<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
REGISTRATION NO. 333-46157
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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 6, 1998
2,600,000 SHARES
CORPORATED 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. Application has been made to
quote the Common Stock 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 1,325,000 shares of Common Stock as Additional
Consideration (as defined herein) for six of the Founding Companies and the
payment in Common Stock and cash of the Star 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 871.5263-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, J.P. Morgan
& Co., Incorporated, 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 devoted to external
training is increasing, as corporations and government agencies focus on their
core
3
<PAGE> 5
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.................................... 9,405,565 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 3,826,783 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 1,325,000 shares of Common Stock that may be issued as
Additional Consideration to the stockholders of six 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 Star 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
852,964 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
793,656 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)................................. 1,310 655
------- -------
Income from operations.................................... 7,906 3,028
Interest and other income (expense), net.................. (73) (50)
------- -------
Income before income taxes................................ 7,833 2,978
Provision for income taxes (4)............................ 3,763 1,991
------- -------
Net income................................................ $ 4,070 $ 987
======= =======
Net income per share...................................... $ 0.50 $ 0.11
======= =======
Shares used in computing net income per share (5)......... 8,163,125 9,080,842
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
PRO FORMA
COMBINED (6) AS ADJUSTED (7)
------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (8)....................................... $(19,076) $ 7,037
Total assets.............................................. 77,765 76,947
Long-term debt, net of current maturities................. 1,276 1,276
Stockholders' equity...................................... 36,150 61,463
</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) 3,826,783 shares to be issued to the stockholders of the Founding
Companies (without giving effect to the issuance of Additional Consideration
or the Star 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 1,736,342 shares during the period
ended June 30, 1997 and 2,654,059 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 $22.5 million representing the
cash portion of the consideration for the Combination to be paid from a
portion of the net proceeds of the Offering.
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, 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, 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 74 707 396 350
STAR:
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
9
<PAGE> 11
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 PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, the Company's directors and executive
officers, together with their affiliates, will beneficially own approximately
45.7% of the Company's outstanding shares of Common Stock (approximately 43.9%
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 and
executive officers, together with their affiliates, would have beneficially
owned on such date approximately 45.1% of the Company's outstanding shares of
Common Stock (approximately 43.6% 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 $11.01 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 any future credit facility that it may obtain 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 1986, 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 Bank of America, J.P. Morgan &
Co. Incorporated 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. from 1981 to
1991, when the division was purchased by Michael Patrick and one of the
division's founders, Herb 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 as a Managing Director in 1989. 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") was founded by A. Carl von Sternberg in 1987. Star'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 provides a limited amount of computer network design, sales,
installation and support, and computer network security research and
development. Star 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'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's largest government clients include the
Internal Revenue Service and the Immigration and Naturalization Service. Star is
headquartered in Alexandria, Virginia and has 17 branch offices located
throughout the United States. In its fiscal year ended December 31, 1997, Star
generated revenue of approximately $23.8 million. In addition, Star acquired
three businesses during 1997 that, had they been acquired on January 1, 1997,
would have contributed an additional $4.6 million to Star's revenue in the 1997
calendar year.
MERGER CONSIDERATION
The aggregate consideration to be paid by Provant at the closing of the
Combination is $68.4 million, consisting of $22.5 million in cash (representing
approximately 85.5% of the net proceeds of the Offering) and 3,826,783 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 stockholders of the Founding Companies will be
increased or decreased so that such stockholders receive an
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aggregate of $45.9 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
6,805,565 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 $3.0
million.
In addition to the consideration described above, the former stockholders
of six of the Founding Companies will be eligible to receive up to an aggregate
of 1,325,000 additional shares of Common Stock (assuming an initial public
offering price of $12.00 per share) (the "Additional 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) contains a targeted pro forma EBIT amount for fiscal 1998 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 (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 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.
In the case of the seventh Founding Company, Star, Provant has agreed to
make a future payment in cash or shares of Common Stock based on Star's EBIT for
fiscal 1999 (the "Star Contingent Consideration"). In particular, if Star's EBIT
for fiscal 1999 exceeds a specified base, then (i) Star's former non-voting
stockholders will receive cash equal to a multiple of the excess EBIT and (ii)
Star'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 and the
Star 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 $22.5 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.
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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)........................... $23,231 $ --
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, 6,805,565 shares issued and outstanding,
pro forma; and 9,405,565 shares issued and outstanding,
as adjusted (4)........................................ 68 94
Additional paid-in capital................................ 37,378 63,618
Retained earnings (deficit)............................... (1,296) (2,249)
------- -------
Total stockholders' equity............................. 36,150 61,463
------- -------
Total capitalization.............................. $60,657 $62,739
======= =======
</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 $22.5 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 1,325,000 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 six of the
Founding Companies as well as shares of Common Stock that may be issued as
Star 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 852,964 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 793,656 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 $(16.2) million, or $(2.39) 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 $9.3
million, or $0.99 per share. This represents an immediate increase in pro forma
net tangible book value per share of $3.38 to stockholders as of December 31,
1997, and an immediate dilution in pro forma net tangible book value per share
of $11.01 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............................................... $(2.39)
Increase in pro forma net tangible book value per share
attributable to new investors............................. 3.38
------
Pro forma net tangible book value per share after
Offering............................................... 0.99
------
Dilution per share to new investors....................... $11.01
======
</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....... 6,805,565 72.4% $(16,247,000) $(2.39)
New investors............... 2,600,000 27.6 31,200,000 12.00
---------- ----- ------------
Total............. 9,405,565 100.0% $ 14,953,000
========== ===== ============
</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)........ -- -- 1,310 655
------- --------- ------- -------
Income (loss) from operations.... (149) (1,099) 7,906 3,028
Interest and other income
(expense), net................ -- (48) (73) (50)
------- --------- ------- -------
Income (loss) before provision
for income taxes.............. (149) (1,147) 7,833 2,978
Provision for income taxes (4)... -- -- 3,763 1,991
------- --------- ------- -------
Net income (loss)................ $ (149) $ (1,147) $ 4,070 $ 987
======= ======== ======= =======
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 8,163,125 9,080,842
</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) $(19,076) $ 7,037
Total assets.......................................... 951 77,765 76,947
Long-term debt, net of current maturities............. -- 1,276 1,276
Stockholders' equity (deficit)........................ (587) 36,150 61,463
</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) 3,826,783 shares to be issued to the stockholders of
the Founding Companies (without giving effect to the issuance of Additional
Consideration or the Star 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 1,736,342 shares
during the period ended June 30, 1997 and 2,654,059 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 $22.5 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 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 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'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'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 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) 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 $52.4 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,
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 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 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 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, 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 $1.3 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 $832,000 and approximately
$365,000 of long term debt.
37
<PAGE> 39
RESULTS OF OPERATIONS -- STAR
Star provides customized training and development services and products to
train individuals primarily within agencies of federal, state and local
government. Star 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'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 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'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
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 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.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER
31, 1995 -- STAR
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
in the third quarters of the years ended December 31, 1995 and 1996. The revenue
38
<PAGE> 40
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'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'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 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
Star 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 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, J.P. Morgan
& Co., Incorporated, 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. Provant 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.
40
<PAGE> 42
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 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, with no company
having 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
41
<PAGE> 43
Founding Companies, LSS and Star, 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 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
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under the Provant name, while preserving the value of the established names,
trademarks and client relationships of the Founding Companies.
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, 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
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to maximize employee productivity, and reduce turnover rates. Through one of the
Company's products, 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,
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and those certified instructors trained sales managers and assistant managers in
over 200 of the client's stores. 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
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<PAGE> 47
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.
OTHER SERVICES AND PRODUCTS
In addition to the Company's training and development services and
products, one of the Founding Companies, Star, 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 Mobil Corporation
Ameritech Corporation Federal Express Motorola, Inc.
Amoco Corporation Federated Department Stores, Northwest Airlines, Inc.
Bank of America Inc. Norwest Mortgage Inc.
BOC Gases Flexsys PepsiCo., Inc.
Canadian-Hunter Exploration Ltd. Fujitsu Business Communication Royal Bank of Canada
Canadian Imperial Bank of Systems, Inc. Siemens Business
Commerce Hewlett-Packard Company Communication Systems, Inc.
Conoco, Inc. J.C. Penney Company, Inc. U.S. West, Inc.
Consolidated Rail Corporation J.P. Morgan & Co. Incorporated Venture Stores, Inc.
Coopers & Lybrand L.L.P. The Kroger Co. Victoria's Secret Stores
Dayton Hudson Corporation Lukens Steel Company Wakefern Food Corporation
Deloitte & Touche LLP McDonnell-Douglas Corporation Yellow Corporation
Eli Lilly and Company Metropolitan Life Insurance
Company
</TABLE>
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Star 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'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 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 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) 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.
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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.
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."
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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 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........................... 40 Managing Director - Novations, Director
John F. King......................... 43 Chairman - LSS, Director
A. Carl von Sternberg................ 69 Chairman and President - Star, Director
Marc S. Wallace...................... 50 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> 52
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 August 1989. From September 1983 to June 1987 Mr. Hanson was a
consultant for KPMG Peat Marwick LLP. Mr. Hanson is a Certified Public
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<PAGE> 53
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 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 1986. 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 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 Thomas 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
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, Chief Executive
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<PAGE> 54
Officer and a director of TechNews. In addition, from January 1995 to September
1996, she also served as that company's Chief Executive Officer. Now
Post-Newsweek Business Information, Inc., TechNews was founded in 1986 and
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> 55
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 44,092 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 of the acquisition of the Company in a transaction that is
intended to be treated as a pooling-of-interests for accounting purposes, the
Committee or the Board of Directors shall cause the acquiror or an affiliate of
the acquiror to grant replacement Awards to participants. In all other
transactions that result in the acquisition of the Company by another person or
entity, the Committee or the Board of Directors in its discretion shall either
(a) arrange for replacement Awards to be granted to participants, (b) at least
20 days prior to the consummation of such acquisition, notify participants that
all outstanding Awards will terminate upon consummation and may be exercised in
full immediately prior to consummation, or (c) 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 44,092, 100,000, 44,092,
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
54
<PAGE> 56
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 554,780 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 through
payroll deductions. 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 value of the
Common Stock at the beginning of an option period and the value of the Common
Stock at the end of the option period. Participants may elect under the Employee
Stock Purchase Plan, prior to each option period, to have from 2% to 10% of
their pay withheld and 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> 57
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, attomey'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> 58
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).................................... 1,090,590 15.5% 11.3%
John H. Zenger (5)......................................... 174,653 2.6 1.9
Dominic J. Puopolo (3)(6).................................. 1,023,221 14.6 10.6
Rajiv Bhatt................................................ 88,634 1.3 *
Philip Gardner............................................. 302,506 4.4 3.2
Herbert A. Cohen (7)....................................... 121,862 1.8 1.3
Bert Decker................................................ 203,047 3.0 2.2
Paul C. Green.............................................. 425,352 6.3 4.5
Joe Hanson................................................. 74,059 1.1 *
John F. King (8)........................................... 316,627 4.6 3.4
A. Carl von Sternberg (9).................................. 504,332 7.4 5.4
Marc S. Wallace............................................ 128,948 1.9 1.4
Michael J. Davies (10)..................................... 335,424 4.9 3.5
David B. Hammond (11)...................................... 39,741 * *
John R. Murphy............................................. -- -- --
Esther T. Smith............................................ -- -- --
All directors, director nominees and executive officers as
a group (16 persons) (12)................................ 4,789,255 65.6 48.4
</TABLE>
- ---------------
* Less than 1%.
(1) Percentages in the table are based upon 6,805,565 and 9,405,565 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 871.5263-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 6,805,565 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 176,368 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 44,092 shares issuable upon the
exercise of an option that will become exercisable in full upon the closing
of the Offering. Excludes 220,460 shares issuable upon the exercise of the
Contingent Warrant described in "Certain Transactions."
(4) Includes 54,034 shares held by Mr. Verrochi's wife, and 125,499 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 54,034 shares held by Mr. Puopolo's wife, and 125,499 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 31,436 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> 59
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 (i) a fixed amount of cash at the Closing
(subject to certain adjustments which have a neutral economic effect, 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 (the "Additional Consideration") deliverable after the Closing having a
value based on the initial public offering price up to a fixed dollar amount.
The Additional 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 to a specified EBIT target. In
particular, each merger agreement with a Founding Company (other than Star)
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 (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
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.
For the seventh Founding Company, Star, 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 following the Closing for
the fiscal year ending June 30, 1999 exceeds a specified EBIT target (the "Star
Contingent Consideration"). In particular, if Star's EBIT for fiscal 1999
exceeds the specified target, then (i) Star's former non-voting stockholders
will receive cash equal to a multiple of the excess EBIT and (ii) Star'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'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'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.
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<PAGE> 60
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 $22.5 million in cash (prior to any adjustments
discussed in the following paragraph) and 3,826,783 shares of Common Stock at
the Closing, and up to a maximum of 1,325,000 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 4,533,252 377,771 3,000,000 250,000
J. Howard.................... 1,700,000 4,072,008 339,334 3,300,000 275,000
LSS.......................... 2,625,000 7,677,396 639,783 1,000,000 83,333
MOHR......................... 1,200,000 2,709,660 225,805 2,000,000 166,666
Novations.................... 4,987,500 8,887,056 740,588 4,600,000 383,333
Star......................... 5,400,000 12,193,380 1,016,115 * *
</TABLE>
- ---------------
* Excludes the Star 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, $500,000 and 121,862 shares of Common Stock
(including cash and shares issued to his wife); Mr. Decker, $833,092 and 203,047
shares of Common Stock; Dr. Green, $4,495,414 and 425,352 shares of Common
Stock; Mr. Hanson, $498,750 and 74,059 shares of Common Stock; Mr. King,
$968,100 and 316,627 shares of Common Stock; Mr. von Sternberg, $2,365,295 and
504,332 shares of Common Stock (including cash and shares issued to his wife);
and Mr. Wallace, $646,000 and 128,948 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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<PAGE> 61
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 (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 shares
of Common Stock for an aggregate purchase price of approximately $3,250. As a
result of such purchases, these individuals beneficially own the following: Mr.
Verrochi, 870,130 shares; Mr. Zenger, 174,653 shares; Mr. Puopolo, 802,761
shares; Mr. Gardner, 302,506 shares; Mr. Davies, 285,424 shares; and Mr. Glazer,
303,116 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 176,368 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 220,460 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 2,978,782 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 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 6,805,565 shares of
Common Stock held by 71 stockholders, and no shares of Preferred Stock.
COMMON STOCK
Immediately following the Combination and the Offering, the Company will
have outstanding 9,405,565 shares of Common Stock and options and warrants to
purchase an aggregate of 1,671,620 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 9,405,565 shares of Common Stock issued and outstanding, and 1,671,620
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 and Star 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 consolidated financial statements of Star Mountain, Inc. and
subsidiaries 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.
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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> 71
<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-72
Consolidated Balance Sheets............................... F-74
Consolidated Statements of Operations..................... F-75
Consolidated Statements of Stockholders' Equity........... F-76
Consolidated Statements of Cash Flows..................... F-77
Notes to Consolidated Financial Statements................ F-79
</TABLE>
F-2
<PAGE> 72
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> 73
PROVANT, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BTI DECKER J. HOWARD LSS MOHR NOVATIONS STAR 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
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 2,761 7,397 1,538 16,089
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 3,126 7,899 1,538 17,563
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 1,216 462 903 1,257 (1,296) 5,106
Treasury stock................ -- -- -- -- -- -- (626) -- (626)
------ ------ ------ ------ ------ ------ ------- ------- -------
Total stockholders'
equity (deficit)...... 584 1,049 1,534 1,219 466 904 2,778 (587) 7,947
------ ------ ------ ------ ------ ------ ------- ------- -------
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 $ (18) $ 1,337
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 (18) 19,458
Property and equipment, net..... -- 2,504 -- 2,504
Other assets.................... (37) 3,388 (800) 2,588
Goodwill........................ 52,397 52,397 -- 52,397
------- ------- -------- -------
Total assets............ $51,955 $77,765 $ (818) $76,947
======= ======= ======== =======
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....... 22,463 23,231 (23,231) --
Billings in excess of costs... -- 1,661 -- 1,661
Deferred revenue.............. -- 351 -- 351
State income taxes............ -- 118 -- 118
Distributions payable......... -- 103 -- 103
Current portion of long-term
debt........................ -- 5,096 (2,900) 2,196
------- ------- -------- -------
Total current
liabilities........... 22,463 38,552 (26,131) 12,421
Long-term debt, net of current
portion....................... -- 1,276 -- 1,276
Deferred tax liability.......... 1,589 1,787 -- 1,787
------- ------- -------- -------
Total liabilities....... 24,052 41,615 (26,131) 15,484
Redeemable common stock......... (300) -- -- --
Stockholders' equity:
Common stock.................. (2,673) 68 26 94
Additional paid-in capital.... 36,487 37,378 26,240 63,618
Translation adjustments....... 3 -- -- --
Unrealized gain on short-term
investments................. (9) -- -- --
Note receivable from stock
sales....................... 171 -- -- --
Retained earnings (deficit)... (6,402) (1,296) (953) (2,249)
Treasury stock................ 626 -- -- --
------- ------- -------- -------
Total stockholders'
equity (deficit)...... 28,203 36,150 25,313 61,463
------- ------- -------- -------
Total liabilities and
stockholders' equity
(deficit)............. $51,955 $77,765 $ (818) $76,947
======= ======= ======== =======
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE> 74
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>
BTI DECKER J. HOWARD LSS MOHR NOVATIONS STAR 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 20 429 -- 506
------ ------ ------ ------ ------ ------ ------- ----- -------
Net income (loss)........ $ 568 $ (353) $ 624 $ 615 $ 441 $ 707 $ 645 $(149) $ 3,098
====== ====== ====== ====== ====== ====== ======= ===== =======
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.............. 1,310 1,310
------- -------
Income (loss) from
operations............. 4,221 7,906
Other income, net.................. -- 44
Interest income (expense).......... 8 (117)
------- -------
Income (loss) before
income taxes........... 4,229 7,833
Provision for income taxes......... 3,257 3,763
------- -------
Net income (loss)........ $ 972 $ 4,070
======= =======
Net income per share............... $ 0.50
=======
Shares used in computing net income
per share (Note 6)............... 8,163,125
=========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE> 75
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>
BTI DECKER J. HOWARD LSS MOHR NOVATIONS STAR 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 34 421 --
------- ------ ------ ------ ------ ------ ------- -------
Net income (loss)........ $(1,303) $ 419 $ (402) $ 525 $ (37) $ 350 $ 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.............. -- 655 655
------- ------ -------
Income (loss) from
operations............. (428) 3,456 3,028
Other income (expense), net........ (1) -- (1)
Interest income (expense).......... (166) (117) (49)
------- ------ -------
Income (loss) before
income taxes........... (595) 3,573 2,978
Provision for income taxes......... 483 1,508 1,991
------- ------ -------
Net income (loss)........ $(1,078) $2,065 $ 987
======= ====== =======
Net income per share............... $ 0.11
=======
Shares used in computing net income
per share (Note 6)............... 9,080,842
=========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE> 76
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 $59.2 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.......................................... 1,550 377,771 3,626
J. Howard....................................... 1,700 339,334 3,257
LSS............................................. 2,625 639,783 6,142
MOHR............................................ 1,200 225,805 2,168
Novations....................................... 4,988 740,588 7,110
Star............................................ 5,400 1,016,115 9,755
------- --------- -------
Total................................. $22,463 3,826,783 $36,737
======= ========= =======
</TABLE>
(3) UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Records the anticipated stock split of 871.52633-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 6,805,565.
(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 $52.4 million of goodwill from
the payment of the Common Stock and cash consideration for the Founding
Companies totaling approximately $59.2 million (see note 2) less net
assets of the Founding Companies of approximately $6.8 million, and
records the
F-7
<PAGE> 77
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............................... -- -- -- -- 52,397 52,397
Other assets................................ -- -- (110) 73 -- (37)
----- ----- ----- ------ ------- -------
Total assets...................... $ -- $(560) $ 45 $ 73 $52,397 $51,955
===== ===== ===== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to stockholder/affiliate............ $ -- $ -- $ -- $ -- $22,463 $22,463
Deferred tax liability...................... -- -- -- 1,589 -- 1,589
----- ----- ----- ------ ------- -------
Total liabilities................. -- -- -- 1,589 22,463 24,052
Redeemable common stock..................... -- -- -- -- (300) (300)
Stockholders' equity:.......................
Common stock.............................. 30 -- -- -- (2,703) (2,673)
Additional paid-in capital................ (30) (560) -- (1,516) 38,593 36,487
Translation adjustments..................... -- -- -- -- 3 3
Unrealized gain on short-term investments... -- -- -- -- (9) (9)
Note receivable from stock sales............ -- -- 45 -- 126 171
Retained earnings (deficit)............... -- -- -- -- (6,402) (6,402)
Treasury stock............................ -- -- -- -- 626 626
----- ----- ----- ------ ------- -------
Total stockholders' equity
(deficit)....................... -- (560) 45 (1,516) 30,234 28,203
----- ----- ----- ------ ------- -------
Total liabilities and
stockholders' equity
(deficit)....................... $ -- $(560) $ 45 $ 73 $52,397 $51,955
===== ===== ===== ====== ======= =======
</TABLE>
F-8
<PAGE> 78
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 $(26,284) $ (18)
------- -------- --------
Total current assets..................................... 26,266 (26,284) (18)
Other assets............................................... -- (800) (800)
------- -------- --------
Total assets............................................... $26,266 $(27,084) $ (818)
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.......................... $ -- $ (2,900) $ (2,900)
Payable to stockholders/affiliate.......................... (23,231) (23,231)
------- -------- --------
Total current liabilities........................ -- (26,131) (26,131)
------- -------- --------
Total liabilities................................ -- (26,131) (26,131)
------- -------- --------
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 $(27,084) $ (818)
======= ======== ========
</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
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> 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) 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........... -- 1,310 -- -- -- 1,310
------- ------- ------- ------ ---- -------
Income (loss) from
operations.......... 5,607 (1,310) -- (76) -- 4,221
Interest expense................ -- -- -- (250) 258 8
------- ------- ------- ------ ---- -------
Income (loss) before
income taxes........ 5,607 (1,310) -- (326) 258 4,229
Provision (benefit) for income
taxes......................... -- -- 3,284 (130) 103 3,257
------- ------- ------- ------ ---- -------
Net (loss) income..... $ 5,607 $(1,310) $(3,284) $ (196) $155 $ 972
======= ======= ======= ====== ==== =======
</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
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> 80
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........ -- 655 -- -- -- -- 655
------- ----- ------- ------ ----- ----- -------
Income (loss) from
operations....... 4,100 (655) -- 11 -- -- 3,456
Other income (expense):
Interest (expense)
income.................. -- -- -- (29) (75) 221 117
------- ----- ------- ------ ----- ----- -------
Income (loss)
before income
taxes............ 4,100 (655) -- (18) (75) 221 3,573
Provision (benefit) for
income taxes............... -- -- 1,457 (7) 58 -- 1,508
------- ----- ------- ------ ----- ----- -------
Net income
(loss)........... $ 4,100 $(655) $(1,457) $ (11) $(133) $ 221 $ 2,065
======= ===== ======= ====== ===== ===== =======
</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 1,736,342 shares
during the period ended June 30, 1997 and 2,654,059 shares during the period
ended December 31, 1997 (ii) 3,826,783 shares issued to owners of the Founding
Companies (excluding shares issuable as Additional Consideration and pursuant to
the Star 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 867,964 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> 81
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..................................... $4,070 $ 987
====== ======
Pro forma as adjusted....................... $3,107 $ 714
====== ======
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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. Provant 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> 88
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
871.52633-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 6,805,565.
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, (2,954,125 shares issued and
outstanding, pro forma).......................... -- 30
Paid-in capital....................................... 709 679
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..... $ (0.09) $ (0.43)
---------- ----------
Weighted average shares outstanding......... 1,736,342 2,654,059
========== ==========
</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> 89
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 852,964 shares of Common Stock having a
per-share exercise price equal to the initial offering price. Of this amount,
options to purchase 684,780 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 168,184
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 176,368 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 220,460 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> 90
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> 91
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 $59.2
million, consisting of $22.5 million in cash and 3,826,783 shares of Common
Stock (assuming an initial public offering price of $12.00 per share).
F-22
<PAGE> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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 January 2002. Lease expense charged to
operations was $256 in 1995, $247 in 1996 and $149 in 1997.
F-46
<PAGE> 116
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.................................................. $ 69
1999.................................................. 67
2000.................................................. 68
2001.................................................. 28
2002.................................................. 5
----
$237
====
</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.
In December 1997, the Company entered into a five-year lease of office
space in Burlington, Massachusetts, commencing on July 1, 1998. At that time,
the Company will move its Lexington headquarters to Burlington.
F-47
<PAGE> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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
------ ------ ------
Total current liabilities......................... 2,415 2,396 2,761
------ ------ ------
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) 553 903
------ ------ ------
Total stockholders' equity........................ (87) 554 904
------ ------ ------
Total liabilities and stockholders' equity........ $2,787 $3,311 $4,030
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-65
<PAGE> 135
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 20 2 34
------ ------ ------ ------ ------
Net income.......................... $ 3 $ 74 $ 707 $ 396 $ 350
====== ====== ====== ====== ======
Basic income per share........................ $ 3 $ 74 $ 707 $ 396 $ 350
====== ====== ====== ====== ======
Weighted average shares outstanding........... 1,000 1,000 1,000 1,000 1,000
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-66
<PAGE> 136
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......................................... -- -- 707 707
Distributions to stockholders...................... -- -- (66) (66)
------ --- ----- -----
Balance, June 30, 1997............................... 1,000 1 553 554
Net income......................................... -- -- 350 350
------ --- ----- -----
Balance, December 31, 1997 (Unaudited)............... 1,000 $ 1 $ 903 $ 904
====== === ===== =====
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE> 137
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 $ 707 $ 396 $ 350
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 203 167 197 111 90
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> 138
NOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
(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> 139
NOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 10.
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.
(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.
F-70
<PAGE> 140
NOVATIONS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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) 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.
(9) 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.
(10) 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-71
<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-72
<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-73
<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-74
<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-75
<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-76
<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-77
<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-78
<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. ("Star") to acquire the
assets of Computer Visions, Inc. Star 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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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-85
<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 Selected Financial Data............. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 24
Business................................. 40
Management............................... 50
Principal Stockholders................... 57
Certain Transactions..................... 58
Description of Capital Stock............. 62
Shares Eligible for Future Sale.......... 64
Underwriting............................. 66
Legal Matters............................ 67
Experts.................................. 67
Additional Information................... 68
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
CORPORATED 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 prior to the Offering
(but 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 prior to the Offering
(but 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............................................
**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. ......................
</TABLE>
II-3
<PAGE> 159
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<C> <S> <C>
+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 Rajiv Bhatt......................................
**99.2 Consent of Herbert A. Cohen.................................
**99.3 Consent of Michael J. Davies................................
**99.4 Consent of Bert Decker......................................
**99.5 Consent of Philip Gardner...................................
**99.6 Consent of Paul C. Green....................................
**99.7 Consent of Joe Hanson.......................................
**99.8 Consent of John F. King.....................................
**99.9 Consent of Dominic J. Puopolo...............................
**99.10 Consent of A. Carl von Sternberg............................
**99.11 Consent of Paul M. Verrochi.................................
**99.12 Consent of Marc S. Wallace..................................
**99.13 Consent of John H. Zenger...................................
**99.14 Consent of David B. Hammond.................................
**99.15 Consent of John R. Murphy...................................
+99.16 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 8th day of April 1998.
PROVANT, INC.
By: /s/ DOMINIC J. PUOPOLO
------------------------------------
Dominic J. Puopolo
Treasurer
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 8, 1998
- --------------------------------------------------- Director
Paul M. Verrochi
/s/ DOMINIC J. PUOPOLO Chief Financial Officer and April 8, 1998
- --------------------------------------------------- Director
Dominic J. Puopolo
/s/ RAJIV BHATT* Chief Accounting Officer April 8, 1998
- ---------------------------------------------------
Rajiv Bhatt
*By: /s/ DOMINIC J. PUOPOLO
- --------------------------------------------------
Dominic J. Puopolo
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............................................
**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. ...................
+10.15 Form of Employment Agreement between Paul M. Verrochi and
Provant, Inc. ..............................................
</TABLE>
<PAGE> 163
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<C> <S> <C>
**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 Rajiv Bhatt......................................
**99.2 Consent of Herbert A. Cohen.................................
**99.3 Consent of Michael J. Davies................................
**99.4 Consent of Bert Decker......................................
**99.5 Consent of Philip Gardner...................................
**99.6 Consent of Paul C. Green....................................
**99.7 Consent of Joe Hanson.......................................
**99.8 Consent of John F. King.....................................
**99.9 Consent of Dominic J. Puopolo...............................
**99.10 Consent of A. Carl von Sternberg............................
**99.11 Consent of Paul M. Verrochi.................................
**99.12 Consent of Marc S. Wallace..................................
**99.13 Consent of John H. Zenger...................................
**99.14 Consent of David B. Hammond.................................
**99.15 Consent of John R. Murphy...................................
+99.16 Consent of Esther T. Smith..................................
</TABLE>
- ---------------
** Previously filed.
+ Filed herewith.
<PAGE> 1
Exhibit 2.6
-----------
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of
February 12, 1998 is among Provant, Inc., a Delaware corporation ("Provant"),
Star Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Provant ("Acquisition"), Star Mountain, Inc., a Virginia corporation (the
"Company"), A. Carl von Sternberg, the principal stockholder of the Company (the
"Stockholder"), and Paul M. Verrochi and Dominic J. Puopolo (the "Provant
Principals"), and provides for the merger of the Company with and into
Acquisition (the "Merger"). The Boards of Directors of Provant, Acquisition and
the Company have determined that the Merger is in the best interests of their
respective stockholders and the Merger has been approved by Provant as the sole
stockholder of Acquisition.
Accordingly, the parties hereto, in consideration of the mutual
representations, warranties and covenants contained herein, agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings set forth below:
1.1 "Additional Companies" means those companies identified on Schedule
1.1 hereto, with which companies Provant is entering into separate Agreements
and Plans of Merger contemporaneously with the execution and delivery of this
Agreement.
1.2 "Additional Consideration" means (i) the additional shares of
Provant Common Stock or cash, if any, issuable or payable to the holders of
Voting Shares and the additional cash, if any, payable by Provant to the holders
of Non-Voting Shares, in each case pursuant to Section 2.8, and (ii) the
additional shares of Provant Common Stock or cash, if any, issuable or payable
to the holders of Company Options pursuant to Section 2.10.
1.3 "Additional Mergers" means the acquisitions (by merger or
otherwise) of each of the Additional Companies by Provant, and "Additional
Merger Agreements" means the agreements and plans of merger or other contracts
(in each case as described in Section 5.9 of the Provant Disclosure Schedule)
pursuant to which Provant will consummate the Additional Mergers.
1.4 "Articles of Merger" has the meaning given to it in Section 2.2.
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1.5 "Average Closing Price" means the average of the closing prices of
Provant Common Stock on each trading day during the stated period, as recorded
on the New York Stock Exchange or on such other exchange or market as is then
the principal exchange or market on which Provant Common Stock is traded.
1.6 "Balance Sheet" means the balance sheet of the Company as of June
30, 1997 included in the Financial Statements.
1.7 "Balance Sheet Date" means June 30, 1997.
1.8 "Certificate of Merger" has the meaning given to it in
Section 2.2.
1.9 "Closing" means the closing of the transactions contemplated by
this Agreement as provided in Section 2.2.
1.10 "Closing Net Worth" means the Company's pro forma net worth as of
a date selected by Provant as close as practicable to the Effective Time (but in
no event more than thirty (30) days prior to the Effective Time), determined
using the same principles and assumptions used by Provant in its preparation of
its pro forma financial statements contained in the Registration Statement.
1.11 "Code" means the Internal Revenue Code of 1986, as amended to
date.
1.12 "Commission" means the Securities and Exchange Commission.
1.13 "Company Disclosure Schedule" means the Disclosure Schedule
prepared by the Company and attached hereto and incorporated herein by this
reference.
1.14 "Company Option" means an option to purchase Shares, whether or
not vested or exercisable as of the applicable time.
1.15 "Company Stockholder" means any person who holds a Share or a
Company Option as of immediately prior to the Effective Time.
1.16 "DGCL" means the Delaware General Corporation Law.
1.17 "Dissenting Share" means any Share the holder of which has
perfected, and not legally abandoned, dissenters rights of appraisal under
Article 15 of the VSCA.
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1.18 "Dissenting Share Holdback" means a dollar amount equal to the
Fraction, multiplied by the number of Shares that are Dissenting Shares,
multiplied by $18 million.
1.19 "1998 EBIT" means the earnings before interest and taxes of the
Company for the period beginning July 1, 1997 and ending at the Effective Time
and of the Surviving Corporation for period beginning at the Effective Time and
ending June 30, 1998, determined in accordance with the Instructions for
Determination of EBIT attached hereto as Exhibit 1.
1.20 "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.
1.21 "Effective Time" means such time as the Articles of Merger are
filed with the Virginia State Corporation Commission in accordance with Section
13.1-720 of the VSCA and the Certificate of Merger is filed with the Secretary
of State of the State of Delaware in accordance with Section 252 of the DGCL,
whichever is later, unless Acquisition and the Company agree that a later time
shall be the Effective Time, in which case such time shall be specified in the
Articles of Merger and the Certificate of Merger.
1.22 "Employment Contract" means the employment agreement in the form
attached hereto as Exhibit 2.
1.23 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.24 "Financial Condition" means that using the same principles and
assumptions used by Provant in the preparation of its pro forma financial
statements contained in the Registration Statement, the Company's Closing Net
Worth is not less than $3.45 million (the "Minimum Net Worth"), the Company's
pro forma revenues for the 12 months ended June 30, 1997 are not less than $20.8
million, the Company's pro forma earnings before interest and taxes for the 12
months ended June 30, 1997 are not less than $1.2 million, the Company's
projected pro forma revenues (as determined in good faith by Provant) for the 12
months ended June 30, 1998 are not less than $28.6 million and the Company's
projected 1998 EBIT (as determined in good faith by Provant) is not less than
$2.48 million.
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1.25 "Financial Statements" means the financial statements of the
Company attached hereto as Exhibit 3, which are intended to be consistent in
form and substance with the requirements of Regulation S-X of the Commission
under the Securities Act, consisting of (a) Balance Sheets at June 30, 1997 and
1996, and at September 30, 1997; (b) Statements of Income for the periods ending
June 30, 1997, 1996 and 1995, and ending September 30, 1997; (c) Statements of
Stockholders' Equity at June 30, 1997, 1996, 1995 and 1994 and at September 30,
1997; (d) Statements of Cash Flow for the periods ending June 30, 1997, 1996 and
1995 and ending September 30, 1997; and (e) notes to the foregoing; provided
that nothing herein shall constitute a representation by the Company or the
Stockholder that the Financial Statements in fact comply with the requirements
of such Regulation S-X.
1.26 "First Accountants" means the firm of independent public
accountants then regularly employed by Provant.
1.27 "Fraction" means that fraction which has one as its numerator and
which has, as its denominator, the pro forma number of Shares outstanding on a
fully diluted basis as of immediately prior to the Effective Time, assuming the
exercise or conversion of all then-outstanding Company Options, warrants and
other instruments exercisable for or convertible into Shares (whether or not
then currently exercisable or convertible).
1.28 "IPO" means the initial underwritten public offering of shares of
Provant Common Stock.
1.29 "IPO Price" shall mean the price at which shares of Provant Common
Stock are sold to the public in the IPO.
1.30 "Investment Letter" means the investment letter, in the case of
the Stockholder and members of his family who are "accredited investors" (as
defined in Regulation D promulgated under the Securities Act), in the form
attached hereto as Exhibit 4A, and in the case of all other holders of Shares or
Company Options, in the form attached hereto as Exhibit 4B.
1.31 "Merger Stock" means the shares of Provant Common Stock exchanged
for Shares pursuant to Section 2 .7(d) and 2.8.
1.32 "Non-Competition and Non-Disclosure Agreement" means the
non-competition and non-disclosure agreement in the form attached hereto as
Exhibit 5.
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1.33 "Non-Voting Percentage" means the percentage that the Non-Voting
Shares represent with respect to all Shares outstanding on a pro forma basis as
of immediately prior to the Effective Time, giving effect to the exercise of
each Company Option into the class of Shares applicable to it.
1.34 "Non-Voting Share" means a share of the Non-Voting Common Stock,
no par value, of the Company, and "Non-Voting Shares" means all such shares
(including, in the case of references to holders of Non-Voting Shares, holders
of Company Options exerciseable into Non-Voting Shares).
1.35 "Prospectus" means the prospectus relating to the IPO first filed
with the Commission pursuant to Rule 424(b) and Rule 430A of the rules and
regulations of the Commission under the Securities Act or (if no such filing is
required) as included in the Registration Statement and, in the event of any
supplement or amendment to such prospectus after the date the Registration
Statement becomes effective under the Securities Act, such prospectus as so
supplemented or amended from and after the filing with the Commission of such
supplement or the effectiveness of such amendment.
1.36 "Provant Disclosure Schedule" means the Disclosure Schedule
prepared by Provant and attached hereto and incorporated herein by this
reference.
1.37 "Provant Common Stock" means the shares of Common Stock, $0.01 par
value, of Provant.
1.38 "Provant Option" means an option to purchase shares of Provant
Common Stock, granted under the Plan to be established by Provant pursuant to
Section 6.11.
1.39 "Registration Statement" means the registration statement on Form
S-1, including the related preliminary prospectus, to be filed with the
Commission in connection with the IPO, including all exhibits and financial
statements, in the form in which it becomes effective under the Securities Act
and, in the event of any amendment thereto after the effective date of any such
registration statement, such registration statement as so amended from and after
the effectiveness of such amendment.
1.40 "Second Accountants" means an accounting firm of national stature,
jointly selected by Provant and the Stockholder, that is not then employed by
Provant, the Stockholder or American Business Partners LLC, a Delaware limited
liability company ("ABP") (or any of their respective affiliates) and that was
not
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employed by the Company or ABP during the two-year period immediately preceding
the Effective Time; PROVIDED, HOWEVER, if the parties cannot jointly agree upon
the Second Accountants, the Stockholder and Provant shall each designate one
accounting firm (which shall be of national stature but which may be employed or
have been employed by such party or its affiliates), and the two accounting
firms so designated shall jointly select a third accounting firm, meeting the
criteria set forth in the first clause of this sentence, to serve as the Second
Accountants.
1.41 "Securities Act" means the Securities Act of 1933, as amended.
1.42 "Share" means either a Voting Share or Non-Voting Share, and
"Shares" means all of such shares.
1.43 "Stockholders' Representative" means the Stockholder, such other
person as may be designated in writing by the Stockholder, or, if the
Stockholder is no longer capable of serving as such and has not designated
another person, such person as a majority-in-interest of the Company
Stockholders may appoint.
1.44 "Surviving Corporation" means the corporation that survives the
Merger.
1.45 "Underwriter" means, collectively, the managing underwriters of
the IPO.
1.46 "Underwriters' Discount" means the discount at which the
Underwriter purchases the Provant Common Stock in the IPO, but in no event more
than 7.0% of the IPO Price.
1.47 "Voting Percentage" means the percentage that the Voting Shares
represent with respect to all Shares outstanding on a pro forma basis as of
immediately prior to the Effective Time, giving effect to the exercise of each
Company Option into the class of Shares applicable to it.
1.48 "Voting Share" means a share of the Common Stock, no par value, of
the Company, and "Voting Shares" means all such shares (including, in the case
of references to holders of Voting Shares, holders of Company Options
exerciseable into Voting Shares).
1.49 "VSCA" means the Virginia Stock Corporation Act.
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2. THE MERGER
2.1 THE MERGER. The Merger shall occur at the Effective Time upon the
terms and subject to the conditions hereof and in accordance with the VSCA and
the DGCL. Following the Merger, Acquisition shall continue as the Surviving
Corporation and be a subsidiary of Provant, and the separate corporate existence
of the Company shall cease.
2.2 EFFECTIVE TIME. As soon as practicable after satisfaction or waiver
of all conditions to the Merger, the parties (a) shall cause duly executed
articles of merger (the "Articles of Merger") with respect to the Merger to be
filed and recorded in accordance with Section 13.7-720 of the VSCA and shall
cause a certificate of merger (the "Certificate of Merger") with respect to the
Merger to be filed and recorded in accordance with Section 252 of the DGCL and
(b) shall take all such further actions as may be required by law to make the
Merger effective. The Merger shall be effective at the Effective Time. Before
the filing of the Articles of Merger and the Certificate of Merger, a closing
(the "Closing") will be held on the date the IPO closes (or such earlier date as
the parties may agree) at the offices of Nutter, McClennen & Fish, LLP, One
International Place, Boston, Massachusetts (or such other place as the parties
may agree) for the purpose of confirming all the foregoing.
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 13.1-721 of the VSCA and Sections 259, 260 and 261 of the DGCL.
2.4 TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(2)(D) of the Code, that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code, and that the Merger shall be tax-free except to the
extent of the lesser of the cash payable hereunder to the stockholders of the
Company or the gain realized by such stockholders.
2.5 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Certificate of
Incorporation and the By-Laws of Acquisition, in each case as in effect at the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation, except that the name of the Surviving Corporation shall
be the name of the Company or such other name as Provant may designate.
2.6 DIRECTORS AND OFFICERS. At the Effective Time, the Board of
Directors and officers of the Surviving Corporation shall be as set forth on
Exhibit 6, and each such person shall hold office until his or her respective
successor is duly elected or appointed and qualified.
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2.7 CONVERSION OF STOCK.
At the Effective Time:
(a) Each share of Acquisition that is issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
without change.
(b) All Shares held in the treasury of the Company immediately
prior to the Effective Time shall be cancelled, without the payment of any
consideration therefor.
(c) Each Non-Voting Share which is outstanding immediately prior
to the Effective Time (other than Dissenting Shares, if any) shall be converted
without any action on the part of the holder thereof into, and be exchangeable
for
(i) cash equal to the Fraction times the
arithmetic difference of (X) the sum of $18 million plus the
Non-Voting Percentage multiplied by the excess, if any, of the
Company's Closing Net Worth over the Minimum Net Worth, minus
(Y) the Non-Voting Percentage multiplied by the Dissenting
Share Holdback, minus (Z) the Non-Voting Percentage multiplied
by $18 million multiplied by the Underwriters' Discount
(expressed as a percentage); and
(ii) the right to receive Additional
Consideration determined as provided in Section 2.8.
(d) Each Voting Share which is outstanding immediately prior to
the Effective Time (other than Dissenting Shares, if any) shall be converted
without any action on the part of the holder thereof into, and be exchangeable
for
(i) that number of shares of Provant Common
Stock equal to the Fraction times the arithmetic difference of
(A) $18 million divided by the IPO Price, minus (B) the
quotient of $5,310,000 divided by the IPO Price net of
Underwriters' Discount, minus (C) the Non-Voting Percentage
multiplied by $18 million, divided by the IPO Price,
(ii) cash equal to the Fraction times the sum of
(X) $5,310,000, plus (Y) the Voting Percentage multiplied by
the excess, if any, of the Company's Closing Net Worth over
the Minimum Net Worth, minus (Z) the Voting Percentage
multiplied by the Dissenting Share Holdback, and
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(iii) the right to receive Additional
Consideration determined as provided in Section 2.8.
