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based upon
any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or arises out of or is based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written information
furnished to the Company by the Representatives expressly for use therein; and
to reimburse the Company, its subsidiaries, the Inside Founders or any such
director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, its subsidiaries, the Inside Founders or any
such director, officer or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Each of the Company and its subsidiaries hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth (A) as the last paragraph on the inside front cover page of
the Prospectus concerning stabilization by the Underwriters and (B) in the table
after the first paragraph and in the [third, sixth and seventh] paragraphs under
the caption "Underwriting" in the Prospectus; and the Underwriters confirm that
such statements are correct. The indemnity agreement set forth in this Section
8(c) shall be in addition to any liabilities that each Underwriter may otherwise
have.
(d) Notifications and Other Indemnification Procedures.
Promptly after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
8, notify the indemnifying party in writing of the commencement thereof, but
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the omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party (1) for contribution or
otherwise than under the indemnity agreement contained in this Section 8 or (2)
to the extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying party,
the indemnifying party will be entitled to participate in and, to the extent
that it shall elect, jointly with all other indemnifying parties similarly
notified and who are the subject of the same claims, by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise participate
in the defense of such action on behalf of such indemnified party or parties.
Upon receipt of notice from the indemnifying party to such indemnified party
of such indemnifying party's election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (together with one local
counsel), approved by the indemnifying party (NMS in the case of Section 8(c)
and Section 9), representing the indemnified parties who are parties to such
action) or (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in each
of which cases the fees and expenses of counsel shall be at the expense of
the indemnifying party.
(e) Settlements. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 8(d) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect
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of which any indemnified party is or could have been a party and indemnity was
or could have been sought hereunder by such indemnified party, unless such
settlement, compromise or consent includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held
to be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, its subsidiaries and the Inside Founders, on
the one hand, and the Underwriters, on the other hand, from the offering of the
Common Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, its subsidiaries and the
Inside Founders on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and its
subsidiaries, on the one hand, and the Underwriters, on the other hand, in
connection with the offering of the Common Shares pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company and the total underwriting
discount received by the Underwriters, in each case as set forth on the front
cover page of the Prospectus (or, if Rule 434 under the Securities Act is used,
the corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set forth on such cover. The
benefits received by each Inside Founder shall be deemed to be the total cash
proceeds received by such Inside Founder as consideration pursuant to the
Combination Agreements. The relative fault of the Company, its subsidiaries and
the Inside Founders, on the one hand, and the Underwriters, on the other hand,
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company, its
subsidiaries or such Inside Founder, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(d), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(d) with
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respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(d) for purposes of indemnification.
The Company, its subsidiaries, the Inside Founders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public and no Inside Founder shall be required to
contribute any amount in excess of the total cash proceeds received by such
Inside Founder as consideration pursuant to the Combination Agreements.
Notwithstanding the provisions of this Section 9, an Inside Founder shall not be
required to contribute under this Section 9 (i) except to the extent and under
such circumstances as such Inside Founder would have been liable pursuant to
Section 8 hereof had indemnification been enforceable under applicable law and
(ii) unless the aggregate amount of losses, claims, damages, liabilities and
expenses attributable to the Founding Company of which such Inside Founder was a
stockholder exceeds the amount set forth in Section 9.2(c) of the applicable
Combination Agreement. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several, and not joint, in proportion to their respective
underwriting commitments as set forth opposite their names in Schedule A and the
Inside Founders' obligations to contribute pursuant to this Section 9 are
several, and not joint. For purposes of this Section 9, each officer and
employee of an Underwriter and each person, if any, who controls an Underwriter
within the meaning of the Securities Act and the Exchange Act shall have the
same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company with the meaning, of the
Securities Act and the Exchange Act shall have the same rights to contribution
as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of
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<PAGE> 31
Firm Common Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non defaulting Underwriters, to purchase
the Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date. If, on the First Closing Date or the
Second Closing Date, as the case may be, any one or more of the Underwriters
shall fail or refuse to purchase Common Shares and the aggregate number of
Common Shares with respect to which such default occurs exceeds 10% of the
aggregate number of Common Shares to be purchased on such date, and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Common Shares are not made within 48 hours after such default, this Agreement
shall terminate without liability of any party (other than the defaulting
Underwriter) to any other party except that the provisions of Section 4, Section
6, Section 8 and Section 9 shall at all times be effective and shall survive
such termination. In any such case either the Representatives or the Company
shall have the right to postpone the First Closing Date or the Second Closing
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement maybe terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq National Market or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company, its
subsidiaries or the Inside Founders to any Underwriter, except that the Company
shall be obligated to reimburse the expenses of the Representatives and the
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Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company, its subsidiaries or the Inside Founders or (c) any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, its subsidiaries, the Inside
Founders and of the several Underwriters set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Underwriter or the Company or any of its or their
partners, officers or directors or any controlling person, as the case may be,
and will survive delivery of and payment for the Common Shares sold hereunder
and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Mr. Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Provant, Inc.
67 Batterymarch Street, Suite 500
Boston, Massachusetts 02110
Facsimile: (617)
Attention: Chairman of the Board
With a copy to:
Nutter, McClennen & Fish, LLP
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<PAGE> 33
One International Place
Boston, Massachusetts 02110-2699
Facsimile: (617) 973-9748
Attention: Constantine Alexander, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. (a) THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral
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<PAGE> 34
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party whom
the condition is meant to benefit. The Table of Contents and the Section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
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<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
PROVANT, INC.
By:____________________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INC.
PIPER JAFFRAY INC.
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
BY NATIONSBANC MONTGOMERY SECURITIES LLC
By:______________________________
<PAGE> 36
The undersigned joins this Agreement solely for the purposes of
Sections 8, 9, 11 and 12 of the Agreement.
BTI ACQUISITION CORP.
By:_____________________________________
DECKER ACQUISITION CORP.
By:_____________________________________
HOWARD ACQUISITION CORP.
By:_____________________________________
LSS ACQUISITION CORP.
By:_____________________________________
MOHR ACQUISITION CORP.
By:_____________________________________
NOVATIONS ACQUISITION CORP.
By:_____________________________________
STAR ACQUISITION CORP.
By:_____________________________________
<PAGE> 37
By:_____________________________________
Herbert Cohen
By:_____________________________________
Judith Cohen
By:_____________________________________
Michael Patrick
By:_____________________________________
Robert Steinmetz
By:_____________________________________
John F. King
By:_____________________________________
Jeffrey P. Howard
By:_____________________________________
Marc S. Wallace
By:_____________________________________
Paul Green
By:_____________________________________
Herbert Decker
By:_____________________________________
Kenneth Taylor
By:_____________________________________
Joseph Folkman
By:_____________________________________
Joseph Hanson
By:_____________________________________
Kurt Sandholtz
By:_____________________________________
Norman Smallwood
<PAGE> 38
By:_____________________________________
Randy Stott
By:_____________________________________
Jonathan Younger
By:_____________________________________
A. Carl von Sternberg
<PAGE> 39
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM
UNDERWRITERS COMMON SHARES
TO BE PURCHASED
<S> <C>
NationsBanc Montgomery Securities LLC.............................................................
Piper Jaffray Inc.................................................................................
Salomon Smith Barney Inc..........................................................................
Total...................................................................................
</TABLE>
<PAGE> 40
SCHEDULE B
MOHR Retail Learning Systems, Inc.
Herbert Cohen
Judith Cohen
Michael Patrick
Learning Systems Sciences, Inc.:
Robert Steinmetz
John F. King
J. Howard and Associates, Inc.:
Jeffrey P. Howard
Marc S. Wallace
Behavioral Technologies, Inc.:
Paul Green
Decker Communications, Inc.:
Herbert Decker
Kenneth Taylor
Novations Group, Inc.:
Joseph Folkman
Joseph Hanson
Kurt Sandholtz
Norman Smallwood
Randy Stott
Jonathan Younger
Star Mountain, Inc.:
A. Carl von Sternberg
<PAGE> 41
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Underwriting Agreement. The Company has all
necessary authorizations, approvals, consents, licenses, certificates
and permits of and from all Federal and state governmental or
regulatory bodies or officials, to conduct all the activities conducted
by them, to own or lease all the assets owned or leased by them and to
conduct their businesses, all as described in the Registration
Statement and the Prospectus, and no such authorization, approval,
consent, order, license, certificate or permit contains a materially
burdensome restriction other than as disclosed in the Registration
Statement and the Prospectus.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a
Material Adverse Change.