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.
(e) Notwithstanding subsections 2.7(c) and 2.7(d), Dissenting
Shares shall not be converted into the right to receive cash or Provant Common
Stock pursuant to such subsections or Section 2.8. At the Effective Time, in
lieu thereof, holders of Dissenting Shares shall be entitled solely to payment
of the appraised value of such Dissenting Shares in accordance with the
provisions of Article 15 of the VSCA.
2.8 RIGHT TO RECEIVE ADDITIONAL CONSIDERATION.
(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 $3.1 million or less, no
Additional Consideration shall be issued in respect of the
Shares.
(ii) In the event 1999 EBIT is greater than $3.1
million, Provant shall issue in respect of each Non-Voting
Share (other than Dissenting Shares, if any) cash in the
amount of the Fraction multiplied by six (6) times the amount
by which 1999 EBIT exceeded $3.1 million.
(iii) In the event 1999 EBIT is greater than $3.1
million, Provant shall issue in respect of each Voting Share
(other than Dissenting Shares, if any) Additional
Consideration, in the form of either cash or Provant Common
Stock as elected by the holder of such Share in accordance
with subsection (b) below, calculated as follows:
if the Additional Consideration is to be paid in
cash, an amount equal to the Fraction multiplied by
six (6) times the amount by which 1999 EBIT exceeded
$3.1 million; and
if the Additional Consideration is to be paid in
Provant Common Stock, a number of shares of such
stock equal to (A) the Fraction, multiplied by (B)
six (6) times the amount by which 1999 EBIT exceeded
$3.1 million, divided by (C) 80% of the Average
Closing Price of Provant Common Stock during the
month of July, 1999.
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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
Company Stockholder a statement showing in reasonable detail Provant's
computation of 1999 EBIT, together with, in the case of former holders of Voting
Shares (if such former holders are entitled to receive Additional Consideration
pursuant to subsection (a)), an election form by which each such former holder
(independent of each other former holder) may elect whether to receive such
Additional Consideration either in the form of cash or in the form of Provant
Common Stock. 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' Representative (and only the Stockholders'
Representative, acting as representative of all Company Stockholders, as
provided in subsection (h) below) shall have the right at his expense, through
an independent certified public accountant reasonably acceptable to Provant, to
audit such books and records and the books and records of the Company solely for
the purpose 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'
Representative have the right to conduct more than one such audit. If the
Stockholders' Representative does 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' Representative, on his behalf and on behalf of all Company
Stockholders, shall be deemed to have agreed that such statement was correct in
all respects. Unless the Stockholders' Representative has asserted a dispute
with respect to Provant's calculation of the 1999 EBIT in accordance with
subsection (c), Provant shall pay or issue any Additional Consideration 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' Representative
(as representative of all Company Stockholders) that the Stockholders'
Representative does not dispute Provant's calculation of the 1999 EBIT, and (y)
in the case of each former holder of Voting Shares, receipt of an election form
from such former holder.
(c) Any dispute as to the correct computation of 1999 EBIT shall be
referred to the First Accountants for determination. If the Stockholders'
Representative does not elect to dispute the First Accountants' determination of
1999 EBIT within 30 days following the delivery thereof to the Stockholders'
Representative, such determination shall be final, binding and conclusive and
shall not be subject to challenge by
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Provant, the Stockholders' Representative or any Company Stockholder, and in
such event the fees and expenses of the First Accountants shall be borne by
Provant. In the event the Stockholders' Representative does elect within such 30
day period to dispute the determination of the First Accountants, the
Stockholders' Representative shall specify the amount (in dollars) that he
contends to be the correct 1999 EBIT (the Stockholders' Representative's "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, the Stockholders'
Representative or any other Company Stockholder. 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' Representative 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 Consideration which is finally determined to be due to the
Company Stockholders 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' Representative has paid the fees and expenses of the
accountants, if the Stockholders' Representative is 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 and the amount
of cash 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 and paid as Additional Consideration. Such shares of
Provant Common Stock and cash shall be held in escrow pending final
determination of 1999 EBIT, upon which the final number of shares and the final
amount of cash constituting Additional Consideration, if any, shall be released
from escrow to the Company Stockholders and any escrowed shares and cash not
distributed as Additional Consideration shall be released to Provant. If and to
the extent the escrowed shares and cash are less than the final amount of
Additional Consideration as finally determined pursuant to
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subsection (b) or (c) above, Provant shall issue additional shares of Provant
Common Stock and pay additional cash 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) It is understood and agreed 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 (i) except to the extent that the Stockholder, as President of the
Surviving Corporation, shall cause or assent to contrary action by the Surviving
Corporation, during the period from the Effective Time through June 30, 1999,
Provant will cause the Surviving Corporation to conduct its operations in a
manner consistent with past practice and will use all commercially reasonable
efforts to preserve intact in the Surviving Corporation the present business
organization of the Company, to keep available the services of an adequate
number of qualified officers and employees of the Surviving Corporation, and to
preserve the Surviving Corporation's relationships with customers, suppliers,
contractors, and others having business dealings with it to the end that its
goodwill and on-going business shall not be impaired during the period from the
Effective Time through June 30, 1999, and (ii) Provant will take no action and
adopt no policy (and will not cause the Surviving Corporation to take any action
or adopt any policy, including without limitation through members of Provant
management who serve as directors of the Company) during the period from the
Effective Time through June 30, 1999 that the Stockholders' Representative has
reasonably asserted (in advance of or promptly following 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. Provant further agrees
that, from the Effective Time through June 30, 1999, it shall make available to
the Company (either through internal Provant resources or through a third-party
credit facility) credit for use in the Company's ordinary course business
operations in amounts consistent with the Company's credit availability as of
the date of this Agreement.
(f) The right of the Stockholder or any other holder of Voting Shares
to receive Provant Common Stock as Additional Consideration 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) If, subsequent to the IPO and prior to final determination of the
number of shares of Provant Common Stock issuable as Additional Consideration,
if any, pursuant to this Section 2.8, the outstanding shares of Provant Common
Stock shall
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have been changed into a different number of shares or a different class by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within said period, the IPO Price shall be
correspondingly and appropriately adjusted.
(h) The Stockholder, and any other person hereafter designated as
the Stockholders' Representative, is hereby appointed as the representative of
all holders of Shares and Company Options for purposes of this Section 2.8. The
Stockholders' Representative shall have no liability to any other holder of
Shares or Company Options 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 the Stockholders' Representative has acted in a manner he believed in
good faith to be in the interest of all holders of Shares and Company Options,
or according to such other standard as the Stockholders' Representative and such
other holders may agree in writing.
2.9 EXCHANGE OF AND PAYMENT FOR SHARES AT THE EFFECTIVE TIME.
(a) As soon as practicable after the Effective Time and after
surrender to Provant of any certificate which prior to the Effective Time shall
have represented any Shares, subject to the provisions of paragraphs (c) and (d)
of this Section 2.9 (and in the case of Voting Shares, the further requirements
of clause (ii) below), Provant shall:
(i) in the case of Non-Voting Shares, cause to
be distributed to the person in whose name such certificate
shall have been registered a check payable to such person
representing the payment of the amount of cash into which such
Shares have been converted; and
(ii) in the case of Voting Shares, cause to be
distributed to the person in whose name such certificate shall
have been registered, certificates registered in the name of
such person representing the shares of Provant Common Stock
into which the Shares previously represented by the
surrendered certificate shall have become exchangeable at the
Effective Time, together with a check payable to such person
representing the payment of cash due to such person by reason
of the Merger including any cash in lieu of fractional shares
determined in accordance with paragraph (g) of this Section
2.9. Provant's issuance of Provant Common Stock in exchange
for Voting Shares is conditioned upon the prior execution and
delivery to Provant of the Investment Letter by the recipient
of such Provant Common Stock, and such
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Provant Common Stock shall in all events be issued subject to
the provisions of Article 8.
Until surrendered as contemplated by clause (i) or clause (ii) above, each
certificate which immediately prior to the Effective Time shall have represented
any Shares shall be deemed at and after the Effective Time to represent only the
right to receive, upon such surrender, the cash and/or Provant Common Stock into
which such Share has been converted pursuant to Section 2.7.
(b) No dividends or other distributions declared after the
Effective Time with respect to Provant Common Stock shall be paid to the holder
of any unsurrendered certificate representing Shares until the holder thereof
shall surrender such certificate in accordance with this Section 2.9. After the
surrender of such certificate in accordance with this Section 2.9, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Provant Common Stock represented by such
certificate.
(c) No certificate representing Provant Common Stock shall be
issued to any person, and no person shall be treated as a holder of shares of
Provant Common Stock for any purpose whatsoever (including without limitation
any right to vote the shares of Provant Common Stock into which such person's
Shares or Company Options are to be converted) unless and until such person has
executed and delivered to Provant an Investment Letter.
(d) If any cash or certificate representing shares of Provant
Common Stock is to be paid to or issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it shall be a
condition of the payment or issuance thereof that the certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange shall pay to Provant any transfer or other
taxes required by reason of the issuance of a certificate representing shares of
Provant Common Stock in any name other than that of the registered holder of the
certificate surrendered, or otherwise required, or shall establish to the
satisfaction of Provant that such tax has been paid or is not payable.
(e) All Provant Common Stock and cash, including cash in lieu of
fractional shares, shall be deemed, when paid or issued pursuant to this
Agreement, to have been paid or issued, as the case may be, in full satisfaction
of all rights pertaining to the Shares.
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(f) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates representing such
shares are presented to the Surviving Corporation, they shall be cancelled and
exchanged for cash and/or certificates representing the shares of Provant Common
Stock into which they were converted, as applicable, as provided herein.
(g) Notwithstanding any other provision of this Agreement, no
certificates or scrip representing fractional shares of Provant Common Stock
shall be issued upon the surrender for exchange of certificates which prior to
the Effective Time shall have represented any Shares, no dividend or
distribution of Provant shall relate to any fractional share and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
shareholder of Provant. In lieu of any fractional shares, there shall be paid to
each holder of Shares who otherwise would be entitled to receive a fractional
share of Provant Common Stock an amount of cash equal to the amount of such
fraction times the IPO Price.
(h) In the event any certificate representing Shares shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the holder of such Shares claiming such certificate to be lost, stolen or
destroyed and, if required by Provant or its stock transfer agent, the posting
by such holder of a bond in such amount as Provant or its stock transfer agent
may direct as indemnity against any claim that may be made against it with
respect to such certificate, Provant will issue in exchange for such lost,
stolen or destroyed certificate the cash and/or Provant Common Stock deliverable
in respect thereof.
2.10 TREATMENT OF COMPANY OPTIONS. Each holder of a Company Option,
if any, outstanding as of immediately prior to the Effective Time (whether or
not then vested and exercisable) shall be entitled to receive (subject to any
required withholding of taxes), in cancellation of such option, consideration
equal to (a) if such option is exercisable for Non-Voting Shares, the cash
(including rights to receive additional cash as Additional Consideration), or
(b) if such option is exercisable for Voting Shares, the Provant Common Stock
and cash (including rights to receive additional Provant Common Stock or cash as
Additional Consideration), which such holder would have been entitled to receive
pursuant to Sections 2.7 and 2.8 had such holder exercised such Company Option
in full (including any unvested portion thereof) immediately prior to the
Effective Time, reduced in either case by the aggregate exercise price of such
Company Option, which aggregate exercise price shall be paid first by reducing
the cash otherwise to be received pursuant to Section 2.7 and second, if
necessary and only in the case of options exercisable for Voting
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Shares, by reducing the number of shares of Provant Common Stock otherwise to be
received pursuant to Section 2.7 by a number equal to (a) the remaining balance
of such aggregate exercise price divided by (b) the IPO Price net of
Underwriters' Discount. Such payments of cash and Provant Common Stock to each
holder of Company Options shall be made by Provant contemporaneously with the
delivery of cash and Provant Common Stock to the holders of Shares pursuant to
Section 2.9, provided only that such holder has duly executed and delivered an
Investment Letter in accordance with Section 2.9(c). Nothing in this Section
2.10 shall be construed as preventing a holder from exercising his or her
Company Option prior to the Effective Time.
3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDER
The Company and the Stockholder represent and warrant to Provant and
Acquisition that, except as expressly provided in the Company Disclosure
Schedule by specific reference to a Section of this Article 3:
3.1 ORGANIZATION AND AUTHORITY. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Virginia and has all requisite corporate power and authority to
conduct its business and own its properties as now conducted and owned. The
Company is duly qualified or licensed and in good standing as a foreign
corporation, and has at all times when legally required been so qualified or
licensed and in good standing, in those states listed on the Company Disclosure
Schedule, which are the only jurisdictions in which a failure to be so qualified
or licensed would, in the aggregate, have a material adverse effect on the
business of the Company or the nature of the business conducted by it. The
Company has full power and authority to execute and deliver this Agreement and,
subject to the approval of its stockholders under the VSCA, to consummate the
transactions contemplated hereby and perform its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company and the performance of the
Company's obligations hereunder have been duly and validly authorized by a
unanimous vote of the Board of Directors of the Company, and excepting only the
affirmative votes of the holders of two-thirds of the outstanding Voting Shares
and the holders of two-thirds of the outstanding Non-Voting Shares, each in
accordance with the VSCA, no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated or to perform the Company's obligations hereunder.
This Agreement has been duly and validly executed and delivered by the Company
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and, subject only to the aforesaid vote of the Company's stockholders,
constitutes a legal, valid and binding obligation of the Company enforceable
against it in accordance with its terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting enforcement of creditors' rights generally.
3.2 CAPITALIZATION OF THE COMPANY; NO SUBSIDIARIES. The Company has
authorized capital consisting of 12,000,000 shares of Common Stock, no par
value, and 3,000,000 shares of Non-Voting Common Stock, no par value, of which
no shares are held in the Company's treasury. As of the date hereof, there are
8,067,241 issued and outstanding Shares. As of immediately prior to the
Effective Time, the Shares issued and outstanding shall consist solely of the
foregoing number plus the number of Shares, if any, issued between the date
hereof and the Effective Time upon the exercise or conversion of Company Options
and other instruments (in each case solely if existing on the date hereof and
disclosed on the Company Disclosure Schedule pursuant to Section 3.3), which
exercise or conversion and which issuance are in accordance with the terms of
such instruments as in effect on the date hereof. All of the Shares are duly
authorized, validly issued, fully paid and non-assessable and are owned of
record and, to the Company's knowledge, beneficially by the stockholders of the
Company in the respective amounts listed on the Company Disclosure Schedule. The
Company has no authorized class of capital stock other than the Common Stock and
the Non-Voting Common Stock. The Company does not own and has not owned any
shares of capital stock or other securities of, or any other interest in, nor
does it control or has it controlled, directly or indirectly, any other
corporation, association, joint venture, partnership, or other business
organization. The Shares have been issued and sold in full compliance with all
applicable federal and state securities laws.
3.3 NO RIGHTS TO PURCHASE OR REGISTER STOCK. No person, firm, or
corporation has any written or oral agreement, option, warrant, call,
understanding, commitment, or any right or privilege capable of becoming a
binding agreement, for either the purchase of any Shares or the acquisition of
shares of any other class of capital stock of the Company, and the Company has
not otherwise agreed to issue or sell any shares of its capital stock and has no
obligation to register any of the Shares under the Securities Act. The Company
is not obligated directly, indirectly or contingently to purchase any Shares.
3.4 NAME. The Company has not had any other name and does not conduct or
operate, and has not heretofore conducted or operated, its business under any
name other than its current name.
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3.5 NO VIOLATION OF EXISTING AGREEMENTS. The execution and delivery of
this Agreement, together with all documents and instruments contemplated herein,
the consummation by the Company of the transactions contemplated hereby and
thereby, the performance by the Company of its obligations hereunder and
thereunder and compliance with the terms, conditions and provisions hereof and
thereof by the Company do not (i) contravene any provisions of the Company's
Articles of Incorporation or By-Laws; (ii) conflict with, result in a breach of,
constitute a default (or an event that might, with the passage of time or the
giving of notice or both, constitute a default) under, give rise to any right to
terminate, cancel or accelerate, give rise to any loss of benefit under, or
result in the creation of any lien, security interest or other encumbrance
under, any of the material terms, conditions, or provisions of any indenture,
mortgage, loan, or credit agreement or any other agreement or instrument to
which the Company is a party or by which it or its assets may be bound or
affected; (iii) violate or constitute a material breach of any decision,
judgment, or order of any court or arbitration board or of any governmental
department, commission, board, agency, or instrumentality, domestic or foreign,
by which the Company is bound or to which it is subject; or (iv) violate any
applicable law, rule, or regulation to which the Company or any of its property
is bound.
3.6 NO CONSENTS OR APPROVALS OF GOVERNMENTAL AUTHORITIES. No consent or
approval of, or filing and expiration of a period for disapproval by, any
governmental authority is required for the Company to consummate the
transactions contemplated by this Agreement, except for filing the Articles of
Merger pursuant to the VSCA and for filing the Certificate of Merger pursuant to
the DGCL. Notwithstanding the immediately preceding sentence, the Company and
the Stockholder make no representation or warranty regarding whether any filing
is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), but the Company and the Stockholder do represent and
warrant that (a) the aggregate gross assets of the Company plus those of any
direct or indirect legal or beneficial holder of 50% or more of the Shares were
less than $100 million as of September 30, 1997, and (b) the aggregate revenues
of the Company plus those of any direct or indirect legal or beneficial holder
of 50% or more of the Shares were less than $100 million for the Company's most
recently completed fiscal year.
3.7 FINANCIAL STATEMENTS.
(a) The Financial Statements fairly present the financial position of
the Company as of their respective dates, and the results of operations and cash
flows for the periods presented therein, all in conformity with generally
accepted accounting principles applied on a consistent basis, except as
otherwise noted therein.
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(b) The Company maintains a system of internal 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 and with
statutory accounting principles 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 the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth or reserved
against in the Balance Sheet, the Company (a) did not have as of the Balance
Sheet Date any material liability or obligation of any nature, whether accrued,
absolute, contingent, or otherwise and whether due or to become due, including
without limitation liabilities that may become known or arise after the date
hereof and which relate to transactions entered into or any state of facts
existing on or before the Balance Sheet Date and which would be required under
generally accepted accounting principles to be shown in such balance sheet or
referenced in the notes thereto, and (b) has not incurred since the Balance
Sheet Date any such liability or obligation except in the ordinary course of
business. Without limiting the foregoing, and except as specifically reserved
against in the Balance Sheet or in the calculation of the Closing Net Worth, the
Company has no material liability or obligation of any nature, whether accrued,
absolute, contingent, or otherwise, to any government entity for any adjustment
or reimbursement of any amount previously paid to the Company by such entity
under any agreement relating to the provision of any goods or services by the
Company.
3.9 CONDUCT OF BUSINESS SINCE THE BALANCE SHEET DATE. Since the Balance
Sheet Date, the Company has not taken (or suffered the occurrence of) any of the
following actions or events, agreed to take any of the following actions, or
taken any action that would otherwise result in any of the following (in each
case except directly in connection with this Agreement):
(a) entered into any transaction, agreement, or commitment other than
in the ordinary course of business; or
(b) entered into any transaction, agreement, or commitment, suffered
the occurrence of any event or events, or experienced any change in financial
condition, business, results of operations, prospects, or otherwise, (i) that
has interfered or is reasonably likely to interfere with the normal and usual
operations of the Company's business or its business prospects in any material
respect or (ii) that, singly or in the
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aggregate, has resulted or is reasonably likely to result in a material adverse
change in the financial condition, assets, liabilities, earnings, business, or
business prospects of the Company; or
(c) incurred any indebtedness for borrowed money, or assumed,
guaranteed, endorsed, or otherwise become responsible for the obligations of any
other individual, partnership, firm, or corporation (except to endorse checks
for collection for deposit in the ordinary course of business), or made any loan
or advance to any individual, partnership, firm, or corporation; or
(d) mortgaged, pledged, or otherwise encumbered, or, other than in the
ordinary course of business, sold, transferred, or otherwise disposed of, any of
the properties or assets of the Company, including any cancelled, released,
hypothecated, or assigned indebtedness owed to the Company, or any claims held
by the Company, except for purchase money mortgages arising in the ordinary
course of business and statutory liens arising or incurred in the ordinary
course of business with respect to which the underlying obligations are not
delinquent; or
(e) made any investment of a capital nature or entered into a
commitment for such investment either by purchase of stock or securities,
contributions to capital, property transfer, or otherwise, or by the purchase of
any property or assets of any other individual, partnership, firm, or
corporation, except in each case in the ordinary course of business; or
(f) declared, set aside, or paid any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in respect of
the capital stock of the Company, or redeemed or otherwise acquired, directly or
indirectly, any shares of capital stock of the Company, excepting only
dividends, distributions and redemptions that have not resulted and will not
result, directly or indirectly, in the Company not satisfying the Financial
Condition; or
(g) paid any long-term liability, otherwise than in accordance with its
terms; or
(h) paid any bonus compensation to any officer, director, shareholder,
or employee of the Company or otherwise increased the compensation paid or
payable to any of the foregoing; or
(i) sold, assigned, or transferred any trademarks, trade names, logos,
copyrights, formulae, or other intangible assets; or
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(j) contracted with or committed to any third party (i) to sell
any capital stock of the Company, (ii) to sell any material assets of the
Company other than in the ordinary course of business, (iii) to effect any
merger, consolidation, or other reorganization of the Company, or (iv) to enter
into any agreement with respect thereto; or
(k) incurred or paid any expenses or fees of counsel, accountants,
or consultants for services in preparation for or in connection with this
Agreement or the transactions contemplated hereunder.
3.10 TITLE TO ASSETS. The Company owns no real property. The
Company has good and clear record and marketable title to all properties owned
by it, including, without limitation, all property reflected in the Balance
Sheet, other than property disposed of in the ordinary course of business
subsequent to the Balance Sheet Date (none of such dispositions being
individually or collectively materially adverse), free and clear of any
mortgage, lien, pledge, charge, claim or encumbrance, or rights, title and
interest in others, except (a) as reflected in the Balance Sheet, or as
specified in the notes thereto, (b) the lien of taxes not yet due or payable or
being contested in good faith by appropriate proceedings and as to which
appropriate reserves have been set aside in the Balance Sheet, and (c) such
imperfections of title and encumbrances, if any, as do not materially detract
from the value or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations.
3.11 INTELLECTUAL PROPERTY.
(a) The Company Disclosure Schedule contains a correct and
complete list of all copyrights, copyright registrations and copyright
applications, trademark registrations and applications for registration, patents
and patent applications, trademarks, service marks and trade names used in the
Company's business as presently conducted or contemplated and all licenses,
assignments and releases of the intellectual property rights of others in
material works embodied in its products. There is (i) to the Company's
knowledge, no existing or threatened infringement, misuse or misappropriation of
Proprietary Information (as hereinafter defined) by others and (ii) no pending
or threatened claim by the Company against others for infringement, misuse or
misappropriation of any patent, patent application, invention disclosure,
trademark, trade name, service mark, trade secret, technology, technique,
know-how, or copyright owned by the Company or used in its business as presently
conducted or contemplated (the "Proprietary Information"). The Proprietary
Information is sufficient to carry on the business of the Company as presently
conducted or contemplated, and the Company has the right to use, free and clear
of
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claims or rights of others, all Proprietary Information required for its
products or services or its business as presently conducted or contemplated. The
Company is the exclusive owner of all right, title and interest in the
Proprietary Information as purported to be owned by the Company, and such
Proprietary Information is valid and in full force and effect. Neither the
present nor contemplated business activities or products of the Company
infringe, misuse or misappropriate any patent, trademark, trade name, service
mark, trade secret, copyright or other intellectual property right of others,
and to the Company's knowledge no one is claiming nor is it anticipated that
anyone will claim any such infringement, misuse or misappropriation. To the
knowledge of the Company, the Proprietary Information is presently valid and
protectible and is not part of the public domain or knowledge, nor, to the
knowledge of the Company, has any of it been used, divulged or appropriated for
the benefit of any person other than the Company to the detriment of the
Company. The Company has not granted to any person any license or other right to
use in any manner any of the Proprietary Information, whether or not requiring
the payment of royalties. The Company has no obligation still outstanding to
compensate other persons for the use of any Proprietary Information or for the
sale of any service or product comprising or derived from Proprietary
Information. No university, government agency (whether federal or state) or
other organization which sponsored research and development conducted by the
Company has any claim of right to or ownership of or other encumbrance upon the
Proprietary Information.
(b) The Company has taken reasonable measures to protect and preserve
the security, confidentiality and value of the Proprietary Information,
including its trade secrets and other confidential information. All present and
previous officers, employees and consultants of or to the Company have executed
and delivered to and in favor of the Company an agreement regarding the
protection of confidential and proprietary information and the assignment to the
Company of all intellectual property rights arising from the services performed
for the Company by such persons in the forms attached to the Company Disclosure
Schedule. To the Company's knowledge, no employee or consultant of the Company
has used any trade secrets or other confidential information of any other person
in the course of his or her work for the Company. To the Company's knowledge,
the Company is not making unlawful use of any confidential information or trade
secrets belonging to any past or present employees of the Company. Neither the
Company nor, to the knowledge of the Company, any of the Company's employees or
consultants have any agreements or arrangements with former employers of such
employees or consultants relating to confidential information or trade secrets
of such employers or are bound by any consulting agreement relating to
confidential information or trade secrets of another entity. The activities of
the Company's employees on behalf of the Company do not violate any agreements
or arrangements known to the Company which any such
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employees have with former employers or any other entity to whom such employees
may have rendered consulting services.
3.12 OBLIGATIONS TO OR FROM AFFILIATES.
(a) All material transactions between the Company and any
stockholder, officer or director of the Company, or any Affiliate (as defined
below) of any stockholder, officer or director of the Company, entered into on
or after January 1, 1993 have been conducted on an arm's-length basis on terms
no different than would be obtained if the transaction had been between the
Company and an unrelated party. Except for debts or other outstanding
obligations reflected on the Balance Sheet, there are no debts or other
obligations of the Company to, or to the Company from, the Stockholder or any
officer or director, or any Affiliate of a Stockholder, officer or director of
the Company. As used herein, "Affiliate" of a person means any member of the
immediate family of such person or any entity in which such person or any such
family member is an officer or owner of more than five percent of beneficial
interest in the outstanding equity securities.
(b) The Company Disclosure Schedule sets forth all information
that would be required to be provided under Item 404 of Regulation S-K of the
Commission under the Securities Act if a registration statement on Form S-1 were
filed by the Company with the Commission on the date hereof.
3.13 MATERIAL CONTRACTS. The Company Disclosure Schedule lists all
material leases, contracts, instruments, agreements or commitments (whether
written or oral) relating to the conduct of the business of the Company (the
"Material Company Contracts"). The Company has delivered to Provant true and
correct copies of each written Material Company Contract and a written
description, accurate in all material respects, of each oral arrangement so
listed. Without limiting the generality of the foregoing, the aforesaid list
includes all contracts, agreements and instruments of the following types to
which the Company is a party:
(a) labor union contracts, together with a list of all labor
unions representing or, to the Company's knowledge, attempting to represent
employees of the Company;
(b) pension, retirement, deferred compensation, death benefit,
profit sharing, bonus or other employee incentive, fringe benefit, stock
purchase, stock option, hospitalization or insurance plans or arrangements (and
grant certificates or other documents issued thereunder) or vacation pay,
severance pay and other similar benefit arrangements for officers, employees or
agents, together with a list of all
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pensioned employees or obligations to provide any pensions hereafter other than
pursuant to the plans hereinbefore in this item described;
(c) employment contracts or agreements, consulting agreements,
agreements providing for termination or severance benefits, non-competition
agreements, non-disclosure agreements, contracts for professional personal
services, contracts with other persons engaged in sales or distributing
activities, and advertising contracts;
(d) written or oral agreements, understandings and arrangements of any
kind with any officer, director, employee, shareholder or agent of the Company
relating to present or future compensation or other benefits available to such
person or otherwise, together with a list of the names and current annual salary
rates of all present officers and employees of the Company whose current salary
rate is $25,000 or more and any bonuses paid or payable to each such person for
the 1996 fiscal year;
(e) indentures, loan agreements, notes, security agreements, mortgages,
conditional sales contracts, leases of real or personal property, contracts for
the purchase or sale of real or personal property, and agreements for financing;
(f) property, casualty, crime, directors and officers, and other forms
of insurance;
(g) all bank accounts and safety deposit boxes identifying all
authorized signatories, together with a list of all effective powers of attorney
granted by the Company to anyone;
(h) agreements, contracts or other arrangements to which the Company is
a guarantor, surety or endorser;
(i) contracts, agreements, commitments, arrangements or understandings
providing for the purchase or sale of all or substantially all of the Company's
requisites of a particular product from a single supplier or to a single
customer;
(j) contracts, agreements, commitments, arrangements or understandings
which limit the freedom of the Company from competing in any line of business or
with any person or entity;
(k) license agreements (as licensor or licensee);
(l) leases of real and personal property with a term of more than one
year (regardless of whether the Company is lessor or lessee); and
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(m) contracts, agreements, instruments, arrangements or
understandings which have not been included in items (a) through (l) above
involving payment by or to the Company of more than $50,000 or not terminable
without penalty or otherwise materially affecting the assets, financial
condition, properties or business of the Company.
All of the Material Company Contracts are in full force and effect. Except to
the extent that a material adverse effect on the Company's financial condition,
assets, liabilities, earnings, business or prospects would not result if the
following were not true: (A) the Company and each other party to each of the
Material Company Contracts have performed all the obligations required to be
performed by them to date, have received no notice of default and are not in
default (with due notice or lapse of time or both) under any of the Material
Company Contracts; (B) the Company has no present expectation or intention of
not fully performing all of its obligations under any of the Material Company
Contracts, and the Company has no knowledge of any breach or anticipated breach
by any other party to any of the Material Company Contracts; (c) there exists no
actual or, to the knowledge of the Company, threatened termination, cancellation
or limitation of the business relationship of the Company with any party to any
Material Company Contract; and (D) consummation of the transactions contemplated
hereby and performance by the Company of its obligations hereunder shall not
require the consent or permission of any party to any Material Company Contract
or permit any party to terminate, suspend or alter the terms of any Material
Company Contract.
3.14 LITIGATION. There are no actions, suits, causes of action,
claims, litigation, arbitration, administrative hearings, or other form of
proceedings or disputes of any kind pending or, to the best knowledge of the
Company, threatened against the Company or involving, affecting, or relating to
its capacity to complete the transactions contemplated herein, the Company, or
its officers or directors (in their capacities as such), in any court, at law or
in equity, or before any arbitration board or any governmental department,
commission, board, bureau, agency, or instrumentality; nor has the Company been,
nor is it, subject to any orders, awards, fines, judgments, decrees, or
injunctions the effect of which in the aggregate would have a material adverse
effect on the business or financial position or prospects of the Company. The
Company does not know or have grounds to know of any basis for any such action,
suits, or other form of proceeding or disputes or of any governmental
investigation relating to the Company or its business.
3.15 TAXES.
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(a) (i) All Tax Returns (as defined below) of, relating to or which
include the Company which are required to have been filed have been filed on a
timely basis with the appropriate authorities and all such Tax Returns are true,
correct and complete in all respects; (ii) all Taxes (as defined below) required
to have been paid by the Company (including amounts collected or withheld from
third parties required to have been paid over to the appropriate authorities)
have been paid in full on a timely basis to the appropriate authorities; and
(iii) all Taxes or other amounts required to have been collected or withheld by
the Company have been timely and properly collected or withheld.
(b) (i) No taxing authority has asserted in writing to the Company any
adjustment, deficiency, or assessment that could result in additional Tax for
which the Company is or may be liable; (ii) there is no pending audit,
examination, investigation, dispute, proceeding or claim for which the Company
has received notice relating to any Tax for which the Company is or may be
liable; (iii) no statute of limitations with respect to any Tax for which the
Company is or may be liable has been waived or extended; (iv) the due date of
any Tax Returns that the Company is required to file has not been extended; and
(v) Company is not a party to any Tax sharing or Tax allocation agreement,
arrangement or understanding.
(c) There are no liens on any of the assets of the Company which arose
in connection with any failure or asserted failure to pay any Tax, other than
liens for current Taxes not yet due and payable.
(d) The Company is not a party to any contract, agreement, plan or
arrangement that, individually or collectively, could give rise to any payment
that would not be deductible by reason of Section 162, 280G or 404 of the Code.
(e) The Company has not been a member of an affiliated group filing a
consolidated federal income Tax Return, and the Company is not liable for the
Taxes of any person under Treasury Regulation 1.1502-6 (or any similar provision
of state, local, or foreign law) as transferee or successor, by contract or
otherwise.
(f) Copies of (i) any Tax examinations, (ii) extensions of statutory
limitations, (iii) the federal, state and local income Tax Returns and franchise
Tax Returns of the Company, and (iv) correspondence between the Company and all
taxing authorities for its last three (3) taxable years previously have been
furnished to Provant and such Tax Returns are true, correct and complete.
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(g) The provision for Taxes, if any, shown on the Balance Sheet is
adequate to cover the aggregate liability of the Company arising out of facts or
circumstances occurring on or prior to the Balance Sheet Date for all Taxes.
(h) The Company has filed federal and state, and if applicable,
local Tax Returns for each period ending on or prior to the Effective Time.
(i) For purposes of this Section 3.15:
"Tax Returns" shall mean all returns, amended returns,
declarations, reports, estimates, information returns and statements regarding
Taxes which are or were filed or required to be filed under applicable law,
whether on a consolidated, combined, unitary or individual basis.
"Taxes" shall mean any federal, state, local, foreign or other
tax, fee, levy, assessment or other governmental charge, including without
limitation any income, franchise, gross receipts, property, sales, use, hotel,
bed, services, value added, withholding, social security, estimated, accumulated
earnings, alternative or add-on minimum, transfer, license, privilege, payroll,
profits, capital stock, employment, unemployment, excise, severance, stamp,
occupancy, customs or occupation tax, and any interest, additions to tax and
penalties in connection therewith.
3.16 ABSENCE OF MATERIAL EVENTS. Since January 1, 1997 there has
not been (a) any material adverse change in the business, affairs or prospects
of the Company nor, to the best of the Company's knowledge, are any such changes
threatened, anticipated or contemplated; (b) any actual or, to the Company's
knowledge, threatened, anticipated or contemplated damage, destruction, loss,
conversion, termination, cancellation, default or taking by eminent domain or
other action by governmental authority which has materially affected or may
hereafter materially affect the properties, assets, business affairs or
prospects of the Company; (c) any material and adverse pending or, to the
Company's knowledge, threatened, anticipated or contemplated dispute of any kind
with any material customer, supplier, source of financing, employee, landlord,
subtenant or licensee of the Company, or any pending or, to the Company's
knowledge, threatened, anticipated or contemplated occurrence or situation of
any kind, nature or description which is reasonably likely to result in any
reduction in the amount, or any change in the terms or conditions, of business
with any material customer, supplier, or source of financing; or (d) any
pending, or to the Company's knowledge, threatened, anticipated or contemplated
occurrence or situation of any kind, nature or description materially and
adversely affecting the properties, assets, business, affairs or prospects of
the Company.
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3.17 ABSENCE OF IMPROPER PAYMENTS. Since January 1, 1994 the
Company: (a) has not made any contributions, payments or gifts of its property
to or for the private use of any governmental official, employee or agent where
either the payment or the purpose of such contribution, payments or gifts is
illegal under the laws of the United States, any state thereof or any other
jurisdiction (foreign or domestic); (b) has not established or maintained any
unrecorded fund or asset for any purpose, or has made any false or artificial
entries on its books or records for any reason; (c) has not made any payments to
any person where the Company intended or understood that any part of such
payment was to be used for any other purpose other than that described in the
documents supporting the payment; or (d) has not made any contribution, or has
reimbursed any political gift or contribution made by any other person, to
candidates for public office, whether federal, state or local, where such
contribution would be in violation of applicable law.
3.18 ERISA.
(a) None of the employee benefit plans maintained at any time by
the Company or the trusts (if any) forming part of such plans has engaged in a
prohibited transaction which could subject any such employee benefit plan or
trust to a material tax or penalty on prohibited transactions imposed under
Internal Revenue Code Section 4975 or ERISA.
(b) None of the employee benefit plans maintained at any time by
the Company which are employee pension benefit plans and which are subject to
Title IV of ERISA or the trusts that are part of such plans has been terminated
so as to result in a material liability of the Company under ERISA or the Code,
nor has any such employee benefit plan of the Company incurred any material
liability to the Pension Benefit Guaranty Corporation, other than for required
insurance premiums which have been paid or are not yet due and payable; neither
the Company nor any affiliate thereof has withdrawn, in either a complete or
partial withdrawal, from any multi-employer Plan resulting in any unpaid
withdrawal liability; the Company has made or provided for all contributions to
all such employee pension benefit plans which it maintains and which are
required by law or such plans as of the end of the most recent fiscal year under
each such plan; the Company has not incurred any accumulated funding deficiency
with respect to any such plan, subject to Section 412 of the Code, whether or
not waived; nor has there been any reportable event, or other event or
condition, which presents a material risk of termination of, or liability with
respect to, any such employee benefit plan by the Pension Benefit Guaranty
Corporation.
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(c) The benefit liabilities under the employee pension benefit
plans which are subject to Title IV of ERISA, maintained by the Company, do not
exceed the current value of the assets of such employee benefit plans allocable
to such benefits, determined under the actuarial methods and assumptions that
would apply if such plans were terminated in accordance with ERISA and the Code.
(d) To the best of the Company's knowledge, each employee benefit
plan maintained by the Company has been administered in accordance with its
terms in all material respects and is in compliance in all material respects
with all applicable requirements of ERISA (if applicable) and other applicable
laws, regulations and rules. Each employee benefit plan maintained by the
Company that is intended to be "qualified" under Section 401(a) of the Code has
received a favorable determination letter of the Internal Revenue Service, which
letter remains in effect, and nothing has occurred since the date of such
determination that could adversely affect the qualification of such plan.
(e) As used in this Agreement, the terms "employee benefit plan",
"employee pension benefit plan", "multi-employer plan", "accumulated funding
deficiency", "reportable event", "benefit liabilities", "withdrawn" (including
its correlative forms "complete withdrawal" and "partial withdrawal") and
"accrued benefits" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transactions" shall have the meaning assigned to it in
Code Section 4975 and ERISA. Employee benefit plans "maintained by the Company"
include any such plan maintained, established or contributed to at any time by
the Company or any entity affiliated with or under common control with the
Company.
(f) The Company has no liability not disclosed on any of the
Financial Statements, contingent or otherwise, under any plan or program or the
equivalent for unfunded post-retirement benefits, including pension, medical and
death benefits, which liability would have a material adverse effect on the
financial condition of the Company.
3.19 LABOR MATTERS. A true and complete list of all of the
Company's officers, employees (the "Employees") and consultants (the
"Consultants") and their respective salaries, wages, other compensation, dates
of employment, date and amount of last salary or compensation increase, and
positions has been provided to Provant by the Company. There are no material
disputes, employee grievances, or disciplinary actions pending or, to the
knowledge of the Company, threatened by or between the Company and any of the
Employees or Consultants. With respect to the Employees and Consultants, the
Company has complied in all respects with all provisions of all laws relating to
the employment of labor and has no liability for any arrears of wages
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or taxes or penalties for failure to comply with any such law or for any
severance or termination payments of any type. None of the Consultants are or
were (while classified by the Company as Consultants) employees of the Company
for any purpose whatsoever. No employees of the Company are or ever have been
represented by a bargaining representative with respect to the Company, and no
election or proceedings relating to the labor relations of the Company is
pending or, to the best of the Company's knowledge, threatened. The Company has
not had any material union activity or had any material labor disruption or
material dispute with its employees of any kind, nature or description at any
time heretofore. All personnel policies and manuals of the Company are listed on
the Company Disclosure Schedule and true and complete copies thereof have been
provided to Provant. No Employee or Consultant shall have the right to receive
from the Surviving Corporation or Provant a severance payment or other payment
in the nature thereof in the event his or her employment is terminated by the
Surviving Corporation following the Merger, whether such right arises as a
matter of contract, past policy or understanding, by operation of law, or
otherwise.
3.20 PERMITS: Compliance with Law. The Company possesses all
franchises, permits, licenses, certificates, approvals, and other authorizations
("Permits") necessary to own or lease and operate its properties and to conduct
its business as now conducted, except for incidental Permits that would be
readily obtainable without undue burden in the event of any lapse, termination,
cancellation, or forfeiture or that if not obtained would not materially and
adversely affect the Company's business. All such material Permits are in full
force and effect, and, to the knowledge of the Company, no suspension or
cancellation of any of them is threatened, and no material Permits will be
adversely affected by the consummation of the Merger. The Company has not failed
nor is it failing to comply with any applicable law, rule, regulation, or order,
where such failure would have a material adverse effect on the Company's
business, and there are no proceedings pending or, to the Company's knowledge,
threatened, nor has the Company received any notice, regarding any such failure.
3.21 ENVIRONMENTAL MATTERS. The Company is, and to the Company's
knowledge all real property owned or otherwise occupied by the Company is and
has been at all times when so owned or occupied, in material compliance with all
applicable existing federal, state and local laws and regulations relating to
protection of human health or the environment or imposing liability or standards
of conduct concerning any Hazardous Material (as hereinafter defined)
("Environmental Laws"), except, in each case, where such noncompliance, singly
or in the aggregate, would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company. No Hazardous
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Materials are stored, utilized or otherwise present on any property owned or
otherwise occupied by the Company, excepting only (x) cleaning supplies and
similar materials customarily used by businesses in the Company's industry in
quantities consistent with such use, and (y) petroleum products that are used
for heating (including water heating) in facilities located on such property,
none of which are stored in underground storage tanks, or that are present in
vehicles located on such property. The Company has not released, and has not
affirmatively consented to any release of, Hazardous Materials on, under or
affecting any real property during the period of the Company's ownership,
occupation or operation of such property (including its participation in or
exercise of any degree of control over the management of any business located on
such property). The term "Hazardous Material" means (a) any "hazardous
substance" as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended through the date hereof, (b) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act, as
amended through the date hereof, (c) any petroleum or petroleum product, (d) any
polychlorinated biphenyl and (e) any pollutant or contaminant or hazardous,
dangerous or toxic chemical, material, waste or substance regulated under or
within the meaning of any other Environmental Law as amended through the date
hereof. For purposes of this Section 3.21, real property owned by third parties
but "occupied" by the Company shall mean only that portion of such property as
is either leased by the Company or in fact is otherwise physically occupied or
utilized by the Company. To the knowledge of the Company, there is no alleged or
potential liability (including, without limitation, alleged or potential
liability for investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries or penalties) of
the Company arising out of, based on or resulting from any act or event that
constitutes a violation or alleged violation of any Environmental Law, which
alleged or potential liability (i) arises out of or relates to acts or events
occurring during the Company's possession or occupation of the applicable
property, and (ii) singly or in the aggregate, would have a material and adverse
effect on the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company.