(iv) Each subsidiary listed in Exhibit 21 to the Registration
Statement (a "Subsidiary") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, to the knowledge of such counsel, is
duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest,
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<PAGE> 42
mortgage, pledge, lien, encumbrance or, to the knowledge of such
counsel, any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conforms to the descriptions
thereof set forth in the Prospectus. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable and, to such counsel's knowledge, have been
issued in compliance with the registration and qualification
requirements of federal and state securities laws. The form of
certificate used to evidence the Common Stock complies with all
applicable requirements of the charter and by-laws of the Company and
the General Corporation Law of the State of Delaware.
(vii) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (a) by
operation of the charter or bylaws of the Company or the General
Corporation Law of the State of Delaware or (b) to the knowledge of
such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles and except that counsel need express no opinion on the
enforceability of Sections 8 and 9 of the Underwriting Agreement.
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and delivered
by the Company pursuant to the Underwriting Agreement against payment
of the consideration set forth therein, will be validly issued, fully
paid and nonassessable. The shares of Common Stock to be issued in
connection with the Founding Company Combinations have been duly
authorized for issuance and, when issued and delivered by the Company
in connection with the Founding Company Combinations, will be validly
issued, fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the knowledge of such counsel,
no stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if
any, has been issued under the Securities Act and no proceedings for
such purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act
has been made in the manner and within the time period required by such
Rule 424(b).
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<PAGE> 43
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus and each amendment or supplement
to the Registration Statement and the Prospectus, as of their
respective effective or issue dates (other than the financial
statements and supporting schedules included therein or in, exhibits to
or excluded from the Registration Statement, as to which no opinion
need be rendered) appear on their face to comply as to form with the
applicable requirements of the Securities Act.
(xii) The Common Shares have been approved for inclusion on
the Nasdaq National Market.
(xiii) The statements (a) in the Prospectus under the captions
"Risk Factors--Anti-Takeover Effect of Certain Charter Provisions,"
"Description of Capital Stock," and "Shares Eligible for Future Sale"
and (b) in Item 14 and Item 15 of the Registration Statement, insofar
as such statements constitute matters of law or legal conclusions or
summaries of documents referred to therein have been reviewed by such
counsel and fairly summarize, in all material respects, the matters
referred to therein.
(xiv) To the knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which
are required to be disclosed in the Registration Statement, other than
those disclosed therein.
(xv) To the knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described
or referred to therein or filed as exhibits thereto; and all such
Existing Instruments are fairly summarized or disclosed in the
Registration Statement.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental
authority or agency, is required for the Company's execution, delivery
and performance of the Underwriting Agreement and of each Combination
Agreement and consummation of the transactions contemplated thereby and
by the Prospectus, except as required under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting
Agreement and of each Combination Agreement by the Company and the
performance by the Company of its obligations thereunder (other than
performance by the Company of its obligations under the indemnification
and contribution sections of the Underwriting Agreement, as to which no
opinion need be rendered) (a) have been duly authorized by all
necessary corporate action on the part of the Company; (b) will not
result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary; (c) will not constitute a breach of, or
Default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or, to
the knowledge of such
A-3
<PAGE> 44
counsel, any of its subsidiaries pursuant to, to the knowledge of such
counsel, any other material Existing Instrument; or (d)to the knowledge
of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable
to the Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act.
(xix) Except as disclosed in the Prospectus under the caption
"Shares Eligible for Future Sale," to the knowledge of such counsel,
there are no persons with registration or other similar rights to have
any equity or debt securities registered for sale under the
Registration Statement or included in the offering contemplated by the
Underwriting Agreement, except for such rights as have been duly
waived.
(xx) Each of the Combination Agreements has been duly and
validly authorized, executed and delivered by the Company and is valid
and binding on the Company in accordance with its terms (subject to
customary exceptions). The Combinations pursuant to the Combination
Agreements have become effective.
In addition to the opinions set forth above, such counsel
shall state that they have participated in conferences with officers
and other representatives of the Company, representatives of the
independent public or certified public accountants for the Company and
with representatives of the Underwriters at which the contents of the
Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although
such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the Prospectus (other than as
specified above), and any supplements or amendments thereto, on the
basis of the foregoing, nothing has come to their attention which would
lead them to believe that either the Registration Statement or any
amendments thereto, at the time the Registration Statement or such
amendments became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or at the First Closing Date or the
Second Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that
such counsel need express no belief as to the financial statements or
schedules or other financial or accounting data derived therefrom,
included in the Registration Statement or the Prospectus or any
amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, the Commonwealth of
Massachusetts or the federal law of the United States, to the
A-4
<PAGE> 45
extent they deem proper and specified in such opinion, upon the opinion (which
shall be dated the First Closing Date or the Second Closing Date, as the case
may be, shall be satisfactory in form and substance to the Underwriters, shall
expressly state that the Underwriters may rely on such opinion as if it were
addressed to them and shall be furnished to the Representatives) of other
counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters; provided, however, that such
counsel shall further state that they believe that they and the Underwriters are
justified in relying upon such opinion of other counsel, and (B) as to matters
of fact, to the extent they deem proper, on certificates of responsible officers
of the Company and public officials.
A-5
<PAGE> 46
EXHIBIT B
_______________, 1997
NationsBanc Montgomery Securities LLC
Salomon Smith Barney Inc.
Piper Jaffray Inc.
As Representatives of the Several Underwriters
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
RE: Provant, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities LLC ("NMS") (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-l(h)
under the Securities Exchange Act of 1934, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date one hundred eighty days after the date of the
Prospectus relating to the Offering, except with respect to any transfer (A) to
any trust for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned or (B) to any member of the immediate family of the
undersigned, provided, that in
B-1
<PAGE> 47
each case, the transferee agrees to be bound by the restrictions set forth
herein and such transfer does not involve a disposition for value. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
______________________________
Printed Name of Holder
By:___________________________
Signature
______________________________
Printed Name of Person Signing
(and indicate capacity of person signing
if signing as custodian, trustee, or on
behalf of an entity)
B-2
<PAGE> 1
EXHIBIT 2.8
HOWARD FIRST AMENDMENT EXECUTION VERSION
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of April
24, 1998, is by and among Provant, Inc., a Delaware corporation, Howard
Acquisition Corp., a Delaware corporation, J. Howard & Associates, Inc., a
Massachusetts corporation, Jeffrey P. Howard, Marc S. Wallace, Paul M. Verrochi
and Dominic J. Puopolo (collectively, the "Parties").
WHEREAS, the Parties constitute all of the parties to that certain
Agreement and Plan of Merger dated as of February 12, 1998 by and among the
Parties (the "Merger Agreement"); and
WHEREAS, the Parties desire to amend the Merger Agreement in certain
respects, as set forth herein;
NOW, THEREFORE, in consideration of the mutual benefits to be obtained
by the consummation of the transactions contemplated by the Merger Agreement,
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the Parties agree as follows:
1. All capitalized terms used but not defined herein shall have the
definitions given to them in the Merger Agreement. All references to Sections
and subsections shall mean Sections and subsections of the Merger Agreement
unless otherwise specified.
2. There is hereby inserted in the Merger Agreement a new Section 1.17A,
as follows:
1.17A "1999 EBIT" means the earnings before interest and taxes
of the Surviving Corporation for the period beginning July 1, 1998 and
ending at June 30, 1999, determined in accordance with the Instructions
for Determination of EBIT attached hereto as Exhibit 1.