3.22 FURTHER ASSURANCES. The Company will use all commercially
reasonable efforts to have all present officers and directors of the Company
execute whatever minutes of meetings or other instruments and take whatever
action as may be necessary or desirable to effect, perfect or confirm of record
of otherwise, in the Surviving Corporation, full right, title and interest in
and to the business, properties and assets now conducted or owned by the
Company, free and clear of all restrictions, liens, encumbrances, rights, title
and interests in others (excepting only liens reflected on the Balance Sheet),
or to collect, realize upon, gain possession of, or
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otherwise acquire full right, title and interest in and to such business,
properties and assets.
3.23 CORPORATE RECORDS. The corporate record books of the Company
are in all material respects in good order, complete, accurate, up to date, with
all necessary signatures, and set forth all meetings and actions taken by the
shareholders and directors, and all votes of the shareholders or directors set
forth in certificates furnished to anyone at any time heretofore conform in all
material respects to the votes contained in the record book of the Company.
3.24 CONDITION OF ASSETS. All premises, fixtures and equipment
owned or used by the Company and material to its business have been properly
maintained and are in good operating order and repair, free from known defects
in construction or design, sound and properly functioning (normal wear and tear
expected), usable and not obsolete, and (to the Company's knowledge in the case
of leased property) in material compliance with all applicable zoning, building
and fire codes and all other applicable laws, rules, regulations and
requirements of governmental authorities and the fire insurance rating
association having jurisdiction.
3.25 ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Company shown or reflected on the Balance Sheet in the Financial Statements,
less the reserve for doubtful accounts in the amount shown on the Balance Sheet,
are valid and enforceable claims and subject to no set off or counterclaim. All
of the accounts receivable of the Company shown or reflected on the Balance
Sheet and as at December 31, 1997 (as reflected on the Company's balance sheet
as of such date, when and as delivered to Provant) will be collected in full
within 150 days thereafter except to the extent of the reserve for doubtful
accounts shown on the Balance Sheet or posted on the books of the Company of
such date. The reserve for doubtful accounts as at December 31, 1997 will not be
in excess of said reserve as shown on the Balance Sheet. The Company has no
accounts or loans receivable from any of its directors, officers or employees.
3.26 CHARTER DOCUMENTS. The Company has heretofore delivered to
Provant copies of its Articles of Incorporation, as amended to date, certified
by the appropriate governmental authority, and copies of its by-laws, as amended
to date, and a list of the officers and directors of the Company in office, all
as certified by its Secretary.
3.27 DISCLOSURE OF ALL MATERIAL MATTERS.
(a) No statement of a material fact set forth in this Agreement
(including without limitation all information in the Financial Statements, the
Company
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Disclosure Schedule and the other Schedules, Exhibits and attachments hereto,
taken as a whole) with respect to the Company or its stockholders is false or
misleading, nor does this Agreement (including, without limitation all
information in the Financial Statements, Company Disclosure Schedule and the
other Schedules, Exhibits, and attachments hereto, taken as a whole) omit to
state a material fact necessary in order to make the statements made or
information disclosed, in the light of the circumstances under which they were
made or disclosed, not misleading.
(b) Provided only that Provant has accurately incorporated any
information furnished in writing by the Company to Provant specifically for
inclusion in the Registration Statement or the Prospectus (as applicable) and
has deleted from the Registration Statement or the Prospectus (as applicable)
any statement that the Company has specifically requested in writing be so
deleted, (i) at the time the Registration Statement becomes effective under the
Securities Act, it will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) at the time of each closing in
connection with the IPO, the Prospectus will not include an 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 in this Section shall
not apply to statements in or omissions from the Registration Statement and
Prospectus relating to any person or entity other than the Company and its
officers, directors and stockholders.
3.28 BROKERS. No broker, finder, or investment banker is entitled
to any brokerage, finder's, or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder represents and warrants to Provant and Acquisition
that, except as expressly provided in the Company Disclosure Schedule by
specific reference to a Section of this Article 4:
4.1 TITLE TO THE SHARES. All of the issued and outstanding Shares
purported to be owned by Stockholder as set forth on the Disclosure Schedule
pursuant to Section 3.2 are owned by the Stockholder free and clear of any
claims, liens, charges, encumbrances, security interests and rights of others
whatsoever, and such Shares are
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not bound by or subject to any proxy, agreement, voting trust or other
restriction regarding the voting thereof.
4.2 AUTHORITY. The Stockholder has full power, authority and capacity
to execute and deliver this Agreement and to consummate those transactions
contemplated hereby which pertain to him, and no other action is necessary by
the Stockholder to consummate such transactions. This Agreement has been duly
and validly executed and delivered by the Stockholder and constitutes a legal,
valid and binding obligation of the Stockholder enforceable against him in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting enforcement or creditors' rights generally.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Stockholder does not and will not (i) conflict with, result in
a breach of, constitute a default (or an event that might, with the passage of
time or the giving of notice or both, constitute a default) under, give rise to
any right to terminate, cancel or accelerate, give rise to any loss of benefit
under, or result in the creation of any lien, security interest or other
encumbrance under, any of the material terms, conditions, or provisions of any
indenture, mortgage, loan, or credit agreement or any other agreement or
instrument to which the Stockholder is a party or by which he or his assets may
be bound or affected; (iii) violate or constitute a material breach of any
decision, judgment, or order of any court or arbitration board or of any
governmental department, commission, board, agency, or instrumentality, domestic
or foreign, by which the Stockholder is bound or to which he is subject; or (iv)
violate any applicable law, rule, or regulation to which the Stockholder or any
of his property is bound.
5. REPRESENTATIONS AND WARRANTIES
OF PROVANT, ACQUISITION AND THE PROVANT PRINCIPALS
Provant, Acquisition and the Provant Principals represent and warrant
to the Company and the Company Stockholders (including the Stockholder) that,
except as expressly provided in the Provant Disclosure Schedule by specific
reference to a Section of this Article 5:
5.1 ORGANIZATION AND AUTHORITY. Each of Provant and Acquisition is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, and each has all requisite corporate power and
authority to conduct its business and own its properties as now conducted and
owned. Each of
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Provant and Acquisition is duly qualified or licensed and in good standing as a
foreign corporation, and has at all times when legally required been so
qualified or licensed and in good standing, in those states listed on the
Provant Disclosure Schedule, which are the only jurisdictions in which a failure
to be so qualified or licensed would, in the aggregate, have a material adverse
effect on the business of Provant or Acquisition, as applicable, or the nature
of the business conducted by it. Each of Provant and Acquisition has full power
and authority to execute and deliver this Agreement and the agreements being
executed and delivered in connection with the Additional Mergers and the IPO to
which it is a party, and to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement and the other agreements referenced above and the
consummation of the transactions contemplated hereby and thereby, and the
performance of Provant's and its subsidiaries' (including Acquisition's)
obligations hereunder and thereunder have been duly and validly authorized by
the unanimous votes of the respective Boards of Directors of Provant and such
subsidiaries (including Acquisition) and by Provant as the sole stockholder of
such subsidiaries (including Acquisition), and no other corporate proceedings on
the part of Provant or its subsidiaries (including Acquisition) are necessary to
authorize this Agreement or the other agreements referenced above or to
consummate the transactions contemplated hereby or thereby or to perform the
obligations of Provant and its subsidiaries (including Acquisition) hereunder or
thereunder. This Agreement has been duly and validly executed and delivered by
each of Provant and Acquisition and constitutes a valid and binding agreement of
each, enforceable against each in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting enforcement of creditors' rights
generally.
5.2 CAPITALIZATION OF PROVANT; SUBSIDIARIES. Provant has authorized
capital consisting of 10,000 shares of Provant Common Stock, $.01 per share par
value, of which no shares are held in Provant's treasury. As of the date hereof,
there are 3,417.9 issued and outstanding shares of Provant Common Stock, all of
which are duly authorized, validly issued, fully paid and non-assessable and are
owned of record and beneficially by those persons listed on the Provant
Disclosure Schedule. Provant has no other authorized class of capital stock
other than the Provant Common Stock. As of the date hereof and at all times
prior to the Effective Time, Provant does not (and will not) own and has not
owned any shares of capital stock or other securities of, or any other interest
in, nor does (or will) it control or has it controlled, directly or indirectly,
any other corporation, association, joint venture, partnership, or other
business organization, other than Acquisition and the subsidiaries intended to
be merged with the Additional Companies. All of the issued and outstanding
shares of capital stock of Acquisition, and of each subsidiary that will
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be merged with an Additional Company, are owned of record and beneficially by
Provant. All outstanding shares of Provant Common Stock have been issued and
sold in full compliance with all applicable federal and state securities laws.
No holder of outstanding shares of Provant Common Stock has any dissenting
shareholder or appraisal rights with regard to the Merger. There exist no voting
agreements, voting trusts or similar agreements governing the manner in which
any shares of Provant Common Stock are voted by the holders thereof.
5.3 NO RIGHTS TO PURCHASE OR REGISTER STOCK. Excepting only (a) the
shares of Provant Common Stock to be issued as Merger Shares and as merger
consideration in the Additional Mergers, (b) the shares of Provant Common Stock
to be sold in the IPO, and (c) the shares of Provant Common Stock to be issued
pursuant to Provant Options under the Plan, no person, firm, or corporation has
any written or oral agreement, option, warrant, call, understanding, commitment,
or any right or privilege capable of becoming a binding agreement, for either
the purchase of any shares of Provant Common Stock or the acquisition of shares
of any other class of capital stock of Provant, and Provant has not otherwise
agreed to issue or sell any shares of its capital stock and has no obligation to
register any shares of Provant Common Stock under the Securities Act. Provant is
not obligated directly, indirectly or contingently to purchase any shares of
Provant Common Stock. No person, firm, or corporation has any written or oral
agreement, option, warrant, call, understanding, commitment, or any right or
privilege capable of becoming a binding agreement, for the purchase or other
acquisition of any shares of capital stock of Acquisition or of any subsidiary
of Provant that will be merged with an Additional Company, and neither
Acquisition nor any such other subsidiary has otherwise agreed to issue or sell
any shares of its capital stock or to register any shares of its capital stock
under the Securities Act.
5.4 MERGER STOCK. The Merger Stock has been duly authorized by all
necessary corporate action and, when issued and delivered by Provant pursuant to
this Agreement, will be validly issued, fully paid and non-assessable.
5.5 CONSENTS AND APPROVALS; No Violation; No Known Impediments. Neither
the execution and delivery of this Agreement by Provant and Acquisition nor the
consummation of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective charter documents or
By-Laws of Provant or Acquisition, (ii) subject to the last sentence of this
Section 5.5, require on the part of Provant any consent, approval,
authorization, or permit of, or filing with or notification to, any governmental
or regulatory authority, except (A) filing the Certificate of Merger pursuant to
the VSCA and the DGCL and (B) any filings required under the Securities Act and
the securities or blue sky laws of the various
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states; (iii) conflict with, result in a breach of, constitute a default (or an
event that might, with the passage of time or the giving of notice or both,
constitute a default) under, give rise to any right to terminate, cancel or
accelerate, give rise to any loss of benefit under, or result in the creation of
any lien, security interest or other encumbrance under, any note, license,
lease, agreement, or other instrument or obligation to which Provant or
Acquisition is a party or by which Provant or Acquisition or any of their
respective assets may be bound, other than as previously disclosed in writing to
the Company; or (iv) violate or constitute a material breach of any order, writ,
injunction, decree, statute, law, rule, or regulation applicable to Provant or
Acquisition or any of their respective assets. Assuming no material change after
the date hereof in the condition of the capital markets or in the business or
financial condition of the Company or any of the Additional Companies and
assuming the Commission declares the Registration Statement effective in due
course, Provant has no knowledge of any matter (including without limitation any
law or regulation) that should reasonably be expected to prohibit the
consummation of the transactions contemplated hereby, the Additional Mergers or
the IPO. The representation and warranty contained in clause (ii) above is, with
respect to compliance with the HSR Act, made in reliance upon, and is expressly
conditioned upon, the accuracy of the representations and warranties of the
Company and the Stockholder made in the second sentence of Section 3.6.
5.6 OPERATIONS AND FINANCIAL CONDITION; ABSENCE OF UNDISCLOSED
LIABILITIES. Neither Provant nor Acquisition has conducted any material business
operations other than in connection with the Merger, the Additional Mergers and
the IPO or in preparation for operations to be conducted after the Effective
Time. Neither Provant nor Acquisition has any material tangible assets or
material liabilities or obligations of any nature, whether accrued, absolute,
contingent, or otherwise and whether due or to become due, including without
limitation liabilities that may become known or arise after the date hereof and
which relate to transactions entered into or any state of facts existing on or
before the date hereof and which would be required under generally accepted
accounting principles to be shown in a balance sheet or referenced in the notes
thereto prepared as of the date hereof, other than those properly incurred in
connection with the Merger, the Additional Mergers and the IPO or in connection
with Provant's preparation for future operations. Set forth on the Provant
Disclosure Schedule are all liabilities and obligations of Provant and
Acquisition (by type) that are as of the date hereof, or are expected to be as
of the Effective Time or the effective time of the IPO, in excess of $10,000.
5.7 LITIGATION. There are no actions, suits, causes of action, claims,
litigation, arbitration, administrative hearings or other form of proceedings or
disputes pending, or, to the best knowledge of Provant or Acquisition,
threatened, against, involving or
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affecting Provant or Acquisition, in any court, at law or in equity, or before
any arbitration board or any governmental department, commission, board, bureau,
agency, or instrumentality, that either singly or in the aggregate might prevent
Provant or Acquisition from consummating the transactions contemplated hereby,
the IPO or the Additional Mergers, or which would have a material adverse effect
on the business, operations, or financial condition of Provant and its
subsidiaries taken as a whole.
5.8 MATERIAL CONTRACTS. The Provant Disclosure Schedule lists all
material leases, contracts, instruments, agreements or commitments (whether
written or oral), other than the Additional Merger Agreements, relating to the
conduct of the business of Provant or its subsidiaries, including Acquisition
(the "Material Provant Contracts"). Without limiting the generality of the
foregoing, the aforesaid list includes all contracts, agreements and instruments
of the following types to which Provant its subsidiaries is a party or by which
any of them is bound:
(a) labor union contracts, together with a list of all labor unions
representing or, to Provant's knowledge, attempting to represent employees of
Provant;
(b) pension, retirement, deferred compensation, death benefit, profit
sharing, bonus or other employee incentive, fringe benefit, stock purchase,
stock option, hospitalization or insurance plans or arrangements (and grant
certificates or other documents issued thereunder) or vacation pay, severance
pay and other similar benefit arrangements for officers, employees or agents,
together with a list of all pensioned employees or obligations to provide any
pensions hereafter other than pursuant to the plans hereinbefore in this item
described;
(c) employment contracts or agreements, consulting agreements,
agreements providing for termination or severance benefits, non-competition
agreements, non-disclosure agreements, contracts for professional personal
services, contracts with other persons engaged in sales or distributing
activities, and advertising contracts;
(d) written or oral agreements, understandings and arrangements of any
kind with any officer, director, employee, shareholder or agent of Provant
relating to present or future compensation or other benefits available to such
person or otherwise, together with a list of the names and current annual salary
rates of all present officers and employees of Provant whose current salary rate
is $25,000 or more and any bonuses paid or payable to each such person for the
1996 fiscal year;
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(e) indentures, loan agreements, notes, security agreements, mortgages,
conditional sales contracts, leases of real or personal property, contracts for
the purchase or sale of real or personal property, and agreements for financing;
(f) property, casualty, crime, directors and officers, and other forms
of insurance;
(g) [reserved];
(h) agreements, contracts or other arrangements to which Provant is a
guarantor, surety or endorser;
(i) contracts, agreements, commitments, arrangements or understandings
providing for the purchase or sale of all or substantially all of Provant's
requisites of a particular product from a single supplier or to a single
customer;
(j) contracts, agreements, commitments, arrangements or understandings
which limit the freedom of Provant from competing in any line of business or
with any person or entity;
(k) license agreements (as licensor or licensee);
(l) leases of real and personal property with a term of more than one
year (regardless of whether the Company is lessor or lessee); and
(m) contracts, agreements, instruments, arrangements or understandings
which have not been included in items (a) through (l) above involving payment by
or to Provant or Acquisition of more than $50,000 or not terminable without
penalty or otherwise materially affecting the assets, financial condition,
properties or business of Provant or Acquisition.
All of the Material Provant Contracts are in full force and effect. Except to
the extent that a material adverse effect on Provant's financial condition,
assets, liabilities, earnings, business or prospects (each considered on a
consolidated basis giving effect to the Merger and the Additional Mergers) would
not result if the following were not true: (A) Provant, Acquisition and each
other party to each of the Material Provant Contracts have performed all the
obligations required to be performed by them to date, have received no notice of
default and are not in default (with due notice or lapse of time or both) under
any of the Material Provant Contracts; (B) Provant and Acquisition have no
present expectation or intention of not fully performing all of their respective
obligations under any of the Material Provant Contracts, and Provant
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and Acquisition have no knowledge of any breach or anticipated breach by any
other party to any of the Material Provant Contracts; (C) there exists no actual
or, to the knowledge of Provant and Acquisition, threatened termination,
cancellation or limitation of the business relationship of Provant or
Acquisition with any party to any Material Provant Contract; and (D)
consummation of the transactions contemplated hereby and performance by Provant
and Acquisition of their respective obligations hereunder shall not require the
consent or permission of any party to any Material Provant Contract or permit
any party to terminate, suspend or alter the terms of any Material Provant
Contract.
5.9 ADDITIONAL MERGER AGREEMENTS. The Provant Disclosure Schedule
sets forth, with respect to the Additional Merger Agreements, the material
economic terms of each such Agreement and any other material terms of each such
Agreement that differ substantially from the corresponding terms of this
Agreement.
5.10 DISCLOSURE OF ALL MATERIAL MATTERS. No statement of a material
fact made by Provant or Acquisition in this Agreement (including without
limitation all information in the Provant Disclosure Schedule and the other
Schedules, Exhibits and attachments hereto, taken as a whole) is false or
misleading, nor does this Agreement (including, without limitation all
information in the Provant Disclosure Schedule and the other Schedules, Exhibits
and attachments hereto, taken as a whole) omit to state a material fact
necessary in order to make the statements made or information disclosed, in the
light of the circumstances under which they were made or disclosed, not
misleading.
5.11 BROKERS. No broker, finder, or investment banker is entitled
to any brokerage, finder's, or other fee or commission in connection with the
Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Provant or Acquisition.
5.12 OBLIGATIONS TO OR FROM AFFILIATES.
(a) All material transactions between Provant and any stockholder,
officer or director of Provant or Acquisition, or any Affiliate of any
stockholder, officer or director of Provant or Acquisition, entered into on or
after January 1, 1993 have been conducted on an arm's-length basis on terms no
different than would be obtained if the transaction had been between the Provant
and an unrelated party. Except for matters disclosed on the Provant Disclosure
Schedule, there are no debts or other obligations of Provant or Acquisition to,
or to Provant or Acquisition from, any stockholder, officer or director, or any
Affiliate of a stockholder, officer or director of Provant.
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(b) The Provant Disclosure Schedule sets forth all information
that would be required to be provided under Item 404 of Regulation S-K of the
Commission under the Securities Act if a registration statement on Form S-1 were
filed by Provant with the Commission on the date hereof.
5.13 ABSENCE OF MATERIAL EVENTS. Since January 1, 1997 there has
not been (a) any material adverse change in the business, affairs or prospects
of Provant nor, to the best of Provant's knowledge, are any such changes
threatened, anticipated or contemplated; (b) any actual or, to Provant's
knowledge, threatened, anticipated or contemplated damage, destruction, loss,
conversion, termination, cancellation, default or taking by eminent domain or
other action by governmental authority which has materially affected or may
hereafter materially affect the properties, assets, business affairs or
prospects of Provant; (c) any material and adverse pending or, to Provant's
knowledge, threatened, anticipated or contemplated dispute of any kind with any
material customer, supplier, source of financing, employee, landlord, subtenant
or licensee of Provant, or any pending or, to Provant's knowledge, threatened,
anticipated or contemplated occurrence or situation of any kind, nature or
description which is reasonably likely to result in any reduction in the amount,
or any change in the terms or conditions, of business with any material
customer, supplier, or source of financing; or (d) any pending, or to Provant's
knowledge, threatened, anticipated or contemplated occurrence or situation of
any kind, nature or description materially and adversely affecting the
properties, assets, business, affairs or prospects of Provant.
5.14 ABSENCE OF IMPROPER PAYMENTS. Since January 1, 1994 Provant:
(a) has not made any contributions, payments or gifts of its property to or for
the private use of any governmental official, employee or agent where either the
payment or the purpose of such contribution, payments or gifts is illegal under
the laws of the United States, any state thereof or any other jurisdiction
(foreign or domestic); (b) has not established or maintained any unrecorded fund
or asset for any purpose, or has made any false or artificial entries on its
books or records for any reason; (c) has not made any payments to any person
where Provant intended or understood that any part of such payment was to be
used for any other purpose other than that described in the documents supporting
the payment; or (d) has not made any contribution, or has reimbursed any
political gift or contribution made by any other person, to candidates for
public office, whether federal, state or local, where such contribution would be
in violation of applicable law.
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6. COVENANTS
6.1 CONDUCT OF BUSINESS OF THE COMPANY.
(a) Except as contemplated by this Agreement, during the period from
the date of this Agreement to the Effective Time, the Company will conduct its
operations only in the ordinary and usual course of business and consistent with
past practice and will use all commercially reasonable efforts to preserve
intact its present business organization, keep available the services of its
present officers and employees, and preserve its relationships with customers,
suppliers, contractors, and others having business dealings with it to the end
that its goodwill and on-going business shall not be impaired at the Effective
Time.
(b) Without limiting the generality of subsection (a) and except as
otherwise expressly provided in this Agreement, before the Effective Time, the
Company will comply with all laws applicable to the conduct of its business and
continue in effect its present insurance coverage and, except with the prior
written consent of Provant, will not (i) issue, sell, or pledge, or authorize or
propose the issuance, sale, or pledge of (A) any shares of capital stock of any
class (including the Shares), or securities convertible into any such shares, or
any rights, warrants or options to acquire any such shares or other convertible
securities, excepting only pursuant to the exercise or conversion of Company
Options and other instruments or securities outstanding on the date hereof and
disclosed on the Company Disclosure Schedule which exercise or conversion and
which issuance are in accordance with the terms of such instruments or
securities as in effect on the date hereof, or (B) any other securities in
respect of, in lieu of, or in substitution for, Shares outstanding on the date
hereof; (ii) purchase or otherwise acquire, or propose to purchase or otherwise
acquire, any outstanding Shares; (iii) declare or pay any dividend or
distribution on any shares of its capital stock; (iv) authorize, recommend,
propose or announce an intention to authorize, recommend or propose, or enter
into an agreement in principle or an agreement with respect to, any change in
its capitalization, merger, consolidation or business combination (other than
the Merger), any acquisition of a material amount of assets or securities, any
disposition of a material amount of assets or securities, or any entry into a
material contract or any release or relinquishment of any material contract
rights, not in the ordinary course of business; (v) propose or adopt any
amendments to its Articles of Incorporation or By-Laws (other than as effected
by the Merger); (vi) incur, assume, or prepay any long-term debt or, except in
the ordinary course of business under existing lines of credit, incur or assume
any short term debt; (vii) make any loans, advances, or capital contributions
to, or investments in, any other person, other than travel or other advances to
employees consistent with past practice; (viii) assume, guarantee, endorse, or
otherwise become liable or responsible
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(whether directly, contingently, or otherwise) for the obligations of any other
person, except to endorse checks for collection or deposit in the ordinary
course of business; or (ix) agree in writing or otherwise to take any of the
foregoing actions or any action that would make any representation or warranty
in this Agreement untrue or incorrect as of the date hereof or as of the
Effective Time, as if made as of such time. Notwithstanding the foregoing
provisions of this Section 6.1(b), prior to the Effective Time the Company may
pay a cash dividend so long as doing so will not prevent the Company from
satisfying the Financial Condition (with any such dividend being accounted for
prior to the calculation of the Financial Condition).
6.2 NO SOLICITATION. The Company shall not, nor shall it permit any of
its officers, directors, employees, agents, or representatives (including,
without limitation, investment bankers, attorneys and accountants), directly or
indirectly to (a) initiate, contract with, solicit or encourage any inquiries or
proposals by, or (b) enter into any discussions or negotiations with, or
disclose directly or indirectly any information concerning its business and
properties to, or afford any access to its properties, books, and records to,
any corporation, partnership, person, or other entity or group in connection
with any possible proposal (an "Acquisition Proposal") regarding a sale of the
Company's capital stock or a merger, consolidation, or sale of all or a
substantial portion of the assets, or any similar transaction that is material
to the Company. The Company will notify Provant within three business days of
receipt if any discussions or negotiations are sought to be initiated, any
inquiry or proposal is made, or any such information is requested with respect
to an Acquisition Proposal or potential Acquisition Proposal or if any
Acquisition Proposal is received or indicated to be forthcoming. Such notice
shall state all substantive terms and conditions of any proposal or Acquisition
Proposal and the identity of the person making the proposal or Acquisition
Proposal or seeking to initiate discussions or negotiations or requesting
information.
6.3 ACCESS TO INFORMATION.
(a) From the date of this Agreement, the Company will give Provant and
the Underwriter and their respective representatives full access, at reasonable
times and with reasonable notice, to the offices and other facilities and to the
books and records of the Company, will permit Provant and the Underwriter and
their respective representatives to make such inspections as they may reasonably
require, and will cause its officers and representatives (including, without
limitation, its firm of certified public accountants) to furnish Provant and the
Underwriter and their respective representatives with such financial and
operating data and other information with respect to the business, operations,
assets, liabilities and prospects of the Company as Provant and the Underwriter
and their respective representatives
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may from time to time reasonably request. From the date of this Agreement,
Provant and Acquisition will give the Company full access, at reasonable times,
to the offices and other facilities and to the books and records of Provant and
Acquisition, will permit the Company and its representatives to make such
inspections as they may reasonably require, and will cause their respective
officers and representatives (including, without limitation, their firm of
certified public accountants) to furnish the Company and its representatives
with such financial and operating data and other information with respect to the
business, operations, assets and liabilities of Provant, Acquisition and the
Additional Companies (in the last case to the extent such information is in the
possession of Provant and the applicable Additional Company does not object to
disclosure) as the Company and its representatives may from time to time
reasonably request.
(b) Provant and Acquisition, on the one hand, and the Company, on the
other hand, will, and will cause their respective employees and agents
(including, in the case of Provant, the Underwriter and its employees and
agents) (collectively, "Representatives") to, hold in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the opinion
of its counsel, by other requirements of law, all Confidential Information (as
hereinafter defined) and will not disclose the same to any person. If this
Agreement is terminated, each party having received or created any documents
containing Confidential Information (including documents received or created by
its Representatives), will promptly return to the other party or destroy (or
cause to be returned or destroyed) all documents (including all copies thereof)
so received or created containing such Confidential Information. For purposes
hereof, "Confidential Information" shall mean all information of any kind
concerning the Company, or concerning any of Provant, Acquisition or any
Additional Company, respectively, except information (i) ascertainable or
obtained from public or published information, (ii) received from a third party
not known to Provant, Acquisition or their Representatives, or to the Company or
its Representatives, as applicable, to be under an obligation to the Company or
Provant, as applicable, to keep such information confidential, (iii) that is or
becomes known to the public (other than through a breach of this Agreement),
(iv) that was in the receiving party's possession before disclosure thereof to
it in connection with this Agreement, or (v) that is independently developed by
Provant or by the Company (including their respective Representatives), as
applicable.
6.4 REASONABLE BEST EFFORTS; SHAREHOLDER APPROVAL.
(a) Subject to the terms and conditions hereof, each party to this
Agreement agrees to fully cooperate in all reasonable respects with the others
and the others' counsel, accountants and representatives in connection with any
steps required to be
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taken as part of its obligations under this Agreement and in connection with the
IPO. Each of the Company, Provant and Acquisition agrees that it will use its
reasonable best efforts to cause all conditions to its obligations under this
Agreement to be satisfied as promptly as possible, and will not undertake a
course of action inconsistent with this Agreement or which would make any of its
representations, warranties, agreements or covenants in this Agreement untrue in
any material respect or any conditions precedent to its obligations under this
Agreement unable to be satisfied at or prior to the Closing. Each of the Provant
Principals hereby covenants and agrees that, subject to the satisfaction (or, in
Provant's sole discretion, waiver) of the conditions set forth in Section 7.1,
he will cause Provant to calculate the Financial Condition in good faith and
cause Provant, Acquisition or Provant's counsel, as applicable, to execute
and/or deliver each of the items identified in subsections 7.2(f), (i), (j) and
(l) and to take the action described in subsection 7.2(k).
(b) Without limiting the foregoing, the Company will promptly and duly
call (and the Stockholder will cause the Company to so call) a special meeting
of its stockholders for the purpose of voting on the Merger and this Agreement.
The Board of Directors of the Company and the Stockholder shall give their
respective unqualified recommendations to the stockholders of the Company that
such stockholders approve the Merger and this Agreement, and the Company and the
Stockholder will otherwise use their reasonable best efforts to obtain
stockholder approval.
6.5 CONSENTS. Each of Provant, Acquisition and the Company will use
reasonable efforts to obtain as promptly as practicable such consents of third
parties to agreements that would otherwise be violated by any provisions hereof
and to make such filings with governmental authorities as are necessary to
consummate the transactions contemplated by this Agreement.
6.6 PUBLIC ANNOUNCEMENTS. Except as provided in the immediately
following sentence, all public announcements, notices or other communications
regarding this Agreement and the transactions contemplated hereby to third
parties other than the parties hereto and their respective advisors and the
shareholders of the Company shall require the prior approval of Provant and of
the Company. Notwithstanding the foregoing, neither the filing of the
Registration Statement (or any other document filed with any public official in
connection with the IPO), nor the distribution of the Prospectus (whether in
preliminary or final form), nor any selling activity conducted by Provant or the
Underwriter in connection with the IPO, including without limitation those
conducted as part of the so-called road show, shall be construed to be public
announcements, notices or other communications requiring the prior approval of
the Company.
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6.7 NOTIFICATION OF CERTAIN MATTERS. Each of the parties (the
"Notifying Party") shall give prompt notice to the other parties of (i) the
occurrence or non-occurrence of any event that would be likely to cause any
representation or warranty of the Notifying Party contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time and (ii) any material failure of the Notifying Party to comply with or
satisfy any covenant, condition, or agreement to be complied with or satisfied
by it hereunder. Without limiting the foregoing, from time to time prior to the
Closing the Company will promptly supplement or amend the Company Disclosure
Schedule and Provant will promptly supplement or amend the Provant Disclosure
Schedule, in each case both to correct any inaccuracy in, respectively, the
Company Disclosure Schedule or the Provant Disclosure Schedule when delivered
and to reflect any development which, if existing at the date of this Agreement,
would have been required to be set forth in the applicable party's Disclosure
Schedule or which has rendered inaccurate the information contained in such
Disclosure Schedule (each notice furnishing such information being called, as
applicable a "Company Disclosure Supplement" or a "Provant Disclosure
Supplement"), and approximately six business days prior to the Closing the
Company will deliver to Provant a final Company Disclosure Supplement and
Provant will deliver to the Company a final Provant Disclosure Supplement
consisting of a complete update of, respectively, the Company Disclosure
Schedule or the Provant Disclosure Schedule as though all representations and
warranties contained in Article 3 hereof and Article 5 hereof were to be made as
of the date of the Closing. In addition, the Company shall promptly notify
Provant in writing if at any time prior to a closing in connection with the IPO
it shall obtain knowledge of any facts relating to the Company or its officers,
directors or stockholders that might make it necessary or appropriate to amend
or supplement the Prospectus in order to make the statements contained therein
not misleading or comply with applicable law. The delivery of any Company
Disclosure Supplement, and Provant Disclosure Supplement or other notice
pursuant to this Section 6.7 shall not render correct any representation or
warranty that was incorrect when made or limit or otherwise affect the remedies
available hereunder to the party receiving such Company Disclosure Supplement,
Provant Disclosure Supplement or notice.
6.8 COVENANTS OF THE STOCKHOLDER. Subject to the last sentence of this
Section 6.8, the Stockholder hereby covenants and agrees with Provant and
Acquisition that he shall:
(a) take no action which the Company may not take pursuant to
Section 6.2;
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(b) take action and refrain from action to the extent required of the
Company pursuant to Section 6.4;
(c) vote, or cause to be voted, all of his Shares for the approval of
each aspect of this Agreement (including the Merger) requiring the approval of
the stockholders of the Company, and against the approval of any other agreement
providing for a merger, consolidation, sale of assets or other business
combination of the Company with any person or entity other than Provant or an
entity controlled by Provant;
(d) cause the Company to provide to Provant the notifications required
of the Company under Section 6.7;
(e) execute and deliver at the Closing the Employment Contract, the
Non-Competition and Non-Disclosure Agreement and the Investment Letter;
(f) subject to the other terms of this Agreement, (i) use all
commercially reasonable to take whatever action may be reasonably necessary or
desirable to effect, perform or confirm of record or otherwise in the Surviving
Corporation full right, title and interest in and to the business, properties
and assets now conducted or owned by the Company, free and clear of all
restrictions, liens, encumbrances, rights, title and interests in others
(excepting only liens reflected on the Balance Sheet or otherwise disclosed on
the Disclosure Schedule) or to collect, realize upon, gain possession of, or
otherwise acquire, full right, title and interest in and to such business,
properties and assets; (ii) use his reasonable best efforts to take whatever
action may be reasonably necessary or desirable carry out the intent and
purposes of the transactions contemplated hereby and to permit Provant to
undertake and complete the IPO;
(g) notify Provant in writing if at any time prior to a closing in
connection with the IPO he shall obtain actual knowledge of any facts relating
to the Company or its officers, directors, or stockholders that might make it
necessary or appropriate to amend or supplement the Prospectus used in the
registration statement filed in connection with the IPO in order to make the
statements contained therein not misleading or comply with applicable law (with
the delivery of any notice pursuant to this Section 6.8(g) not limiting or
otherwise affecting the remedies available hereunder to the party receiving such
notice);
(h) execute and deliver such other instruments and take such other
actions as may be reasonably required by the Company or the Underwriter in order
to carry out the intent of this Agreement and to complete and close the IPO,
subject to the other terms of this Agreement; and
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(i) satisfy (or cause to be satisfied) prior to the Effective Time any
indebtedness to the Company owed by the Stockholder or by any Affiliate of the
Stockholder (other than an Affiliate that is a subsidiary of the Company);
PROVIDED that such indebtedness (up to the amount of cash that the Stockholder
will receive pursuant to Section 2.7) may be satisfied as of the Effective Time
with cash to be so received by the Stockholder, and the Stockholder hereby
authorizes Provant to offset any such indebtedness not repaid prior to the
Effective Time against cash payable to or for the account of the Stockholder
pursuant to Section 2.7.
The Stockholder's obligations under subsections (b), (d) and (f) of this Section
6.8 shall be limited to exercising such power as he possesses as an officer,
director and stockholder of the Company, and in no event (i) shall the
Stockholder be liable pursuant to such provisions for any failure of any action
to be taken that is not within the Stockholder's power, in the aforesaid
capacities, to cause to be performed, or (ii) shall the Stockholder be required
to expend any personal funds in furtherance of such obligations.
6.9 TAX FREE REORGANIZATION. From and after the Effective Time,
neither Provant nor the Surviving Corporation shall take or suffer to be taken
any action which will cause the Merger not to constitute a reorganization within
the meaning of Section 368(a)(2)(D) of the Code.
6.10 MONTHLY FINANCIAL INFORMATION. Within thirty days after the end of
each month ending after the date of this Agreement and prior to the Effective
Time, the Company will furnish to Provant internally prepared financial
statements comparable to the Financial Statements prepared in a manner
consistent with the Financial Statements and certified by the chief financial
officer of the Company.
6.11 PROVANT OPTION PLAN. Prior to the Effective Time, Provant shall
adopt an employee stock option plan (the "Plan") providing for the granting of
Provant Options from time to time as provided in the Plan. The Plan shall make
available for grant at or before the Closing, and the Board of Directors of
Provant shall so grant, Provant Options with respect to a number of shares of
Provant Common Stock equal to 5.0% of the shares of Provant Common Stock
outstanding as of immediately following the Closing of the Merger, the
Additional Mergers (excluding any Additional Merger that is terminated without
consummation) and the IPO, giving effect to the issuance of all shares of Merger
Stock issuable as of Closing, all shares of Provant Common Stock issuable as of
the Closing as merger consideration in each of the Additional Mergers, and the
issuance of Provant Common Stock in the IPO. The Provant Options granted as of
such time shall have an exercise price equal to the IPO Price, shall by their
terms (i) become exercisable ratably over a period of three years (provided that
the
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holder remains employed by Provant or one of its affiliates and subject to
accelerated vesting in the event of a change in control of Provant), (ii) have a
term of seven years, and (iii) in the case of vested options, remain exercisable
for a period of one year following any termination of employment without cause
(including termination resulting from the expiration of any employment agreement
in accordance with its terms) and for a period of ten business days following
any termination of employment for cause (conditioned, in the latter case, upon
the terminated employee's delivery of a general release to the Surviving
Corporation, Provant and their respective affiliates), and shall have such other
terms as the Board of Directors of Provant may determine. The Provant Options
granted as of such time shall be allocated among the employees of, respectively,
the Surviving Corporation and the surviving corporations of the Additional
Mergers in accordance with Schedule 6.11 hereto, and shall be granted to
individual employees of such corporations in accordance with directions to the
Board of Directors of Provant given by the executive officers of the Company and
the Additional Companies absent a good faith determination by the Board of
Directors of Provant that such a direction is manifestly contrary to the
interests of the Surviving Corporation.
6.12 COVENANTS OF PROVANT. Subject to the consummation of the Merger,
Provant hereby covenants and agrees with the Stockholder as follows:
(a) In the event that, prior to the Effective Time, a Company
Stockholder shall give written notice to Provant of a statement contained in the
Registration Statement that, in such Company Stockholder's opinion, is false or
misleading, or that the Registration Statement omits to state a fact necessary
to make the statements contained therein not false or misleading, and if Provant
fails to amend the Registration Statement to address such statement or omission
to the reasonable satisfaction of such Company Stockholder, then Provant hereby
agrees to indemnify such Company Stockholder against any loss or damage
(including reasonable attorneys' fees) suffered by such Company Stockholder as a
consequence of any claim brought against such Company Stockholder by any third
party on the basis of the statement or omission of which such Company
Stockholder gave notice.
(b) Each of Provant and Acquisition will use all commercially
reasonable efforts to obtain the release, at or immediately following the
Effective Time, of all contractual guarantees by the Stockholder of loans,
leases and similar obligations of the Company, provided only that such loans,
leases and other obligations are disclosed on the Company Disclosure Schedule
and are reflected on the Balance Sheet and in the computation of Closing Net
Worth to the extent required under generally accepted accounting principles to
be so reflected. Provant covenants that it will either (i) take steps to ensure,
to the Stockholder's reasonable satisfaction, that each such
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loan and similar credit obligation guaranteed by the Stockholder will be
satisfied and permanently discharged promptly following the Effective Time, or
(ii) obtain and deliver to the Stockholder at or before the Closing the written
assurance from the guaranteed party with respect to each such loan and similar
credit obligation guaranteed by the Stockholder to the effect that, upon or
immediately following the Effective Time, the Stockholder will be released from
the applicable contractual guaranty. Provant further covenants that it will
indemnify the Stockholder against any loss (including reasonable attorneys'
fees) in connection with any such guaranty by the Stockholder of a loan, lease
and similar obligation that has been so disclosed and, if applicable, reflected.
7. CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO THE OBLIGATIONS OF PROVANT AND ACQUISITION. The
obligations of Provant and Acquisition to consummate the Merger are subject to
the satisfaction at the Closing, or waiver by Provant in writing, in whole or in
part, of each of the following conditions:
(a) The IPO and each of the Additional Mergers shall have been
completed at the same time.
(b) The Financial Condition shall have has been satisfied.
(c) Each of the representations, warranties, agreements and covenants
of the Company and the Stockholder (giving effect to the Company Disclosure
Schedule, but not to any Company Disclosure Supplement) shall be true and
correct as of, and shall not have been violated in any respect at, the Closing
as though made on and as of the Closing, except for (i) representations,
warranties, agreements and covenants which make reference to a specific date
(including the date of this Agreement), which need only be true and correct as
of the specified date, and (ii) failures of representations or warranties to be
true and correct as of the Closing solely on account of matters arising between
the date hereof and the Effective Time in the ordinary course of the Company's
business, if and to the extent such matters are consistent with past practice of
the Company and are not materially adverse to the Company, either singly or in
the aggregate; the Company and the Stockholder shall, on or before the Closing,
have performed all of their respective obligations under this Agreement which by
the terms hereof are to be performed on or before the Closing; and there shall
have delivered to Provant and Acquisition a certificate signed by the President
of the Company on behalf of and in the name of the Company and by the
Stockholder dated as of the date of the Closing to the foregoing effect.
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(d) The Merger and this Agreement shall have been approved by the
requisite vote of the stockholders of the Company, and not more than 5.0% of the
Shares shall constitute Dissenting Shares.
(e) No action or proceeding by or before any court or other
governmental body shall have been instituted by any governmental body or other
person or entity or threatened in writing by any governmental body which seeks
to restrain, prohibit or invalidate the transactions contemplated by this
Agreement or which would materially adversely affect the right of the Surviving
Corporation, as a subsidiary of Provant, to conduct the business of the Company
as presently conducted by the Company or which claims damages from Provant with
respect to the transactions contemplated hereby.
(f) Provant and Acquisition shall have received the opinion of counsel
to the Company, dated the date of the Closing and in form and substance
reasonably satisfactory to Provant and its counsel, substantially to the effect
set forth on Exhibit 7 (subject to qualifications and assumptions customary in
transactions such as the Merger), which opinion provides that it may be relied
upon by the Underwriter.
(g) All proceedings taken by the Company and all instruments executed
and delivered by the Company prior to the date of the Closing in connection with
the transactions herein contemplated shall be satisfactory in form and substance
to counsel for Provant acting reasonably.
(h) No statute, rule or regulation shall have been enacted or
promulgated which makes illegal or prohibits consummation of the transactions
contemplated hereby or which materially and adversely affects the ability of the
Surviving Corporation, as a subsidiary of Provant, to conduct the business of
the Company as presently conducted by the Company.
(i) The Stockholder shall have executed and delivered to Provant the
Employment Contract, the Non-Competition and Non-Disclosure Agreement, and his
Investment Letter.
(j) The Company shall have delivered to Provant and Acquisition a
certificate of its Secretary certifying as to requisite corporate or other
action authorizing the transactions contemplated by this Agreement, the
incumbency of officers and directors, and the status of record ownership of the
Shares.
(k) The Company shall have delivered to Provant such other
certificates, documents and consents as Provant and its counsel shall reasonably
require.
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7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDER.