3. There is hereby inserted in the Merger Agreement a new Section 1.27A,
as follows:
1.27A "1999 Market Price" means the average closing price of
Provant Common Stock on the Nasdaq National Market (or such other
market or exchange as is then the principal market or exchange on which
the Provant Common Stock is traded) during the twenty trading days
immediately following Provant's first public announcement of its
financial results for its fiscal year ending June 30, 1999.
<PAGE> 2
4. Subsection 2.7(c) is hereby amended by substituting, in clause (i)
thereof, the figure $4.9 million in lieu of the figure $5.9 million currently
contained therein.
5. Section 2.8 is hereby amended by deleting the existing text of such
Section in its entirety and by substituting, in lieu thereof, the following:
2.8 RIGHT TO RECEIVE ADDITIONAL SHARES.
(a) Promptly following June 30, 1999 (but in no event later
than October 15, 1999), Provant will determine 1999 EBIT.
(I) In the event 1999 EBIT is $1.18 million or less, no
Additional Shares shall be issued in respect of the Shares.
(II) In the event 1999 EBIT is greater than $1.18
million but less than $1.84 million, there shall be issued in
respect of each Share that number of Additional Shares
determined by (A) multiplying $4.3 million by a fraction, the
numerator of which shall be the amount by which 1999 EBIT
exceeds $1.18 million and the denominator of which shall be
$660,000, (B) dividing the product obtained pursuant to clause
(A) by the 1999 Market Price, and (C) multiplying the quotient
obtained pursuant to clause (B) by the Fraction.
(III) In the event 1999 EBIT equals or exceeds $1.84
million, there shall be issued in respect of each Share that
number of Additional Shares determined by multiplying the
Fraction times the quotient obtained by dividing $4.3 million
by the 1999 Market Price.
Provant shall not issue any fractional share of Provant Common Stock;
in lieu of issuing a fractional share, Provant shall make a cash
payment in accordance with Section 2.9.
(b) No later than October 15, 1999, Provant shall deliver to
each former stockholder of the Company a statement showing in
reasonable detail Provant's computation of 1999 EBIT. Provant shall
maintain, and shall cause the Surviving Corporation to maintain,
complete books and records necessary for the proper computation of 1999
EBIT. The Stockholders (and only the Stockholders, acting jointly as
representatives of all former stockholders of the Company, as provided
in subsection (g) below) shall have the right at their expense, through
an independent certified public accountant reasonably acceptable to
Provant, to audit the books and records of the Surviving Corporation
solely for the purpose
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<PAGE> 3
of determining the accuracy of the computation of 1999 EBIT made by
Provant, and the Surviving Corporation and Provant shall cooperate
fully in all reasonable respects with any such audit. In no event shall
the Stockholders, or either of them, have the right to conduct more
than one such audit. If the Stockholders do not elect within 90 days of
delivery of the statement of Provant referred to in this subsection (b)
to cause an audit of the books and records of the Surviving Corporation
as provided herein, the Stockholders, on their behalf and on behalf of
all former holders of Shares, shall be deemed to have agreed that such
statement was correct in all respects. Unless the Stockholders have
asserted a dispute with respect to Provant's calculation of the 1999
EBIT in accordance with subsection (c), Provant shall cause the escrow
agent referred to in subsection (d) to release from escrow and deliver
any Additional Shares due pursuant to subsection (a) within ten (10)
days after (x) the expiration of the 90-day period referenced in the
immediately preceding sentence or, if earlier, Provant's receipt of
written confirmation from the Stockholders (as representatives of all
former stockholders of the Company) that the Stockholders do not
dispute Provant's calculation of the 1999 EBIT.
(c) Any dispute as to the correct computation of 1999 EBIT
shall be referred to the First Accountants for determination. If the
Stockholders do not elect to dispute the First Accountants'
determination of 1999 EBIT within 30 days following the delivery
thereof to the Stockholders, such determination shall be final, binding
and conclusive and shall not be subject to challenge by Provant, either
Stockholder or any other former Stockholder of the Company, and in such
event the fees and expenses of the First Accountants shall be borne by
Provant. In the event the Stockholders do unanimously elect within such
30 day period to dispute the determination of the First Accountants,
the Stockholders shall specify the amount (in dollars) that they
contend to be the correct 1999 EBIT (the Stockholders' "EBIT
Position"), and the final calculation of 1999 EBIT shall be referred to
the Second Accountants. Absent manifest error or willful misconduct,
the determination of the Second Accountants shall be final, binding and
conclusive and shall not be subject to challenge by Provant, either
Stockholder or any other former stockholder of the Company. In the
event the calculation of 1999 EBIT is referred to the Second
Accountants, the fees and expenses of both the First Accountants and
the Second Accountants shall be borne by that party (i.e., the
Stockholders, jointly and severally, or Provant) whose EBIT Position is
furthest, in gross dollars, from the 1999 EBIT as finally determined by
the Second Accountants. For purposes of the preceding sentence,
Provant's "EBIT Position" shall be deemed to be the amount determined
by the First Accountants to be the 1999 EBIT. The parties recognize
that in making such determinations, each such firm of accountants will
be performing a function separate and distinct from their audit
function, if any, and shall be entitled to the immunities, rights and
discretion of arbitrators in general. Any issuance and payment of
Additional
-3-
<PAGE> 4
Shares (or cash in lieu of fractional Additional Shares) which is
finally determined to be due to the former holders of Shares in
accordance with this subsection (c) shall be made by Provant (i) if
based on the determination of the First Accountants, within 10 days
after such determination becomes final, and (ii) if based on the
determination of the Second Accountants, within 10 days after Provant
receives notice of such determination, if Provant is responsible for
the fees and expenses of the accountants pursuant to this Section, and
within 10 days after the Stockholders have paid the fees and expenses
of the accountants, if the Stockholders are responsible for such fees
and expenses pursuant to this Section.
(d) Prior to the first anniversary of the Effective Time,
Provant shall issue and place into escrow, with an institutional escrow
agent reasonably selected by Provant, the number of shares of Provant
Common Stock that Provant then estimates (based on the year-to-date
EBIT of the Surviving Corporation and Provant's projection for the
remainder of the 1999 fiscal year) will be issued as Additional Shares.
Such shares of Provant Common Stock shall be held in escrow pending
final determination of 1999 EBIT, upon which the final number of shares
constituting Additional Shares, if any, shall be released from escrow
to the former stockholders of the Company and any escrowed shares not
distributed as Additional Shares shall be released to Provant. If and
to the extent the escrowed shares are less than the final amount of
Additional Shares as finally determined pursuant to subsection (b) or
(c) above, Provant shall issue additional shares of Provant Common
Stock as necessary. The expenses of the escrow agent shall be paid by
Provant, except that if the determination of 1999 EBIT is referred to
the Second Accountants, the incremental expenses of the escrow agent
for the period following such referral shall be allocated in the same
manner as the expenses of the Second Accountants, as set forth in
subsection (c).
(e) The Stockholders acknowledge and agree, on behalf of
themselves and the other stockholders of the Company, that Provant and
the Surviving Corporation shall be free to pursue their respective
business goals and that 1999 EBIT may be affected thereby.
Notwithstanding the foregoing, Provant hereby agrees that it will take
no action and adopt no policy (and will not cause the Surviving
Corporation to take any action or adopt any policy) during the period
from the Effective Time through June 30, 1999 that a
majority-in-interest of the former stockholders of the Company have
reasonably asserted (in advance of or contemporaneously with such
action or adoption), in good faith and in writing, can reasonably be
expected to result (directly or indirectly) in a reduction of 1999
EBIT.
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<PAGE> 5
(f) The right of the stockholders of the Company to receive
Additional Shares and/or cash payment for fractional shares may not be
transferred or assigned except by operation of law or pursuant to the
laws of descent and distribution.
(g) The Stockholders are hereby appointed as the
representatives of all stockholders of the Company for purposes of this
Section 2.8. No Stockholder shall have any liability to any other
holder of Shares, including any other Stockholder, for any action taken
or position asserted (or any failure to act or to assert any position)
pursuant to this Section 2.8, provided only that such Stockholder has
acted in a manner he believed in good faith to be in the interest of
all holders of Shares.