The obligation of the Company and the Stockholder to consummate this Agreement
is subject to the satisfaction at the Closing, or waiver by the Company in
writing, in whole or in part, of each of the following conditions:
(a) The IPO shall have been completed at the same time, and appropriate
measures shall have been adopted and shall be in place to ensure that the
stockholders of the Company entitled to receive Cash Consideration shall receive
such Cash Consideration out of the proceeds of the IPO.
(b) Each of the Additional Mergers shall have been completed at the
same time as the Merger, and there shall have occurred no event (or series of
events, whether or not related) with respect to any Additional Company that (i)
constitutes a failure of a closing condition set forth in the applicable
Additional Merger Agreement such that, in the reasonable judgment of Provant,
Provant is not contractually obligated to consummate the applicable Additional
Merger, and (ii) has resulted in a material adverse change between the date
hereof and the date of the Closing in the financial condition, assets,
liabilities, earnings, business, or business prospects of the applicable
Additional Company.
(c) Each of the representations, warranties and agreements of Provant,
Acquisition and the Provant Principals (giving effect to the Provant Disclosure
Schedule but not to any Provant Disclosure Supplement) shall be true and correct
as of, and shall not have been violated in any respect at, the Closing (without
giving effect to the Merger or the Additional Mergers) as though made on and as
of the Closing except for (i) representations and warranties and agreements
which make reference to a specific date (including the date of this Agreement),
which need only be true and correct as of the specified date, and (ii) failures
of representations or warranties to be true and correct as of the Closing solely
on account of matters arising between the date hereof and the Effective Time in
the ordinary course of Provant's or Acquisition's business, if and to the extent
such matters are not materially adverse to Provant (considered on a consolidated
basis giving effect to the Merger and the Additional Mergers), either singly or
in the aggregate; Provant, Acquisition and the Provant Principals shall, on or
before the Closing, have performed all of their respective obligations under
this Agreement which by the terms hereof are to be performed on or before the
Closing (including without limitation the adoption of the Plan and the grant of
Provant Options to persons who will be employees of the Surviving Corporation in
accordance with Schedule 6.11); and there shall have been delivered to the
Company a certificate signed by the respective Presidents of Provant and
Acquisition on the behalf of and in the name of, respectively, Provant and
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Acquisition, and by each of the Provant Principals, dated as of the date of the
Closing to the foregoing effect.
(d) No action or proceeding by or before any court or other
governmental body shall have been instituted by any governmental body or other
person or entity or threatened in writing by any governmental body which seeks
to restrain, prohibit or invalidate the transactions contemplated by this
Agreement or which would materially adversely affect the right of the Company to
consummate the Merger.
(e) The Merger and this Agreement shall have been approved by the
requisite vote of the stockholders of the Company.
(f) The Company shall have received the opinion, dated the date of the
Closing and in form and substance satisfactory to the Company and its counsel,
of Messrs. Nutter, McClennen & Fish, counsel to Provant, substantially to the
effect set forth on Exhibit 8 (subject to qualifications and assumptions
customary in transactions such as the Merger).
(g) All proceedings taken by Provant and Acquisition and all
instruments executed and delivered by Provant and Acquisition prior to the date
of the Closing in connection with the transactions herein contemplated, and any
instruments to be executed by the Stockholder at the request of Provant, shall
be satisfactory in form and substance to counsel for the Company, acting
reasonably.
(h) No statute, rule or regulation shall have been enacted or
promulgated which makes illegal or prohibits consummation of the transactions
contemplated hereby or which materially and adversely affects the ability of the
Surviving Corporation, as a subsidiary of Provant, to conduct the business of
the Company as presently conducted by the Company.
(i) Provant and Acquisition shall have delivered to the Company a
certificate of its Secretary, certifying as to requisite corporate or other
action authorizing the transactions contemplated by this Agreement.
(j) The Surviving Corporation shall have executed and delivered the
Employment Contract to the Stockholder.
(k) The individual listed on Schedule 7.2A as the designee of the
Company shall have been elected to the Board of Directors of Provant as of
immediately following the closing of the IPO.
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(l) Provant, Acquisition and the Provant Principals shall have
delivered to the Company such other certificates and documents pertaining to the
Merger (including the legal existence and good standing of Provant and
Acquisition) as the Company and its counsel shall reasonably require.
8. RESTRICTIONS ON SALE OR TRANSFER OF MERGER STOCK
8.1 RESTRICTIONS ON SALE. The shares of Merger Stock will not have been
registered under the Securities Act or the blue sky laws of any state by reason
of their contemplated issuance in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act and of such state laws.
Such shares may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act and such state laws or an exemption
therefrom, or in contravention of the restrictions contained in the Investment
Letter attached hereto as Exhibit 4.
8.2 REGISTRATION ON A PARI PASSU BASIS. Provant agrees that, in the
event that at any time after the closing of the IPO it conducts a public
offering of Common Stock registered under the Act and Provant and its
underwriter determine, in their sole discretion, to permit (i) any holder of
Merger Stock, (ii) any holder of Provant Common Stock issued as merger
consideration in any of the Additional Mergers, or (iii) any Provant Principal
to sell Provant Common Stock in such offering, then Provant shall permit each
holder of Merger Stock to sell shares of such Merger Stock in such offering in
the same proportion as the person referenced in any of clauses (i) through (iii)
above who is then being permitted to sell the highest proportion of his or her
shares of Provant Common Stock (all such proportions being based on the
respective number of shares of Provant Common Stock that each applicable person
then holds); PROVIDED, HOWEVER, that the foregoing right shall not apply to
shares that are no longer subject to the two-year restriction period under the
Investment Letter and that are tradeable either without regard to Rule 144
promulgated under the Act or tradeable within a 90 day period under such Rule
144. For purposes of the foregoing, an agreement granting a person a right to
have shares registered in the future shall not be construed as "permitting" such
person to sell shares in an offering until such time as such right is properly
exercised under the terms of such agreement.
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9. INDEMNIFICATION
9.1 AGREEMENTS TO INDEMNIFY.
(a) As used in this Article 9:
(i) "Damages" means claims, damages, liabilities,
losses, judgments, settlements, and expenses, including,
without limitation, all reasonable fees and disbursements of
counsel incident to the investigation or defense of any claim
or proceeding or threatened claim or proceeding.
(ii) "Provant Indemnified Party" means, collectively,
each of Provant (including in its capacity as the Surviving
Corporation) and its affiliates.
(iii) "Company Indemnified Party" means, after the
Effective Time, the former stockholders of the Company
collectively.
(iv) "Indemnified Party" means either of the Provant
Indemnified Party or the Company Indemnified Party, as
applicable under the circumstances.
(b) On the terms and subject to the limitations set forth in this
Agreement, the Company, prior to the Effective Time, shall, and, after the
Effective Time, the Stockholder shall indemnify, defend, and hold the Provant
Indemnified Party harmless from, against and in respect of any and all Damages
incurred by any Provant Indemnified Party arising from or in connection with any
of the following (collectively referred to herein as "Claims"):
(i) any actual or alleged breach of any representation,
warranty, covenant or agreement made by the Company or by the
Stockholder in this Agreement or in any exhibit, schedule,
certificate or other document delivered or to be delivered at
the Closing by or on behalf of the Company or the Stockholder
pursuant to the terms of this Agreement or otherwise referred
to or incorporated in this Agreement; and
(ii) those matters identified on Schedule 9.1.
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(c) In addition to the foregoing, and solely in the event the Merger
shall be consummated, the Stockholder shall indemnify Provant as set forth in
the immediately following sentence from any failure by the Company to have a
Closing Net Worth equal to or greater than the Minimum Net Worth. In the event
the Closing Net Worth shall be less than the Minimum Net Worth (and Provant
shall have elected, in its sole discretion, to waive the failure of the closing
condition set forth in Section 7.1(b) caused thereby), the Stockholder shall
reimburse Provant at the Closing for the amount of such deficit on a dollar for
dollar basis. Such reimbursement shall be the sole remedy of Provant on account
of a failure of the Closing Net Worth to equal or exceed the Minimum Net Worth
(other than Provant's right to terminate this Agreement), and neither the
Company nor the Stockholder shall be liable for any consequential damages on
account of any such failure. Any indemnity and reimbursement required by this
Section 9.1(c) shall not be subject to Section 9.2(c).
(d) From and after the Effective Time and solely if the Merger shall
have been consummated, on the terms and subject to the limitations set forth in
this Agreement, Provant and each of the Provant Principals shall indemnify,
defend, and hold the Company Indemnified Party harmless from, against and in
respect of any and all Damages incurred by any Company Indemnified Party arising
from or in connection with any actual or alleged breach of any representation,
warranty, covenant or agreement made by Provant, Acquisition or the Provant
Principals in this Agreement or in any exhibit, schedule, certificate or other
document delivered or to be delivered at the Closing by or on behalf of Provant,
Acquisition or the Provant Principals pursuant to the terms of this Agreement or
otherwise referred to or incorporated in this Agreement (also referred to herein
as "Claims"); PROVIDED, HOWEVER, that this provision shall not be construed to
provide to the Company Indemnified Party any indemnification with respect to the
Registration Statement and the information contained therein, or with respect to
any failure of the IPO to be consummated.
(e) Subject to Section 9.2, the Company's and the Stockholder's
representations and warranties set forth in Article 3, the Stockholder's
representations and warranties set forth in Article 4, and Provant's,
Acquisition's and the Provant Principals' representations and warranties set
forth in Article 5 shall, for purposes of this Article 9, be deemed to have
survived the Effective Time and the Closing of the Merger and the other
transactions contemplated hereby notwithstanding any contrary terms of this
Agreement, and whenever such representations, warranties, covenants and
agreements are referred to in this Article 9, the text of the same as set forth
in the aforesaid Articles shall be deemed to be set forth in their entirety
herein, and the same are hereby incorporated herein by such references. Each
representation,
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warranty, covenant and agreement of the Company and the Stockholder shall be
deemed to have been relied upon by the Provant Indemnified Party, and each
representation, warranty, covenant and agreement of Provant, Acquisition and the
Provant Principals shall be deemed to have been relied upon by the Company
Indemnified Party, notwithstanding any investigation or inspection made by or on
behalf of any Provant Indemnified Party or the Company Indemnified Party, as
applicable, and shall not be affected in any respect of any such investigation
or inspection. No waiver of a closing condition by an Indemnified Party shall be
deemed to relieve a party that is otherwise obligated to provide indemnification
of its obligations pursuant to this Section 9.1 on account of the matters that
were the subject of such waiver.
(f) In addition to and not in limitation of the rights and remedies of
Provant under this Section 9.1, and provided that Provant has given to the
Stockholder the notice required by Section 9.3 or 9.5, as applicable, Provant
may withhold from any shares of Provant Common Stock issuable and all amounts
payable under Section 2.8 the amount of any Damages of Provant arising out of or
in connection with Claims asserted hereunder (as estimated in good faith by
Provant in the event such Damages are not yet fixed, subject to future release
if appropriate upon final resolution of the applicable Claim). For purposes of
this subsection (f), shares of Provant Common Stock otherwise issuable under
Section 2.8 shall be valued at the lower of (i) the closing price for a share of
Provant Common Stock on the last trading day immediately preceding the date
Provant gives notice that it has a Claim under this Article 9 and (ii) the IPO
Price adjusted as provided in Section 2.8(g).
(g) In the event the Stockholder shall indemnify the Provant
Indemnified Party for any breach of the warranties contained in Section 3.25 on
account of a failure of accounts receivable of the Company to be collected, the
Surviving Corporation shall assign to the Stockholder those accounts receivable
as to which such indemnity has been paid.
9.2 LIMITATIONS ON INDEMNITY OBLIGATIONS. The indemnity obligations of
the Company or the Stockholder, as applicable (in either case, the "Company
Indemnifying Party"), or Provant and the Provant Principals (collectively, the
"Provant Indemnifying Party") (both the Company Indemnifying Party and the
Provant Indemnifying Party being called generically the "Indemnifying Party"),
under this Agreement shall be subject to the following limitations:
(a) The indemnity obligations of the Indemnifying Party shall expire on
September 15, 1999 (the "Cut-off Date"); provided, however, that such
obligations with respect to (i) the representations and warranties contained in
Sections 3.1, 3.2, 3.10,
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and 3.22, Article 4, and Sections 5.1, 5.2, 5.3 and 5.4 of this Agreement and
the matters identified on Schedule 9.1 and in Section 9.1(c) shall continue
forever without limitation, and (ii) the representations and warranties
regarding taxes, which are contained in Section 3.15, shall remain in effect
until all claims for taxes due by or on account of the Company for any period up
to and including the Effective Time have been settled and any statute of
limitations period with respect to such taxes has expired; and provided further
that the indemnity obligations of the Indemnifying Party for Claims timely
asserted by an Indemnified Party before the expiration of the applicable
indemnity period, if any, in the manner provided in this Agreement shall
continue until such Claims are finally resolved and discharged.
(b) (i) Subject to the maximum aggregate amounts provided elsewhere in
this Subsection 9.2(b) with respect to the Stockholder's indemnity obligations,
in the event of any Damages for which the Stockholder is liable pursuant to
Section 9.1, the Stockholder shall be liable solely for a fraction of each
dollar of Damages suffered equal to the fraction derived by dividing the number
of Shares held by the Stockholder as of the date hereof by the total number of
Shares outstanding on a fully diluted basis. Subject to subsection (b)(ii)
below, the aggregate indemnity obligations of the Stockholder for any Damages
arising out of Claims the operative facts of which were actually known to the
Stockholder as of the date of this Agreement ("Known Claims") shall not in any
event exceed an amount equal to the sum of (A) the cash to which the Stockholder
becomes entitled pursuant to Section 2.7 or 2.8, plus (B) the product of the
total number of shares of Provant Common Stock to which the Stockholder becomes
entitled pursuant to Section 2.7 or 2.8, multiplied by the IPO Price, minus (C)
any amounts paid pursuant to Section 9.1 by the Stockholder with respect to
Claims that are not Known Claims. Subject to subsection (b)(ii) below, the
aggregate indemnity obligations of the Stockholder for any Damages arising out
of Claims that do not constitute Known Claims shall not in any event exceed Five
Million Dollars ($5,000,000). The aggregate indemnity obligations of the Provant
Principals for any Damages shall not in any event exceed an amount equal to (X)
the aggregate number of shares of Provant Common Stock held by the Provant
Principals as of immediately following the closing of the IPO plus the aggregate
number of warrant shares covered by those certain warrants for the purchase of
Provant Common Stock issued to the Provant Principals as of the closing of the
IPO, multiplied by (Y) the IPO Price, minus (Z) the aggregate exercise price of
such warrants.
(ii) Solely in the event that both (A) the Damages to be paid by
the Stockholder pursuant to Section 9.1(b) on account of the then-asserted
Claim, in aggregation with all such Damages previously paid by the Stockholder,
equal or exceed the aggregate amount of the cash received by the Stockholder
pursuant to
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Sections 2.7 and 2.8, and (B) the Average Closing Price of Provant Common Stock
during the ten trading days immediately following (but not including) the date
on which notice of the liquidated amount of the claimed Damages is given to the
Stockholder (which may, if applicable, be the date on which the initial notice
of the Claim is given) (in either event, the "Claim Date") is less than the IPO
Price, then the Stockholder may, at his election, satisfy such portion of the
Damages as exceed the cash received by the Stockholder pursuant to Sections 2.7
and 2.8 by tendering to Provant, for cancellation, shares of Provant Common
Stock equal in value to the Damages to be so satisfied, with such shares valued
at the Average Closing Price determined under clause (B) of this sentence.
Notwithstanding the first sentence of subsection (b)(i) above, if the foregoing
clauses (A) and (B) are satisfied and the Stockholder is therefore permitted to
satisfy his obligation to pay Damages by tendering shares of Provant Common
Stock, and the Stockholder elects to so tender Provant Common Stock, the
Stockholder's obligation for Damages shall be limited to the number of shares of
Provant Common Stock received by the Stockholder pursuant to Sections 2.7 and
2.8. In the event that Damages are to be paid by the Stockholder before the
final distribution of Provant Common Stock (if any) on account of 1999 EBIT and
if this subsection (b)(ii) shall apply, the final number of shares of Provant
Common Stock that the Stockholder shall be obligated to tender to Provant shall
be left undetermined until such time as the distribution of Provant Common Stock
(if any) is to be made under Section 2.8
(c) Except (i) as provided in Section 9.1(c), and (ii) with respect to
Damages arising out of the matters identified on Schedule 9.1, which Damages
shall be indemnified without respect to the threshold provided in this Section
9.2(c), an Indemnified Party shall be entitled to indemnification only if the
aggregate and collective Damages incurred or suffered by it exceeds an amount
(the "Basket") equal to one percent (1%) of the aggregate consideration paid
pursuant to Sections 2.7 and 2.8 (valuing the Provant Common Stock issued under
Section 2.7 at the IPO Price and valuing the Provant Common Stock issued under
Section 2.8 at the same price as utilized in determining the number of shares to
be issued as Additional Consideration (i.e., 80% of the then-current Average
Closing Price)), in which event it shall be entitled to indemnification of the
full amount of such Damages; PROVIDED, HOWEVER, that in the event Damages are to
be paid before the final determination of the amount of Additional
Consideration, the Basket shall be assumed tentatively to be $250,000 pending
final determination of the Additional Consideration. No amounts indemnified by
the Company or the Stockholder pursuant to Section 9.1(c) or with respect to
matters identified on Schedule 9.1 shall be treated as Damages incurred and
suffered by the Indemnified Party for purposes of the immediately preceding
sentence, provided only that the amounts so indemnified have been duly paid.
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(d) Notwithstanding the preambles to, respectively, Article 3 and
Article 5, the contractual liability of the Stockholder and the Provant
Principals for any breach of the representations and warranties contained in,
respectively, Article 3 and Article 5 shall be limited to such Stockholder's or
Provant Principal's liability provided in this Article 9.
9.3 NOTICE OF THIRD PARTY CLAIMS. An Indemnified Party shall promptly
notify the Indemnifying Party in writing of any Claim consisting of a matter
asserted by a third person that might give rise to any indemnity obligation of
the Indemnifying Party hereunder (a "Third Party Claim"), specifying in
reasonable detail the nature thereof and indicating the amount (if known, or
estimated if necessary) of the Damages that have been or may be sustained by the
Indemnified Party. Failure of any Indemnified Party to promptly give such notice
shall not relieve the Indemnifying Party of its or his obligation to indemnify
under this Article 9, but as a result of any such failure, the Indemnified Party
shall be liable to the Indemnifying Party for, and only for, the amount of
actual damages caused by such failure, which amount shall be an offset against
the amount of Damages for which the Indemnifying Party is liable hereunder.
Together with or following such notice, the Indemnified Party shall deliver to
the Indemnifying Party copies of all notices and documents received by the
Indemnified Party relating to the Third Party Claim (including court papers).
9.4 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. The Indemnifying
Party shall have the right (without prejudice to the right of any Indemnified
Party to participate at its or his own expense through counsel of its or his own
choosing) to defend against any Third Party Claim at its or his expense and
through counsel of its or his own choosing and to control such defense if the
Indemnifying Party gives written notice of its or his intention to do so within
15 business days of its or his receipt of notice of the Third Party Claim. The
Indemnified Party shall cooperate fully in all reasonable respects in the
defense of such Third Party Claim and shall make available to the Indemnifying
Party or its or his counsel all pertinent information under their control
relating thereto. The Indemnified Party shall have the right to elect to settle
any Third Party Claim; provided, however, the Indemnifying Party shall not have
any indemnification obligation with respect to any monetary payment to any third
party required by such settlement unless the Indemnifying Party shall have
consented thereto. The Indemnifying Party shall have the right to elect to
settle any Third Party Claim subject to the consent of the Indemnified Party;
provided, however, that if the Indemnified Party fails to give such consent
within 15 business days of being requested to do so, the Indemnified Party
shall, at its expense, assume the defense of such Third Party Claim and
regardless of the outcome of such matter, the Indemnifying Party's liability
hereunder shall be
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limited to the amount of any such proposed settlement. The foregoing provisions
notwithstanding, in no event (a) may either Indemnifying Party adjust,
compromise or settle any Third Party Claim unless such adjustment, compromise or
settlement unconditionally releases the Indemnified Party from all liability,
(b) may the Company Indemnifying Party adjust, compromise or settle any Third
Party Claim if such adjustment, compromise or settlement affects the absolute
and sole right of Provant or the Surviving Corporation to own or use any of the
Company's assets or (c) may the Company Indemnifying Party defend any Third
Party Claim which, if adversely determined, would materially impair the
financial condition, business or prospects of Provant or the Surviving
Corporation.
9.5 NOTICE OF OTHER CLAIMS. In the event any Indemnified Party should
incur any Claim that does not involve a Third Party Claim, the Indemnified Party
shall deliver a notice of such Claim with reasonable promptness to the
Indemnifying Party. If the Indemnifying Party notifies the Indemnified Party
that it does not dispute the Claim described in such notice or fails to notify
the Indemnified Party within 30 days after delivery of such notice by the
Indemnified Party whether the Indemnifying Party disputes the Claim described in
such notice, the Damages in the amount specified in the Indemnified Party's
notice will be conclusively deemed a liability of the Indemnifying Party and the
Indemnifying Party shall pay the amount of such Damages to the Indemnified Party
on demand. Failure of any Indemnified Party to promptly give such notice shall
not relieve the Indemnifying Party of its or his obligation to indemnify under
this Article 9, but as a result of any such failure, the Indemnified Party shall
be liable to the Indemnifying Party for, and only for, the amount of the actual
damages caused by such failure, which amount shall be an offset against the
amount of Damages for which the Indemnifying Party is liable hereunder.
10. TERMINATION; AMENDMENTS; WAIVER
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, notwithstanding approval thereof by the stockholders of the
Company:
(a) by mutual consent of the Stockholder and the Boards of Directors
of Provant and the Company;
(b) by any party, in its sole discretion, if the Merger and the IPO
shall not have been consummated on or before June 30, 1998, unless the failure
of the Merger to occur by such date shall be due to the failure of the party
seeking to terminate this
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Agreement to perform or observe the covenants and agreements of such party set
forth herein;
(c) by the Company or the Stockholder if there has been a
misrepresentation or breach on the part of Provant, Acquisition or the Provant
Principals in the representations, warranties, covenants or obligations of
Provant, Acquisition or the Provant Principals set forth herein, provided that
in the case of a breach of any such covenant or obligation, such breach has not
been cured within ten (10) business days after the Company has notified Provant,
Acquisition and the Provant Principals of such breach;
(d) by Provant if there has been a misrepresentation or breach on the
part of the Company or the Stockholder in the representations, warranties,
covenants and obligations of the Company and the Stockholder set forth herein,
provided that in the case of a breach of any such covenant or obligation, such
breach has not been cured within ten (10) business days after Provant has
notified the Company or the Stockholder of such breach; or
(e) by any party if any court shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and non-appealable.
The power of termination provided for by this Section 10.1 may be
exercised for Provant or the Company only by their respective Boards of
Directors in its sole discretion, and will be effective only after written
notice thereof, signed on behalf of the party for which it is given by its
Chairman of the Board, President or other duly authorized officer, shall have
been given to the other. If this Agreement is terminated in accordance with this
Section 10.1, the Merger shall be abandoned without further action by Provant or
the Company.
10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by any party as provided in Section 10.1, this Agreement shall
forthwith become void and have no effect, and neither Provant, nor the Company,
nor any of the officers or directors of either of them, nor the Stockholder
shall have any liability of any nature whatsoever hereunder, or in connection
with the transactions contemplated hereby, except (a) Sections 6.3(b) and 11.8
shall survive any termination of this Agreement, (b) notwithstanding anything to
the contrary contained in this Agreement, no party shall be relieved of or
released from any liabilities or damages arising out of its breach of any
provision of this Agreement and (c) until September 30, 1998, neither the
Company nor the Stockholder shall, directly or indirectly, discuss, negotiate,
submit or
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respond to proposals relating to, or enter into an agreement with any other
person with respect to, a transaction with other training companies to be
accompanied or followed by a public offering.
10.3 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized
(in the case of Provant, Acquisition and the Company) by their respective Boards
of Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
10.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized (in the case of Provant,
Acquisition and the Company) by their respective Boards of Directors, may, to
the extent legally allowed, subject to Section 10.3, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
11. MISCELLANEOUS
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided in
Article 9 with respect to the representations and warranties contained in
Article 3, 4 and 5 and except for the provisions of Section 10.2, the
representations and warranties made in this Agreement shall not survive beyond
the Effective Time.
11.2 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a) constitutes, with
the Company Disclosure Schedule, the Provant Disclosure Schedule, the other
Schedules and the Exhibits hereto, the entire agreement among the parties with
respect to the subject matter hereto and supersedes all other prior agreements
and understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof (including, without limitation, the letter
of intent between the Company and American Business Partners LLC) and (b) shall
not be assigned by operation of law or otherwise, provided that Provant or
Acquisition may assign its respective rights
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and obligations to any direct or indirect subsidiary of Provant, but no such
assignment shall relieve Provant of its obligations hereunder.
11.3 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
11.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person or by electronic facsimile transmission,
cable, telegram, or telex, or when mailed by registered or certified mail
(postage prepaid, return receipt requested) or delivered to a courier of
national reputation to the respective parties as follows:
If to Provant, Acquisition or any Provant Principal, to it or him at:
67 Batterymarch Street, Suite 500
Boston, MA 02110
Facsimile: (617) 261-1610
with a copy to:
Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110-2699
Attention: Constantine Alexander, Esq.
Facsimile: (617) 973-9748
If to the Company or the Stockholder, to it or him at:
3601 Eisenhower Avenue
Suite 450
Alexandria, VA 22304-6496
Facsimile: (703) 960-8918
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with a copy to:
Arent Fox Kintner Plotkin & Kahn, PLLC
1050 Connecticut Avenue, NW
Washington, DC 20036-5339
Attention: David C. Haas, Esq.
Facsimile: (202) 857-6395
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
11.5 GOVERNING LAW. This Agreement and all rights of the parties
arising in connection with the transactions contemplated hereby (including the
negotiation hereof, and whether or not such transactions shall be consummated)
shall be governed by and construed in accordance with the internal laws of the
Commonwealth of Virginia, regardless of the laws that might otherwise govern
under applicable principles of conflicts of laws thereof.
11.6 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
11.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement. Copies (photostatic,
facsimile or otherwise) of signatures to this Agreement shall be deemed to be
originals and may be relied upon to the same extent as originals, and delivery
of a duly executed signature page to this Agreement shall be deemed to be
delivery of this Agreement in its entirety.
11.8 EXPENSES. All costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses, provided that (i) solely in the event the Merger is consummated,
the reasonable legal and accounting expenses of the Company, up to a maximum of
$50,000, shall be paid by (at the election of Provant) either Provant or the
Surviving Corporation, and (ii) all expenses of the Company not payable pursuant
to clause (i) shall be paid directly by the Stockholder or expensed (and not
capitalized) by the Company prior to the computation of the Company's net worth
for purposes of determining satisfaction of the Financial Condition. An account
receivable for expenses reimbursable by Provant under clause (i) above may be
included on the
65
<PAGE> 66
books of the Company for purposes of calculating the Closing Net Worth, to the
extent such amounts have previously been expensed by the Company.
11.9 JOINT AND SEVERAL. The indemnity obligations of Provant and the
Provant Principals under this Agreement are joint and several.
11.10 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and to the benefit of the
Company Stockholders, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
11.11 INTERPRETATION. The Parties acknowledge and agree that each party
and its counsel reviewed and negotiated the terms and provisions of this
Agreement and has contributed to its revision and that the rule of construction
to the effect that any ambiguities are resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
11.12 MOST FAVORED NATION TREATMENT. Subject to the last sentence of
this Section 11.12, Provant covenants and agrees that the Company and the
Stockholder will be accorded "most favored nation" treatment with respect to any
material amendments adopted after the date hereof with respect to any Additional
Merger Agreement or any other agreement materially altering the rights or
obligations of any Additional Company or the stockholders thereof. The parties
agree to amend this Agreement as necessary from time to time to effect any
changes required pursuant to such "most favored nation" treatment.
Notwithstanding the foregoing, such "most favored nation" treatment shall not
apply to (a) amendments of any provisions not applicable generally to this
Agreement and all (or substantially all) of the Additional Merger Agreements, or
(b) any waiver of a closing condition or an affirmative or negative covenant or
comparable undertaking contained in any Additional Merger Agreement.
[Remainder of page intentionally blank]
66
<PAGE> 67
IN WITNESS WHEREOF, each of the parties has caused this Agreement and
Plan of Merger to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
PROVANT, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
STAR ACQUISITION CORP.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
STAR MOUNTAIN, INC.
By:
-----------------------------------------
Name: A. Carl von Sternberg
---------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
STOCKHOLDER:
--------------------------------------------
A. Carl von Sternberg
PROVANT PRINCIPALS:
--------------------------------------------
Paul M. Verrochi
--------------------------------------------
Dominic J. Puopolo
67
<PAGE> 1
<TABLE>
EXHIBIT 4.1
<S> <C> <C>
NUMBER SHARES
- ------ ------
PROVANT, INC.
COMMON STOCK COMMON STOCK
This certifies that 743 724 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
is the owner of
FULLY PAID AND NON ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER SHARE OF
PROVANT, INC. (the "Corporation") transferable upon the books of the Corporation in person or
by duly authorized attorney upon surrender of this Certificate properly endorsed or assigned.
This Certificate and the shares represented hereby are issued and held subject to the laws of
the State of Delaware and to the provisions of the Certificate of Incorporation and By-Laws of
the Corporation, each as now in effect or hereafter amended. This Certificate is not valid COUNTERSIGNED AND REGISTERED
unless countersigned and registered by the Transfer Agent and Registrar. BANKBOSTON, N.A.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be TRANSFER AGENT REGISTRAR
Provant, Inc. executed by the facsimile signatures of its duly authorized officers and BY
Corporate sealed with the facsimile seal of the Corporation.
Seal AUTHORIZED SIGNATURE
1996 Dated:
Delaware
/s/ Rajiv Bhatt /s/ Paul M. Verrochi
--------------- ------------------------------------
Treasurer Chairman and Chief Executive Officer
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
PROVANT, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS AND SERIES OF STOCK. THE CORPORATION WILL FURNISH TO THE
HOLDER UPON WRITTEN REQUEST WITHOUT CHARGE A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS, OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though
thew were written out in full according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- __________Custodian___________
TEN ENT -- as tenants by the entirety (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act___________________________
in common (State)
com prop -- as community property
Additional abbreviations may be used though not in the above list.
ASSIGNMENT
For value received,______________________________________ hereby sell(s), assign(s), and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
______________________________________
|
______________________________________|___________________________________________________________________________________
__________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)
__________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________shares
of the common stock represented by the within Certificate, and do(es) hereby irrevocably constitute and appoint
__________________________________________________________________________________________________________________attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Date,_________________________________ _____________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _________________________________________________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. rule 17Ad-15.
</TABLE>
<PAGE> 1
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 who customarily is employed for more than
20 hours per week is eligible to participate in the Plan.
Notwithstanding the foregoing, no employee will be eligible to
participate in the Plan if (a) 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 (b) 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 January 1 and
July 1 of a calendar year (each an "Offering Commencement Date"), and will end
on each of June 30 and December 31, respectively, of the same year (each an
"Offering Termination Date"). The first Offering shall begin on July 1, 1998.
<PAGE> 2
4. PARTICIPATION
An eligible employee may elect to participate in any offering by having
payroll deductions made over a six-month period (a "Plan Period") commencing on
the Offering Commencement Date at the rate of any whole percentage from 2 to 10
percent of his or her base pay as of such Offering Commencement Date. 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.
For purposes of the Plan, "base pay" means regular straight time earnings,
excluding overtime payments, bonuses and incentive or contingent payments. 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). 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. A
participant may not alter the rate of payroll deductions during the period, nor
make any separate cash payments. 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.
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) The option price of Common Stock for any Offering will be
the lower of 85 percent of the last sale price of the Stock
on the Nasdaq National Market on (i) the Offering
Commencement Date or (ii) the Offering Termination Date for
the Offering or, in either case, 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 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
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<PAGE> 3
by the Administrator (as defined in Section 10). Upon notice
of withdrawal, all of the participant's payroll deductions
for the offering will be paid promptly together with simple
interest based on the dates of withholding, at a rate
determined by the Company, 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. The interest rate to be paid on withdrawals during
each Offering will be communicated to eligible employees
before the Offering Commencement Date.
(b) Upon termination of a participant's employment for any
reason other than death, the payroll deductions credited to
the participant's account will be returned to the
participant together with simple interest based on the dates
of withholding, at the rate determined by the Company under
Section 6(a) for withdrawals during the Offering. 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 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 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 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,
with interest based on the dates of withholding, at the rate
determined by the Company under Section 6(a) for withdrawals
during the Offering.
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
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 in the participant's
account on that date will purchase at the applicable option
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<PAGE> 4
price. In lieu of fractional shares, any excess in the account will be returned
to the participant without interest.
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 credited to the
account of each participant under the Plan shall be returned
as promptly as possible, with 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.
-4-
<PAGE> 5
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 payroll deductions credited to a participant's account 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 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.
-5-
<PAGE> 6
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 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 of 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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<PAGE> 7
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
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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<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND THE SHARES OF COMMON STOCK SUBJECT TO THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO SALE OR DISPOSITION OF THIS WARRANT OR THE SHARES MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN
OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
AMERICAN TRAINING GROUP, INC.
AMENDED AND RESTATED WARRANT
TO PURCHASE COMMON STOCK
($0.01 Par Value Per Share)
This certifies that, for value received, ("the Holder"), is entitled to
subscribe for and purchase the number of shares of fully paid and non-assessable
shares of Common Stock of American Training Group, Inc. (the "Company")
determined as provided in Section 1 hereof (subject to adjustment from time to
time pursuant to Section 5 hereof), at the price specified in Section 2 hereof,
as may be adjusted from time to time pursuant to Section 5 hereof (the "Warrant
Price"), subject to the provisions and upon the terms and conditions hereinafter
set forth.
As used herein, the term "Common Stock" shall mean the Company's
presently authorized Common Stock and any stock into or for which such Common
Stock may hereafter be converted or exchanged; and the term "IPO" shall mean the
initial public offering of shares of Common Stock registered under the
Securities Act of 1933, as amended.
1. TERM OF WARRANT; NUMBER OF SHARES.
The purchase right represented by this Warrant may be exercised at any
time or from time to time prior to the earlier of (i) seven (7) years from the
date the IPO closes and (ii) eight (8) years from the date hereof. The number of
shares of Common Stock subject to this Warrant (the "Underlying Shares") shall
be equal to sixty-eight (68) shares of Common Stock, as adjusted pursuant to
Section 5 hereof, or in the event of the IPO, if greater, two percent (2.0%) of
the sum of (a) the number of shares of Common Stock outstanding immediately
prior to the closing date of the IPO, plus (b) the number of shares of Common
Stock issuable by the Company as of the closing date of the IPO in connection
with the acquisition of "founding" companies by the Company as of or prior to
such date. The
<PAGE> 2
number of shares of Common Stock subject to this Warrant shall be subject to
adjustment from time to time pursuant to the provisions of Section 5 hereof.
2. WARRANT PRICE.
The Warrant Price is the greater of (a) one dollar ($1.00) per share,
subject to adjustment from time to time pursuant to the provisions of Section 5
hereof, and (b) following the IPO, the price per share that shares of Common
Stock are sold to the public in the IPO, subject to adjustment from time to time
following the IPO pursuant to the provisions of Section 5 hereof.
3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
Subject to Section 1 hereof, the purchase right represented by this
Warrant may be exercised by the holder hereof, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Exhibit 1 duly executed) at the principal office of the Company and by the
payment to the Company, by certified check or wire transfer, of an amount equal
to the then applicable Warrant Price per share multiplied by the number of
shares then being purchased. The Warrant Price shall be payable, at the option
of the holder hereof, (a) by wire transfer, certified check, official bank check
or bank cashier's check payable to the order of the Company or (b) by the
surrender of Warrants exercisable for a number of shares having a Market Price
as of the date of surrender equal to the aggregate Warrant Price of all Warrants
covered thereby. "Market Price" means the average closing price of a share of
Common Stock for the ten (10) consecutive trading days preceding such date on
the principal national securities exchange (including the Nasdaq national
market) on which the shares of Common Stock are listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange
(including the Nasdaq National Market), the average of the bid and asked prices
during such 10-day period in the over-the-counter market as furnished by Nasdaq,
or, if the shares of Common Stock are not publicly traded, as determined by, the
Board of Directors of the Company in good faith. The Company agrees that the
shares so purchased shall be deemed to be issued to the holder thereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares as
aforesaid. In the event of any exercise of the rights represented by this
Warrant, certificates for shares of stock so purchased shall be delivered to the
holder hereof within 15 days thereafter and, unless this Warrant has been fully
exercised or expired, a new Warrant representing the portion of the shares, if
any, with respect to which this Warrant shall not then have been exercised,
shall also be issued to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Underlying Shares will, upon issuance, be fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times
-2-
<PAGE> 3
have authorized, and reserved for the purpose of the issuance upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by this
Warrant.
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The kind of securities purchasable upon the exercise of this Warrant,
the Warrant Price and the number of shares purchasable upon exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events as follows:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class
issuable upon exercise of this Warrant (other than a change in par
value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), shall execute a
new warrant, providing that the holder of this Warrant shall have the
right to exercise such new Warrant and procure upon such exercise, in
lieu of each share of Common Stock theretofore issuable upon exercise
of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification or
change by a holder of one share of Common Stock. Such new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The
provisions of this Section 5(a) shall similarly apply to successive
reclassifications and changes.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in
the case of a combination.
(c) STOCK DIVIDENDS. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect
to Common Stock payable in, or make any other distribution with respect
to Common Stock (except any distribution specifically provided for in
the foregoing Section 5(a) or Section 5(b) or in the following Section
5(d)) of, Common Stock, then the Warrant Price shall be adjusted, from
and after the date of determination of stockholders entitled to receive
such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of
determination by a fraction (a) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to
such dividend or distribution and (b) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately
after such dividend or distribution.
(d) EXTRAORDINARY DIVIDENDS. In case the Company shall declare
a dividend upon its Common Stock (except a dividend payable in shares
of Common Stock referred to in Section 5(c)) payable otherwise than out
of retained earnings, the
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<PAGE> 4
per share Warrant Price in effect immediately prior to the declaration
of such dividend shall be reduced (but not below par value) by an
amount equal, in the case of a dividend in cash, to the amount thereof
payable per share of Common Stock or, in the case of any other
dividend, to the fair value thereof per share of Common Stock as
determined in good faith by the Board of Directors of the Company. For
the purposes of the foregoing, a dividend payable other than in cash
shall be considered payable out of retained earnings only to the extent
that such retained earnings are charged an amount equal to the fair
value of such dividend as determined by the Board of Directors of the
Company. Such reduction shall take effect as of the date on which a
record is taken for the purpose of such dividend or, if a record is not
taken, the date as of which the holders of the Common Stock of record
entitled to such dividend are to be determined. Appropriate
readjustment of the per share Warrant Price shall be made in the event
that any dividend referred to in this Section 5(d) shall be lawfully
abandoned.
(e) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price pursuant to any of Sections 5(b) or 5(c) hereof, the
number of shares of Common Stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which
shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, the Warrant Price or Prices after giving effect to such adjustment
and the number of shares then purchasable upon exercise of this Warrant, and
shall cause copies of such certificate to be mailed (by first class mail,
postage prepaid) to the holder of this Warrant at the address specified in
Section 9(d) hereof, or at such other address as may be provided to the Company
in writing by the holder of this Warrant.
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<PAGE> 5
7. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in connection with
any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor upon the basis of the Warrant Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS.
(a) The holder of this Warrant, by acceptance hereof, agrees
that this Warrant and the Underlying Shares are being acquired for
investment and that it will not offer, sell or otherwise dispose of
this Warrant or any Underlying Shares except under circumstances which
will not result in a violation of the Securities Act of 1933, as
amended (the "Securities Act"). Upon exercise of this Warrant, the
holder hereof shall, if requested by the Company and the holder,
confirm in writing, in a form satisfactory to the Company, that the
Underlying Shares are being acquired for investment and not with a view
toward distribution or resale. This Warrant and the certificates
representing the Underlying Shares (unless registered under the
Securities Act) shall be stamped or imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY
TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Unless counsel for the Company is of the opinion that to
do so is not permitted under the Securities Act as then interpreted by
the Securities and Exchange Commission, upon the written request of the
holder of this Warrant setting forth such holder's intent to exercise
all or any portion of this Warrant, the Company shall, subject to the
conditions of this Section 8, as expeditiously as reasonably possible,
endeavor in good faith to register and/or qualify under applicable
Federal or State law the sale to such holder of the Underlying Shares
and any required listing with any securities exchange following such
exercise as may be required reasonably to permit the resale or other
disposition of such Underlying Shares.
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<PAGE> 6
(c) In the event registration or qualification under
subsection (b) is not permitted and/or the holder elects to proceed
under this subsection (c), upon the written request of the holder of
this Warrant setting forth such holder's intent to transfer all or any
portion of the Underlying Shares and requesting that the Company effect
the registration or qualification under applicable Federal or State law
of such transfer, the Company shall, subject to the conditions of this
Section 8, as expeditiously as reasonably possible, endeavor, in good
faith, to effect any such registration or qualification of such
Underlying Shares and any required listing with any securities exchange
as may be required reasonably to permit the sale or other disposition
of any such Underlying Shares.
(d) The Company shall not be required to register or qualify
or to use its best efforts to effect any registration or qualification
of the Underlying Shares under the Securities Act or any applicable
State securities law or regulation pursuant to this Section 8 on any
form other than Form S-3 or any successor thereto.
(e) The Company shall maintain the effectiveness of any
registration statement filed in connection with any registration
pursuant to this Section 8 and, if necessary, amend the registration
statement and supplement the prospectus (i) if the registration
statement has been filed pursuant to subsection (b) above, so long as
the Warrant remains unexercised, or (ii) if the registration statement
has been filed pursuant to subsection (c) above, until all Underlying
Shares have been sold or otherwise disposed.
(f) The Company agrees to pay all expenses in connection with
the registration effected pursuant to this Section 8 other than
underwriting or brokerage fees or discounts and the legal fees and
expenses of counsel for any holder of Underlying Shares.
(g) In connection with the registration or qualification of
securities under this Section, the Company hereby agrees to indemnify
the holder of the Underlying Shares and each person, if any, who
controls such holder within the meaning of Section 15 of the Securities
Act, against all losses, claims, damages and liabilities caused by any
untrue or alleged untrue, statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto)
or any preliminary prospectus or caused by any omission, or alleged
omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission
based upon information furnished in writing to the Company by or on
behalf of such holder expressly for use therein, and the Company and
each officer, director and controlling person of the Company shall be
indemnified by each holder of Underlying Shares for all such losses,
claims, damages and liabilities caused by any untrue, or alleged
untrue,
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<PAGE> 7
statement or omission or alleged omission, based upon information
furnished in writing to the Company by or on behalf of such holder for
any such use.
Promptly upon receipt by a party indemnified under this
subsection (g) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be
sought against any indemnifying party under this subsection, such
indemnified party shall notify the indemnifying party in writing of the
commencement of such action, but the failure so to notify the
indemnifying party shall not relieve it of any liability which it may
have to any indemnified party otherwise than under this subsection. In
case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
of such action at its own expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party shall
have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such
counsel (other than reasonable costs of investigation) shall be paid by
the indemnified party unless the indemnifying party either agrees to
pay the same or fails to assume the defense of such action with counsel
satisfactory to the indemnified party. No indemnifying party shall be
liable for any settlement entered into without its consent.
(h) The holder of this Warrant or any Underlying Shares agrees
that it will not sell or otherwise transfer any Underlying Shares for a
period of 90 days following any underwritten public offering of Common
Stock by the Company.
(i) The Company's obligation to register Underlying Share
under this Section 8 shall be subject to the condition that each holder
of Underlying Shares participating in any registered offering shall
have provided such information and executed such documents not
inconsistent with the terms of this Warrant, as may be requested by the
Company in connection with such registration.
9. MISCELLANEOUS.
(a) NO RIGHTS AS STOCKHOLDER. No holder of the Warrant or
Warrants shall be entitled to vote or receive dividends or be deemed
the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the holder
of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings, or
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<PAGE> 8
to receive dividends or subscription rights or otherwise until the
Warrant or Warrants shall have been exercised and the shares
purchasable upon the exercise hereof shall have become deliverable, as
provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or
destruction on delivery of an indemnity agreement or bond reasonably
satisfactory in form and amount to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company,
at its expense, will execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor.
(c) NOTICE OF CAPITAL CHANGES. In case:
(i) the Company shall declare any dividend or
distribution payable to the holders of its Common Stock;
(ii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation or
business organization; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the
holder of this Warrant written notice, in the manner set forth in
Section 9(d) below, of the date on which a record shall be taken for
such dividend or distribution or for determining stockholders entitled
to vote upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up and of the date
when any such transaction shall take place, as the case may be. Such
written notice shall be given at least 30 days prior to the transaction
in question and not less than 20 days prior to the record date in
respect thereof.
(d) NOTICE. Any notice given to either party under this
Agreement shall be in writing, and any notice hereunder shall be deemed
to have been given upon delivery, addressed to the Company at its
principal executive offices and to the holder at its address set forth
in the Company's books and records or at such other address as the
holder may have provided to the Company in writing.
(e) NO IMPAIRMENT. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed
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<PAGE> 9
hereunder by the Company, but will at all times in good faith assist in
the carrying out of all the provisions in this Warrant.
(f) GOVERNING LAW. This Warrant shall be governed by and
construed under the laws of the Commonwealth of Massachusetts.
This Warrant is executed as of this 15th day of January, 1998.
AMERICAN TRAINING GROUP, INC.
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 10
EXHIBIT 1
NOTICE OF EXERCISE
To: AMERICAN TRAINING GROUP, INC.
1. The undersigned hereby elects to purchase _____ shares of the Common
Stock of American Training Group, Inc. (the "Company") pursuant to the terms of
the attached Warrant, and [check box] [ ] tenders herewith payment of the
purchase price of such shares in full, [ ] sells, assigns and transfers to the
Company all of the rights of the undersigned under the attached Warrant, with
respect to the number of shares of Common Stock covered by such Warrant
sufficient to pay the purchase price in full.
2. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below.
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
-------------------------------
Signature
<PAGE> 1
EXHIBIT 10.5
THIS WARRANT AND THE SHARES OF COMMON STOCK SUBJECT TO THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. NO SALE OR DISPOSITION OF THIS WARRANT OR
THE SHARES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL FOR THE
HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
AMERICAN TRAINING GROUP, INC.
AMENDED AND RESTATED WARRANT
TO PURCHASE COMMON STOCK
($0.01 Par Value Per Share)
This certifies that, for value received, __________________ ("the
Holder"), is entitled to subscribe for and purchase the number of shares of
fully paid and non-assessable shares of Common Stock of American Training Group,
Inc. (the "Company") determined as provided in Section 1 hereof (subject to
adjustment from time to time pursuant to Section 5 hereof), at the price
specified in Section 2 hereof, as may be adjusted from time to time pursuant to
Section 5 hereof (the "Warrant Price"), subject to the provisions and upon the
terms and conditions hereinafter set forth.
As used herein:
"Average Closing Price" shall mean the average closing price of a share
of Common Stock for ten (10) consecutive trading days on the principal national
securities exchange (including the Nasdaq National Market) on which the shares
of Common Stock are listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange (including the Nasdaq National
Market), the average of the bid and asked prices during such 10-day period in
the over-the-counter market as furnished by Nasdaq; provided, however, as of
immediately prior to the consummation of any Change of Control of the Company
the Average Closing Price shall be deemed to be the price at which the Common
Stock is valued in such Change of Control.
"Base Price" shall mean the price per share that shares of Common Stock
are sold by the Company in the IPO, subject to adjustment from time to time
pursuant to the provisions of Section 5 hereof.
<PAGE> 2
"Change of Control" shall mean a merger, consolidation, tender offer,
sale of all or substantially all of the Company's assets or comparable
transaction in which the holders of the Company's outstanding voting securities
(including other securities convertible or exercisable therefor) as of
immediately prior to such transaction do not hold immediately following such
transaction securities of the surviving or acquiring entity (or the direct or
indirect parent of such entity) entitled to cast a majority of the votes
entitled to be cast for the election of Director.
"Common Stock" shall mean the Company's presently authorized Common
Stock and any stock into or for which such Common Stock may hereafter be
converted or exchanged.
"IPO" shall mean the initial public offering of shares of Common Stock
registered under the Securities Act of 1933, as amended.
1. TERM OF WARRANT; NUMBER OF SHARES.
(a) Subject to acceleration as provided in subsection 1(c)
below, the purchase right represented by this Warrant shall become
exercisable (i) prior to the closing date of the IPO, only if the
Company has revenues of at least $150 million for its most recently
completed fiscal year, and (ii) on or after the closing date of the
IPO, as set forth below when and if the Average Closing Price has
achieved the percentage of the Base Price so set forth:
<TABLE>
<CAPTION>
PERCENTAGE OF WARRANT AVERAGE CLOSING PRICE AS A
EXERCISABLE PERCENTAGE OF BASE PRICE
<S> <C>
20% 200%
20% 300%
20% 400%
40% 500%
</TABLE>
Notwithstanding the foregoing, this Warrant shall terminate
and no longer be exercisable on the earliest to occur of (x) seven (7)
years from the date the IPO closes, (y) the effective date of any
merger or consolidation in which the Company is not the surviving
corporation and the shareholders of the Company immediately prior to
such merger or consolidation do not hold substantially the same equity
interest in the surviving corporation following the merger or
consolidation, and (z) eight (8) years from the date hereof.
(b) The number of shares of Common Stock subject to this
Warrant (the "Underlying Shares") shall be equal to eighty-five (85)
shares of Common Stock, as adjusted pursuant to Section 5 hereof, or in
the event of an IPO, if greater, two and one-half percent (2.5%) of the
sum of (i) the number of shares of Common Stock outstanding immediately
prior to the closing date of the IPO plus (ii) the number of
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<PAGE> 3
shares of Common Stock issuable by the Company as of the closing date
of the IPO in connection with the acquisition of "founding" companies
by the Company as of or prior to such date. The number of shares of
Common Stock subject to this Warrant shall be subject to adjustment
from time to time pursuant to the provisions of Section 5 hereof.
(c) Notwithstanding subsection 1(a) above, the purchase right
represented by this Warrant shall become exercisable in full as of immediately
prior to the consummation of a Change of Control of the Company if (and only if)
the holder of this Warrant has opposed such Change of Control transaction in the
manner set forth below. The holder shall be deemed to have opposed such
transaction:
(i) if the holder is then a director of the Company,
by voting against the resolution(s) by which the Company's Board of
Directors approved the transaction and recommended that the holders of
the Company's voting securities approve the transaction, or if such
transaction is to be consummated without the approval of the Company's
Board of Directors (e.g., by tender offer), by voting as a director in
a manner that does not recommend the proposed Change of Control; or
(ii) if the holder is not then a director of the
Company, by giving written notice of his opposition to the transaction
to the Secretary of the Company prior to meeting of the holders of the
Common Stock at which such shareholders voted to approve the
transaction and by not voting any shares of Common Stock held by him in
favor of the transaction at such meeting of stockholders, or if the
transaction is to be consummated without a vote of the holders of
Common Stock (e.g., by tender offer), either by not tendering his
shares in the tender offer or by giving written notice of his
opposition to the transaction to the Secretary of the Company prior to
the consummation thereof.
The acceleration of this Warrant's exercise schedule provided in this subsection
(c) is conditioned upon the consummation of the subject Change of Control
transaction, and in the event such transaction is terminated prior to
consummation, any purported exercise of this Warrant in contemplation thereof
shall be null and void without action by the holder or the Company.
2. WARRANT PRICE.
The Warrant Price is the greater of (a) one dollar ($1.00) per share,
subject to adjustment from time to time pursuant to the provisions of Section 5
hereof, and (b) following the IPO, the price per share determined as provided
below, subject to adjustment from time to time following the IPO pursuant to the
provisions of Section 5 hereof:
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<PAGE> 4
<TABLE>
<S> <C> <C>
For the first twelve months following
the closing date of the IPO - Base Price
For each twelve months thereafter until - Base Price plus (a) 10% of the Base
relevant portion of this Warrant Price times (b) the number of full
becomes exercisable twelve-month periods elapsed since
the closing date of the IPO
</TABLE>
3. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
Subject to Section 1 hereof, the purchase right represented by this
Warrant may be exercised by the holder hereof, in whole or in part, by the
surrender of this Warrant (with the notice of exercise form attached hereto as
Exhibit 1 duly executed) at the principal office of the Company and by the
payment to the Company, by certified check or wire transfer, of an amount equal
to the then applicable Warrant Price per share multiplied by the number of
shares then being purchased. The Warrant Price shall be payable, at the option
of the holder hereof, (a) by wire transfer, certified check, official bank check
or bank cashier's check payable to the order of the Company or (b) by the
surrender of Warrants exercisable for a number of shares having a Market Price
as of the date of surrender equal to the aggregate Warrant Price of all Warrants
covered thereby. "Market Price" means the average closing price of a share of
Common Stock for the ten (10) consecutive trading days preceding such date on
the principal national securities exchange (including the Nasdaq national
market) on which the shares of Common Stock are listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange
(including the Nasdaq National Market), the average of the bid and asked prices
during such 10-day period in the over-the-counter market as furnished by Nasdaq,
or, if the shares of Common Stock are not publicly traded, as determined by, the
Board of Directors of the Company in good faith. The Company agrees that the
shares so purchased shall be deemed to be issued to the holder thereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares as
aforesaid. In the event of any exercise of the rights represented by this
Warrant, certificates for shares of stock so purchased shall be delivered to the
holder hereof within 15 days thereafter and, unless this Warrant has been fully
exercised or expired, a new Warrant representing the portion of the shares, if
any, with respect to which this Warrant shall not then have been exercised,
shall also be issued to the holder hereof within such 15-day period.
4. STOCK FULLY PAID; RESERVATION OF SHARES.
All Underlying Shares will, upon issuance, be fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issuance upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant.
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<PAGE> 5
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The kind of securities purchasable upon the exercise of this Warrant,
the Warrant Price and the number of shares purchasable upon exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events as follows:
(a) RECLASSIFICATION. In case of any reclassification or
change of outstanding securities of the class issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a
subdivision or combination), shall execute a new warrant, providing
that the holder of this Warrant shall have the right to exercise such
new Warrant and procure upon such exercise, in lieu of each share of
Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification or change by a holder of
one share of Common Stock. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 5. The provisions of
this Section 5(a) shall similarly apply to successive reclassifications
and changes.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in
the case of a combination.
(c) STOCK DIVIDENDS. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect
to Common Stock payable in, or make any other distribution with respect
to Common Stock (except any distribution specifically provided for in
the foregoing Section 5(a) or Section 5(b) or in the following Section
5(d)) of, Common Stock, then the Warrant Price shall be adjusted, from
and after the date of determination of stockholders entitled to receive
such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of
determination by a fraction (a) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to
such dividend or distribution and (b) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately
after such dividend or distribution.
(d) EXTRAORDINARY DIVIDENDS. In case the Company shall declare
a dividend upon its Common Stock (except a dividend payable in shares
of Common Stock referred to in Section 5(c)) payable otherwise than out
of retained earnings, the per share Warrant Price in effect immediately
prior to the declaration of such dividend shall be reduced (but not
below par value) by an amount equal, in the case of a dividend in cash,
to the amount thereof payable per share of Common Stock or, in the case
of any other dividend, to the fair value thereof per share of Common
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<PAGE> 6
Stock as determined in good faith by the Board of Directors of the
Company. For the purposes of the foregoing, a dividend payable other
than in cash shall be considered payable out of retained earnings only
to the extent that such retained earnings are charged an amount equal
to the fair value of such dividend as determined by the Board of
Directors of the Company. Such reduction shall take effect as of the
date on which a record is taken for the purpose of such dividend or, if
a record is not taken, the date as of which the holders of the Common
Stock of record entitled to such dividend are to be determined.
Appropriate readjustment of the per share Warrant Price shall be made
in the event that any dividend referred to in this Section 5(d) shall
be lawfully abandoned.
(e) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price pursuant to any of Sections 5(b) or 5(c) hereof, the
number of shares of Common Stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which
shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
6. NOTICE OF ADJUSTMENTS.
Whenever any Warrant Price shall be adjusted pursuant to Section 5
hereof, the Company shall prepare a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, the Warrant Price or Prices after giving effect to such adjustment
and the number of shares then purchasable upon exercise of this Warrant, and
shall cause copies of such certificate to be mailed (by first class mail,
postage prepaid) to the holder of this Warrant at the address specified in
Section 9(d) hereof, or at such other address as may be provided to the Company
in writing by the holder of this Warrant.
7. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued in connection with
any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor upon the basis of the Warrant Price then in effect.
8. COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS.
(a) The holder of this Warrant, by acceptance hereof, agrees
that this Warrant and the Underlying Shares are being acquired for
investment and that it will not offer, sell or otherwise dispose of
this Warrant or any Underlying Shares except under circumstances which
will not result in a violation of the Securities Act of 1933, as
amended (the "Securities Act"). Upon exercise of this Warrant, the
holder hereof
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<PAGE> 7
shall, if requested by the Company and the holder, confirm in writing,
in a form satisfactory to the Company, that the Underlying Shares are
being acquired for investment and not with a view toward distribution
or resale. This Warrant and the certificates representing the
Underlying Shares (unless registered under the Securities Act) shall be
stamped or imprinted with a legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY
TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Unless counsel for the Company is of the opinion that to
do so is not permitted under the Securities Act as then interpreted by
the Securities and Exchange Commission, upon the written request of the
holder of this Warrant setting forth such holder's intent to exercise
all or any portion of this Warrant, the Company shall, subject to the
conditions of this Section 8, as expeditiously as reasonably possible,
endeavor in good faith to register and/or qualify under applicable
Federal or State law the sale to such holder of the Underlying Shares
and any required listing with any securities exchange following such
exercise as may be required reasonably to permit the resale or other
disposition of such Underlying Shares.
(c) In the event registration or qualification under
subsection (b) is not permitted and/or the holder elects to proceed
under this subsection (c), upon the written request of the holder of
this Warrant setting forth such holder's intent to transfer all or any
portion of the Underlying Shares and requesting that the Company effect
the registration or qualification under applicable Federal or State law
of such transfer, the Company shall, subject to the conditions of this
Section 8, as expeditiously as reasonably possible, endeavor, in good
faith, to effect any such registration or qualification of such
Underlying Shares and any required listing with any securities exchange
as may be required reasonably to permit the sale or other disposition
of any such Underlying Shares.
(d) The Company shall not be required to register or qualify
or to use its best efforts to effect any registration or qualification
of the Underlying Shares under the Securities Act or any applicable
State securities law or regulation pursuant to this Section 8 on any
form other than Form S-3 or any successor thereto.
(e) The Company shall maintain the effectiveness of any
registration statement filed in connection with any registration
pursuant to this Section 8 and, if
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necessary, amend the registration statement and supplement the
prospectus (i) if the registration statement has been filed pursuant to
subsection (b) above, so long as the Warrant remains unexercised and
(ii) if the registration statement has been filed pursuant to
subsection (c) above, until all Underlying Shares have been sold or
otherwise disposed.
(f) The Company agrees to pay all expenses in connection with
the registration effected pursuant to this Section 8 other than
underwriting or brokerage fees or discounts and the legal fees and
expenses of counsel for any holder of Underlying Shares.
(g) In connection with the registration or qualification of
securities under this Section, the Company hereby agrees to indemnify
the holder of the Underlying Shares and each person, if any, who
controls such holder within the meaning of Section 15 of the Securities
Act, against all losses, claims, damages and liabilities caused by any
untrue or alleged untrue, statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto)
or any preliminary prospectus or caused by any omission, or alleged
omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission
based upon information furnished in writing to the Company by or on
behalf of such holder expressly for use therein, and the Company and
each officer, director and controlling person of the Company shall be
indemnified by each holder of Underlying Shares for all such losses,
claims, damages and liabilities caused by any untrue, or alleged
untrue, statement or omission or alleged omission, based upon
information furnished in writing to the Company by or on behalf of such
holder for any such use.
Promptly upon receipt by a party indemnified under this
subsection (g) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be
sought against any indemnifying party under this subsection, such
indemnified party shall notify the indemnifying party in writing of the
commencement of such action, but the failure so to notify the
indemnifying party shall not relieve it of any liability which it may
have to any indemnified party otherwise than under this subsection. In
case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with
any other indemnifying party similarly notified, to assume the defense
of such action at its own expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party shall
have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such
counsel (other than reasonable costs of investigation) shall be paid by
the indemnified party unless the indemnifying party either agrees to
pay the
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<PAGE> 9
same or fails to assume the defense of such action with counsel
satisfactory to the indemnified party. No indemnifying party shall be
liable for any settlement entered into without its consent.
(h) The holder of this Warrant or any Underlying Shares agrees
that it will not sell or otherwise transfer any Underlying Shares for a
period of 90 days following any underwritten public offering of Common
Stock by the Company.
(i) The Company's obligation to register Underlying Share
under this Section 8 shall be subject to the condition that each holder
of Underlying Shares participating in any registered offering shall
have provided such information and executed such documents not
inconsistent with the terms of this Warrant, as may be requested by the
Company in connection with such registration.
9. MISCELLANEOUS.
(a) NO RIGHTS AS STOCKHOLDER. No holder of the Warrant or
Warrants shall be entitled to vote or receive dividends or be deemed
the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the holder
of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until the Warrant
or Warrants shall have been exercised and the shares purchasable upon
the exercise hereof shall have become deliverable, as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or
destruction on delivery of an indemnity agreement or bond reasonably
satisfactory in form and amount to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company,
at its expense, will execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor.
(c) NOTICE OF CAPITAL CHANGES. In case:
(i) the Company shall declare any dividend or
distribution payable to the holders of its Common Stock;
(ii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company
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<PAGE> 10
with, or sale of all or substantially all of its assets to,
another corporation or business organization; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the
holder of this Warrant written notice, in the manner set forth in
Section 9(d) below, of the date on which a record shall be taken for
such dividend or distribution or for determining stockholders entitled
to vote upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up and of the date
when any such transaction shall take place, as the case may be. Such
written notice shall be given at least 30 days prior to the transaction
in question and not less than 20 days prior to the record date in
respect thereof.
(d) NOTICE. Any notice given to either party under this
Agreement shall be in writing, and any notice hereunder shall be deemed
to have been given upon delivery, addressed to the Company at its
principal executive offices and to the holder at its address set forth
in the Company's books and records or at such other address as the
holder may have provided to the Company in writing.
(e) NO IMPAIRMENT. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Company, but will at all times in good faith assist in the
carrying out of all the provisions in this Warrant.
(f) GOVERNING LAW. This Warrant shall be governed by and
construed under the laws of the Commonwealth of Massachusetts.
This Warrant is executed as of this 15th day of January, 1998.
AMERICAN TRAINING GROUP, INC.
By:____________________________
Name:__________________________
Title:_________________________
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<PAGE> 11
EXHIBIT 1
NOTICE OF EXERCISE
To: AMERICAN TRAINING GROUP, INC.
1. The undersigned hereby elects to purchase _____ shares of the Common
Stock of American Training Group, Inc. (the "Company") pursuant to the terms of
the attached Warrant, and [check box] [ ] tenders herewith payment of the
purchase price of such shares in full, [ ] sells, assigns and transfers to the
Company all of the rights of the undersigned under the attached Warrant, with
respect to the number of shares of Common Stock covered by such Warrant
sufficient to pay the purchase price in full.
2. Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below.
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
3. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
-------------------------------
Signature
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into effective as of _______________
by and among Provant, Inc., a Delaware corporation (including, for purposes of
Sections 5(c) and (d), 7, 8, 9 and 12(a), its direct and indirect subsidiaries,
the "Company"), and Rajiv Bhatt of Boston, Massachusetts (the "Executive").
In consideration of the mutual promises, terms, provisions and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. TERM. Subject to earlier termination as hereafter provided, the
Executive's employment hereunder shall be for a term of three (3) years,
commencing effective upon the closing of the Company's initial public offering
(the "IPO") of its common stock, $.01 par value per share (the "Effective
Date"). The term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof."
3. CAPACITY AND PERFORMANCE.
(a) During the term hereof, the Executive shall serve as the
Senior Vice President, Treasurer and Chief Accounting Officer of the
Company. In addition, and without further compensation, the Executive
shall serve as a director and/or officer of the Company and/or one or
more of the Company's subsidiaries if so elected or appointed from time
to time.
(b) During the term hereof, the Executive shall be employed by
the Company on a full-time basis, shall have all powers and duties
consistent with his position as the Senior Vice President, Treasurer
and Chief Accounting Officer of the Company, subject to the direction
and control of the Company's Board of Directors (the "Board") and the
Chief Financial Officer of the Company or its or his designees
consistent with the Executive's office as set forth above, and shall
perform such other duties and responsibilities on behalf of the Company
and its subsidiaries as may reasonably be designated from time to time
by the Board and the Chief Financial Officer of the Company or its or
his designees consistent with the Executive's office as set forth
above.
(c) During the term hereof, the Executive shall devote
substantially all of his full business time and his best efforts,
business judgment, skill and knowledge to the advancement of the
business and interests of the Company and to the discharge of his
duties and responsibilities hereunder. The Executive shall not engage
in any other business activity or serve in any
<PAGE> 2
industry, trade, professional, governmental or academic position during
the term of this Agreement, except (i) as set forth on Schedule 1
hereto, or (ii) as may be expressly approved in advance by the Board in
writing or to the extent that any such activity or service does not
materially and adversely affect the discharge of his duties and
responsibilities hereunder.
(d) The Company shall not require the Executive to relocate or
reassign the Executive to any location beyond a fifty (50) mile radius
of the location of the Company's headquarters as of the date hereof,
nor shall the Executive's duties hereunder be materially changed,
without the Executive's prior written consent.
4. COMPENSATION AND BENEFITS. As compensation for all services
performed by the Executive under and during the term hereof and subject to
performance of the Executive's duties and obligations, pursuant to this
Agreement or otherwise:
(a) BASE SALARY. During the term hereof, the Company shall pay
the Executive a base salary at the rate of Two Hundred Thousand Dollars
($200,000) per annum, payable in accordance with the payroll practices
of the Company for its executives and subject to increase from time to
time by the Board or a compensation committee of the Board in its sole
discretion. Such base salary, as from time to time increased, is
hereafter referred to as the "Base Salary".
(b) BONUS COMPENSATION. The Executive shall be entitled to
participate in such bonus plan as the Company provides to its
executives generally, in accordance with the terms of that plan, as
amended by the Company from time to time, pursuant to which the
Executive may receive a bonus of up to forty percent (40%) of his then
Base Salary.
(c) VACATIONS. During the term hereof, the Executive shall be
entitled to four (4) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, subject to
the reasonable business needs of the Company. Vacation time shall not
cumulate from year to year.
(d) OTHER BENEFITS. During the term hereof and subject to any
contribution therefor generally required of employees of the Company,
the Executive shall be entitled to participate in any and all employee
benefit plans from time to time in effect for employees of the Company
generally, except to the extent such plans are in a category of benefit
(including without limitation bonus compensation and severance
compensation) otherwise provided to the Executive. Such participation
shall be subject to (i) the terms of the applicable plan documents,
(ii) generally applicable Company policies and (iii) the
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<PAGE> 3
discretion of the Board or any administrative or other committee
provided for in or contemplated by such plan. The Company may alter,
modify, add to or delete any of the employee benefit plans maintained
for its employees generally at any time as it, in its sole judgment,
determines to be appropriate, without recourse by the Executive. On the
date of the final prospectus used in connection with the IPO, the
Executive shall receive an option under the Company's 1998 Equity
Incentive Plan (the "1998 Plan") to purchase 50,000 shares of common
stock of the Company, at an exercise price equal to the price at which
the common stock is offered in the IPO and, to the extent provided in
the 1998 Plan or the option agreement entered into with respect to such
option, exercisable with respect to one-third of the shares issuable
thereunder on each of the first three anniversaries of the closing of
the IPO.
(e) BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary business expenses incurred
or paid by the Executive in the performance of his duties and
responsibilities hereunder, subject to any maximum annual limit and
other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. Notwithstanding
the provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term hereof under the following
circumstances:
(a) DEATH. In the event of the Executive's death during the
term hereof, the Executive's employment hereunder shall immediately and
automatically terminate. In that event, the Company shall pay to the
Executive's designated beneficiary or, if no beneficiary has been
designated by the Executive, to his estate, any earned and unpaid Base
Salary, prorated through the date of his death.
(b) DISABILITY.
(i) The Company may terminate the Executive's employment
hereunder, upon notice to the Executive, in the event that the
Executive becomes disabled during his employment hereunder through
any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for
ninety (90) days during any period of three hundred sixty-five
(365) consecutive calendar days.
(ii) The Board may designate another employee to act
in the Executive's place during any period of the Executive's
disability.
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<PAGE> 4
Notwithstanding any such designation, the Executive shall continue
to receive the Base Salary in accordance with Section 4(a) and his
other benefits pursuant to Section 4(d), to the extent permitted
by the then-current terms of the applicable benefit plans until
the Executive becomes eligible for disability income benefits
under any disability income plan provided by the Company or until
the termination of his employment, whichever shall first occur.
(iii) If any question shall arise as to whether, during
any period, the Executive is disabled through any illness, injury,
accident or condition of either a physical or psychological nature
such that he is unable to perform substantially all of his duties
and responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination by a
physician selected by the Company to whom the Executive or his
duly appointed guardian, if any, has no reasonable objection, to
determine whether the Executive is so disabled, and such
determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the
Executive.
(c) By the Company for Cause. The Company may terminate the
Executive's employment hereunder for Cause at any time upon notice to
the Executive setting forth in reasonable detail the nature of such
Cause. The following, as determined by the Board in its reasonable and
good faith judgment, shall constitute Cause for termination: (i)
conviction in a court of law of any felony or a plea of NOLO CONTENDERE
to such an offense, (ii) commission of any act involving theft,
embezzlement, fraud, dishonesty or moral turpitude which act relates to
or otherwise has an adverse effect (including through publicity) on the
Company, (iii) material breach of any of the material provisions of
this Agreement (other than breaches of the nature described in clause
(iv) below) or of any other material agreement between the Executive
and the Company, or (iv) repeated and consistent willful misconduct or
dereliction of duty in the performance of his duties under this
Agreement, or repeated and consistent failure to be present at work,
which conduct or failure continues for more than thirty (30) days after
notice given to the Executive, such notice to set forth in reasonable
detail the nature of such conduct or failure. Upon the giving of notice
of termination of the Executive's employment hereunder for Cause, the
Company shall not have any further obligation or liability to the
Executive, other than for Base Salary earned and unpaid, accrued
vacation time and unreimbursed business expenses outstanding at the
date of termination.
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<PAGE> 5
(d) SEVERANCE PAYMENTS UPON EXPIRATION. If the Executive shall
cease to be employed by the Company upon the expiration of this
Agreement, the Executive shall be entitled, subject to the immediately
following sentence, to receive as a severance benefit periodic payments
in an amount equal to his Base Salary in effect at the date of such
expiration divided by the number of payroll periods per year then
applicable to executives of the Company (hereinafter, "Severance
Payments"), for a period of six months from and after the date of such
expiration. The Executive's rights to receive Severance Payments
hereunder is conditioned upon (X) the Executive's prior execution and
delivery to the Company of a general release of any and all claims and
causes of action of the Executive against the Company and the Company's
and its subsidiaries' officers and directors, excepting only the right
to any Base Salary and/or reimbursable expenses then accrued and unpaid
under Section 4 of this Agreement, and (Y) the Executive's continued
performance of those obligations hereunder that continue by their
express terms after the termination of his employment, including
without limitation those set forth in Sections 7 and 8. Any Severance
Payments to be paid hereunder shall be payable in accordance with the
payroll practices of the Company for its executives generally as in
effect from time to time, and subject to all required withholding of
taxes.
6. EFFECT OF TERMINATION. Upon termination of this Agreement, all
obligations and provisions of this Agreement shall terminate except with respect
to any accrued and unpaid monetary obligations and except for the provisions of
Section 7 through (and inclusive of) 22 hereof.
7. COVENANT NOT TO COMPETE. Provided only that the Company is not
then in default on its payment obligations under this Agreement, for a period of
five (5) years from the Effective Date the Executive will not engage or become
interested, directly or indirectly, as an owner, employee, director, partner,
consultant, through stock ownership, investment of capital, lending of money or
property, rendering of services, or otherwise, either alone or in association
with others, in the operation, management or supervision of any type of business
or enterprise in any way similar to or competitive with the business of the
Company. In addition, during such period the Executive will not, directly or
indirectly, whether on his behalf or on behalf of anyone else, (i) solicit or
accept orders from any present or past customer of the Company for a product or
service offered or sold by, or competitive with a product or service offered or
sold by, the Company; (ii) induce or attempt to induce any such customer to
reduce such customer's purchases from the Company; (iii) use for the benefit of
the Executive or disclose the name and/or requirements of any such customer to
any other person or persons, natural or corporate; or (iv) solicit any of the
Company's employees or consultants to leave the employ of the Company or hire
anyone who was an employee of the Company or a consultant to the Company at any
time within one year prior to the date the Executive's employment with the
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<PAGE> 6
Company terminated. The foregoing restrictions shall not prevent the Executive
from hiring or otherwise engaging any professional firm.
8. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company will
continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company and that the Executive
may learn of Confidential Information during the course of employment.
The Executive agrees that, except as required for the proper
performance of his duties for the Company, he will not, directly or
indirectly, use or disclose any Confidential Information, as defined
below. The Executive understands and agrees that this restriction will
continue to apply after his employment terminates, regardless of the
reason for termination.
(b) The Executive agrees that all Confidential Information
which he creates or to which he has access as a result of his
employment is and shall remain the sole and exclusive property of the
Company. Except as required for the proper performance of his duties,
the Executive will not copy any documents, tapes or other media
containing Confidential Information ("Documents") or remove any
Documents, or copies, from Company premises. The Executive will return
to the Company immediately after his employment terminates, and at such
other times as may be specified by the Company, all Documents and
copies and all other property of the Company then in his possession or
control.
9. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Executive further agrees that all goodwill of the Company is its exclusive
property. The Executive further acknowledges and agrees that, were he to breach
any of the covenants contained in Section 7 or 8 hereof, the damage would be
irreparable. The Executive therefore agrees that the Company, in addition to any
other remedies available to it, shall be entitled to preliminary and permanent
injunctive relief against any breach or threatened breach by the Executive of
any of said covenants, without having to post bond, provided the Company has
made a prima facie showing of such a breach or threatened breach.
10. INDEMNIFICATION. Subject to the second sentence of this
Section 10, the Company agrees to indemnify the Executive against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, together with counsel fees, in each
case reasonably incurred by him in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, in which he may
be involved or with which he may be
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<PAGE> 7
threatened during the term of this Agreement or thereafter, in each case to the
extent incurred by reason of his serving or having served (a) as an executive
officer or director of the Company, or (b) at its request as a director or
executive officer of any organization in which the Company directly or
indirectly owns shares or of which it is directly or indirectly a creditor, or
(c) at its request in any capacity with respect to any employee benefit plan.
Notwithstanding the immediately preceding sentence, the Company shall not
indemnify the Executive if the Executive (i) did not act in good faith and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, or (ii) with respect to any criminal action or
proceeding, had reasonable cause to believe that the Executive's conduct was
unlawful. The Company shall purchase and maintain in force directors' and
officers' liability insurance having policy limits and other terms reasonably
determined by the Company's Board of Directors.
11. CONFLICTING AGREEMENTS. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which the Executive is a party or is bound and that the Executive is not
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Executive will not
disclose or use any proprietary information of a third party without such
party's consent.
12. DEFINITIONS. Words or phrases which are initially capitalized or
are within quotation marks shall have the meanings provided in this Section 12
and as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
(a) "Confidential Information" means any and all information,
inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, concepts, products,
projects, improvements and developments that are not generally known by
others, developed by or known to the Executive prior to or during the
term of this Agreement and relating in any material respect to the
Company, including its business, products or services (or learned by
the Executive after the term hereof from a source known to the
Executive to be violating an obligation to the Company not to disclose
the same) or that are developed by the Executive during the term of
this Agreement and that have applicability to the business, products or
services of the Company, including but not limited to (i) products and
services, technical data, methods and processes, (ii) marketing
activities and strategic plans, (iii) costs and sources of supply, (iv)
the identity and special needs of customers and prospective customers
and vendors and prospective vendors, and (v) the people and
organizations with whom the Company has or plans to have business
relationships and those relationships. Confidential Information also
includes such information that the Company
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<PAGE> 8
may receive or has received belonging to customers or others who do
business with the Company and any publication or literary creation of
the Executive, developed in whole or in significant part during the
term hereof, in whatever form published, whose content in whole or in
part is competitive in any material respect with the products or
services offered by the Company (including as such products or services
could reasonably be expected to evolve or be extended in the
foreseeable future).
(b) "Person" means an individual, a corporation, an
association, a partnership, an estate, a trust and any other entity or
organization.
13. WITHHOLDING. All payments made under this Agreement shall be
reduced by any tax or other amounts required to be withheld under applicable
law.
14. ASSIGNMENT. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person unless the Executive shall object in writing to such assignment
within 60 days following the effective date thereof, in which event the
Executive's sole remedy shall be to terminate this Agreement, which termination
shall have the effect set forth in Section 6 hereof. This Agreement shall inure
to the benefit of and be binding upon the Company and the Executive, and their
respective successors, executors, administrators, heirs and permitted assigns.
15. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. WAIVER. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this Agreement,
or the waiver by either party of any breach of this Agreement, shall not
prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.
17. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
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effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at his
last known address on the books of the Company or, in the case of the Company,
at the Company's principal place of business, to the attention of the Chief
Executive Officer, or to such other address as either party may specify by
notice to the other actually received.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment, including without limitation any agreements relating to
employment between the Executive and any corporate predecessor or promoter of
the Company, any such agreement being hereby terminated by the mutual agreement
of the parties without liability to either party.
19. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
20. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. GOVERNING LAW. This Agreement shall be construed and enforced
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws principles thereof.
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<PAGE> 10
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Executive and by the Company by its respective duly authorized
representative, as of the date first above written.
Executive: PROVANT, INC.
_______________________________ By: _______________________
Rajiv Bhatt Name:
Title:
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<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into effective as of _______________
by and among Provant, Inc., a Delaware corporation (including, for purposes of
Sections 5(c) and (d), 7, 8, 9 and 12(a), its direct and indirect subsidiaries,
the "Company"), and Philip Gardner of Boston, Massachusetts (the "Executive").
In consideration of the mutual promises, terms, provisions and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. TERM. Subject to earlier termination as hereafter provided, the
Executive's employment hereunder shall be for a term of three (3) years,
commencing effective upon the closing of the Company's initial public offering
(the "IPO") of its common stock, $.01 par value per share (the "Effective
Date"). The term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof."
3. CAPACITY AND PERFORMANCE.
(a) During the term hereof, the Executive shall serve as the
Vice President of the Company. In addition, and without further
compensation, the Executive shall serve as a director and/or officer of
the Company and/or one or more of the Company's subsidiaries if so
elected or appointed from time to time.
(b) During the term hereof, the Executive shall be employed by
the Company on a full-time basis, shall have all powers and duties
consistent with his position as the Vice President of the Company,
subject to the direction and control of the Company's Board of
Directors (the "Board") and the Chief Executive Officer of the Company
or its or his designees consistent with the Executive's office as set
forth above, and shall perform such other duties and responsibilities
on behalf of the Company and its subsidiaries as may reasonably be
designated from time to time by the Board and the Chief Executive
Officer of the Company or its or his designees consistent with the
Executive's office as set forth above.
(c) During the term hereof, the Executive shall devote
substantially all of his full business time and his best efforts,
business judgment, skill and knowledge to the advancement of the
business and interests of the Company and to the discharge of his
duties and responsibilities hereunder. The Executive shall not engage
in any
<PAGE> 2
other business activity or serve in any industry, trade, professional,
governmental or academic position during the term of this Agreement,
except (i) as set forth on Schedule 1 hereto, or (ii) as may be
expressly approved in advance by the Board in writing or to the extent
that any such activity or service does not materially and adversely
affect the discharge of his duties and responsibilities hereunder.
(d) The Company shall not require the Executive to relocate or
reassign the Executive to any location beyond a fifty (50) mile radius
of the location of the Company's headquarters as of the date hereof,
nor shall the Executive's duties hereunder be materially changed,
without the Executive's prior written consent.
4. COMPENSATION AND BENEFITS. As compensation for all services
performed by the Executive under and during the term hereof and subject to
performance of the Executive's duties and obligations, pursuant to this
Agreement or otherwise:
(a) BASE SALARY. During the term hereof, the Company shall pay
the Executive a base salary at the rate of One Hundred Twenty-Five
Thousand Dollars ($125,000) per annum, payable in accordance with the
payroll practices of the Company for its executives and subject to
increase from time to time by the Board or a compensation committee of
the Board in its sole discretion. Such base salary, as from time to
time increased, is hereafter referred to as the "Base Salary".
(b) BONUS COMPENSATION. The Executive shall be entitled to
participate in such bonus plan as the Company provides to its
executives generally, in accordance with the terms of that plan, as
amended by the Company from time to time, pursuant to which the
Executive may receive a bonus of up to forty percent (40%) of his then
Base Salary.
(c) VACATIONS. During the term hereof, the Executive shall be
entitled to four (4) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, subject to
the reasonable business needs of the Company. Vacation time shall not
cumulate from year to year.
(d) OTHER BENEFITS. During the term hereof and subject to any
contribution therefor generally required of employees of the Company,
the Executive shall be entitled to participate in any and all employee
benefit plans from time to time in effect for employees of the Company
generally, except to the extent such plans are in a category of benefit
(including without limitation bonus compensation and severance
compensation) otherwise provided to the Executive. Such participation
shall be subject to (i) the terms of the applicable plan documents,
(ii) generally applicable Company policies and (iii) the
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discretion of the Board or any administrative or other committee
provided for in or contemplated by such plan. The Company may alter,
modify, add to or delete any of the employee benefit plans maintained
for its employees generally at any time as it, in its sole judgment,
determines to be appropriate, without recourse by the Executive. On the
date of the final prospectus used in connection with the IPO, the
Executive shall receive an option under the Company's 1998 Equity
Incentive Plan (the "1998 Plan") to purchase 50,000 shares of common
stock of the Company, at an exercise price equal to the price at which
the common stock is offered in the IPO and, to the extent provided in
the 1998 Plan or the option agreement entered into with respect to such
option, exercisable with respect to one-third of the shares issuable
thereunder on each of the first three anniversaries of the closing of
the IPO.
(e) Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable and necessary business expenses incurred
or paid by the Executive in the performance of his duties and
responsibilities hereunder, subject to any maximum annual limit and
other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. Notwithstanding
the provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term hereof under the following
circumstances:
(a) DEATH. In the event of the Executive's death during the
term hereof, the Executive's employment hereunder shall immediately and
automatically terminate. In that event, the Company shall pay to the
Executive's designated beneficiary or, if no beneficiary has been
designated by the Executive, to his estate, any earned and unpaid Base
Salary, prorated through the date of his death.
(b) DISABILITY.
(i) The Company may terminate the Executive's employment
hereunder, upon notice to the Executive, in the event that the
Executive becomes disabled during his employment hereunder through
any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for
ninety (90) days during any period of three hundred sixty-five
(365) consecutive calendar days.
(ii) The Board may designate another employee to act in
the Executive's place during any period of the Executive's
disability.
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Notwithstanding any such designation, the Executive shall continue
to receive the Base Salary in accordance with Section 4(a) and his
other benefits pursuant to Section 4(d), to the extent permitted
by the then-current terms of the applicable benefit plans until
the Executive becomes eligible for disability income benefits
under any disability income plan provided by the Company or until
the termination of his employment, whichever shall first occur.
(iii) If any question shall arise as to whether, during
any period, the Executive is disabled through any illness, injury,
accident or condition of either a physical or psychological nature
such that he is unable to perform substantially all of his duties
and responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination by a
physician selected by the Company to whom the Executive or his
duly appointed guardian, if any, has no reasonable objection, to
determine whether the Executive is so disabled, and such
determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the
Executive.
(c) BY THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause at any time upon notice to
the Executive setting forth in reasonable detail the nature of such
Cause. The following, as determined by the Board in its reasonable and
good faith judgment, shall constitute Cause for termination: (i)
conviction in a court of law of any felony or a plea of NOLO CONTENDERE
to such an offense, (ii) commission of any act involving theft,
embezzlement, fraud, dishonesty or moral turpitude which act relates to
or otherwise has an adverse effect (including through publicity) on the
Company, (iii) material breach of any of the material provisions of
this Agreement (other than breaches of the nature described in clause
(iv) below) or of any other material agreement between the Executive
and the Company, or (iv) repeated and consistent willful misconduct or
dereliction of duty in the performance of his duties under this
Agreement, or repeated and consistent failure to be present at work,
which conduct or failure continues for more than thirty (30) days after
notice given to the Executive, such notice to set forth in reasonable
detail the nature of such conduct or failure. Upon the giving of notice
of termination of the Executive's employment hereunder for Cause, the
Company shall not have any further obligation or liability to the
Executive, other than for Base Salary earned and unpaid, accrued
vacation time and unreimbursed business expenses outstanding at the
date of termination.