6. The title to Exhibit 1 to the Merger Agreement is hereby amended to
read: "Instructions for Determination of 1998 and 1999 EBIT," and all references
in such Exhibit 1 to "1998 EBIT" shall be amended to read "1998 and 1999 EBIT".
7. Provant, Acquisition and the Provant Principals hereby waive the
closing condition set forth in Section 7.1(b) solely with respect to the
requirements contained therein that the Company have (a) projected pro forma
revenues for the 12 months ending June 30, 1998 ("1998 Revenues") of not less
than $7.8 million, and (b) projected 1998 EBIT of not less than $1.02 million
(in each case calculated in the manner provided in Section 1.21), provided that,
in lieu of such requirements, the Company have 1998 Revenues of not less than
$6.5 million and 1998 EBIT of not less than $600,000, in each case calculated in
the foregoing manner.
8. Except as expressly amended in this Amendment, the Merger Agreement
is hereby reaffirmed by each of the Parties and remains in full force and
effect.
[remainder of page intentionally blank]
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<PAGE> 6
IN WITNESS WHEREOF, and intending to be legally bound hereby, each of
the Parties has caused this Amendment to be executed under seal on its behalf,
by its officers thereunto duly authorized where applicable, all as of the day
and year first above written.
PROVANT, INC.
By:
Name:______________________________
Title:
HOWARD ACQUISITION CORP.
By:
Name:______________________________
Title:
J. HOWARD & ASSOCIATES, INC.
By:________________________________
Name: Jeffrey P. Howard
Title: Chairman and Chief Executive
Officer
STOCKHOLDERS:
___________________________________
JEFFREY P. HOWARD
___________________________________
MARC S. WALLACE
<PAGE> 7
PROVANT PRINCIPALS:
___________________________________
PAUL M. VERROCHI
___________________________________
DOMINIC J. PUOPOLO
<PAGE> 1
EXHIBIT 10.1
PROVANT, INC.
1998 EQUITY INCENTIVE PLAN
SECTION 1 PURPOSE AND DURATION
1.1 Purposes. The purposes of the Plan are to attract, retain and
motivate employees and consultants of the Company, its Parent (if any), and any
present or future Subsidiaries and to enable them to participate in the growth
of the Company by providing for or increasing the proprietary interests of such
persons in the Company.
1.2 Effective Date. The Plan is effective as of the date of its
adoption by the Board.
1.3 Expiration Date. The Plan shall expire one day less than ten years
from the date of the adoption of the Plan by the Board. In no event shall any
Awards be made under the Plan after such expiration date, but Awards previously
granted may extend beyond such date.
SECTION 2 DEFINITIONS
As used in the Plan, the following capitalized words shall have the
meanings indicated below:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Award" means, individually or collectively, a grant under the Plan of
Options, SARs, Performance Shares, Restricted Stock or Stock Units.
"Award Agreement" means the written agreement setting forth the terms
and provisions applicable to an Award granted under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee of the Board appointed by the Board to
administer the Plan in accordance with Section 3.1.
<PAGE> 2
"Company" means Provant, Inc., a Delaware corporation, or any successor
thereto.
"Director" means any individual who is a member of the Board.
"Fair Market Value" means, with respect to a Share, the fair market
value thereof as of the relevant date of determination, as determined in
accordance with a valuation methodology approved by the Board in good faith but
in no event less than, in the case of newly issued stock, the par value per
Share.
"Grant Date" means the effective date of an Award as specified by the
Board and set forth in the applicable Award Agreement.
"Incentive Stock Option" or "ISO" means an option to purchase Shares
awarded to a Participant under Section 6 of the Plan that is intended to meet
the requirements of Section 422 of the Code.
"Non-Employee Director" means a "non-employee director" as that term is
defined in Rule 16b-3 promulgated under the 1934 Act.
"Nonqualified Stock Option" or "NQO" means an option to purchase Shares
awarded to a Participant under Section 6 of the Plan that is not intended to be
an ISO.
"Option" means an ISO or an NQO.
"Parent" means a "parent corporation" as that term is defined in
Section 424 of the Code.
"Participant" means an individual who has been selected by the Board to
receive an Award under the Plan.
"Performance Cycle" means the period of time selected by the Board
during which performance is measured for the purpose of determining the extent
to which an Award of Performance Shares has been earned. More than one
Performance Cycle may be in progress at any one time and the duration of
Performance Cycles may differ.
"Performance Share" means a Share awarded to a Participant under
Section 8 of the Plan that entitles the Participant to acquire Shares upon the
attainment of specified performance goals.
"Plan" means the 1998 Equity Incentive Plan set forth in this document
and as hereafter amended from time to time in accordance with Section 13.
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"Restricted Period" means the period of time selected by the Board
during which Shares of Restricted Stock are subject to forfeiture and/or
restrictions on transferability.
"Restricted Stock" means Shares awarded to a Participant under Section
9 of the Plan pursuant to an Award that entitles the Participant to acquire
Shares for a purchase price (which may be zero), subject to such conditions,
including a Company right during a specified period or periods to repurchase the
Shares at their original purchase price (or to require forfeiture of the Shares
if the purchase price was zero) upon the termination of the Participant's
employment.
"SAR" or "Stock Appreciation Right" means an Award that is designated
as an SAR pursuant to Section 7 of the Plan, granted alone or in connection with
a related Award, entitling a Participant to receive an amount in cash or Shares
or a combination thereof having a value equal to (or if the Board shall so
determine at time of grant, less than) the excess of the Fair Market Value of a
Share on the date of exercise over the Fair Market Value of a Share on the Grant
Date (or over the Option exercise price, if the Stock Appreciation Right was
granted in tandem with an Option) multiplied by the number of Shares with
respect to which the Stock Appreciation Right is exercised.
"Shares" means shares of the Company's common stock, par value $0.01
per share.
"Stock Unit" means an Award of a Share or a unit valued in whole or in
part by reference to, or otherwise based on, the value of a Share, granted to a
Participant under Section 10 of the Plan.
"Subsidiary" means a "subsidiary corporation" as that term is defined
in Section 424 of the Code.
SECTION 3 ADMINISTRATION OF THE PLAN
3.1 The Board. The Plan shall be administered by the Board. The Board
may, in its discretion, delegate some or all of its powers with respect to the
Plan to the Committee, in which event all references in the Plan to the Board
(except references in Section 13.1) shall be deemed to refer to the Committee.
The Committee, if one is appointed, shall consist of at least two Non-Employee
Directors.
3.2 Authority of the Board. The Board shall have the authority to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the operation of the Plan as it shall consider advisable from time to
time, to interpret the
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<PAGE> 4
provisions of the Plan and any Award, and to decide all disputes arising in
connection with the Plan. The Board's decisions and interpretations shall be
final and binding.
SECTION 4 ELIGIBILITY OF PARTICIPANTS
The persons eligible to receive Awards under the Plan shall be all
executive officers of the Company, its Parent (if any), and any Subsidiaries and
other employees, consultants and advisers who, in the opinion of the Board, are
in a position to make a significant contribution to the success of the Company,
its Parent (if any), and any Subsidiaries. Directors, including directors who
are not employees of the Company, its Parent (if any) or any Subsidiaries, shall
be eligible to receive Awards under the Plan.
SECTION 5 STOCK AVAILABLE FOR AWARDS
5.1 Number of Shares. Awards may be made under the Plan for up to One
Million One Hundred Thousand (1,100,000) Shares. Shares issued under the Plan
may consist in whole or in part of authorized but unissued Shares or treasury
Shares.
5.2 Lapsed, Forfeited or Expired Awards. If any Award in respect of
Shares expires or is terminated before exercise or is forfeited for any reason,
the Shares subject to such Award, to the extent of such expiration, termination,
or forfeiture, shall again be available for award under the Plan.
5.3 Maximum Number of Shares to a Single Participant in any Calendar
Year. In no event shall any Participant receive in any calendar year Awards
under the Plan for more than Two Hundred Thousand (200,000) Shares.