(d) SEVERANCE PAYMENTS UPON EXPIRATION. If the Executive shall
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<PAGE> 5
cease to be employed by the Company upon the expiration of this
Agreement, the Executive shall be entitled, subject to the immediately
following sentence, to receive as a severance benefit periodic payments
in an amount equal to his Base Salary in effect at the date of such
expiration divided by the number of payroll periods per year then
applicable to executives of the Company (hereinafter, "Severance
Payments"), for a period of six months from and after the date of such
expiration. The Executive's rights to receive Severance Payments
hereunder is conditioned upon (X) the Executive's prior execution and
delivery to the Company of a general release of any and all claims and
causes of action of the Executive against the Company and the Company's
and its subsidiaries' officers and directors, excepting only the right
to any Base Salary and/or reimbursable expenses then accrued and unpaid
under Section 4 of this Agreement, and (Y) the Executive's continued
performance of those obligations hereunder that continue by their
express terms after the termination of his employment, including
without limitation those set forth in Sections 7 and 8. Any Severance
Payments to be paid hereunder shall be payable in accordance with the
payroll practices of the Company for its executives generally as in
effect from time to time, and subject to all required withholding of
taxes.
6. EFFECT OF TERMINATION. Upon termination of this Agreement, all
obligations and provisions of this Agreement shall terminate except with respect
to any accrued and unpaid monetary obligations and except for the provisions of
Section 7 through (and inclusive of) 22 hereof.
7. COVENANT NOT TO COMPETE. Provided only that the Company is not
then in default on its payment obligations under this Agreement, for a period of
five (5) years from the Effective Date the Executive will not engage or become
interested, directly or indirectly, as an owner, employee, director, partner,
consultant, through stock ownership, investment of capital, lending of money or
property, rendering of services, or otherwise, either alone or in association
with others, in the operation, management or supervision of any type of business
or enterprise in any way similar to or competitive with the business of the
Company. In addition, during such period the Executive will not, directly or
indirectly, whether on his behalf or on behalf of anyone else, (i) solicit or
accept orders from any present or past customer of the Company for a product or
service offered or sold by, or competitive with a product or service offered or
sold by, the Company; (ii) induce or attempt to induce any such customer to
reduce such customer's purchases from the Company; (iii) use for the benefit of
the Executive or disclose the name and/or requirements of any such customer to
any other person or persons, natural or corporate; or (iv) solicit any of the
Company's employees or consultants to leave the employ of the Company or hire
anyone who was an employee of the Company or a consultant to the Company at any
time within one year prior to the date the Executive's employment with the
Company terminated. The foregoing restrictions shall not prevent the Executive
from
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hiring or otherwise engaging any professional firm.
8. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company will
continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company and that the Executive
may learn of Confidential Information during the course of employment.
The Executive agrees that, except as required for the proper
performance of his duties for the Company, he will not, directly or
indirectly, use or disclose any Confidential Information, as defined
below. The Executive understands and agrees that this restriction will
continue to apply after his employment terminates, regardless of the
reason for termination.
(b) The Executive agrees that all Confidential Information
which he creates or to which he has access as a result of his
employment is and shall remain the sole and exclusive property of the
Company. Except as required for the proper performance of his duties,
the Executive will not copy any documents, tapes or other media
containing Confidential Information ("Documents") or remove any
Documents, or copies, from Company premises. The Executive will return
to the Company immediately after his employment terminates, and at such
other times as may be specified by the Company, all Documents and
copies and all other property of the Company then in his possession or
control.
9. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Executive further agrees that all goodwill of the Company is its exclusive
property. The Executive further acknowledges and agrees that, were he to breach
any of the covenants contained in Section 7 or 8 hereof, the damage would be
irreparable. The Executive therefore agrees that the Company, in addition to any
other remedies available to it, shall be entitled to preliminary and permanent
injunctive relief against any breach or threatened breach by the Executive of
any of said covenants, without having to post bond, provided the Company has
made a prima facie showing of such a breach or threatened breach.
10. INDEMNIFICATION. Subject to the second sentence of this
Section 10, the Company agrees to indemnify the Executive against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, together with counsel fees, in each
case reasonably incurred by him in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, in which he may
be involved or with which he may be threatened during the term of this Agreement
or thereafter, in each case to the extent
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<PAGE> 7
incurred by reason of his serving or having served (a) as an executive officer
or director of the Company, or (b) at its request as a director or executive
officer of any organization in which the Company directly or indirectly owns
shares or of which it is directly or indirectly a creditor, or (c) at its
request in any capacity with respect to any employee benefit plan.
Notwithstanding the immediately preceding sentence, the Company shall not
indemnify the Executive if the Executive (i) did not act in good faith and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, or (ii) with respect to any criminal action or
proceeding, had reasonable cause to believe that the Executive's conduct was
unlawful. The Company shall purchase and maintain in force directors' and
officers' liability insurance having policy limits and other terms reasonably
determined by the Company's Board of Directors.
11. CONFLICTING AGREEMENTS. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which the Executive is a party or is bound and that the Executive is not
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Executive will not
disclose or use any proprietary information of a third party without such
party's consent.
12. DEFINITIONS. Words or phrases which are initially capitalized or
are within quotation marks shall have the meanings provided in this Section 12
and as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
(a) "Confidential Information" means any and all information,
inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, concepts, products,
projects, improvements and developments that are not generally known by
others, developed by or known to the Executive prior to or during the
term of this Agreement and relating in any material respect to the
Company, including its business, products or services (or learned by
the Executive after the term hereof from a source known to the
Executive to be violating an obligation to the Company not to disclose
the same) or that are developed by the Executive during the term of
this Agreement and that have applicability to the business, products or
services of the Company, including but not limited to (i) products and
services, technical data, methods and processes, (ii) marketing
activities and strategic plans, (iii) costs and sources of supply, (iv)
the identity and special needs of customers and prospective customers
and vendors and prospective vendors, and (v) the people and
organizations with whom the Company has or plans to have business
relationships and those relationships. Confidential Information also
includes such information that the Company may receive or has received
belonging to customers or others who do business
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with the Company and any publication or literary creation of the
Executive, developed in whole or in significant part during the term
hereof, in whatever form published, whose content in whole or in part
is competitive in any material respect with the products or services
offered by the Company (including as such products or services could
reasonably be expected to evolve or be extended in the foreseeable
future).
(b) "Person" means an individual, a corporation, an
association, a partnership, an estate, a trust and any other entity or
organization.
13. WITHHOLDING. All payments made under this Agreement shall be
reduced by any tax or other amounts required to be withheld under applicable
law.
14. ASSIGNMENT. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person unless the Executive shall object in writing to such assignment
within 60 days following the effective date thereof, in which event the
Executive's sole remedy shall be to terminate this Agreement, which termination
shall have the effect set forth in Section 6 hereof. This Agreement shall inure
to the benefit of and be binding upon the Company and the Executive, and their
respective successors, executors, administrators, heirs and permitted assigns.
15. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. WAIVER. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this Agreement, or
the waiver by either party of any breach of this Agreement, shall not prevent
any subsequent enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
17. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
effective when delivered in person or deposited in the United States mail,
postage
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prepaid, registered or certified, and addressed to the Executive at his last
known address on the books of the Company or, in the case of the Company, at the
Company's principal place of business, to the attention of Chief Executive
Officer, or to such other address as either party may specify by notice to the
other actually received.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment, including without limitation any agreements relating to
employment between the Executive and any corporate predecessor or promoter of
the Company, any such agreement being hereby terminated by the mutual agreement
of the parties without liability to either party.
19. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
20. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. GOVERNING LAW. This Agreement shall be construed and enforced
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws principles thereof.
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Executive and by the Company by its respective duly authorized
representative, as of the date first above written.
Executive: PROVANT, INC.
_______________________________ By: _____________________________
Philip Gardner Name:
Title:
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<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into effective as of ______________
by and among Provant, Inc., a Delaware corporation (including, for purposes of
Sections 5(c) and (d), 7, 8, 9 and 12(a), its direct and indirect subsidiaries,
the "Company"), and Dominic J. Puopolo of Boston, Massachusetts (the
"Executive").
In consideration of the mutual promises, terms, provisions and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. TERM. Subject to earlier termination as hereafter provided, the
Executive's employment hereunder shall be for a term of three (3) years,
commencing effective upon the closing of the Company's initial public offering
(the "IPO") of its common stock, $.01 par value per share (the "Effective
Date"). The term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof."
3. CAPACITY AND PERFORMANCE.
(a) During the term hereof, the Executive shall serve as the
Executive Vice President and Chief Financial Officer of the Company. In
addition, and without further compensation, the Executive shall serve
as a director and/or officer of the Company and/or one or more of the
Company's subsidiaries if so elected or appointed from time to time.
The Company and the Executive acknowledge that the Executive currently
is a director of the Company.
(b) During the term hereof, the Executive shall be employed by
the Company on a full-time basis, shall have all powers and duties
consistent with his position as the Executive Vice President and Chief
Financial Officer of the Company, subject to the direction and control
of the Company's Board of Directors (the "Board") and the Chief
Executive Officer of the Company or its or his designees consistent
with the Executive's office as set forth above, and shall perform such
other duties and responsibilities on behalf of the Company and its
subsidiaries as may reasonably be designated from time to time by the
Board and the Chief Executive Officer of the Company or its or his
designees consistent with the Executive's office as set forth above.
(c) During the term hereof, the Executive shall devote
substantially all of his full business time and his best efforts,
business judgment, skill and knowledge to the advancement of the
business and interests of the Company and to the discharge of his
duties and responsibilities hereunder. The
<PAGE> 2
Executive shall not engage in any other business activity or serve in
any industry, trade, professional, governmental or academic position
during the term of this Agreement, except (i) as set forth on Schedule
1 hereto, or (ii) as may be expressly approved in advance by the Board
in writing or to the extent that any such activity or service does not
materially and adversely affect the discharge of his duties and
responsibilities hereunder.
(d) The Company shall not require the Executive to relocate or
reassign the Executive to any location beyond a fifty (50) mile radius
of the location of the Company's headquarters as of the date hereof,
nor shall the Executive's duties hereunder be materially changed,
without the Executive's prior written consent.
4. COMPENSATION AND BENEFITS. As compensation for all services
performed by the Executive under and during the term hereof and subject to
performance of the Executive's duties and obligations, pursuant to this
Agreement or otherwise:
(a) BASE SALARY. For the period of one (1) year from the
Effective Date (the "Initial Period"), the Company shall pay the
Executive a base salary at the rate of Fifty Thousand Dollars ($50,000)
per annum, payable in accordance with the payroll practices of the
Company for its executives. Following the Initial Period, the Company
shall pay the Executive a base salary at a rate determined by the Board
(or a compensation committee of the Board) in its sole discretion, and
subject to increase from time to time by the Board (or a compensation
committee of the Board) in its sole discretion. Such base salary, as
from time to time increased, is hereafter referred to as the "Base
Salary."
(b) BONUS COMPENSATION. The Executive shall be entitled to
participate in such bonus plan as the Company provides to its
executives generally, in accordance with the terms of that plan, as
amended by the Company from time to time. Following the period of one
(1) year from the Effective Date, the Executive may receive a bonus of
up to forty percent (40%) of his then Base Salary.
(c) VACATIONS. During the term hereof, the Executive shall be
entitled to four (4) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, subject to
the reasonable business needs of the Company. Vacation time shall not
cumulate from year to year.
(d) OTHER BENEFITS. During the term hereof and subject to any
contribution therefor generally required of employees of the Company,
the Executive shall be entitled to participate in any and all employee
benefit plans from time to time in effect for employees of the Company
generally, except to
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the extent such plans are in a category of benefit (including without
limitation bonus compensation and severance compensation) otherwise
provided to the Executive. Such participation shall be subject to (i)
the terms of the applicable plan documents, (ii) generally applicable
Company policies and (iii) the discretion of the Board or any
administrative or other committee provided for in or contemplated by
such plan. The Company may alter, modify, add to or delete any of the
employee benefit plans maintained for its employees generally at any
time as it, in its sole judgment, determines to be appropriate, without
recourse by the Executive. The Executive shall receive an option under
the Company's 1998 Equity Incentive Plan to purchase 44,092 shares of
common stock of the Company, at an exercise price equal to the price at
which the common stock is offered in the IPO and exercisable upon the
closing of the IPO.
(e) BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary business expenses incurred
or paid by the Executive in the performance of his duties and
responsibilities hereunder, subject to any maximum annual limit and
other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. Notwithstanding
the provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term hereof under the following
circumstances:
(a) DEATH. In the event of the Executive's death during the
term hereof, the Executive's employment hereunder shall immediately and
automatically terminate. In that event, the Company shall pay to the
Executive's designated beneficiary or, if no beneficiary has been
designated by the Executive, to his estate, any earned and unpaid Base
Salary, prorated through the date of his death.
(b) DISABILITY.
(i) The Company may terminate the Executive's employment
hereunder, upon notice to the Executive, in the event that the
Executive becomes disabled during his employment hereunder through
any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for
ninety (90) days during any period of three hundred sixty-five
(365) consecutive calendar days.
(ii) The Board may designate another employee to act in
the
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Executive's place during any period of the Executive's disability.
Notwithstanding any such designation, the Executive shall continue
to receive the Base Salary in accordance with Section 4(a) and his
other benefits pursuant to Section 4(d), to the extent permitted
by the then-current terms of the applicable benefit plans, until
the Executive becomes eligible for disability income benefits
under any disability income plan provided by the Company or until
the termination of his employment, whichever shall first occur.
(iii) If any question shall arise as to whether, during
any period, the Executive is disabled through any illness, injury,
accident or condition of either a physical or psychological nature
such that he is unable to perform substantially all of his duties
and responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination by a
physician selected by the Company to whom the Executive or his
duly appointed guardian, if any, has no reasonable objection, to
determine whether the Executive is so disabled, and such
determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the
Executive.
(c) BY THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause at any time upon notice to
the Executive setting forth in reasonable detail the nature of such
Cause. The following, as determined by the Board in its reasonable and
good faith judgment, shall constitute Cause for termination: (i)
conviction in a court of law of any felony or a plea of NOLO CONTENDERE
to such an offense, (ii) commission of any act involving theft,
embezzlement, fraud, dishonesty or moral turpitude which act relates to
or otherwise has an adverse effect (including through publicity) on the
Company, (iii) material breach of any of the material provisions of
this Agreement (other than breaches of the nature described in clause
(iv) below) or of any other material agreement between the Executive
and the Company, or (iv) repeated and consistent willful misconduct or
dereliction of duty in the performance of his duties under this
Agreement, or repeated and consistent failure to be present at work,
which conduct or failure continues for more than thirty (30) days after
notice given to the Executive, such notice to set forth in reasonable
detail the nature of such conduct or failure. Upon the giving of notice
of termination of the Executive's employment hereunder for Cause, the
Company shall not have any further obligation or liability to the
Executive, other than for Base Salary earned and unpaid, accrued
vacation time and unreimbursed business expenses outstanding at the
date of termination.
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(d) SEVERANCE PAYMENTS UPON EXPIRATION. If the Executive shall
cease to be employed by the Company upon the expiration of this
Agreement, the Executive shall be entitled, subject to the immediately
following sentence, to receive as a severance benefit periodic payments
in an amount equal to his Base Salary in effect at the date of such
expiration divided by the number of payroll periods per year then
applicable to executives of the Company (hereinafter, "Severance
Payments"), for a period of six months from and after the date of such
expiration. The Executive's rights to receive Severance Payments
hereunder is conditioned upon (X) the Executive's prior execution and
delivery to the Company of a general release of any and all claims and
causes of action of the Executive against the Company and the Company's
and its subsidiaries' officers and directors, excepting only the right
to any Base Salary and/or reimbursable expenses then accrued and unpaid
under Section 4 of this Agreement, and (Y) the Executive's continued
performance of those obligations hereunder that continue by their
express terms after the termination of his employment, including
without limitation those set forth in Sections 7 and 8. Any Severance
Payments to be paid hereunder shall be payable in accordance with the
payroll practices of the Company for its executives generally as in
effect from time to time, and subject to all required withholding of
taxes.
6. EFFECT OF TERMINATION. Upon termination of this Agreement, all
obligations and provisions of this Agreement shall terminate except with respect
to any accrued and unpaid monetary obligations and except for the provisions of
Section 7 through (and inclusive of) 22 hereof.
7. COVENANT NOT TO COMPETE. Provided only that the Company is not
then in default on its payment obligations under this Agreement, for a period
of five (5) years from the Effective Date the Executive will not engage or
become interested, directly or indirectly, as an owner, employee, director,
partner, consultant, through stock ownership, investment of capital, lending of
money or property, rendering of services, or otherwise, either alone or in
association with others, in the operation, management or supervision of any
type of business or enterprise in any way similar to or competitive with the
business of the Company. In addition, during such period the Executive will
not, directly or indirectly, whether on his behalf or on behalf of anyone else,
(i) solicit or accept orders from any present or past customer of the Company
for a product or service offered or sold by, or competitive with a product or
service offered or sold by, the Company; (ii) induce or attempt to induce any
such customer to reduce such customer's purchases from the Company; (iii) use
for the benefit of the Executive or disclose the name and/or requirements of
any such customer to any other person or persons, natural or corporate; or
(iv) solicit any of the Company's employees or consultants to leave the employ
of the Company or hire anyone who was an employee of the Company or a
consultant to the Company at any time within one year prior to the date the
Executive's employment with the
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Company terminated. The foregoing restrictions shall not prevent the Executive
from hiring or otherwise engaging any professional firm.
8. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company will
continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company and that the Executive
may learn of Confidential Information during the course of employment.
The Executive agrees that, except as required for the proper
performance of his duties for the Company, he will not, directly or
indirectly, use or disclose any Confidential Information, as defined
below. The Executive understands and agrees that this restriction will
continue to apply after his employment terminates, regardless of the
reason for termination.
(b) The Executive agrees that all Confidential Information
which he creates or to which he has access as a result of his
employment is and shall remain the sole and exclusive property of the
Company. Except as required for the proper performance of his duties,
the Executive will not copy any documents, tapes or other media
containing Confidential Information ("Documents") or remove any
Documents, or copies, from Company premises. The Executive will return
to the Company immediately after his employment terminates, and at such
other times as may be specified by the Company, all Documents and
copies and all other property of the Company then in his possession or
control.
9. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Executive further agrees that all goodwill of the Company is its exclusive
property. The Executive further acknowledges and agrees that, were he to breach
any of the covenants contained in Section 7 or 8 hereof, the damage would be
irreparable. The Executive therefore agrees that the Company, in addition to any
other remedies available to it, shall be entitled to preliminary and permanent
injunctive relief against any breach or threatened breach by the Executive of
any of said covenants, without having to post bond, provided the Company has
made a prima facie showing of such a breach or threatened breach.
10. INDEMNIFICATION. Subject to the second sentence of this
Section 10, the Company agrees to indemnify the Executive against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, together with counsel fees, in each
case reasonably incurred by him in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, in which he may
be involved or with which he may be
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threatened during the term of this Agreement or thereafter, in each case to the
extent incurred by reason of his serving or having served (a) as an executive
officer or director of the Company, or (b) at its request as a director or
executive officer of any organization in which the Company directly or
indirectly owns shares or of which it is directly or indirectly a creditor, or
(c) at its request in any capacity with respect to any employee benefit plan.
Notwithstanding the immediately preceding sentence, the Company shall not
indemnify the Executive if the Executive (i) did not act in good faith and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, or (ii) with respect to any criminal action or
proceeding, had reasonable cause to believe that the Executive's conduct was
unlawful. The Company shall purchase and maintain in force directors' and
officers' liability insurance having policy limits and other terms reasonably
determined by the Company's Board of Directors.
11. CONFLICTING AGREEMENTS. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which the Executive is a party or is bound and that the Executive is not
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Executive will not
disclose or use any proprietary information of a third party without such
party's consent.
12. DEFINITIONS. Words or phrases which are initially capitalized or
are within quotation marks shall have the meanings provided in this Section 12
and as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
(a) "Confidential Information" means any and all information,
inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, concepts, products,
projects, improvements and developments that are not generally known by
others, developed by or known to the Executive prior to or during the
term of this Agreement and relating in any material respect to the
Company, including its business, products or services (or learned by
the Executive after the term hereof from a source known to the
Executive to be violating an obligation to the Company not to disclose
the same) or that are developed by the Executive during the term of
this Agreement and that have applicability to the business, products or
services of the Company, including but not limited to (i) products and
services, technical data, methods and processes, (ii) marketing
activities and strategic plans, (iii) costs and sources of supply, (iv)
the identity and special needs of customers and prospective customers
and vendors and prospective vendors, and (v) the people and
organizations with whom the Company has or plans to have business
relationships and those relationships. Confidential Information also
includes such information that the Company
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<PAGE> 8
may receive or has received belonging to customers or others who do
business with the Company and any publication or literary creation of
the Executive, developed in whole or in significant part during the
term hereof, in whatever form published, whose content in whole or in
part is competitive in any material respect with the products or
services offered by the Company (including as such products or services
could reasonably be expected to evolve or be extended in the
foreseeable future).
(b) "Person" means an individual, a corporation, an
association, a partnership, an estate, a trust and any other entity or
organization.
13. WITHHOLDING. All payments made under this Agreement shall be
reduced by any tax or other amounts required to be withheld under applicable
law.
14. ASSIGNMENT. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person unless the Executive shall object in writing to such assignment
within 60 days following the effective date thereof, in which event the
Executive's sole remedy shall be to terminate this Agreement, which termination
shall have the effect set forth in Section 6 hereof. This Agreement shall inure
to the benefit of and be binding upon the Company and the Executive, and their
respective successors, executors, administrators, heirs and permitted assigns.
15. SEVERABILITY. If any portion or provision of this Agreement
shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. WAIVER. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this Agreement,
or the waiver by either party of any breach of this Agreement, shall not
prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.
17. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
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<PAGE> 9
effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at his
last known address on the books of the Company or, in the case of the Company,
at the Company's principal place of business, to the attention of the Chief
Executive Officer, or to such other address as either party may specify by
notice to the other actually received.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment, including without limitation any agreements relating to
employment between the Executive and any corporate predecessor or promoter of
the Company, any such agreement being hereby terminated by the mutual agreement
of the parties without liability to either party.
19. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
20. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. GOVERNING LAW. This Agreement shall be construed and enforced
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws principles thereof.
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Executive and by the Company by its duly authorized
representative, as of the date first above written.
Executive: PROVANT, INC.
_______________________________ By: ______________________
Dominic J. Puopolo Name:
Title:
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EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into effective as of _______________
by and among Provant, Inc., a Delaware corporation (including, for purposes of
Sections 5(c) and (d), 7, 8, 9 and 12(a), its direct and indirect subsidiaries,
the "Company"), and Paul M. Verrochi of Boston, Massachusetts (the "Executive").
In consideration of the mutual promises, terms, provisions and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. TERM. Subject to earlier termination as hereafter provided, the
Executive's employment hereunder shall be for a term of three (3) years,
commencing effective upon the closing of the Company's initial public offering
(the "IPO") of its common stock, $.01 par value per share (the "Effective
Date"). The term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof."
3. CAPACITY AND PERFORMANCE.
(a) During the term hereof, the Executive shall serve as the
Chief Executive Officer of the Company. In addition, and without
further compensation, the Executive shall serve as a director and/or
officer of the Company and/or one or more of the Company's subsidiaries
if so elected or appointed from time to time. The Company and the
Executive acknowledge that the Executive currently is a director of the
Company.
(b) During the term hereof, the Executive shall be employed by
the Company on a full-time basis, shall have all powers and duties
consistent with his position as the Chief Executive Officer of the
Company (including without limitation the power to conduct and direct
the day-to-day operations of the Company, the power to hire and dismiss
personnel, and those other powers customarily exercised by the Chief
Executive Officer of a publicly-held business), subject to the
direction and control of the Company's Board of Directors (the
"Board"), and shall perform such other duties and responsibilities on
behalf of the Company and its subsidiaries as may reasonably be
designated from time to time by the Board.
(c) During the term hereof, the Executive shall devote
substantially all of his full business time and his best efforts,
business judgment, skill and knowledge to the advancement of the
business and interests of the Company and to the discharge of his
duties and responsibilities hereunder. The
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Executive shall not engage in any other business activity or serve in
any industry, trade, professional, governmental or academic position
during the term of this Agreement, except (i) as set forth on Schedule
1 hereto, or (ii) as may be expressly approved in advance by the Board
in writing or to the extent that any such activity or service does not
materially and adversely affect the discharge of his duties and
responsibilities hereunder.
(d) The Company shall not require the Executive to relocate or
reassign the Executive to any location beyond a fifty (50) mile radius
of the location of the Company's headquarters as of the date hereof,
nor shall the Executive's duties hereunder be materially changed,
without the Executive's prior written consent.
4. COMPENSATION AND BENEFITS. As compensation for all services
performed by the Executive under and during the term hereof and subject to
performance of the Executive's duties and obligations, pursuant to this
Agreement or otherwise:
(a) BASE SALARY. For the period of one (1) year from the
Effective Date (the "Initial Period"), the Company shall pay the
Executive a base salary at the rate of Fifty Thousand Dollars ($50,000)
per annum, payable in accordance with the payroll practices of the
Company for its executives. Following the Initial Period, the Company
shall pay the Executive a base salary at a rate determined by the Board
(or a compensation committee of the Board) in its sole discretion, and
subject to increase from time to time by the Board (or a compensation
committee of the Board) in its sole discretion. Such base salary, as
from time to time increased, is hereafter referred to as the "Base
Salary."
(b) BONUS COMPENSATION. The Executive shall be entitled to
participate in such bonus plan as the Company provides to its
executives generally, in accordance with the terms of that plan, as
amended by the Company from time to time. Following the period of one
(1) year from the Effective Date, the Executive may receive a bonus of
up to forty percent (40%) of his then Base Salary.
(c) VACATIONS. During the term hereof, the Executive shall be
entitled to four (4) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, subject to
the reasonable business needs of the Company. Vacation time shall not
cumulate from year to year.
(d) OTHER BENEFITS. During the term hereof and subject to any
contribution therefor generally required of employees of the Company,
the Executive shall be entitled to participate in any and all employee
benefit plans from time to time in effect for employees of the Company
generally, except to
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the extent such plans are in a category of benefit (including without
limitation bonus compensation and severance compensation) otherwise
provided to the Executive. Such participation shall be subject to (i)
the terms of the applicable plan documents, (ii) generally applicable
Company policies and (iii) the discretion of the Board or any
administrative or other committee provided for in or contemplated by
such plan. The Company may alter, modify, add to or delete any of the
employee benefit plans maintained for its employees generally at any
time as it, in its sole judgment, determines to be appropriate, without
recourse by the Executive. The Executive shall receive an option under
the Company's 1998 Equity Incentive Plan to purchase 44,092 shares of
common stock of the Company, at an exercise price equal to the price at
which the common stock is offered in the IPO and exercisable upon the
closing of the IPO.
(e) BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary business expenses incurred
or paid by the Executive in the performance of his duties and
responsibilities hereunder, subject to any maximum annual limit and
other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. Notwithstanding
the provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term hereof under the following
circumstances:
(a) DEATH. In the event of the Executive's death during the
term hereof, the Executive's employment hereunder shall immediately and
automatically terminate. In that event, the Company shall pay to the
Executive's designated beneficiary or, if no beneficiary has been
designated by the Executive, to his estate, any earned and unpaid Base
Salary, prorated through the date of his death.
(b) DISABILITY.
(i) The Company may terminate the Executive's employment
hereunder, upon notice to the Executive, in the event that the
Executive becomes disabled during his employment hereunder through
any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for
ninety (90) days during any period of three hundred sixty-five
(365) consecutive calendar days.
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(ii) The Board may designate another employee to act in
the Executive's place during any period of the Executive's
disability. Notwithstanding any such designation, the Executive
shall continue to receive the Base Salary in accordance with
Section 4(a) and his other benefits pursuant to Section 4(d), to
the extent permitted by the then-current terms of the applicable
benefit plans, until the Executive becomes eligible for disability
income benefits under any disability income plan provided by the
Company or until the termination of his employment, whichever
shall first occur.
(iii) If any question shall arise as to whether, during
any period, the Executive is disabled through any illness, injury,
accident or condition of either a physical or psychological nature
such that he is unable to perform substantially all of his duties
and responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination by a
physician selected by the Company to whom the Executive or his
duly appointed guardian, if any, has no reasonable objection, to
determine whether the Executive is so disabled, and such
determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the
Executive.
(c) BY THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause at any time upon notice to
the Executive setting forth in reasonable detail the nature of such
Cause. The following, as determined by the Board in its reasonable and
good faith judgment, shall constitute Cause for termination: (i)
conviction in a court of law of any felony or a plea of NOLO CONTENDERE
to such an offense, (ii) commission of any act involving theft,
embezzlement, fraud, dishonesty or moral turpitude which act relates to
or otherwise has an adverse effect (including through publicity) on the
Company, (iii) material breach of any of the material provisions of
this Agreement (other than breaches of the nature described in clause
(iv) below) or of any other material agreement between the Executive
and the Company, or (iv) repeated and consistent willful misconduct or
dereliction of duty in the performance of his duties under this
Agreement, or repeated and consistent failure to be present at work,
which conduct or failure continues for more than thirty (30) days after
notice given to the Executive, such notice to set forth in reasonable
detail the nature of such conduct or failure. Upon the giving of notice
of termination of the Executive's employment hereunder for Cause, the
Company shall not have any further obligation or liability to the
Executive, other than for Base Salary earned and unpaid, accrued
vacation time and unreimbursed business expenses outstanding at the
date of termination.
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(d) SEVERANCE PAYMENTS UPON EXPIRATION. If the Executive shall
cease to be employed by the Company upon the expiration of this
Agreement, the Executive shall be entitled, subject to the immediately
following sentence, to receive as a severance benefit periodic payments
in an amount equal to his Base Salary in effect at the date of such
expiration divided by the number of payroll periods per year then
applicable to executives of the Company (hereinafter, "Severance
Payments"), for a period of six months from and after the date of such
expiration. The Executive's rights to receive Severance Payments
hereunder is conditioned upon (X) the Executive's prior execution and
delivery to the Company of a general release of any and all claims and
causes of action of the Executive against the Company and the Company's
and its subsidiaries' officers and directors, excepting only the right
to any Base Salary and/or reimbursable expenses then accrued and unpaid
under Section 4 of this Agreement, and (Y) the Executive's continued
performance of those obligations hereunder that continue by their
express terms after the termination of his employment, including
without limitation those set forth in Sections 7 and 8. Any Severance
Payments to be paid hereunder shall be payable in accordance with the
payroll practices of the Company for its executives generally as in
effect from time to time, and subject to all required withholding of
taxes.
6. EFFECT OF TERMINATION. Upon termination of this Agreement, all
obligations and provisions of this Agreement shall terminate except with respect
to any accrued and unpaid monetary obligations and except for the provisions of
Section 7 through (and inclusive of) 22 hereof.
7. COVENANT NOT TO COMPETE. Provided only that the Company is not
then in default on its payment obligations under this Agreement, for a period of
five (5) years from the Effective Date the Executive will not engage or become
interested, directly or indirectly, as an owner, employee, director, partner,
consultant, through stock ownership, investment of capital, lending of money or
property, rendering of services, or otherwise, either alone or in association
with others, in the operation, management or supervision of any type of business
or enterprise in any way similar to or competitive with the business of the
Company. In addition, during such period the Executive will not, directly or
indirectly, whether on his behalf or on behalf of anyone else, (i) solicit or
accept orders from any present or past customer of the Company for a product or
service offered or sold by, or competitive with a product or service offered or
sold by, the Company; (ii) induce or attempt to induce any such customer to
reduce such customer's purchases from the Company; (iii) use for the benefit of
the Executive or disclose the name and/or requirements of any such customer to
any other person or persons, natural or corporate; or (iv) solicit any of the
Company's employees or consultants to leave the employ of the Company or hire
anyone who was an employee of the Company or a consultant to the Company at any
time within one year prior to the date the Executive's employment with the
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Company terminated. The foregoing restrictions shall not prevent the Executive
from hiring or otherwise engaging any professional firm.
8. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company will
continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company and that the Executive
may learn of Confidential Information during the course of employment.
The Executive agrees that, except as required for the proper
performance of his duties for the Company, he will not, directly or
indirectly, use or disclose any Confidential Information, as defined
below. The Executive understands and agrees that this restriction will
continue to apply after his employment terminates, regardless of the
reason for termination.
(b) The Executive agrees that all Confidential Information
which he creates or to which he has access as a result of his
employment is and shall remain the sole and exclusive property of the
Company. Except as required for the proper performance of his duties,
the Executive will not copy any documents, tapes or other media
containing Confidential Information ("Documents") or remove any
Documents, or copies, from Company premises. The Executive will return
to the Company immediately after his employment terminates, and at such
other times as may be specified by the Company, all Documents and
copies and all other property of the Company then in his possession or
control.
9. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Executive further agrees that all goodwill of the Company is its exclusive
property. The Executive further acknowledges and agrees that, were he to breach
any of the covenants contained in Section 7 or 8 hereof, the damage would be
irreparable. The Executive therefore agrees that the Company, in addition to any
other remedies available to it, shall be entitled to preliminary and permanent
injunctive relief against any breach or threatened breach by the Executive of
any of said covenants, without having to post bond, provided the Company has
made a prima facie showing of such a breach or threatened breach.
10. INDEMNIFICATION. Subject to the second sentence of this
Section 10, the Company agrees to indemnify the Executive against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, together with counsel fees, in each
case reasonably incurred by him in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, in which he may
be involved or with which he may be
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threatened during the term of this Agreement or thereafter, in each case to the
extent incurred by reason of his serving or having served (a) as an executive
officer or director of the Company, or (b) at its request as a director or
executive officer of any organization in which the Company directly or
indirectly owns shares or of which it is directly or indirectly a creditor, or
(c) at its request in any capacity with respect to any employee benefit plan.
Notwithstanding the immediately preceding sentence, the Company shall not
indemnify the Executive if the Executive (i) did not act in good faith and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, or (ii) with respect to any criminal action or
proceeding, had reasonable cause to believe that the Executive's conduct was
unlawful. The Company shall purchase and maintain in force directors' and
officers' liability insurance having policy limits and other terms reasonably
determined by the Company's Board of Directors.
11. CONFLICTING AGREEMENTS. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which the Executive is a party or is bound and that the Executive is not
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Executive will not
disclose or use any proprietary information of a third party without such
party's consent.
12. DEFINITIONS. Words or phrases which are initially capitalized or
are within quotation marks shall have the meanings provided in this Section 12
and as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
(a) "Confidential Information" means any and all information,
inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, concepts, products,
projects, improvements and developments that are not generally known by
others, developed by or known to the Executive prior to or during the
term of this Agreement and relating in any material respect to the
Company, including its business, products or services (or learned by
the Executive after the term hereof from a source known to the
Executive to be violating an obligation to the Company not to disclose
the same) or that are developed by the Executive during the term of
this Agreement and that have applicability to the business, products or
services of the Company, including but not limited to (i) products and
services, technical data, methods and processes, (ii) marketing
activities and strategic plans, (iii) costs and sources of supply, (iv)
the identity and special needs of customers and prospective customers
and vendors and prospective vendors, and (v) the people and
organizations with whom the Company has or plans to have business
relationships and those relationships. Confidential Information also
includes such information that the Company
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<PAGE> 8
may receive or has received belonging to customers or others who do
business with the Company and any publication or literary creation of
the Executive, developed in whole or in significant part during the
term hereof, in whatever form published, whose content in whole or in
part is competitive in any material respect with the products or
services offered by the Company (including as such products or services
could reasonably be expected to evolve or be extended in the
foreseeable future).
(b) "Person" means an individual, a corporation, an
association, a partnership, an estate, a trust and any other entity or
organization.
13. WITHHOLDING. All payments made under this Agreement shall be
reduced by any tax or other amounts required to be withheld under applicable
law.
14. ASSIGNMENT. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person unless the Executive shall object in writing to such assignment
within 60 days following the effective date thereof, in which event the
Executive's sole remedy shall be to terminate this Agreement, which termination
shall have the effect set forth in Section 6 hereof. This Agreement shall inure
to the benefit of and be binding upon the Company and the Executive, and their
respective successors, executors, administrators, heirs and permitted assigns.
15. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. WAIVER. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this Agreement, or
the waiver by either party of any breach of this Agreement, shall not prevent
any subsequent enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
17. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
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effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at his
last known address on the books of the Company or, in the case of the Company,
at the Company's principal place of business, to the attention of the President,
or to such other address as either party may specify by notice to the other
actually received.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment, including without limitation any agreements relating to
employment between the Executive and any corporate predecessor or promoter of
the Company, any such agreement being hereby terminated by the mutual agreement
of the parties without liability to either party.
19. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
20. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. GOVERNING LAW. This Agreement shall be construed and enforced
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws principles thereof.
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<PAGE> 10
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Executive and by the Company by its duly authorized
representative, as of the date first above written.
Executive: PROVANT, INC.
_______________________________ By: _____________________________
Paul M. Verrochi Name:
Title:
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EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into effective as of _______________
by and among Provant, Inc., a Delaware corporation (including, for purposes of
Sections 5(c) and (d), 7, 8, 9 and 12(a), its direct and indirect subsidiaries,
the "Company"), and John H. Zenger of Boston, Massachusetts (the "Executive").
In consideration of the mutual promises, terms, provisions and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. TERM. Subject to earlier termination as hereafter provided, the
Executive's employment hereunder shall be for a term of three (3) years,
commencing effective upon the closing of the Company's initial public offering
(the "IPO") of its common stock, $.01 par value per share (the "Effective
Date"). The term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof."
3. CAPACITY AND PERFORMANCE.
(a) During the term hereof, the Executive shall serve as the
President of the Company. In addition, and without further
compensation, the Executive shall serve as a director and/or officer of
the Company and/or one or more of the Company's subsidiaries if so
elected or appointed from time to time. The Company and the Executive
acknowledge and agree that the Executive shall become a director of the
Company as of the Effective Date.
(b) During the term hereof, the Executive shall be employed by
the Company on a full-time basis, shall have all powers and duties
consistent with his position as the President of the Company, subject
to the direction and control of the Company's Board of Directors (the
"Board") and the Chief Executive Officer of the Company or its or his
designees consistent with the Executive's office as set forth above,
and shall perform such other duties and responsibilities on behalf of
the Company and its subsidiaries as may reasonably be designated from
time to time by the Board and the Chief Executive Officer of the
Company or its or his designees consistent with the Executive's office
as set forth above.
(c) During the term hereof, the Executive shall devote
substantially all of his full business time and his best efforts,
business judgment, skill and knowledge to the advancement of the
business and interests of the Company and to the discharge of his
duties and responsibilities hereunder. The
<PAGE> 2
Executive shall not engage in any other business activity or serve in
any industry, trade, professional, governmental or academic position
during the term of this Agreement, except (i) as set forth on
Schedule 1 hereto, or (ii) as may be expressly approved in advance by
the Board in writing or to the extent that any such activity or service
does not materially and adversely affect the discharge of his duties
and responsibilities hereunder.
(d) The Company shall not require the Executive to relocate or
reassign the Executive to any location beyond a fifty (50) mile radius
of Salt Lake City, nor shall the Executive's duties hereunder be
materially changed, without the Executive's prior written consent.
4. COMPENSATION AND BENEFITS. As compensation for all services
performed by the Executive under and during the term hereof and subject to
performance of the Executive's duties and obligations, pursuant to this
Agreement or otherwise:
(a) BASE SALARY. During the term hereof, the Company shall pay
the Executive a base salary at the rate of One Hundred Fifty Thousand
Dollars ($150,000) per annum, payable in accordance with the payroll
practices of the Company for its executives and subject to increase
from time to time by the Board or a compensation committee of the Board
in its sole discretion. Such base salary, as from time to time
increased, is hereafter referred to as the "Base Salary".
(b) BONUS COMPENSATION. The Executive shall be entitled to
participate in such bonus plan as the Company provides to its
executives generally, in accordance with the terms of that plan, as
amended by the Company from time to time, pursuant to which the
Executive may receive a bonus of up to forty percent (40%) of his then
Base Salary.
(c) VACATIONS. During the term hereof, the Executive shall be
entitled to four (4) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, subject to
the reasonable business needs of the Company. Vacation time shall not
cumulate from year to year.
(d) OTHER BENEFITS. During the term hereof and subject to any
contribution therefor generally required of employees of the Company,
the Executive shall be entitled to participate in any and all employee
benefit plans from time to time in effect for employees of the Company
generally, except to the extent such plans are in a category of benefit
(including without limitation bonus compensation and severance
compensation) otherwise provided to the Executive. Such participation
shall be subject to (i) the terms of the applicable plan documents,
(ii) generally applicable Company policies and (iii) the
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<PAGE> 3
discretion of the Board or any administrative or other committee
provided for in or contemplated by such plan. The Company may alter,
modify, add to or delete any of the employee benefit plans maintained
for its employees generally at any time as it, in its sole judgment,
determines to be appropriate, without recourse by the Executive. The
Executive shall receive an option under the Company's 1998 Equity
Incentive Plan (the "1998 Plan") to purchase 100,000 shares of common
stock of the Company, at an exercise price equal to the price at which
the common stock is offered in the IPO and, to the extent provided in
the 1998 Plan or the option agreement entered into with respect to such
option, exercisable with respect to one-third of the shares issuable
thereunder on each of the first three anniversaries of the closing of
the IPO.
(e) BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary business expenses incurred
or paid by the Executive in the performance of his duties and
responsibilities hereunder, subject to any maximum annual limit and
other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. Notwithstanding
the provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the term hereof under the following
circumstances:
(a) DEATH. In the event of the Executive's death during the
term hereof, the Executive's employment hereunder shall immediately and
automatically terminate. In that event, the Company shall pay to the
Executive's designated beneficiary or, if no beneficiary has been
designated by the Executive, to his estate, any earned and unpaid Base
Salary, prorated through the date of his death.
(b) DISABILITY.
(i) The Company may terminate the Executive's employment
hereunder, upon notice to the Executive, in the event that the
Executive becomes disabled during his employment hereunder through
any illness, injury, accident or condition of either a physical or
psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for
ninety (90) days during any period of three hundred sixty-five
(365) consecutive calendar days.
(ii) The Board may designate another employee to act in
the Executive's place during any period of the Executive's
disability.
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<PAGE> 4
Notwithstanding any such designation, the Executive shall continue
to receive the Base Salary in accordance with Section 4(a) and his
other benefits pursuant to Section 4(d), to the extent permitted
by the then-current terms of the applicable benefit plans until
the Executive becomes eligible for disability income benefits
under any disability income plan provided by the Company or until
the termination of his employment, whichever shall first occur.
(iii) If any question shall arise as to whether, during
any period, the Executive is disabled through any illness, injury,
accident or condition of either a physical or psychological nature
such that he is unable to perform substantially all of his duties
and responsibilities hereunder, the Executive may, and at the
request of the Company shall, submit to a medical examination by a
physician selected by the Company to whom the Executive or his
duly appointed guardian, if any, has no reasonable objection, to
determine whether the Executive is so disabled, and such
determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the
Executive.