SECTION 6 STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
the Board may award Options and determine the number of Shares to be covered by
each Option, the exercise price therefor, the term of the Option, and any other
conditions and limitations applicable to the exercise of the Option. The Board
may grant ISOs, NQOs or a combination thereof.
6.2 Exercise Price. Subject to the provisions of this Section 6, the
exercise price for each Option shall be determined by the Board in its sole
discretion; provided, however, that (i) unless such Option is granted in lieu of
compensation, the exercise price shall not be less than eighty-five percent
(85%) of the Fair Market Value on the
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<PAGE> 5
Grant Date of the Shares subject to the Option and (ii) the exercise price shall
not be less than the par value of the Shares subject to the Option.
6.3 Expiration. No Option shall be exercised later than ten (10) years
from the Grant Date.
6.4 Restrictions on Option Transferability and Exercisability. No
Option shall be transferable by the Participant other than by will or the laws
of descent and distribution, and all Options shall be exercisable during the
Participant's lifetime only by the Participant; provided, however, that the
Board may provide that an Option is transferable by the Participant and
exercisable by persons other than the Participant upon such terms and conditions
as the Board shall determine.
6.5 Certain Additional Provisions for Incentive Stock Options
6.5.1 Exercise Price. In the case of an ISO, the exercise price shall
be not less than one hundred percent (100%) of the Fair Market Value on the
Grant Date of the Shares subject to the Option; provided, however, that if on
the Grant Date the Participant (together with persons whose stock ownership is
attributed to the Participant pursuant to Section 424(d) of the Code) owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, its Parent (if any) or any Subsidiaries, the
exercise price shall be not less than one hundred and ten percent (110%) of the
Fair Market Value on the Grant Date of the Shares subject to the Option.
6.5.2 Exercisability. Subject to Sections 12.3 and 12.4, the aggregate
Fair Market Value (determined on the Grant Date(s)) of the Shares with respect
to which ISOs are exercisable for the first time by any Participant during any
calendar year (under all plans of the Company, its Parent (if any) and any
Subsidiaries) shall not exceed $100,000.
6.5.3 Eligibility. ISOs may be granted only to persons who are employees
of the Company, its Parent (if any) or any Subsidiaries on the Grant Date.
6.5.4 Expiration. No ISO may be exercised later than ten (10) years from
the Grant Date; provided, however, that if the Option is granted to a
Participant who, together with persons whose stock ownership is attributed to
the Participant pursuant to Section 424(d) of the Code, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, its Parent (if any) or any Subsidiaries, the ISO may not
be exercised later than five (5) years from the Grant Date.
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6.5.5 Compliance with Section 422 of the Code. The terms and conditions
of ISOs shall be subject to and comply with Section 422 of the Code or any
successor provision.
6.5.6 Notice to Company of Disqualifying Disposition. Each Participant
who receives an ISO agrees to notify the Company in writing immediately after
the Participant makes a Disqualifying Disposition of any Shares received
pursuant to the exercise of an ISO. The term "Disqualifying Disposition" means
any disposition (including any sale) of Shares before the later of (a) two years
after the Participant was granted the ISO under which the Participant acquired
such Shares, or (b) one year after the Participant acquired the Shares by
exercising the ISO.
6.5.7 Substitute Options. Notwithstanding the provisions of Section 6.5.1,
in the event that the Company, its Parent (if any) or any Subsidiary consummates
a transaction described in Section 424(a) of the Code (relating to the
acquisition of property or stock from an unrelated corporation), individuals who
become employees or consultants of the Company, its Parent (if any) or any
Subsidiary on account of such transaction may be granted ISOs in substitution
for options granted by their former employer. The Board, in its sole discretion
and consistent with Section 424(a) of the Code, shall determine the exercise
price of such substitute Options.
6.6 NQO Presumption. Options granted pursuant to the Plan shall be
presumed to be NQOs unless expressly designated ISOs in the Award Agreement.
SECTION 7 GRANT OF STOCK APPRECIATION RIGHTS
Subject to the terms and provisions of the Plan, the Board may award
SARs in tandem with another Award (at or after the Grant Date of the other
Award), or alone and unrelated to another Award, and may determine the terms and
conditions applicable thereto, including the form of payment.
SECTION 8 PERFORMANCE SHARES
8.1 Grant of Performance Shares. The Board may award Performance Shares
to Participants and determine the performance goals applicable to each such
Award, the number of Shares for each Performance Cycle, the duration of each
Performance Cycle and all other limitations and conditions applicable to the
awarded Performance Shares. The payment value of each Performance Share shall be
equal to the Fair Market Value of one Share on the date the Performance Share is
earned or, in the discretion of the Board, on the date the Board determines that
the Performance Share has been earned.
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8.2 Adjustment of Performance Goals. Except as provided in an Award,
during any Performance Cycle, the Board may adjust the performance goals for the
Performance Cycle as it deems equitable in recognition of unusual or
non-recurring events affecting the Company or its Shares, changes in applicable
tax laws or accounting principles, or such other factors as the Board shall
determine.
8.3 Written Certification. As soon as practical after the end of a
Performance Cycle, the Board shall certify in writing the extent to which the
performance goals applicable to each Participant for the Performance Cycle were
achieved or exceeded and the number of Performance Shares which have been earned
on the basis of performance in relation to the established performance goals.
SECTION 9 RESTRICTED STOCK
9.1 Grant of Restricted Stock. The Board may award Shares of Restricted
Stock and determine the purchase price, if any, therefor, the duration of the
Restricted Period, the conditions under which the Shares may be forfeited to or
repurchased by the Company and any other terms and conditions of the Awards. The
Board may modify or waive any restrictions, terms and conditions with respect to
any Restricted Stock. Shares of Restricted Stock may be issued for whatever
consideration is determined by the Board, subject to applicable law.
9.2 Transferability. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as permitted by
the Board, during the Restricted Period.
9.3 Evidence of Award. Shares of Restricted Stock shall be evidenced in
such manner as the Board may determine. Any certificates issued in respect of
Shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Board, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver the certificates
and stock power to the Participant.
9.4 Shareholder Rights. A Participant shall have all the rights of a
shareholder with respect to Restricted Stock awarded, including voting and
dividend rights, unless otherwise provided in the Award Agreement.
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SECTION 10 STOCK UNITS
10.1 Grant of Stock Units. Subject to the terms and provisions of the
Plan, the Board may award Stock Units subject to such terms, restrictions,
conditions, performance criteria, vesting requirements and payment rules as the
Board shall determine.
10.2 Consideration. Shares awarded in connection with a Stock Unit
shall be issued for whatever consideration is determined by the Board, subject
to applicable law.
SECTION 11 OTHER AWARDS
The Board shall have the authority to specify the terms and provisions
of other forms of equity-based or equity-related Awards not described above
which the Board determines to be consistent with the purposes of the Plan and
the interests of the Company, which Awards may provide for cash payments based
in whole or in part on the value or future value of Shares, for the acquisition
or future acquisition of Shares, or any combination thereof. Other Awards may
also include cash payments (including the cash payment of dividend equivalents)
under the Plan which may be based on one or more criteria determined by the
Board that are unrelated to the value of the Shares and that may be granted in
tandem with, or independent of, other Awards under the Plan.
SECTION 12 GENERAL PROVISIONS APPLICABLE TO AWARDS
12.1 Legal and Regulatory Matters. The delivery of Shares shall be
subject to compliance with (i) applicable federal and state laws and
regulations, (ii) if the outstanding Shares are listed at the time on any stock
exchange or automated quotation system, the listing requirements of such
exchange or system, and (iii) the Company's counsel's approval of all other
legal matters in connection with the issuance and delivery of the Shares. If the
sale of the Shares has not been registered under the 1933 Act, the Company may
require, as a condition to delivery of the Shares, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of the 1933 Act and may require that the certificates evidencing the
Shares bear an appropriate legend restricting transfer.
12.2 Award Agreement. The terms and provisions of an Award shall be set
forth in an Award Agreement approved by the Board and delivered or made
available to the Participant as soon as practicable following the Grant Date.