(c) BY THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause at any time upon notice to
the Executive setting forth in reasonable detail the nature of such
Cause. The following, as determined by the Board in its reasonable and
good faith judgment, shall constitute Cause for termination: (i)
conviction in a court of law of any felony or a plea of NOLO CONTENDERE
to such an offense, (ii) commission of any act involving theft,
embezzlement, fraud, dishonesty or moral turpitude which act relates to
or otherwise has an adverse effect (including through publicity) on the
Company, (iii) material breach of any of the material provisions of
this Agreement (other than breaches of the nature described in clause
(iv) below) or of any other material agreement between the Executive
and the Company, or (iv) repeated and consistent willful misconduct or
dereliction of duty in the performance of his duties under this
Agreement, or repeated and consistent failure to be present at work,
which conduct or failure continues for more than thirty (30) days after
notice given to the Executive, such notice to set forth in reasonable
detail the nature of such conduct or failure. Upon the giving of notice
of termination of the Executive's employment hereunder for Cause, the
Company shall not have any further obligation or liability to the
Executive, other than for Base Salary earned and unpaid, accrued
vacation time and unreimbursed business expenses outstanding at the
date of termination.
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<PAGE> 5
(d) SEVERANCE PAYMENTS UPON EXPIRATION. If the Executive shall
cease to be employed by the Company upon the expiration of this
Agreement, the Executive shall be entitled, subject to the immediately
following sentence, to receive as a severance benefit periodic payments
in an amount equal to his Base Salary in effect at the date of such
expiration divided by the number of payroll periods per year then
applicable to executives of the Company (hereinafter, "Severance
Payments"), for a period of six months from and after the date of such
expiration. The Executive's rights to receive Severance Payments
hereunder is conditioned upon (X) the Executive's prior execution and
delivery to the Company of a general release of any and all claims and
causes of action of the Executive against the Company and the Company's
and its subsidiaries' officers and directors, excepting only the right
to any Base Salary and/or reimbursable expenses then accrued and unpaid
under Section 4 of this Agreement, and (Y) the Executive's continued
performance of those obligations hereunder that continue by their
express terms after the termination of his employment, including
without limitation those set forth in Sections 7 and 8. Any Severance
Payments to be paid hereunder shall be payable in accordance with the
payroll practices of the Company for its executives generally as in
effect from time to time, and subject to all required withholding of
taxes.
6. EFFECT OF TERMINATION. Upon termination of this Agreement, all
obligations and provisions of this Agreement shall terminate except with respect
to any accrued and unpaid monetary obligations and except for the provisions of
Section 7 through (and inclusive of) 22 hereof.
7. COVENANT NOT TO COMPETE. Provided only that the Company is not
then in default on its payment obligations under this Agreement, for a period of
five (5) years from the Effective Date the Executive will not engage or become
interested, directly or indirectly, as an owner, employee, director, partner,
consultant, through stock ownership, investment of capital, lending of money or
property, rendering of services, or otherwise, either alone or in association
with others, in the operation, management or supervision of any type of business
or enterprise in any way similar to or competitive with the business of the
Company. In addition, during such period the Executive will not, directly or
indirectly, whether on his behalf or on behalf of anyone else, (i) solicit or
accept orders from any present or past customer of the Company for a product or
service offered or sold by, or competitive with a product or service offered or
sold by, the Company; (ii) induce or attempt to induce any such customer to
reduce such customer's purchases from the Company; (iii) use for the benefit of
the Executive or disclose the name and/or requirements of any such customer to
any other person or persons, natural or corporate; or (iv) solicit any of the
Company's employees or consultants to leave the employ of the Company or hire
anyone who was an employee of the Company or a consultant to the Company at any
time within one year prior to the date the Executive's employment with the
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<PAGE> 6
Company terminated. The foregoing restrictions shall not prevent the Executive
from hiring or otherwise engaging any professional firm.
8. CONFIDENTIAL INFORMATION.
(a) The Executive acknowledges that the Company will
continually develop Confidential Information, that the Executive may
develop Confidential Information for the Company and that the Executive
may learn of Confidential Information during the course of employment.
The Executive agrees that, except as required for the proper
performance of his duties for the Company, he will not, directly or
indirectly, use or disclose any Confidential Information, as defined
below. The Executive understands and agrees that this restriction will
continue to apply after his employment terminates, regardless of the
reason for termination.
(b) The Executive agrees that all Confidential Information
which he creates or to which he has access as a result of his
employment is and shall remain the sole and exclusive property of the
Company. Except as required for the proper performance of his duties,
the Executive will not copy any documents, tapes or other media
containing Confidential Information ("Documents") or remove any
Documents, or copies, from Company premises. The Executive will return
to the Company immediately after his employment terminates, and at such
other times as may be specified by the Company, all Documents and
copies and all other property of the Company then in his possession or
control.
9. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Executive further agrees that all goodwill of the Company is its exclusive
property. The Executive further acknowledges and agrees that, were he to breach
any of the covenants contained in Section 7 or 8 hereof, the damage would be
irreparable. The Executive therefore agrees that the Company, in addition to any
other remedies available to it, shall be entitled to preliminary and permanent
injunctive relief against any breach or threatened breach by the Executive of
any of said covenants, without having to post bond, provided the Company has
made a prima facie showing of such a breach or threatened breach.
10. INDEMNIFICATION. Subject to the second sentence of this
Section 10, the Company agrees to indemnify the Executive against all
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, together with counsel fees, in each
case reasonably incurred by him in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, in which he may
be involved or with which he may be
6
<PAGE> 7
threatened during the term of this Agreement or thereafter, in each case to the
extent incurred by reason of his serving or having served (a) as an executive
officer or director of the Company, or (b) at its request as a director or
executive officer of any organization in which the Company directly or
indirectly owns shares or of which it is directly or indirectly a creditor, or
(c) at its request in any capacity with respect to any employee benefit plan.
Notwithstanding the immediately preceding sentence, the Company shall not
indemnify the Executive if the Executive (i) did not act in good faith and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, or (ii) with respect to any criminal action or
proceeding, had reasonable cause to believe that the Executive's conduct was
unlawful. The Company shall purchase and maintain in force directors' and
officers' liability insurance having policy limits and other terms reasonably
determined by the Company's Board of Directors.
11. CONFLICTING AGREEMENTS. The Executive hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which the Executive is a party or is bound and that the Executive is not
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Executive will not
disclose or use any proprietary information of a third party without such
party's consent.
12. DEFINITIONS. Words or phrases which are initially capitalized or
are within quotation marks shall have the meanings provided in this Section 12
and as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
(a) "Confidential Information" means any and all information,
inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, concepts, products,
projects, improvements and developments that are not generally known by
others, developed by or known to the Executive prior to or during the
term of this Agreement and relating in any material respect to the
Company, including its business, products or services (or learned by
the Executive after the term hereof from a source known to the
Executive to be violating an obligation to the Company not to disclose
the same) or that are developed by the Executive during the term of
this Agreement and that have applicability to the business, products or
services of the Company, including but not limited to (i) products and
services, technical data, methods and processes, (ii) marketing
activities and strategic plans, (iii) costs and sources of supply, (iv)
the identity and special needs of customers and prospective customers
and vendors and prospective vendors, and (v) the people and
organizations with whom the Company has or plans to have business
relationships and those relationships. Confidential Information also
includes such information that the Company
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<PAGE> 8
may receive or has received belonging to customers or others who do
business with the Company and any publication or literary creation of
the Executive, developed in whole or in significant part during the
term hereof, in whatever form published, whose content in whole or in
part is competitive in any material respect with the products or
services offered by the Company (including as such products or services
could reasonably be expected to evolve or be extended in the
foreseeable future).
(b) "Person" means an individual, a corporation, an
association, a partnership, an estate, a trust and any other entity or
organization.
13. WITHHOLDING. All payments made under this Agreement shall be
reduced by any tax or other amounts required to be withheld under applicable
law.
14. ASSIGNMENT. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person unless the Executive shall object in writing to such assignment
within 60 days following the effective date thereof, in which event the
Executive's sole remedy shall be to terminate this Agreement, which termination
shall have the effect set forth in Section 6 hereof. This Agreement shall inure
to the benefit of and be binding upon the Company and the Executive, and their
respective successors, executors, administrators, heirs and permitted assigns.
15. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. WAIVER. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this Agreement, or
the waiver by either party of any breach of this Agreement, shall not prevent
any subsequent enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
17. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
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<PAGE> 9
effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at his
last known address on the books of the Company or, in the case of the Company,
at the Company's principal place of business, to the attention of the Chief
Executive Officer, or to such other address as either party may specify by
notice to the other actually received.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment, including without limitation any agreements relating to
employment between the Executive and any corporate predecessor or promoter of
the Company, any such agreement being hereby terminated by the mutual agreement
of the parties without liability to either party.
19. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
20. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. GOVERNING LAW. This Agreement shall be construed and enforced
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws principles thereof.
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<PAGE> 10
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Executive and by the Company by its respective duly authorized
representative, as of the date first above written.
Executive: PROVANT, INC.
_______________________________ By: _______________________
John H. Zenger Name:
Title:
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<PAGE> 1
EXHIBIT 10.18
CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into effective as of _______________
by and among Provant, Inc., a Delaware corporation (including, for purposes of
Sections 5(c) and (d), 7, 8, 9 and 12(a), its direct and indirect subsidiaries,
the "Company"), and Michael J. Davies of Mokton, Maryland (the "Consultant").
In consideration of the mutual promises, terms, provisions and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. ENGAGEMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby engages the Consultant as an independent
contractor and the Consultant hereby accepts such retention by the Company.
2. TERM. Subject to earlier termination as hereafter provided, the
Consultant's engagement hereunder shall be for a term of three (3) years,
commencing effective upon the closing of the Company's initial public offering
(the "IPO") of its common stock, $.01 par value per share (the "Effective
Date"). The term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof."
3. SERVICES.
(a) During the term hereof, the Consultant shall provide
business development and acquisition related services to the Company.
The Consultant shall perform such reasonable additional services as may
be requested by the Company from time to time. In addition, and without
further compensation, the Consultant shall serve as a director of the
Company if so elected or appointed from time to time.
(b) During the term hereof, the Consultant shall devote his
best efforts, business judgment, skill and knowledge to the advancement
of the business and interests of the Company and to the provision of
the services contemplated hereby.
(c) During the term hereof, the Consultant shall report to and
the services he provides shall be directed by the Chief Executive
Officer of the Company.
(d) During the term hereof, the Consultant shall not be
required to devote more than five (5) days in any week to the provision
of the services contemplated hereby.
(e) The Company shall not require the Consultant to relocate or
reassign the Consultant to any location beyond a fifty (50) mile radius
of the
<PAGE> 2
location of the Consultant's place of residence as of the date hereof,
nor shall the Consultant's duties hereunder be materially changed,
without the Consultant's prior written consent.
4. COMPENSATION AND BUSINESS EXPENSES. As compensation for all
services performed by the Consultant under and during the term hereof and
subject to performance of the Consultant's duties and obligations, pursuant to
this Agreement or otherwise:
(a) CONSULTING FEE. During the term hereof, the Company shall
pay the Consultant a consulting fee at the rate of One Hundred
Twenty-Five Thousand Dollars ($125,000) per annum, payable in
accordance with the payroll practices of the Company for its
consultants and subject to increase from time to time by the Board or a
compensation committee of the Board in its sole discretion. Such
consulting fee, as from time to time increased, is hereafter referred
to as the "Consulting Fee."
(b) BUSINESS EXPENSES. The Company shall pay or reimburse the
Consultant for all reasonable and necessary business expenses incurred
or paid by the Consultant in the performance of his duties and
responsibilities hereunder, subject to any maximum annual limit and
other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. TERMINATION OF SERVICES AND NON-RENEWAL FEE. Notwithstanding the
provisions of Section 2 hereof, the Consultant's retention hereunder shall
terminate prior to the expiration of the term hereof under the following
circumstances:
(a) DEATH. In the event of the Consultant's death during the
term hereof, the Consultant's engagement hereunder shall immediately
and automatically terminate. In that event, the Company shall pay to
the Consultant's designated beneficiary or, if no beneficiary has been
designated by the Consultant, to his estate, any earned and unpaid
Consulting Fee, prorated through the date of his death.
(b) DISABILITY.
(i) The Company may terminate the Consultant's
engagement hereunder, upon notice to the Consultant, in the event
that the Consultant becomes disabled during his engagement
hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is
unable to perform substantially all of his duties and
responsibilities hereunder for ninety (90) days
-2-
<PAGE> 3
during any period of three hundred sixty-five (365) consecutive
calendar days.
(ii) If any question shall arise as to whether, during
any period, the Consultant is disabled through any illness,
injury, accident or condition of either a physical or
psychological nature such that he is unable to perform
substantially all of his duties and responsibilities hereunder,
the Consultant may, and at the request of the Company shall,
submit to a medical examination by a physician selected by the
Company to whom the Consultant or his duly appointed guardian, if
any, has no reasonable objection, to determine whether the
Consultant is so disabled, and such determination shall for the
purposes of this Agreement be conclusive of the issue. If such
question shall arise and the Consultant shall fail to submit to
such medical examination, the Company's determination of the issue
shall be binding on the Consultant.
(c) BY THE COMPANY FOR CAUSE. The Company may terminate the
Consultant's engagement hereunder for Cause at any time upon notice to
the Consultant setting forth in reasonable detail the nature of such
Cause. The following, as determined by the Board in its reasonable and
good faith judgment, shall constitute Cause for termination: (i)
conviction in a court of law of any felony or a plea of NOLO CONTENDERE
to such an offense, (ii) commission of any act involving theft,
embezzlement, fraud, dishonesty or moral turpitude which act relates to
or otherwise has an adverse effect (including through publicity) on the
Company, (iii) material breach of any of the material provisions of
this Agreement (other than breaches of the nature described in clause
(iv) below) or of any other material agreement between the Consultant
and the Company, or (iv) repeated and consistent willful misconduct or
dereliction of duty in the performance of his duties under this
Agreement, which conduct or failure continues for more than thirty (30)
days after notice given to the Consultant, such notice to set forth in
reasonable detail the nature of such conduct or failure. Upon the
giving of notice of termination of the Consultant's engagement
hereunder for Cause, the Company shall not have any further obligation
or liability to the Consultant, other than for Consulting Fees earned
and unpaid and unreimbursed business expenses outstanding at the date
of termination.
(d) NON-RENEWAL FEE UPON EXPIRATION. If the Consultant shall
cease to be engaged by the Company upon the expiration of this
Agreement, the Consultant shall be entitled, subject to the immediately
following sentence, to receive as a non-renewal fee periodic payments
in an amount equal to his Consulting Fee in effect at the date of such
expiration divided by the number of payroll periods per year then
applicable to
-3-
<PAGE> 4
consultants of the Company (hereinafter, "Non-renewal Fee"), for a
period of six months from and after the date of such expiration. The
Consultant's right to receive Non-renewal Fee hereunder is conditioned
upon (X) the Consultant's prior execution and delivery to the Company
of a general release of any and all claims and causes of action of the
Consultant against the Company and the Company's and its subsidiaries'
officers and directors, excepting only the right to any Consulting Fee
and/or reimbursable expenses then accrued and unpaid under Section 4 of
this Agreement, and (Y) the Consultant's continued performance of those
obligations hereunder that continue by their express terms after the
termination of his consulting relationship with the Company, including
without limitation those set forth in Sections 7 and 8. Any Non-
renewal Fee to be paid hereunder shall be payable in accordance with
the payroll practices of the Company for its consultants generally as
in effect from time to time.
6. EFFECT OF TERMINATION. Upon termination of this Agreement, all
obligations and provisions of this Agreement shall terminate except with respect
to any accrued and unpaid monetary obligations and except for the provisions of
Section 7 through (and inclusive of) 22 hereof.
7. COVENANT NOT TO COMPETE. Provided only that the Company is not
then in default on its payment obligations under this Agreement, for a period of
five (5) years from the Effective Date the Consultant will not engage or become
interested, directly or indirectly, as an owner, employee, director, partner,
consultant, through stock ownership, investment of capital, lending of money or
property, rendering of services, or otherwise, either alone or in association
with others, in the operation, management or supervision of any type of business
or enterprise in any way similar to or competitive with the business of the
Company. In addition, during such period the Consultant will not, directly or
indirectly, whether on his behalf or on behalf of anyone else, (i) solicit or
accept orders from any present or past customer of the Company for a product or
service offered or sold by, or competitive with a product or service offered or
sold by, the Company; (ii) induce or attempt to induce any such customer to
reduce such customer's purchases from the Company; (iii) use for the benefit of
the Consultant or disclose the name and/or requirements of any such customer to
any other person or persons, natural or corporate; or (iv) solicit any of the
Company's employees or consultants to leave the employ of the Company or hire
anyone who was an employee of the Company or a consultant to the Company at any
time within one year prior to the date the Consultant's consulting relationship
with the Company terminated. The foregoing restrictions shall not prevent the
Consultant from hiring or otherwise engaging any professional firm.
-4-
<PAGE> 5
8. CONFIDENTIAL INFORMATION.
(a) The Consultant acknowledges that the Company will
continually develop Confidential Information, that the Consultant may
develop Confidential Information for the Company and that the
Consultant may learn of Confidential Information during the course of
his consulting relationship with the Company. The Consultant agrees
that, except as required for the proper performance of his duties for
the Company, he will not, directly or indirectly, use or disclose any
Confidential Information, as defined below. The Consultant understands
and agrees that this restriction will continue to apply after his
consulting relationship with the Company terminates, regardless of the
reason for termination.
(b) The Consultant agrees that all Confidential Information
which he creates or to which he has access as a result of his
engagement hereunder is and shall remain the sole and exclusive
property of the Company. Except as required for the proper performance
of his duties, the Consultant will not copy any documents, tapes or
other media containing Confidential Information ("Documents") or remove
any Documents, or copies thereof, from Company premises. The Consultant
will return to the Company immediately after his consulting
relationship with the Company terminates, and at such other times as
may be specified by the Company, all Documents and copies thereof and
all other property of the Company then in his possession or control.
9. ENFORCEMENT OF COVENANTS. The Consultant acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Consultant further agrees that all goodwill of the Company is its exclusive
property. The Consultant further acknowledges and agrees that, were he to breach
any of the covenants contained in Section 7 or 8 hereof, the damage would be
irreparable. The Consultant therefore agrees that the Company, in addition to
any other remedies available to it, shall be entitled to preliminary and
permanent injunctive relief against any breach or threatened breach by the
Consultant of any of said covenants, without having to post bond, provided the
Company has made a prima facie showing of such a breach or threatened breach.
10. INDEMNIFICATION. Subject to the second sentence of this Section
10, the Company agrees to indemnify the Consultant against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, together with counsel fees, in each case reasonably
incurred by him in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, in which he may be involved
or with which he may be threatened during the term of this Agreement or
thereafter, in each case to the extent incurred by reason of his serving or
having served (a) as an agent or director of the
-5-
<PAGE> 6
Company, or (b) at its request as a director, officer or agent of any
organization in which the Company directly or indirectly owns shares or of which
it is directly or indirectly a creditor, or (c) at its request in any capacity
with respect to any employee benefit plan. Notwithstanding the immediately
preceding sentence, the Company shall not indemnify the Consultant if the
Consultant (i) did not act in good faith and in a manner the Consultant
reasonably believed to be in or not opposed to the best interests of the
Company, or (ii) with respect to any criminal action or proceeding, had
reasonable cause to believe that the Consultant's conduct was unlawful. The
Company shall purchase and maintain in force directors' and officers' liability
insurance having policy limits and other terms reasonably determined by the
Board.
11. CONFLICTING AGREEMENTS. The Consultant hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which the Consultant is a party or is bound and that the Consultant is not
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Consultant will not
disclose or use any proprietary information of a third party without such
party's consent.
12. DEFINITIONS. Words or phrases which are initially capitalized or
are within quotation marks shall have the meanings provided in this Section 12
and as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
(a) "Confidential Information" means any and all information,
inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, concepts, products,
projects, improvements and developments that are not generally known by
others, developed by or known to the Consultant prior to or during the
term of this Agreement and relating in any material respect to the
Company, including its business, products or services (or learned by
the Consultant after the term hereof from a source known to the
Consultant to be violating an obligation to the Company not to disclose
the same) or that are developed by the Consultant during the term of
this Agreement and that have applicability to the business, products or
services of the Company, including but not limited to (i) products and
services, technical data, methods and processes, (ii) marketing
activities and strategic plans, (iii) costs and sources of supply, (iv)
the identity and special needs of customers and prospective customers
and vendors and prospective vendors, and (v) the people and
organizations with whom the Company has or plans to have business
relationships and those relationships. Confidential Information also
includes such information that the Company may receive or has received
belonging to customers or others who do business with the Company and
any publication or literary creation of the Consultant, developed in
whole or in significant part during the term hereof, in whatever
-6-
<PAGE> 7
form published, whose content in whole or in part is competitive in any
material respect with the products or services offered by the Company
(including as such products or services could reasonably be expected to
evolve or be extended in the foreseeable future).
(b) "Person" means an individual, a corporation, an
association, a partnership, an estate, a trust and any other entity or
organization.
13. ASSIGNMENT. Neither the Company nor the Consultant may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Consultant in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person unless the Consultant shall object in writing to such assignment
within 60 days following the effective date thereof, in which event the
Consultant's sole remedy shall be to terminate this Agreement, which termination
shall have the effect set forth in Section 6 hereof. This Agreement shall inure
to the benefit of and be binding upon the Company and the Consultant, and their
respective successors, executors, administrators, heirs and permitted assigns.
14. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. WAIVER. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this Agreement, or
the waiver by either party of any breach of this Agreement, shall not prevent
any subsequent enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.
16. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Consultant at his
last known address on the books of the Company or, in the case of the Company,
at the Company's principal place of business, to the attention of the Chief
Executive Officer, or to such other address as either party may specify by
notice to the other actually received.
-7-
<PAGE> 8
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Consultant's consulting relationship with the Company, including without
limitation any agreements relating to any consulting relationship between the
Consultant and any corporate predecessor or promoter of the Company, any such
agreement being hereby terminated by the mutual agreement of the parties without
liability to either party.
18. INDEPENDENT CONTRACTOR. No provision of this Agreement shall be
construed to make the Consultant an employee of the Company or to make the
Consultant and the Company partners or joint venturers. The Consultant hereby
acknowledges that he is solely responsible for the payment of all taxes on his
fees under this Agreement.
19. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Consultant and by an expressly authorized
representative of the Company.
20. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. GOVERNING LAW. This Agreement shall be construed and enforced
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws principles thereof.
-8-
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Consultant and by the Company by its respective duly
authorized representative, as of the date first above written.
CONSULTANT PROVANT, INC.
_______________________________ By: ________________________
Michael J. Davies Name:
Title:
-9-
<PAGE> 1
EXHIBIT 10.19
COMMERCIAL LEASE
THIS LEASE is made on the 9th day of May 1996.
The Landlord hereby agrees to lease to the Tenant, and the Tenant hereby agrees
to hire and take from the Landlord, the Leased Premises described below pursuant
to the terms and conditions specified herein:
<TABLE>
<S> <C> <C> <C>
LANDLORD: Paul C. Green, PH.D TENANT(S): Behavioral Technology
Address: 9151 Riveredge Drive 6260 Polar
Memphis, TN 38018 Memphis, TN 38119
</TABLE>
1. LEASED PREMISES. The Leased Premises are those premises described as: 6260
Poplar (Poplar Briarcrest Subdivision), Memphis, TN 38119; Lot #9; 4,670 Square
Feet.
2. TERM. The term of the Lease shall be for a period of 3 year(s) commencing
on the lst day of January, 1996 ending on the 31st day of December, 1998 unless
sooner terminated as hereinafter provided. If Tenant remains in possession of
the Leased Premises with the written consent of the Landlord after the lease
expiration dated stated above, this Lease will be converted to a month-to-month
Lease and each party shall have the right to terminate the Lease by giving at
least one months' prior written notice to the other party.
3. RENT. The Tenant agrees to pay the ANNUAL RENT of Eighty-three thousand one
hundred ninety-six Dollars ($83,196) payable in equal installments $6,933.00 in
advance on the first day of each and every calendar month during the full term
of this Lease.
4. RENT ADJUSTMENT. If in any tax year commencing with the fiscal year________,
the real estate taxes on the land and buildings, of which the Leased Premises
are a part, are in excess of the amount of the real estate taxes thereon for the
fiscal year (hereinafter called the "Base Year"), Tenant will pay to Landlord as
additional rent hereunder, when and as designated by notice in writing by
Landlord, 100% percent of such excess that may occur in each year of the term of
this Lease or any extension or renewal thereof and proportionately for any part
of a fiscal year.
5. SECURITY DEPOSIT. The sum of -0- Dollars ($-0-) is deposited by the Tenant
with the Landlord as security for the faithful performance of all the covenants
and conditions of the lease by the said Tenant. If the Tenant faithfully
performs all the covenants and conditions on his part to be performed, then the
sum deposited shall be returned to the Tenant.
6. DELIVERY OF POSSESSION. If for any reason the Landlord cannot deliver
possession of the lease property to the Tenant when the lease term commences,
this Lease shall not be void or voidable, nor shall the Landlord be liable to
the Tenant for any loss or damage resulting therefrom. However, there shall be
an abatement of rent for the period between the commencement of the lease term
and the time when the Landlord delivers possession.
7. USE OF LEASED PREMISES. The Leased Premises may be used only for the
following purpose: Training and consulting business
8. UTILITIES. Except as specified below, the Tenant shall be responsible for all
utilities and services that are furnished to the Leased Premises. The
application for and connecting of utilities, as well as all services, shall be
made by and only in the name of the Tenant: (List exceptions, if any) No
exceptions.
9. CONDITION OF LEASED PREMISES; MAINTENANCE AND REPAIR. The Tenant
acknowledges that the Leased
<PAGE> 2
Premises are in good order and repair. The Tenant agrees to take good care of
and maintain the Leased Premises in good condition throughout the term of the
Lease.
The Tenant, at his expense, shall make all necessary repairs and replacements to
the Leased Premises, including the repair and replacement of pipes, electrical
wiring, heating and plumbing systems, fixtures and all other systems and
appliances and their appurtenances. The quality and class of all repairs and
replacements shall be equal to the original worth. If Tenant defaults in making
such repairs or replacements, Landlord may make them for Tenant's account, and
such expenses will be considered additional rent.
10. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant, at its expense, shall promptly
comply with all federal, state, and municipal laws, orders, and regulations, and
with all lawful directives of public officers, which impose any duty upon it or
Landlord with respect to the Leased Premises. The Tenant at its expense, shall
obtain all required licenses or permits for the conduct of its business within
the terms of this lease, or for the making of repairs, alterations,
improvements, or additions. Landlord, when necessary, will join with the Tenant
in applying for all such permits or licenses.
11. ALTERATIONS AND IMPROVEMENTS. Tenant shall not make any alterations,
additions, or improvements to, or install any fixtures on, the Leased Premises
without Landlord's prior written consent. If such consent is given, all
alterations, additions, and improvements made, and fixtures installed, by Tenant
shall become Landlord's property upon the expiration or sooner termination of
this Lease. Landlord may, however, require Tenant to remove such fixtures, at
Tenant's cost, upon the termination hereof.
12. ASSIGNMENT/SUBLETTING RESTRICTIONS. Tenant may not assign this agreement or
sublet the Leased Premises without the prior written consent of the Landlord.
Any assignment, sublease or other purported license to use the Leased Premises
by Tenant without the Landlord's consent shall be void and shall (at Landlord's
option) terminate this Lease.
13. INSURANCE.
(i) BY LANDLORD. Landlord shall at all times during the term of this
Lease, at its expense, insure and keep in effect on the building in which the
Leased Premises is located fire insurance with extended coverage. The Tenant
shall not permit any use of the Leased Premises which will make voidable any
insurance on the property of which the Leased Premises are a part, or on the
contents of said property or which shall be contrary to any law or regulation
from time to time established by the applicable fire insurance rating
association. Tenant shall on demand reimburse the Landlord, and all other
tenants, all extra insurance premiums caused by the Tenant's use of the
premises.
(ii) BY TENANT. Tenant shall, at its expense, during the term hereof,
maintain and deliver to Landlord public liability and property damage and plate
glass insurance policies with respect to the Leased Premises. Such policies
shall name the Landlord and Tenant as insureds, and have limits of at least
$500,000 for injury or death to any one person and $1,000,000 for any one
accident, and $250,000 with respect to damage to property and with full coverage
for plate glass. Such policies shall be in whatever form and with such insurance
companies as are reasonably satisfactory to Landlord, shall name the Landlord as
additional insured, and shall provide for at least ten days' prior notice to
Landlord of cancellation.
14. INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify, and hold
Landlord harmless from and against any claim, loss, expense or damage to any
person or property in or upon the Leased Premises, arising out of Tenant's use
or occupancy of the Leased Premises, or arising out of any act or neglect of
Tenant or its servants, employees, agents, or invitees.
15. CONDEMNATION. If all or any part of the Leased Premises is taken by eminent
domain, this lease shall expire on the date of such taking and the rent shall be
apportioned as of that date. No part of any award shall belong to Tenant.
<PAGE> 3
16. DESTRUCTION OF PREMISES. If the building in which the Leased Premises is
located is damaged by fire or other casualty, without Tenant's fault, and the
damage is so extensive as to effectively constitute a total destruction of the
property or building, this Lease shall terminate and the rent shall be
apportioned to the time of the damage. In all other cases of damage without
Tenant's fault, Landlord shall repair the damage with reasonable dispatch, and
if the damage has rendered the Leased Premises wholly or partially untenantable,
the rent shall be apportioned until the damaged is repaired. In determining what
constitutes reasonable dispatch, consideration shall be given to delays caused
by strikes, adjustment of insurance, and other causes beyond the Landlord's
control.
17. LANDLORD'S RIGHTS UPON DEFAULT. In the event of any breach of this lease by
the Tenant, which shall not have been cured within TEN (10) DAYS, then the
Landlord, besides other rights or remedies it may have, shall have the immediate
right of reentry and may remove all persons and property from the Leased
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of, the Tenant. If the Landlord
elects to reenter as herein provided, or should it take possession pursuant to
any notice provided for by law, it may either terminate this Lease or may, from
time to time, without terminating this lease, relet the Leased Premises or any
part thereof, for such term or terms and at such rental or rentals and upon such
other terms and conditions as the Landlord in Landlord's own discretion may deem
advisable. Should rentals received from such reletting during any month be less
than that agreed to be paid during the month by the Tenant hereunder, the Tenant
shall pay such deficiency to the Landlord monthly. The Tenant shall also pay to
the Landlord, as soon as ascertained, the cost and expenses incurred by the
Landlord in such reletting.
18. QUIET ENJOYMENT. The Landlord agrees that if the Tenant shall pay the rent
as aforesaid and perform the covenants and agreements herein contained on its
part to be performed, the Tenant shall peaceably hold and enjoy the said rented
premises without hindrance or interruption by the Landlord or by any other
person or persons acting under or through the Landlord.
19. LANDLORD'S RIGHT TO ENTER. Landlord may, at reasonable times, enter the
Leased Premises to inspect it, to make repairs or alterations, and to show it to
potential buyers, lenders or tenants.
20. SURRENDER UPON TERMINATION. At the expiration of the lease term the Tenant
shall surrender the leased property in as good condition as it was in at the
beginning of the term, reasonable use and wear excepted.
21. SUBORDINATION. This lease, and the Tenant's leasehold interest, is and shall
be subordinate, subject and inferior to any and all liens and encumbrances now
and thereafter placed on the Leased Premises by Landlord, any and all extensions
of such liens and encumbrances and all advances paid under such liens and
encumbrances.
22. ADDITIONAL PROVISIONS. Lease may be broken by joint consent of Landlord and
Tenant. Tenant shall also be responsible for insurance of all tangible and
intangible property. Tenant will insure said property.
23. MISCELLANEOUS TERMS.
(i) NOTICES. Any notice, statement, demand or other communication by
one party to the other, shall be given by personal delivery or by mailing the
same, postage prepaid, addressed to the Tenant at the premises, or to the
Landlord at the address set forth above.
(ii) SEVERABILITY. If any clause or provision herein shall be adjudged
invalid or unenforceable by a court of competent jurisdiction or by operation of
any applicable law, it shall not affect the validity of any other clause or
provision, which shall remain in full force and effect.
(iii) WAIVER. The failure of either party to enforce any of the
provisions of this lease shall not be
<PAGE> 4
considered a waiver of that provision or the right of the party to thereafter
enforce the provision.
(iv) COMPLETE AGREEMENT. This Lease constitutes the entire
understanding of the parties with respect to the subject matter hereof and may
not be modified except by an instrument in writing and signed by the parties.
(v) SUCCESSORS. This Lease is binding on all parties who lawfully
succeed to the rights or take the place of the Landlord or Tenant.
IN WITNESS WHEREOF the parties have set their hands and seals on this 10th day
of May 1996.
/s/ Paul C. Green /s/ Paul C. Green, CEO-B-Tech
- --------------------------------------- -----------------------------
Landlord or Landlord's Authorized Agent Tenant
<PAGE> 5
COMMERCIAL LEASE
THIS LEASE is made on the 9th day of May 1996.
The Landlord hereby agrees to lease to the Tenant, and the Tenant hereby agrees
to hire and take from the Landlord, the Leased Premises described below pursuant
to the terms and conditions specified herein:
<TABLE>
<S> <C> <C> <C>
LANDLORD: Paul C. Green, PH.D TENANT(S): Behavioral Technology
Address: 9151 Riveredge Drive 6260 Polar
Memphis, TN 38018 Memphis, TN 38119
</TABLE>
1. LEASED PREMISES. The Leased Premises are those premises described as:
6260 Poplar (Poplar Briarcrest Subdivision), Memphis, TN 38119; Lot #9; 4,670
Square Feet.
2. TERM. The term of the Lease shall be for a period of 3 year(s) commencing
on the lst day of January, 1999 ending on the 31st day of December, 2001 unless
sooner terminated as hereinafter provided. If Tenant remains in possession of
the Lease Premises with the written consent of the Landlord after the lease
expiration date stated above, this Lease will be converted to a month-to-month
Lease and each party shall have the right to terminate the Lease by giving at
least one months' prior written notice to the other party.
3. RENT. The Tenant agrees to pay the ANNUAL RENT of Eighty-nine thousand one
hundred ninety-seven Dollars ($89,197) payable in equal installments $7,433.08
in advance on the first day of each and every calendar month during the full
term of this Lease.
4. RENT ADJUSTMENT. If in any tax year commencing with the fiscal year_________,
the real estate taxes on the land and buildings, of which the Leased Premises
are a part, are in excess of the amount of the real estate taxes thereon for the
fiscal year (hereinafter called the "Base Year"), Tenant will pay to Landlord as
additional rent hereunder, when and as designated by notice in writing by
Landlord, 100% percent of such excess that may occur in each year of the term of
this Lease or any extension or renewal thereof and proportionately for any part
of a fiscal year.
5. SECURITY DEPOSIT. The sum of -0- Dollars ($-0-) is deposited by the Tenant
with the Landlord as security for the faithful performance of all the covenants
and conditions of the lease by the said Tenant. If the Tenant faithfully
performs all the covenants and conditions on his part to be performed, then the
sum deposited shall be returned to the Tenant.
6. DELIVERY OF POSSESSION. If for any reason the Landlord cannot deliver
possession of the lease property to the Tenant when the lease term commences,
this Lease shall not be void or voidable, nor shall the Landlord be liable to
the Tenant for any loss or damage resulting therefrom. However, there shall be
an abatement of rent for the period between the commencement of the lease term
and the time when the Landlord delivers possession.
7. USE OF LEASED PREMISES. The Leased Premises may be used only for the
following purpose: Training and consulting business.
8. UTILITIES. Except as specified below, the Tenant shall be responsible for all
utilities and services that are furnished to the Leased Premises. The
application for and connecting of utilities, as well as all services, shall be
made by and only in the name of the Tenant: (List exceptions, if any) No
exceptions.
9. CONDITION OF LEASED PREMISES; MAINTENANCE AND REPAIR. The Tenant acknowledges
that the Leased Premises are in good order and repair. The Tenant agrees to take
good care of and maintain the Leased Premises in good condition throughout the
term of the Lease.
<PAGE> 6
The Tenant, at his expense, shall make all necessary repairs and replacements to
the Leased Premises, including the repair and replacement of pipes, electrical
wiring, heating and plumbing systems, fixtures and all other systems and
appliances and their appurtenances. The quality and class of all repairs and
replacements shall be equal to the original worth. If Tenant defaults in making
such repairs or replacements, Landlord may make them for Tenant's account, and
such expenses will be considered additional rent.
10. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant, at its expense, shall promptly
comply with all federal, state, and municipal laws, orders, and regulations, and
with all lawful directives of public officers, which impose any duty upon it or
Landlord with respect to the Leased Premises. The Tenant at its expense, shall
obtain all required licenses or permits for the conduct of its business within
the terms of this lease, or for the making of repairs, alterations,
improvements, or additions. Landlord, when necessary, will join with the Tenant
in applying for all such permits or licenses.
11. ALTERATIONS AND IMPROVEMENTS. Tenant shall not make any alterations,
additions, or improvements to, or install any fixtures on, the Leased Premises
without Landlord's prior written consent. If such consent is given, all
alterations, additions, and improvements made, and fixtures installed, by Tenant
shall become Landlord's property upon the expiration or sooner termination of
this Lease. Landlord may, however, require Tenant to remove such fixtures, at
Tenant's cost, upon the termination hereof.
12. ASSIGNMENT/SUBLETTING RESTRICTIONS. Tenant may not assign this agreement or
sublet the Leased Premises without the prior written consent of the Landlord.
Any assignment, sublease or other purported license to use the Leased Premises
by Tenant without the Landlord's consent shall be void and shall (at Landlord's
option) terminate this Lease.
13. INSURANCE.
(i) BY LANDLORD. Landlord shall at all times during the term of this
Lease, at its expense, insure and keep in effect on the building in which the
Leased Premises is located fire insurance with extended coverage. The Tenant
shall not permit any use of the Leased Premises which will make voidable any
insurance on the property of which the Leased Premises are a part, or on the
contents of said property or which shall be contrary to any law or regulation
from time to time established by the applicable fire insurance rating
association. Tenant shall on demand reimburse the Landlord, and all other
tenants, all extra insurance premiums caused by the Tenant's use of the
premises.
(ii) BY TENANT. Tenant shall, at its expense, during the term hereof,
maintain and deliver to Landlord public liability and property damage and plate
glass insurance policies with respect to the Leased Premises. Such policies
shall name the Landlord and Tenant as insureds, and have limits of at least
$500,000 for injury or death to any one person and $1,000,000 for any one
accident, and $250,000 with respect to damage to property and with full coverage
for plate glass. Such policies shall be in whatever form and with such insurance
companies as are reasonably satisfactory to Landlord, shall name the Landlord as
additional insured, and shall provide for at least ten days' prior notice to
Landlord of cancellation.
14. INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify, and hold
Landlord harmless from and against any claim, loss, expense or damage to any
person or property in or upon the Leased Premises, arising out of Tenant's use
or occupancy of the Leased Premises, or arising out of any act or neglect of
Tenant or its servants, employees, agents, or invitees.
15. CONDEMNATION. If all or any part of the Leased Premises is taken by eminent
domain, this lease shall expire on the date of such taking and the rent shall be
apportioned as of that date. No part of any award shall belong to Tenant.
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<PAGE> 7
16. DESTRUCTION OF PREMISES. If the building in which the Leased Premises is
located is damaged by fire or other casualty, without Tenant's fault, and the
damage is so extensive as to effectively constitute a total destruction of the
property or building, this Lease shall terminate and the rent shall be
apportioned to the time of the damage. In all other cases of damage without
Tenant's fault, Landlord shall repair the damage with reasonable dispatch, and
if the damage has rendered the Leased Premises wholly or partially untenantable,
the rent shall be apportioned until the damaged is repaired. In determining what
constitutes reasonable dispatch, consideration shall be given to delays caused
by strikes, adjustment of insurance, and other causes beyond the Landlord's
control.
17. LANDLORD'S RIGHTS UPON DEFAULT. In the event of any breach of this lease by
the Tenant, which shall not have been cured within TEN (10) DAYS, then the
Landlord, besides other rights or remedies it may have, shall have the immediate
right of reentry and may remove all persons and property from the Leased
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of, and for the account of, the Tenant. If the Landlord
elects to reenter as herein provided, or should it take possession pursuant to
any notice provided for by law, it may either terminate this Lease or may, from
time to time, without terminating this lease, relet the Leased Premises or any
part thereof, for such term or terms and at such rental or rentals and upon such
other terms and conditions as the Landlord in Landlord's own discretion may deem
advisable. Should rentals received from such reletting during any month be less
than that agreed to be paid during the month by the Tenant hereunder, the Tenant
shall pay such deficiency to the Landlord monthly. The Tenant shall also pay to
the Landlord, as soon as ascertained, the cost and expenses incurred by the
Landlord in such reletting.
18. QUIET ENJOYMENT. The Landlord agrees that if the Tenant shall pay the rent
as aforesaid and perform the covenants and agreements herein contained on its
part to be performed, the Tenant shall peaceably hold and enjoy the said rented
premises without hindrance or interruption by the Landlord or by any other
person or persons acting under or through the Landlord.
19. LANDLORD'S RIGHT TO ENTER. Landlord may, at reasonable times, enter the
Leased Premises to inspect it, to make repairs or alterations, and to show it to
potential buyers, lenders or tenants.
20. SURRENDER UPON TERMINATION. At the expiration of the lease term the Tenant
shall surrender the leased property in as good condition as it was in at the
beginning of the term, reasonable use and wear excepted.
21. SUBORDINATION. This lease, and the Tenant's leasehold interest, is and shall
be subordinate, subject and inferior to any and all liens and encumbrances now
and thereafter placed on the Leased Premises by Landlord, any and all extensions
of such liens and encumbrances and all advances paid under such liens and
encumbrances.
22. ADDITIONAL PROVISIONS. Lease may be broken by joint consent of Landlord and
Tenant. Tenant shall also be responsible for insurance of all tangible and
intangible property. Tenant will insure said property.
23. MISCELLANEOUS TERMS.
(i) NOTICES. Any notice, statement, demand or other communication by
one party to the other, shall be given by personal delivery or by mailing the
same, postage prepaid, addressed to the Tenant at the premises, or to the
Landlord at the address set forth above.
(ii) SEVERABILITY. If any clause or provision herein shall be adjudged
invalid or unenforceable by a court of competent jurisdiction or by operation of
any applicable law, it shall not affect the validity of any other clause or
provision, which shall remain in full force and effect.
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<PAGE> 8
(iii) WAIVER. The failure of either party to enforce any of the
provisions of this lease shall not be considered a waiver of that provision or
the right of the party to thereafter enforce the provision.
(iv) COMPLETE AGREEMENT. This Lease constitutes the entire
understanding of the parties with respect to the subject matter hereof and may
not be modified except by an instrument in writing and signed by the parties.
(v) SUCCESSORS. This Lease is binding on all parties who lawfully
succeed to the rights or take the place of the Landlord or Tenant.
IN WITNESS WHEREOF the parties have set their hands and seals on this 10th day
of May 1996.
/s/ Paul C. Green /s/ Paul C. Green, CEO B-Tech
- --------------------------------------- -----------------------------
Landlord or Landlord's Authorized Agent Tenant
<PAGE> 1
EXHIBIT 10.20
LEASE AGREEMENT
THIS LEASE AGREEMENT, is made and entered into effective as of the 1st
day of March, 1997, by and between NOVATIONS PARTNERS, L.L.C., a Utah limited
liability company, as Lessor, and NOVATIONS GROUP, INC., a Utah corporation, as
Lessee.