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<PAGE> 9
12.3 Determination of Restrictions on the Award. The vesting,
exercisability, payment and other restrictions applicable to an Award (which may
include, without limitation, restrictions on transferability or provision for
mandatory resale to the Company) shall be determined by the Board and set forth
in the applicable Award Agreement. Notwithstanding the foregoing, the Board may
accelerate (i) the vesting or payment of any Award (including an ISO), (ii) the
lapse of restrictions on any Award (including an Award of Restricted Stock) and
(iii) the date on which any Option or SAR first becomes exercisable.
12.4 Mergers, etc. Notwithstanding any other provisions of the Plan, in
the event that a transaction occurs that results in the Common Stock not being
registered under Section 12 of the Exchange Act, all Awards shall terminate upon
the completion of the transaction. If the transaction is intended to be treated
as a pooling of interests for accounting purposes, the Board shall cause the
acquiring or surviving corporation or one of its affiliates to grant replacement
Awards to Participants. In all other transactions, the Board may either arrange
for replacement Awards, accelerate the exercisability of all outstanding Awards
(subject to completion of the transaction) or terminate all Awards in exchange
for a cash payment. Replacement Awards for ISOs shall satisfy any applicable
requirements of the Code.
12.5 Termination of Employment. For purposes of the Plan, the following
events shall not be deemed a termination of employment of a Participant: (i) a
transfer to the employment of the Company from its Parent (if any) or from a
Subsidiary, or from the Company to its Parent (if any) or to a Subsidiary, or
from one Subsidiary to another, or from the Company's Parent (if any) to a
Subsidiary, or from a Subsidiary to the Company's Parent (if any); or (ii) an
approved leave of absence for military service or sickness, or for any other
purpose approved by the Company, if the Participant's right to employment is
guaranteed either by a statute or by contract or under the policy pursuant to
which the leave of absence was granted or if the Board otherwise so provides in
writing. For purposes of the Plan, employees of a Subsidiary or Parent (if any)
shall be deemed to have terminated their employment on the date on which such
Subsidiary or Parent ceases to be a Subsidiary or Parent of the Company, as the
case may be.
12.6 Date of and Effect of Termination of Employment. The date of a
Participant's termination of employment for any reason shall be determined in
the sole discretion of the Board. The Board shall have full authority to
determine and specify in the applicable Award Agreement the effect, if any, that
a Participant's termination of employment for any reason will have on the
vesting, exercisability, payment or lapse of restrictions applicable to an
outstanding Award.
12.7 Grant of Awards. Each Award may be made alone, in addition to or
in relation to any other Award. The terms of each Award need not be identical,
and the Board need not treat Participants uniformly.
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12.8 Settlement of Awards. No Shares shall be delivered pursuant to any
exercise of an Award until payment in full of the price therefor, if any, is
received by the Company. Such payment may be made in whole or in part in cash or
by certified or bank check or, to the extent permitted by the Board at or after
the Grant Date, by delivery of a note or Shares, including Restricted Stock,
valued at their Fair Market Value on the date of delivery, or by having the
Company hold back from the Shares to be delivered upon exercise Shares having a
Fair Market Value on the last business day preceding the date of exercise equal
to the purchase price, or by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds to
pay the exercise price, or by any combination of the permissible forms of
payment, or by such other lawful consideration as the Board shall determine.
12.9 Withholding Requirements and Arrangements. The Participant shall
pay to the Company or make provision satisfactory to the Board for payment of
any taxes required by law to be withheld in respect of Awards under the Plan no
later than the date of the event creating the tax liability. In the Board's
discretion, such tax obligations may be paid in whole or in part in Shares,
including Shares obtained in connection with the Award creating the tax
obligation, valued at their Fair Market Value on the date of delivery. The
Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Participant.
12.10 No Effect on Employment. The Plan shall not give rise to any right
on the part of any Participant to continue in the employ of the Company, its
Parent (if any) or any Subsidiary. The loss of existing or potential profit in
Awards granted under the Plan shall not constitute an element of damages in the
event of termination of the relationship of a Participant even if the
termination is in violation of an obligation of the Company to the Participant
by contract or otherwise.
12.11 No Rights as Shareholder. Subject to the provisions of the Plan and
the applicable Award Agreement, no Participant shall have any rights as a
shareholder with respect to any Shares to be distributed under the Plan until he
or she becomes the holder thereof.
12.12 Adjustments. Upon the happening of any of the following described
events, a Participant's rights with respect to Awards granted hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
Award Agreement.
12.12.1 Stock Splits and Recapitalizations. In the event the Company issues
any of its Shares as a stock dividend upon or with respect to the Shares, or in
the event Shares shall be subdivided or combined into a greater or smaller
number of Shares, or if, upon a merger or consolidation (except those described
in Section 12.4),
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reorganization, split-up, liquidation, combination, recapitalization or the like
of the Company, Shares shall be exchanged for other securities of the Company,
securities of another entity, cash or other property, each Participant upon
exercising an Award (for the aggregate purchase price to be paid under the
Award) shall be entitled to purchase such number of Shares, other securities of
the Company, securities of such other entity, cash or other property as the
Participant would have received if the Participant had been the holder of the
Shares with respect to which the Award is exercised at all times between the
Grant Date of the Award and the date of its exercise, and appropriate
adjustments shall be made in the purchase price per Share.
12.12.2 Restricted Stock. If any person owning Restricted Stock receives
new or additional or different shares or securities ("New Securities") in
connection with a corporate transaction described in Section 12.12.1 as a result
of owning such Restricted Stock, the New Securities shall be subject to all of
the conditions and restrictions applicable to the Restricted Stock with respect
to which such New Securities were issued.
12.12.3 Board Determination. Notwithstanding any provision to the contrary,
no adjustments shall be made pursuant to this Section 12.12 with respect to ISOs
unless (i) the Board, after consulting with counsel for the Company, determines
that such adjustments would not constitute a "modification," "extension" or
"renewal" of such ISOs as such terms are defined in Section 424 of the Code,
(ii) would cause any adverse tax consequences for the holders of such ISOs or
(iii) the holders of such ISOs consent to the adjustment. No adjustments to ISOs
shall be made for dividends paid in cash or in property other than securities of
the Company.
12.12.4 Fractional Shares. No fractional Shares shall be issued under the
Plan. Any fractional Shares which, but for this Section, would have been issued
shall be deemed to have been issued and immediately sold to the Company for
their Fair Market Value, and promptly after such deemed issuance and sale the
Participant shall receive from the Company cash in lieu of such fractional
Shares.
12.12.5 Other Distributions. The Board may adjust the number of Shares
subject to outstanding Awards and the exercise price and the terms of
outstanding Awards to take into consideration material changes in accounting
practices or principles, extraordinary dividends, acquisitions or dispositions
of stock or property, or any other event if it is determined by the Board that
such adjustment is appropriate to avoid distortion in the operation of the Plan.
12.12.6 Further Adjustment. Upon the happening of any of the events
described in Sections 12.12.1 or 12.12.5, the class and aggregate number of
Shares set forth in Sections 5.1 and 5.3 hereof that are subject to Awards which
previously have been or subsequently may be granted under the Plan shall be
appropriately adjusted to reflect
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the events described in such Sections. The Board shall determine the specific
adjustments to be made under this Section 12.12.6.
SECTION 13 AMENDMENT AND TERMINATION
13.1 Amendment, Suspension or Termination of the Plan. The Board may
modify, amend, suspend or terminate the Plan in whole or in part at any time;
provided, however, that no modification, amendment, suspension or termination of
the Plan shall be made without shareholder approval if such approval is
necessary to comply with any applicable tax or regulatory requirement; and
provided, further, that such modification, amendment, suspension or termination
shall not, without a Participant's consent, affect adversely the rights of such
Participant with respect to any Award previously made.
13.2 Amendment, Suspension or Termination of an Award. The Board may
modify, amend or terminate any outstanding Award, including, without limitation,
substituting therefor another Award of the same or a different type, changing
the date of exercise or realization and converting an ISO to a NQO; provided,
however, that the Participant's consent to such action shall be required unless
the Board determines that the action, taking into account any related action,
would not materially and adversely affect the Participant.
SECTION 14 LEGAL CONSTRUCTION
14.1 Captions. The captions provided herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan or serve as a basis for interpretation or construction of
the Plan.
14.2 Severability. In the event any provision of the Plan is held
invalid or illegal for any reason, the illegality or invalidity shall not affect
the remaining provisions of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
14.3 Governing Law. The Plan and all rights under the Plan shall be
construed in accordance with and governed by the internal laws of the
Commonwealth of Massachusetts.
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EXHIBIT 10.3
PROVANT, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose
The Provant, Inc. Employee Stock Purchase Plan (the "Plan") is intended
to provide employees of Provant, Inc. (the "Company") an opportunity to acquire
a proprietary interest in the Company through the purchase of shares of the
common stock of the Company ("Common Stock" or "Stock"). It is the intention of
the Company to have the Plan qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of such section of
the Code.
2. Eligibility
Any employee of the Company is eligible to participate in the Plan
provided he or she (i) customarily is employed for more than 20 hours per week,
(ii) is employed by the Company on the Offering Commencement Date (as defined in
Section 3 of this Plan) or, if such date is not a regular business day for the
Company, the first regular business day of the Company after the Offering
Commencement Date, and (iii) is employed by the Company as of the date(s) each
payroll deduction and/or lump sum contribution made in accordance with Section 4
of this Plan is made.
Notwithstanding the foregoing, no employee will be eligible to
participate in the Plan if (i) immediately after the grant of an option, the
employee would own stock or hold outstanding options to purchase stock
possessing five (5) percent or more of the total combined voting power or value
of all classes of stock of the Company, or (ii) the grant of the option would
permit the participant's rights to purchase stock under all employee stock
purchase plans of the Company to accrue at a rate which exceeds $25,000 of the
fair market value of the stock (determined at the time the option is granted)
for each calendar year in which such option is outstanding at any time.
For purposes of this Section 2, the rules of Section 424(d) of the Code
shall apply in determining stock ownership of an employee, and stock which an
employee may purchase under outstanding options shall be treated as stock owned
by the employee.
3. Offering Periods
Under the Plan, there will be two six-month offering periods each year.
The offering of Common Stock (an "Offering") will begin on each of June 1 and
December 1 of a calendar year (each an "Offering Commencement Date"), and will
end on each of November 30 and May 31, respectively (each an "Offering
Termination Date"). The first Offering shall begin on June 1, 1998.
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4. Participation
(a) An eligible employee may elect to participate in any
Offering by having payroll deductions made and/or by
making a lump sum contribution in accordance with
Subsection (b), (c) or (d) of this Section 4 over the
six-month period commencing on the Offering
Commencement Date (a "Plan Period"). An eligible
employee whose employment with the Company commences
after the Offering Commencement Date in any Plan
Period may elect to participate in the next following
Plan Period, but shall not be entitled to participate
in the Offering that is in progress on the date his
or her employment with the Company begins.
(b) Participation Through Payroll Deduction: An eligible
employee may participate in any Offering by
completing an authorization form for payroll
deductions and filing it with the Company no later
than a date prior to the Offering Commencement Date
for the Offering designated by the Administrator (as
defined in Section 10) or, in the absence of such a
designation, the date five business days before the
Offering Commencement Date. Payroll deductions will
be spread evenly over the Plan Period or such shorter
period during which an eligible employee may
participate in the Plan, as provided in this Section
4. An eligible employee electing to participate in
the Plan by means of payroll deductions for a
particular Plan Period may not alter the rate of
payroll deductions during the period. All such
payroll deductions shall be credited to the
participant's account under the Plan. Employees on
leave of absence for a period not exceeding 90 days
will be permitted to continue participating in the
Offering, if they continue making periodic payments
to the Company.
(c) Participation Through Lump Sum Contribution: An
eligible employee may participate in any Offering by
means of a lump sum payment made during the Plan
Period for such Offering by filing a written election
form with the Administrator prior to the end of such
Plan Period. Such written election form shall be
accompanied by the lump sum payment. No more than one
lump sum contribution may be made during a single
Plan Period.
(d) Participation Through Contribution of Payroll
Deductions and Lump Sum Contribution: An eligible
employee may participate in any Offering by making a
combination of payroll deductions and a lump sum
contribution in accordance with Subsections (b) and
(c) of this Section 4.
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(e) In no event shall the aggregate of all payroll
deductions and/or any lump sum contribution made with
respect to a single Plan Period for an eligible
employee be less than 2 percent (2%) or more than ten
percent (10%) of the employee's base pay earned
during the Plan Period and; provided, further, that
lump sum contributions must not be less than $100 or
2 percent (2%) of the employee's base pay, whichever
is greater. For purposes of the Plan, "base pay"
means commissions and regular salary or straight time
earnings, excluding overtime payments, bonuses and
incentive or contingent payments.
5. Option Grant and Price
(a) A participant's authorization for payroll deductions
for any Offering shall become effective as of the
Offering Commencement Date or, if applicable, the
date upon which he or she elects to participate as
permitted in Section 4, and the participant shall be
deemed to have been granted an option as of the
applicable date to purchase as many full shares of
Common Stock as can be purchased with the payroll
deductions credited to his or her account during the
Offering.
(b) A participant's election to participate in the Plan
by means of a lump sum contribution shall become
effective as of the date such contribution is
received by the Administrator (or, if later, the date
such participant's written election to participate in
the Plan for such Plan Period is received by the
Administrator) and the participant shall be deemed to
have been granted an option as of such date to
purchase as many full shares of Common Stock as can
be purchased with the lump sum contribution.
(c) The option price of Common Stock for any Offering
will be equal to the lower of 85 percent of the last
sale price of the Stock on the Nasdaq National Market
on (i) the day immediately prior to the Offering
Commencement Date or (ii) the day immediately prior
to the Offering Termination Date for the Offering or,
in either case, if no trading occurred in the Stock
on the Nasdaq National Market on such date, then the
next prior business day on which trading occurred in
the Stock on the Nasdaq National Market.
6. Withdrawal
(a) A participant may withdraw payroll deductions and/or
lump sum contributions credited to his or her account
for any Offering by giving written notice to the
Company at any time up to a date prior to the
Offering Termination Date designated by the
Administrator (as defined
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in Section 10). Upon notice of withdrawal, all of the
participant's payroll deductions and/or lump sum
contribution for the offering will be paid promptly
without interest, and no further payroll deductions
will be made. A participant who withdraws from an
Offering cannot participate again in that Offering,
but can participate in any other Offering for which
he or she is eligible.
(b) Upon termination of a participant's employment for
any reason other than death, the payroll deductions
and/or lump sum contribution credited to the
participant's account will be returned to the
participant without interest. If the participant dies
after termination of employment, such amount shall be
returned to the person or persons entitled thereto
under Section 11.
(c) Upon termination of a participant's employment
because of death, the participant's beneficiary will
have the right to elect, by written notice given to
the Company within the 30-day period commencing with
the date of the death of the participant, either (i)
to withdraw all of the payroll deductions and/or the
lump sum contribution credited to the participant's
account under the Plan, or (ii) to exercise the
participant's option on the Offering Termination Date
for the purchase of the number of full shares of
Common Stock which the lump sum contribution and/or
accumulated payroll deductions in his or her account
will purchase at the applicable option price. In lieu
of any fractional shares, any excess in such account
will be returned to the participant's beneficiary
without interest. In the event that no written notice
of election is received by the Company, the
beneficiary will be deemed to have elected to
withdraw the lump sum contribution and/or payroll
deductions credited to the participant's account at
the date of the participant's death and such amount
will be paid promptly to the beneficiary without
interest.
7. Exercise of Option
Unless a participant gives written notice to the Company as provided in
Section 6(a), an option for the purchase of Common Stock with payroll deductions
and/or a lump sum contribution for any Offering will be deemed to have been
exercised automatically on the Offering Termination Date for the Offering for
the number of full shares of Common Stock which the accumulated payroll
deductions and/or lump sum contribution in the participant's account on that
date will purchase at the applicable option price. In lieu of fractional shares,
any excess in the account will be returned to the participant without interest.
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8. Delivery
As promptly as practicable after the Offering Termination Date for any
Offering, the Company will deliver to each participant, as appropriate, the
Common Stock purchased upon the exercise of his or her option.
9. Stock
(a) The maximum number of shares of Common Stock which
may be made available for purchase under the Plan
shall be 500,000 shares, subject to adjustment upon
changes in the capitalization of the Company. Shares
shall be made available from authorized, unissued and
reserved Common Stock of the Company. If the total
number of shares for which options are exercised for
any Offering exceeds the number of shares available,
the Company will make a pro rata allocation of the
shares available in as nearly uniform a manner as
practicable and as the Company may determine to be
equitable. The balance of payroll deductions and/or
any lump sum contribution credited to the account of
each participant under the Plan shall be returned as
promptly as possible, without interest.
(b) The participant will have no interest in Stock
covered by an option until such option has been
exercised.
(c) Stock to be delivered to a participant with respect
to any Offering under the Plan will be registered in
the name of the participant or, if the participant so
directs by written notice to the Company before the
Offering Termination Date, in the names of the
participant and such other person as may be
designated by the participant, as joint tenants with
rights of survivorship, to the extent permitted by
applicable law.
(d) The Board of Directors may, in its discretion,
require as conditions to the exercise of any option,
that either (i) a registration statement under the
Securities Act of 1933, as amended, with respect to
shares covered by the option shall be effective, or
(ii) the participant shall represent, in such form
and manner as the Company may determine, that it is
the participant's intention to purchase the shares
only for investment. The participant shall deliver to
the Company such certificates and other documents as
may be requested by the Company in order to evidence
compliance with applicable state and federal
securities regulations.
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10. Administration
The Plan initially shall be administered by Mr. Rajiv Bhatt (the
"Administrator"). The interpretation and construction of any provision of the
Plan and the adoption of rules and regulations for administering the Plan shall
be made by the Administrator, subject, however, to the final determination of
the Board of Directors of the Company. Determinations made by the Administrator
and approved by the Board of Directors with respect to any matter or provision
contained in the Plan shall be final, conclusive and binding upon the Company
and upon all participants, their legal representatives and any other persons
under the Plan. Any rule or regulation adopted by the Administrator shall remain
in full force and effect unless and until altered, amended or repealed by the
Board of Directors.
11. Designation of Beneficiary
A participant may file a written designation of a beneficiary to
receive any Stock or cash in the event of the participant's death. Any
designation of a beneficiary may be changed by the participant at any time by
written notice to the Administrator. Upon the death of a participant and upon
receipt by the Administrator of proof of the identity and existence at the time
of the participant's death of a beneficiary validly designated under the Plan,
the Company will deliver such Stock or cash to the participant's beneficiary. In
the event that no beneficiary survives the participant, the Company will deliver
such Stock or cash to the executor or administrator of the participant's estate.
If no executor or administrator has been appointed to the knowledge of the
Administrator, the Company, in its discretion, may deliver such Stock or cash to
the spouse or to any one or more dependents of the participant as the
Administrator may designate. No beneficiary shall, prior to the death of the
participant, acquire any interest in any Stock or cash credited to the
participant under the Plan.
12. Transferability
Neither contributions credited to a participant's account (whether made
by payroll deductions and/or lump sum contribution) nor any rights with regard
to the exercise of an option or the receipt of Stock under the Plan may be
assigned, transferred, pledged or otherwise disposed of in any way by a
participant. Any such assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such an act as an election to
withdraw funds in accordance with Section 6.
13. Use of Funds
All payroll deductions and lump sum contributions received or held by
the Company under the Plan will be general assets of the Company and may be used
for any corporate purpose. The Company shall not be obligated to segregate such
payroll deductions or lump sum contributions.
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14. Effect of Changes in Common Stock
If the Company subdivides or reclassifies Common Stock which has been
or may be optioned under the Plan, or declares any dividend payable in shares of
Common Stock, or takes any other action of a similar nature affecting such
Stock, then the number and class of shares of Common Stock which may thereafter
be optioned (in the aggregate and with respect to any individual participant)
will be adjusted accordingly and, in the case of each option outstanding at the
time of any such action, the number and class of shares which may thereafter be
purchased pursuant to the option and the option price per share shall be
adjusted to the extent determined by the Board of Directors, upon the
recommendation of the Administrator, to be necessary to preserve unimpaired and
undiluted the rights of the holder of such option.
15. Amendment
The Board of Directors of the Company may at any time amend the Plan.
No such amendment may affect options previously granted, nor may it make any
change in any option previously granted which would adversely affect the rights
of any participant. No amendment may be made without prior approval of the
holders of a majority of the shares of Common Stock of the Company issued,
outstanding and entitled to vote if such amendment would:
(a) require the sale of more shares of Stock than are
authorized under Section 9 of the Plan; or
(b) permit payroll deductions at a rate, or lump sum
contributions in an amount, in excess of 10 percent
of a participant's base pay.
16. Discontinuance or Termination
The Plan shall terminate on the Offering Termination Date on which the
number of shares for which options are exercised exceeds the number of shares
available for the Offering. The Board of Directors may at any other time
terminate the Plan. No discontinuance or termination may affect options
previously granted.
17. Notices
All notices or other communications by a participant to the Company
under the Plan shall be deemed to have been duly given when received by the
Company.
18. Merger or Consolidation
In the event of a merger or consolidation to which the Company is a
party (other than a merger or consolidation in which shareholders of the Company
immediately prior to the
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merger or consolidation shall immediately following the merger or consolidation
own securities in the resulting corporation having the right to cast more than
50% of the votes necessary to elect a majority of the Directors of the resulting
corporation), or in the event of a sale or transfer of all or substantially all
of the Company's assets, the Plan shall terminate and the date of such merger,
consolidation, sale or transfer shall be the Offering Termination Date for the
Plan Period within which such event occurs. To the extent of payroll deductions
and/or lump sum contributions credited to each participant's account on the
Offering Termination Date, the holder of each option then outstanding shall be
deemed to have exercised the option and shall be entitled to receive, as nearly
as reasonably may be determined, the securities or property to which a holder of
Common Stock was entitled immediately prior to the merger, consolidation, sale
or transfer. The Board of Directors shall take such steps in connection with any
merger, consolidation, sale or transfer as it may deem necessary to insure that
the provisions of Section 14 will thereafter be applicable, as nearly as
reasonably possible, to such securities or property.
19. Approval of Stockholders
The Plan shall be effective when approved by the holders of a majority
of the shares of Common Stock of the Company present and entitled to vote either
at the next annual meeting of stockholders, a special meeting in lieu of the
annual meeting, or a special meeting of holders of Common Stock called, at least
in part, to act upon the Plan, provided, that a quorum representing a majority
of all outstanding voting stock of the Company is, either in person or by proxy,
present and voting on the Plan.
20. Participant and Employee Rights
The Plan shall not be deemed to give any participant or any employee
the right to be retained in the employ of the Company, or to confer on or create
in any participant or any employee any rights, legal or equitable, except such
as are expressly set forth herein.
21. Governing Law
The Plan shall be construed, and the rights and liabilities of all
persons under the Plan shall be determined, in accordance with the laws of the
Commonwealth of Massachusetts, to the extent not superseded by federal law.
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EXHIBIT 23.1
Accountants' Consent
The Board of Directors
Provant, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
April 27, 1998
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EXHIBIT 23.2
Consent of Independent Accountants
The Board of Directors
Star Mountain, Inc.:
We consent to the reference to our firm under the heading "Experts" and to the
use of our report, dated February 16, 1996, on the financial statements of Star
Mountain, Inc. for the year ended December 31, 1995, in the Registration
Statement on Form S-1 and the related Prospectus of Provant, Inc. for the
registration of its Common Stock.
Friedman & Fuller, P.C.
/s/ Friedman & Fuller, P.C.
Rockville, Maryland
April 27, 1998