ARTICLE 1. PREMISES. Lessor is the owner, or shall become the owner, of
real property described as follows: Unit Nos. _____________ of the _________,
located at 5314 North 250 West, Provo, Utah County, Utah 84604, hereinafter
referred to as the Leased Property. Leased Property shall also include all
modifications and additions thereto, hereafter located on the real property, to
the extent such improvements constitute the property of Lessor hereunder.
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the
Leased Property, which contains a total of approximately 21,000 square feet of
floor space. The parties agree that this Lease is subject to the effect of the
Declaration of Condominium of the ____________ (the "Declaration"), any
covenants, conditions, restrictions, easements, mortgages or deeds of trust,
ground leases, rights of way and any other matters or documents of record; the
effect of any zoning laws of the city, county and state where the Leased
Property is situated, and general and special taxes not delinquent. Lessee
agrees that Lessee, and all persons in possession or holding under Lessee, will
conform to and will not violate the terms of the Declaration or any covenants,
conditions or restrictions of record which may now or hereafter encumber the
Leased Property (the "Restrictions"); and this Lease is subordinate to the
Restrictions and any amendments or modifications thereto.
ARTICLE 2. PURPOSE. The Leased Property is to be used only for office
purposes and such other purposes as may be expressly permitted by the
Declaration, and for no other purpose without the prior written consent of
Lessor, which consent shall not be unreasonably withheld.
ARTICLE 3. TERM; OPTION. The term of this Lease shall be for a period
of five (5) consecutive full Lease Years, as the term Lease Year is hereinafter
defined, commencing on the Commencement Date, plus any option periods exercised
as provided below. The term "Lease Year" means a period of twelve (12) full
consecutive calendar months, beginning on the first day of the calendar month
coinciding with or immediately following the Commencement Date.
Provided that (i) Lessee has promptly paid all rent due hereunder, it
being agreed that Lessee shall be considered to have paid rent promptly if, in
any given Lease Year, no more than one monthly installment has been paid late
(that is, received by the Landlord after the fifth (5th) day of the month) and
during the Initial Term, the Lessee has paid all monthly installments of rent no
later than the twentieth (20th) day of the month; and (ii) Lessee is not in
default of any of the terms, covenants and conditions of this Lease at the time
the option provided herein is required to be exercised; then Lessee shall have
the right to extend the
<PAGE> 2
term of this Lease for one (1) additional option term of five (5) years, upon
the terms herein stated.
The option shall be exercised by Lessee giving Lessor written notice of
its intent to exercise the option at least 180 days prior to the expiration of
the Initial Term. If Lessee fails timely to exercise the option to extend, the
option shall be null and void and of no further force or effect. The option term
shall be governed by the same terms, covenants and conditions as the Initial
Term, with the exception of the length of the term, as referenced above, and the
rent. The minimum monthly rent during the option period shall be as set forth in
Article 5 below.
ARTICLE 4. COMMENCEMENT DATE. The Commencement Date shall be
March 1, 1997.
ARTICLE 5. RENT. Lessee shall pay to Lessor, as Minimum Rent for the
Leased Property during the term of this Lease, according to the schedule set
forth in Exhibit A. Rent shall be paid in advance on or before the first day of
each calendar month during the term hereof. Minimum Rent for any partial month
shall be prorated on a per diem basis.
Rent shall be paid to Lessor without deduction or offset, in lawful
money of the United States of America and shall be paid to Lessor at 5314 North
250 West, Suite 320, Provo, Utah 84604, or to such other place as Lessor may
from time to time designate by written notice to Lessee. Any installment of
rent, other sum or any portion of such installment or other sum required under
this Lease to be paid by Lessee which has not been paid within five (5) days
after the due date thereof (withstanding postal delays) shall, whether or not
demand therefor is made or notice of default is given, bear interest at the rate
of one and one half percent (1-1/2%) per month from the due date thereof until
paid in full. In addition thereto, Lessor may charge a sum equal to five percent
(5%) of each unpaid amount as a service fee to compensate Lessor for the
additional time and expense necessitated in the handling of delinquent payments.
ARTICLE 6. NET LEASE; ADDITIONAL RENT. Except as expressly provided in
this Lease, it is the intent of both parties that the Minimum Rent specified
herein shall be absolutely net to Lessor throughout each Lease Year of the term
of this Lease, and that all costs, expenses, and obligations of every kind
relating to the Leased Property, or the repair, replacement or maintenance of
the Leased Property, which may arise or become due during the term hereof shall
be paid by Lessee and that Lessor shall be indemnified by Lessee against such
costs, expenses, and obligations. In addition to the other covenants and
obligations set forth in this Lease, Lessee specifically agrees to pay to
Lessor, as Additional Rent, the expenses and charges set forth below:
(i) All condominium fees, assessments, taxes, costs or similar
expenses assessed pursuant to the Declaration.
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<PAGE> 3
(ii) Lessee shall pay any and all Taxes (as defined below)
levied against the Leased Property for any period occurring during the term of
this Lease.
(iii) Lessee shall pay the premiums for insurance required by
Article
16.
"Taxes" shall mean and include all general and special taxes,
assessments, duties and levies, charged and levied upon or assessed by any
governmental authority against the Leased Property or any portion thereof, or
any leasehold improvements, fixtures, installations, additions, and equipment
whether owned by Lessor or Lessee. Taxes shall also include the reasonable cost
to Lessor in contesting the amount, validity, or the applicability of any Taxes
mentioned in this Article. Further included in the definition of Taxes herein
shall be general and special assessments, fees of every kind and nature,
commercial rental tax, levy, penalty or tax (other than inheritance or estate
taxes) imposed by any authority having the direct or indirect power to tax, as
against any legal or equitable interest of Lessor in the Leased Property or on
the act of entering into this Lease or as against Lessor's right to rent or
other income therefrom, or as against Lessor's business of leasing the Leased
Property, any tax, fee, or charge with respect to the possession, leasing,
transfer of interest, operation, management, maintenance, alteration, repair,
use, or occupancy by Lessee of the Leased Property, or any tax imposed in
substitution, partially or totally, for any tax previously included within the
definition of Taxes herein, or any additional tax, the nature of which may or
may not have been previously included within the definition of Taxes. Further,
if at any time during the term of this Lease the method of taxation or
assessment of real estate or the income therefrom prevailing at the time of
execution hereof shall be, or has been altered so as to cause the whole or any
part of the Taxes now or hereafter levied, assessed or imposed on real estate to
be levied, assessed or imposed upon Lessor, wholly or partially, as a capital
levy, business tax, permit or other charge, or on or measured by the rents
received therefrom, then such new or altered Taxes, regardless of their nature,
which are attributable to the Leased Property shall be deemed to be included
within the term "Taxes" for purposes of this Article 6, whether in substitution
for, or in addition to any other Taxes, save and except that such shall not be
deemed to include any enhancement of said tax attributable to other income of
Lessor. With respect to any general or special assessments which may be levied
upon or against the Leased Property, or which may be evidenced by improvement or
other bonds, or may be paid in annual or semi-annual installments, only the
amount of such installment, pro rated for any partial year, and statutory
interest, shall be included within the computation of Taxes for which Lessee is
responsible hereunder.
During the term hereof Lessee shall pay prior to delinquency all taxes
assessed against and levied upon fixtures, furnishings, equipment and all other
personal property of Lessee and when possible Lessee shall cause said fixtures,
furnishings and equipment to be assessed and billed separately from the property
of Lessor. If any of Lessee's personal property shall be assessed with the
Leased Property, Lessee shall pay to Lessor or directly to the taxing authority,
the Taxes attributable to Lessee's personal property.
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<PAGE> 4
At the option of Lessor, Lessor shall estimate the Taxes, insurance,
assessments, and common area (and similar charges) required to be paid by Lessee
hereunder for the current calendar year (or other convenient period established
by Lessor) or portion thereof, and Lessee shall pay to Lessor at the same time
each payment of Minimum Rent is due, the amount of the estimate divided by the
total number of months included in the period covered by the estimate. Within
three months after the end of each calendar year (or other period), Lessor shall
render a statement to Lessee showing the difference between the Lessee's
obligations for such amounts and the amounts collected by Lessor from Lessee.
Lessee shall pay any shortage to Lessor within thirty (30) days after the date
of such statement. Correspondingly, Lessee shall receive a credit in the amount
of any overpayment, which credit may be applied by Lessee to subsequent payments
due under this Section, as long as Lessee is not in default for failure to pay
under this Lease. Lessee may audit Lessor's estimates and the expenses paid by
Lessor, at Lessee's expense. If the audit reveals that the amounts charged to
Lessee for actual expenses (as opposed to estimated expenses) exceeded actual
expenses by more than ten percent (10%), then Lessor shall reimburse Lessee for
the cost of the audit. If the Lessee has overpaid such expenses at the end of
the term of the Lease, Lessor shall reimburse Lessee the amount of such
overpayment.
Lessee shall cause all bills, statements and other documents related to
Taxes, insurance, assessments, and common area (and similar charges) to be sent
directly to Lessor. The size of the monthly payments required by this Section to
be made by Lessee shall be adjusted from time to time as may be necessary in
light of the total taxes, assessments and insurance premiums to which such
payments are related.
ARTICLE 7. USE OF LEASED PROPERTY. Lessee shall not use the Leased
Property or allow the Leased Property to be used for any improper, immoral, or
unlawful purpose, nor shall Lessee cause, maintain or permit any nuisance in, on
or about the Leased Property. Lessee shall not damage or deface or otherwise
commit or suffer to be committed any waste in, of or upon the Leased Property.
ARTICLE 8. COMPLIANCE WITH LAW. Lessee shall not use the Leased
Property or permit anything to be done in or about the Leased Property which
will in any way conflict with any law, statute, ordinance or government rule or
regulation now in force or which may hereafter be enacted or promulgated. Lessee
shall at its sole cost and expense promptly comply with all laws, statutes,
ordinances and governmental rules, regulations or requirements now in force or
which may hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted related to or
affecting the condition, use or occupancy of the Leased Property, including
making such repairs, replacements, additions, or modifications to the Leased
Property as may be required (whether or not such are in the nature of capital
improvements). To the extent that any such repairs, replacements, additions, or
modifications are the responsibility of the condominium association, then any
assessments pertaining thereto shall be paid by Lessee. The judgment of any
court of competent jurisdiction or the admission of Lessee in an action against
Lessee, whether Lessor be a party thereto or not, that Lessee has violated any
such law, statute,
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<PAGE> 5
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Lessor and Lessee.
Lessee accepts the Leased Property subject to the Declaration and all
applicable zoning, municipal, county and state laws, ordinances, rules,
regulations, orders, restrictions of record, and requirements in effect during
the term or any part of the term hereof regulating the Leased Property.
For purposes hereof, "Hazardous Materials" shall mean any and all
flammable explosives, radioactive material, hazardous waste, toxic substance or
related material, including but not limited to, those materials and substances
defined as "hazardous substances", "hazardous materials", "hazardous wastes" or
"toxic substances" in the Environmental Laws. For purposes hereof,
"Environmental Laws" shall mean all local, state and federal laws, statues,
rules and regulations, in force from time to time during the term of this Lease,
pertaining to Hazardous Materials and other environmental matters, including but
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq.; the Hazardous Materials
Transportation Act, 39 U.S.C. Section 1801, et seq.; the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq.; the Federal Clean Water Act 33 U.S.C. Section 1251 et seq.; the
Clean Air Act 42 U.S.C. Section 7401 et seq.; the Porter-Cologne Water Quality
Act, including all amendments thereto, replacements thereof, and regulations
adopted and publications promulgated pursuant thereto.
Lessee agrees that, during the term of this Lease, Lessee shall not be
in violation of any federal, state or local law, ordinance or regulation then
applicable to the Leased Property and relating to industrial hygiene, soil,
water, or environmental conditions on, under or about the Leased Property
including, but not limited to, the Environmental Laws. Lessee further agrees
that during the term of this Lease, there shall be no use, presence, disposal,
storage, generation, release, or threatened release of Hazardous Materials on,
from or under the Leased Property. Lessee agrees to indemnify, defend, protect
and hold harmless Lessor, its directors, officers, employees, partners, and
agents from and against any and all losses, claims, demands, actions, damages
(whether direct or consequential), penalties, liabilities, costs and expenses,
including all reasonable attorney's fees and legal expenses, arising out of any
violation or alleged violation of any of the laws or regulations referred to in
this Article, or breach of any of the provisions of this Article. The provisions
of this Article shall survive the termination or expiration of this Lease.
ARTICLE 9. ALTERATIONS. Lessee shall not make or permit to be made any
material alterations, additions or improvements to or of the Leased Property or
any part thereof without the written consent of Lessor, which consent shall not
be unreasonably withheld, and any alterations, additions or improvements to, or
on the Leased Property, except movable furniture and trade fixtures, shall at
once become a part of the realty and belong to Lessor. Lessee shall submit
working drawings for any such alterations, additions or improvements to Lessor
for Lessor's prior written approval. In the event Lessor consents
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<PAGE> 6
to the making of any alterations, additions or improvements to the Leased
Property by Lessee, the same shall be made by Lessee at Lessee's sole cost and
expense and such work shall be performed in a workmanlike manner.
Lessee shall keep the Leased Property free from any liens arising out
of any work performed, materials furnished, or obligations incurred by Lessee.
In the event a mechanic's or other lien is filed against the Leased Property as
a result of a claim arising through the Lessee, Lessee shall, upon request by
Lessor, furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to at least one hundred fifty percent (150%) of the amount of the
contested lien, claim or demand, indemnifying Lessor against liability for the
same. Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in any action to foreclose such lien if Lessor shall decide it is
to its best interest to do so.
Lessee shall return the Leased Property to Lessor at the expiration or
earlier termination of this Lease in good and sanitary order, condition and
repair, free of rubble and debris, broom clean, reasonable wear and tear
excepted. Any deferred maintenance or other conditions other than normal wear
and tear shall be remedied at Lessee's sole cost and expense. All damage to the
Leased Property caused by the removal of trade fixtures and other personal
property that Lessee is permitted to remove under the terms of this Lease and/or
such restoration shall be repaired by Lessee at its sole cost and expense prior
to termination.
ARTICLE 10. REPAIRS; MAINTENANCE; REPLACEMENT. Except to the extent
such items are the responsibility of the Condominium Association under the
Declaration, Lessee shall, at all times during the term hereof, and at Lessee's
sole cost and expense, keep, maintain and repair the remainder of the Leased
Property in good, working, and sanitary order and condition, including, without
limitation, replacement of all broken or damaged glass, replacement of light
globes or tubes and doors, window casements, heating and air conditioning
systems, plumbing, pipes, electrical wiring conduit, interior partitions,
fixtures, leasehold improvements and alterations, walls (both exterior and
interior), and all structural components, floor slab and subgrade and
foundations and footings, pavement, sidewalks, walls, fences, curbs, bumpers,
landscaping, irrigations systems, striping and line painting, sweeping, removal
of snow, ice, trash, garbage and other refuse. Lessee shall pay all fees,
required licenses and permits relating to the Leased Property.
Except as stated in this Lease, Lessee accepts the Leased Property in
its "as-is" condition. Lessee agrees on the last day of the term or sooner
termination of this Lease to surrender the Leased Property in good and sanitary
order, condition and repair, and in compliance with Lessee's obligations to
repair, replace and maintain the Leased Property as set forth in this Lease.
Except as stated in this Lease, Lessee's obligations to repair and
maintain the Leased Property during the term hereof, and its obligations
respecting the condition of the Leased Property from time to time during the
term hereof and at the time the Leased Property are
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<PAGE> 7
surrendered to Lessor, are absolute and unconditional, and Lessee agrees that
Lessor shall have no obligation to repair, replace, or maintain the Leased
Property regardless of the existence of latent defects or circumstances now
existing or hereafter arising.
ARTICLE 11. WASTE AND NUISANCE. (a) Lessee covenants that it: (i) will
keep the Leased Property and every part thereof in a clean, reasonably neat and
orderly condition; (ii) will in all respects and at all times fully comply with
all health and policy regulations; (iii) shall not overload the floors or permit
or allow any waste, abuse, deterioration or destructive use of the Leased
Property to occur.
(b) Lessee further covenants that it will (i) not cause or
permit any Hazardous Materials to be brought upon or used in or about the Leased
Property; (ii) immediately notify Lessor of any environmental concern raised by
a private party or governmental agency as it relates to the Leased Property; and
(iii) immediately notify Lessor of any Hazardous Material spill. In the event of
a violation hereof, Lessee shall immediately proceed, at Lessee's expense, to
remedy same. Failure of Lessee to commence clean up activities within five (5)
days after receipt of notice to so do shall be a default under this Lease.
Lessor shall, thereafter, have the right, but not the obligation, to remedy any
environmental violation upon the Leased Property and Lessee shall promptly
reimburse Lessor for all costs relating thereto. Lessor further retains the
right, in its sole, but reasonable discretion, to conduct any environmental
tests on the Leased Property should Lessor suspect a violation to exist upon the
Leased Property. Lessee shall and does agree to indemnify and hold Lessor
harmless from and against any and all damages, costs, expenses and liability
whatsoever, including, without limitation, attorneys' fees that Lessor may incur
because of Lessee's violation of, or the resulting enforcement of, any
Environmental Laws, which covenant shall survive the expiration or earlier
termination of this Lease.
ARTICLE 12. ABANDONMENT. Lessee shall not abandon the Leased Property
at any time prior to the expiration or earlier termination of the term hereof.
In the event Lessee shall abandon or surrender the Leased Property or be
dispossessed by process of law or otherwise, any personal property belonging to
Lessee and left on the Leased Property beyond thirty (30) days shall be deemed
to have been abandoned.
ARTICLE 13. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this
Lease or sublet the Leased Property or any part thereof to occupy or use the
Leased Property or any portion thereof without the prior written consent of
Lessor, which shall not be unreasonably withheld or delayed. Acceptance of rent
by Lessor shall not be deemed approval or acceptance of assignment or
subletting. Lessee shall remain liable for all terms and conditions of this
Lease at all times notwithstanding assignment or subletting. In the event Lessor
grants permission in writing for Lessee to sublet or assign, Lessee shall pay to
Lessor its reasonable costs and attorney's fees incurred in reviewing the
Lessee's request (which shall not be less than $300.00). Any assignment or
subletting by Lessee without Lessor's consent shall be a default by Lessee
hereunder.
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<PAGE> 8
ARTICLE 14. PARKING AND LANDSCAPING. Except to the extent such items
are the responsibility of the Condominium Association under the Declaration,
Lessee shall, at its sole cost, maintain in good condition and repair all of the
pavement, parking, striping and line painting, exterior lights, irrigation
systems, shrubs, grass and landscaped areas on the Leased Property, and shall
repair, maintain and/or replace the pavement, parking area and landscaping as
may be reasonably necessary to keep it in good condition and repair, regardless
of whether the nature of such repairs may be in the nature of capital
expenditures.
ARTICLE 15. INDEMNIFICATION OF LESSOR. Lessee releases Lessor, and its
authorized representatives, from any claims for damage to any person, to the
Leased Property, or to the fixtures, personal property, Lessee's improvements
and alterations of either Lessor or Lessee, in or on the Leased Property,
including loss of income, that are caused by or result from risks insured or
required under the terms of this Lease to be insured against.
Lessee, as a material part of the consideration to be rendered to
Lessor, shall indemnify, defend, protect and hold harmless Lessor against all
actions, claims, demands, damages, liabilities, losses, penalties, or expenses
of any kind which may be brought or imposed upon Lessor or which Lessor may pay
or incur by reason of injury to person or property, from whatever cause, all or
in any way connected with the condition or use of the Leased Property prior to
or after the date hereof, or the improvements or personal property therein or
thereon, including without limitation any liability or injury to the person or
property of Lessee, its agents, officers, employees or invitees. Lessee agrees
to indemnify, defend and protect Lessor and hold it harmless from any and all
liability, loss, cost or obligation on account of, or arising out of, any such
injury or loss however occurring, including breach of the provisions of this
Lease, the negligence of the parties hereto and for any conditions or
occurrences arising prior to the date hereof. Nothing contained herein shall
obligate Lessee to indemnify Lessor against Lessor's gross negligence or willful
acts, for which Lessor shall indemnify Lessee.
In the event any action, suit or proceeding is brought against Lessor
by reason of such occurrence or condition, Lessee, upon Lessor's request will at
Lessee's expense resist and defend such action, suit or proceeding, or cause the
same to be resisted and defended by counsel designated either by Lessee or by
the insurer whose policy covers the occurrence and in either case approved by
Lessor. The obligations of Lessee under this Article arising by reason of any
occurrence taking place during the Lease term shall survive any termination of
this Lease.
Lessee, as a material part of the consideration to be rendered to
Lessor, hereby waives all claims against Lessor for damages to goods, wares,
merchandise and loss of business in, upon or about the Leased Property and for
injury to Lessee, its agents, employees, invitees or third persons in or about
the Leased Property from any cause arising at any time, including breach of the
provisions of this Lease and the negligence of the parties hereto, unless caused
by the gross negligence or willful acts of Lessor.
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<PAGE> 9
Wherever in this Article the term Lessor or Lessee is used and such
party is to receive the benefit of a provision contained in this Article, such
term shall refer not only to that party but also to its officers, directors,
employees, partners and agents.
ARTICLE 16. INSURANCE. Except to the extent the following insurance
coverages and/or policies are obtained and maintained by the Condominium
Association under the Declaration:
(a) Lessor, at the expense of Lessee as provided herein, shall
secure comprehensive general liability insurance on the Leased Property on an
occurrence basis with a minimum limit of liability in an amount of One Million
Dollars ($1,000,000.00) per occurrence, Two Million Dollars ($2,000,000.00)
aggregate, or such other limits as Lessor may reasonably determine. Lessor (and,
at Lessor's option, the lender interested under any mortgage or similar
instrument then affecting the Leased Property) shall be solely responsible for
determining the amount of insurance and the specific endorsements to be
maintained.
(b) Lessor, at the expense of Lessee as provided herein, shall
procure insurance coverage insuring Lessor against loss of, or damage to, all
buildings and structures on the Leased Property by reason of fire or any other
casualties. Such insurance shall be underwritten by a responsible insurance
company qualified to do business in the State where the Leased Property is
located, shall be in the face amount equal to the full replacement cost of all
buildings and structures on the Leased Property, and shall include coverage for
loss of rents. Such insurance may cover loss or damage by fire, windstorm, hail,
acts of God, explosion, riot attending a strike, civil commotion, aircraft,
vehicles, smoke, and earthquake. Lessor (and, at Lessor's option, the lender
interested under any mortgage or similar instrument then affecting the Leased
Property) shall be solely responsible for determining the amount of fire and
extended coverage insurance and the specific endorsements to be maintained.
Lessor may also maintain boiler insurance on all heating boilers within the
Leased Property in such amounts as it determines. Lessor shall be named as an
insured on each such policy. The proceeds of such insurance in case of loss or
damage shall be paid to Lessor to be applied as determined by Lessor. In any
event, Tenant shall have no interest in or claim to any such proceeds.
(c) Lessee agrees during the entire term hereof, to keep in
full force and effect a policy of comprehensive general liability insurance with
respect to the Leased Property, the business operated by Lessee, and any
subtenants, concessionaires, or licensees of Lessee in the Leased Property, with
minimum limits of not less than $1,000,000 per occurrence, $2,000,000 in the
aggregate. The policy shall name Lessor, any person, firms, or corporations
designated by Lessor, and Lessee as insureds.
At all times during the term hereof, Lessee shall keep in force at its
sole cost and expense, fire and extended coverage insurance, and against
sprinkler leakage or malfunction and water damage and against vandalism and
malicious mischief, on Lessee's trade fixtures, furnishings, equipment and other
personal property located or brought upon the Leased
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<PAGE> 10
Property in full replacement value thereof. Lessee shall also obtain broad form
boiler and machinery insurance on all air-conditioning equipment, boilers and
other pressure vessels or systems, whether fired or unfired, which are installed
by Lessee or which serve the Leased Property, except to the extent such items
are covered under insurance secured by Lessor. Such boiler and machinery
insurance shall cover the replacement value of such items. During the Lease
term, the proceeds from any such policy or policies of insurance shall be used
for the repair or replacement of the property so insured.
The foregoing insurance required to be procured by Lessee shall be
issued by an insurance company approved by Lessor and a copy of the policy or a
certificate of insurance shall be delivered to Lessor.
(d) Each party shall cause each insurance policy obtained by
it to provide that the insurance company waives all rights of recovery by way of
subrogation against either party in connection with any damage covered by such
policy. Neither party shall be liable to the other for any damage caused by fire
or any other risks insured against under any property insurance policy carried
under the terms of this Lease.
(e) Any mortgage lender interested in any part of the Leased
Property may, at Lessor's option, be afforded coverage under any policy required
to be secured by Lessee hereunder, by use of a mortgagee's endorsement to the
policy concerned.
(f) No use shall be made or permitted to be made on the Leased
Property, nor acts done, which will increase the existing rate of insurance upon
the Leased Property or cause the cancellation of any insurance policy or any
part thereof as a result of such use or acts, nor shall Lessee sell, or permit
to be kept, used or sold, in or about the Leased Property, any article which may
be prohibited by the standard form of fire insurance policies. Lessee shall, at
its sole cost and expense, comply with any and all requirements pertaining to
the Leased Property, of any insurance organization or company, necessary for the
maintenance of reasonable property damage and public liability insurance,
covering the Leased Property.
ARTICLE 17. UTILITIES; JANITORIAL SERVICE. (a) Lessee shall be solely
responsible for, and shall promptly pay before delinquency, all charges for use
or consumption of heat, sewer, water, gas, electricity, telephone or any other
utility services supplied to Lessee or to the Leased Property during the term
hereof.
(b) Unless caused by Lessor's gross negligence or willful act,
Lessor shall not be liable in the event of any interruption in the supply of any
utility service to the Leased Property. Lessee agrees that it will not install
any equipment which will exceed or overload the capacity of any utility
facilities and that if any equipment installed by Lessee shall require
additional utility facilities, the same shall be installed at Lessee's expense
in accordance with plans and specifications first approved in writing by Lessor.
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<PAGE> 11
(c) Lessee shall provide at its sole expense regular
janitorial service for the Leased Property, which shall include at least
ordinary dusting and cleaning, emptying of waste baskets and vacuuming. In
addition, Lessee shall provide an adequate sized dumpster for the storage of
refuse. Lessee shall arrange for the removal of such refuse and periodic
cleaning of such dumpster and the areas immediately adjacent thereto.
ARTICLE 18. ENTRY AND INSPECTION. Lessee shall permit Lessor and its
agents to enter into and upon the Leased Property at all reasonable times and
upon reasonable notice for the purpose of inspecting the same or for the purpose
of placing upon the property in which the Leased Property are located any usual
or ordinary signs advertising the availability of the property for sale or lease
prior to the expiration of this Lease. Lessor or its agents may, during normal
business hours, enter upon said Leased Property and exhibit same to prospective
lessees.
ARTICLE 19. DEFAULT. In the event of any failure of Lessee to pay any
rental or other sum due hereunder within five (5) days after the same shall be
due, or any failure to perform any other of the terms, conditions or covenants
of this Lease to be observed or performed by Lessee for more than thirty (30)
days after written notice of such default shall have been given to Lessee (or,
if such failure cannot reasonably be cured within such thirty (30) days, if
Lessee fails to commence the cure within thirty (30) days or thereafter fails to
diligently prosecute such cure to completion), or if Lessee or any guarantor of
the Lease shall become bankrupt or insolvent or file any debtor proceedings or
take or have taken against Lessee or any guarantor of this Lease in any court
pursuant to any statute either of the United States or of any state a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Lessee's or any such guarantor's
property, or if Lessee or any such guarantor makes an assignment for the benefit
of creditors or petitions for or enters into an arrangement, or if Lessee shall
abandon said Leased Property or suffer this Lease to be taken under any writ of
execution, Lessor, besides other rights or remedies it may have, shall have the
immediate right of re-entry and may remove all persons and property from the
Leased Property and such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Lessee, all without
service of notice or resort to legal process and without being deemed guilty of
trespass or becoming liable for any loss or damage which may be occasioned
thereby.
Should Lessor elect to re-enter, as herein provided, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by law, it may either terminate this Lease or it may from time to time without
terminating this Lease, make such alterations and repairs as may be necessary in
order to relet the Leased Property and relet said Leased Property or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this Lease) and at such rental or rentals and upon such other terms and
conditions as Lessor in its sole discretion may deem advisable, upon such
reletting, all rentals received by Lessor from such reletting shall be applied,
first, to the payment of any indebtedness other than rent due hereunder from
Lessee to Lessor, second, to
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<PAGE> 12
the payment of any costs and expenses of such alterations, repairs, and
reletting (including commissions), third, to the payment of rent due and unpaid
hereunder, and the residue, if any, shall be held by Lessor and applied toward
payment of future rent as the same may become due and payable hereunder. If such
rentals received from such reletting during any month be less than that to be
paid during that month by Lessee hereunder, Lessee shall pay any such deficiency
to Lessor. Such deficiency shall be calculated and paid monthly. No such
re-entry or taking possession of the Leased Property by Lessor shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Lessee or unless the termination thereof be
decreed by a court of competent jurisdiction. Notwithstanding any such reletting
without termination, in addition to any other remedies it may have, it may
recover from Lessee all damages it may incur by reason of such breach, including
the worth at the time of such termination of the excess, if any, of the present
value of the rent and charges equivalent to rent reserved in this Lease for the
remainder of the stated term (using a discount rate of 10.0%) over the present
value of the then reasonable rental value of the Leased Property for the
remainder of the stated term (using a discount rate of 10.0%), all of which
amounts shall be immediately due and payable from Lessee to Lessor. To give
effect to the remedies provided herein, Lessee expressly waives the benefit of
any statutory or common law that limits or delays the Lessor's ability to
recover damages for future rents and agrees that such rents may be accelerated
for purposes of determining Lessee's liability and Lessor's damages.
In the event of default, all Lessee's fixtures, furniture, equipment,
improvements, additions, alterations and other personal property shall remain on
the subject Leased Property and in that event and continuing during the length
of said default, Lessor shall have the right, after the expiration of any
applicable cure period, to take the exclusive possession of the same and to use
the same, rent or charge free, until all defaults are cured, or, at its option,
at any time during the term of this Lease, to require Lessee to forthwith remove
the same, and Lessee hereby waives all rights to notice and all common law and
statutory claims and causes of actions which it may have against Lessor
subsequent to such date as regards to storage, distribution, damage, loss of use
and ownership of the personal property affected by the terms of this Article.
Lessee acknowledges Lessor's need to relet the Leased Property upon termination
of this Lease or repossession of the Leased Property and understands that the
forfeitures and waivers provided herein are necessary to said reletting and to
prevent Lessor incurring a loss for inability to deliver the Leased Property to
a prospective lessee.
The remedies given to Lessor in this section shall be in addition and
supplemental to all other rights or remedies which Lessor may have under the
laws then in force.
ARTICLE 20. DESTRUCTION. (a) To the extent applicable, the Declaration
shall govern the repair or reconstruction of any of the Leased Property that may
be damaged or destroyed by fire or other casualty or cause. To the extent of
Lessor's rights as a unit owner, Lessor shall cause the Lease Property to be
repaired or reconstructed to a condition which is substantially similar to the
condition in existence prior to such casualty.
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<PAGE> 13
(b) Notwithstanding the foregoing, however, if the Leased
Property is damaged to the extent of thirty-three and one-third percent
(33-1/3%) or more of its then replacement value, or if the repair of the Leased
Property would require more than one hundred twenty (120) days, Lessor may
terminate this Lease upon written notice given to Lessee within thirty (30) days
following such casualty or loss.
(c) Unless this Lease is terminated, Lessee shall, at its
expense, repair the fixtures and improvements installed by it within the Leased
Property and repair or replace any of Lessee's furniture, equipment or other
personal property damaged by such casualty or event.
(d) If any building or structure on the Leased Property shall
be damaged or destroyed by fire or other casualty or cause, Minimum Rent shall
abate proportionately as to the portion of the Leased Property rendered
untenantable; but only upon the condition that insurance covers Lessor's loss of
rents for such period.
ARTICLE 21. EMINENT DOMAIN. If all or more than 33-1/3% of the Leased
Property shall be taken or appropriated by any public or quasi-public authority
under the power of eminent domain, or transfer in lieu thereof, either party
hereto shall have the right, at its option, to terminate this Lease as of the
date title vests in the condemning entity. Lessor shall be entitled to any
award, or other payment made in connection with such condemnation. Lessee,
however, shall have the right to pursue a claim in any condemnation proceeding
against the condemning authority (but not against Lessor) for compensation for
any resulting damages to Lessee's business, trade fixtures and personal property
(but not for any diminution or loss of Lessee's leasehold estate). If a part of
the Leased Property shall be so taken or appropriated and this Lease is not
thereafter terminated, the rental thereafter to be paid shall be reduced in the
proportion that the area of the Leased Property so taken bears to the entire
Leased Property. Notwithstanding the foregoing, however, before Lessee may
terminate this Lease by reason of a taking or appropriation as described above,
such taking or appropriation shall be of such an extent and nature as to
substantially handicap, impede or impair Lessee's use of the Leased Property for
a period in excess of ninety (90) days.
ARTICLE 22. MORTGAGE REQUIREMENTS. This Lease and all rights of Lessee
under this Lease are hereby subordinate hereunder to any lien of any mortgage or
mortgages or lien or other security interest resulting from any other method of
financing or refinancing, now or hereafter in force against the Leased Property.
The provisions of this Article notwithstanding, so long as Lessee is not in
default hereunder, this Lease shall remain in full force and effect for the full
term hereof and shall not be terminated as a result of any foreclosure or sale
or transfer in lieu of such proceedings pursuant to a mortgage or other
instrument to which Lessee has subordinated its rights pursuant hereto.
In the event of the sale or assignment of Lessor's interest in the
Leased Property, or in the event of any proceeding brought for the foreclosure
of, or in the event of exercise of
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<PAGE> 14
the power of sale under any mortgage or other security instrument made by Lessor
covering the Leased Property, Lessee shall attorn to the assignee or purchaser
and recognize such purchaser as Lessor under this Lease.
Lessee agrees to give any mortgagees (as defined below), by registered
mail, a copy of any notice of default served by Lessee upon Lessor, provided
that prior to such notice, Lessee has been notified, in writing (by way of a
Notice of Assignment of Rents and Leases or otherwise) of the addresses of any
such mortgagees. Lessee further agrees that if Lessor shall have failed to cure
such default within the time set forth in this Lease, then any such mortgagees
shall have an additional thirty (30) days within which to cure such default or
if such default cannot be cured within that time, then such additional time as
may be necessary, if within such thirty (30) days, any such mortgagee has
commenced and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event this Lease shall not be
terminated. "Mortgagee" shall mean the holder of any mortgage, the beneficiary
under any deed of trust or the holder of any other security interest which
encumbers the Leased Property.
ARTICLE 23. RULES, REGULATIONS AND RESTRICTIVE COVENANTS. Lessee shall
faithfully observe and comply with any rules, regulations and/or restrictive
covenants applicable to the Leased Property.
ARTICLE 24. HOLDING OVER. If Lessee holds possession of the Leased
Property after the term of this Lease with Lessor's consent, and Lessor accepts
rent in the amounts hereinafter provided, Lessee shall become a lessee from
month-to-month upon terms equal to the then existing terms hereunder, except
that the Minimum Rent shall be the then existing Minimum Rent then payable
hereunder at the end of the term (on a monthly basis) multiplied by one hundred
twenty-five percent (125%). Minimum Rent and Additional Rent shall be paid in
advance on or before the first day of each month and Lessee shall continue in
possession until such tenancy shall be terminated by Lessor or until Lessee
shall have given to Lessor a written notice at least thirty (30) days prior to
the date of termination of such tenancy of its intention to terminate such
tenancy.
ARTICLE 25. NOTICES. All notices and demands which may or are required
to be given by either party to the other hereunder shall be sent by overnight
courier or United States certified or registered mail, postage prepaid,
addressed to:
<TABLE>
<CAPTION>
LESSOR LESSEE
<S> <C>
Novations Partners, L.L.C. Novations Group, Inc.
Attn: Joseph Folkman Attn: Joseph Folkman
5314 North 250 West 5314 North 250 West
Suite 320 Suite 320
Provo, Utah 84604 Provo, Utah 84604
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
Tel: 801-375-7525 Tel: 801-375-7525
Fax: 801-375-7595 Fax: 801-375-7595
</TABLE>
ARTICLE 26. LESSOR'S RIGHT TO CURE DEFAULTS. All covenants and
agreements to be performed by Lessee under any of the terms of this Lease shall
be at its sole cost and expense and, except as otherwise specifically provided
herein, without any abatement of rent. If Lessee shall fail to pay any sum of
money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, shall fail to cure
any such default within the applicable cure period, and such failure shall
continue for five (5) days after Lessee has received notice thereof by Lessor,
Lessor may, but shall not be obligated to do so, and without waiving any rights
of Lessor or releasing Lessee from any obligations of Lessee hereunder, make
such payment or perform such other act. All sums to be paid by Lessor and all
necessary incidental costs together with interest thereon at the rate of one and
one-half percent (1-1/2%) per month from the date of such payment by Lessor in
connection with the performance of any such act by Lessor shall be considered
additional rent hereunder and, except as otherwise in this Lease expressly
provided, shall be payable to Lessor on demand or, at the option of Lessor, in
such installments as Lessor may elect and may be added to any rent then due or
thereafter becoming due under this Lease.
ARTICLE 27. FORCE MAJEURE. Lessor shall not be responsible or liable
for any delay in the observance or performance of any term or condition of this
Lease to be observed or performed by Lessor to the extent such delay results
from action of governmental authorities, civil commotions, strikes, fires, acts
of God, whether or not similar to the matters herein specifically enumerated and
any such delay shall extend by like time any period of performance by Lessor and
shall not be deemed a breach of or failure to perform this Lease or any
provision hereof.
ARTICLE 28. TRANSFER OF LESSOR'S INTEREST. In the event Lessor
transfers its interest in the Leased Property (other than a transfer for
security purposes), Lessor shall be relieved of all obligations accruing
hereunder after the effective date of such transfer, provided that such
obligations have been expressly assumed in writing by the transferee.
ARTICLE 29. QUIET ENJOYMENT. Lessor covenants that so long as Lessee
performs all of its obligations hereunder it shall peacefully and quietly have,
hold and enjoy the Leased Property for the term hereof.
ARTICLE 30. SIGNS. Lessee shall have the right to use such signs as
Lessor could as the owner of the Leased Property. Lessee shall comply with all
applicable governmental regulations and other restrictions in the placement of
signs or advertisements on or in the Leased Property. The cost of installation
and regular maintenance of any signs shall be at the sole expense of Lessee. At
the termination of this Lease, or any extensions thereof,
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<PAGE> 16
Lessee shall remove such signs as are requested to be removed by Lessor, and all
damage caused by such removal shall be repaired at Lessee's expense.
ARTICLE 31. SURRENDER OF LEASE. The voluntary or other surrender of
this Lease by Lessee, or a mutual cancellation thereof, shall not work as a
merger, and shall, at the option of Lessor, terminate all or any existing
subleases or subtenancies, or may, at the option of Lessor, operate as an
assignment to it of any or all such subleases or subtenancies.
ARTICLE 32. LESSOR'S EXCULPATION. In the event of default, breach or
violation by Lessor (which term includes Lessor's members, partners,
co-ventures, co-lessees, officers, directors, employees, agents, or
representatives) of any Lessor's obligations under this Lease, Lessor's
liability to Lessee shall be limited to its ownership interest in the Leased
Property, or the proceeds of a public sale of such interest pursuant to a
foreclosure against Lessor. Lessor may, at its option, and among its other
alternatives, relieve itself of all liability under this Lease by conveying the
Leased Property to Lessee. Notwithstanding any such conveyance, Lessee's
leasehold and ownership interest shall not merge. Lessor (as defined in this
Article) shall not be personally liable for any deficiency beyond its interest
in the Leased Property.
ARTICLE 33. ATTORNEYS' FEES. In any action or proceeding brought by
either party to enforce or interpret this Lease or any provision hereof, the
prevailing party shall be entitled to recover its reasonable attorney fees and
costs incurred therein. Further, Lessee hereby agrees to pay, as additional
rent, all reasonable attorney's fees and disbursements, and all other court
costs or expenses of legal proceedings or other legal services which Lessor may
incur or pay out by reason of, or in connection with:
(a) any appearance by Lessor (or any officer, partner, or
employee of Lessor) as a witness or otherwise in any action or proceeding
whatsoever involving or affecting Lessee or this Lease (provided, however, that
this clause shall not apply to actions between Lessor and Lessee, which are
governed by the first sentence of this Article);
(b) any assignment, sublease, or leasehold mortgage proposed
or granted by Lessee (whether or not permitted under this Lease), and all
negotiations with respect thereto; and
(c) any alteration of the Leased Property by Lessee or at the
request of Lessee, and all negotiations with respect thereto.
Lessee's obligations under this Article shall survive the expiration or
any other termination of this Lease. This Article is intended to supplement (and
not to limit) other provisions of this Lease pertaining to indemnities and/or
attorney's fees.
Should it be necessary for Lessor to employ legal counsel to enforce
any of the provisions of this Lease, Lessee agrees to pay, as additional rent,
all reasonable attorney's
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<PAGE> 17
fees and court costs reasonably incurred thereby, whether or not Lessor
commences any legal action or proceeding.
ARTICLE 34. ESTOPPEL CERTIFICATES AND FINANCING. Lessee agrees at any
time and from time to time upon not less than ten (10) days prior request by
Lessor, to execute, acknowledge and deliver to Lessor a written certificate in
recordable form certifying (if true), as of the date of such certificate: (1)
the beginning and termination dates hereof; (2) that this Lease is in full force
and effect and has not been assigned, modified, supplemented or amended (except
by such writings as shall be stated); (3) stating that all conditions under this
Lease to be performed by either party have been satisfied (or stating which
conditions remain unsatisfied); (4) stating that there are no defenses or
offsets against the enforcement of this Lease by the Lessor, or stating those
claimed by Lessee; (5) verifying the amount of advance rental, if any paid by
Lessee; (6) stating the date to which rental has been paid; and (7) setting
forth such other factual information pertaining to the terms of the Lease as
Lessor may reasonably request. Lessor, Lessor's mortgage lenders and any
purchasers of all or a portion of the Leased Property shall be entitled to rely
upon such certificate. Should Lessee fail timely to comply with this Article,
Lessor shall have the right to execute such certificate as attorney in fact for
Lessee and such certificate and the representations contained therein shall be
fully binding on Lessee as though duly executed by Lessee.
ARTICLE 35. SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the heirs successors, executors, administrators and assigns of all of the
parties hereto; and all of the parties shall be jointly and severally liable
hereunder.
ARTICLE 36. TIME. Time is of the essence of this Lease with respect to
each and every Article, Section and Subsection hereof.
ARTICLE 37. MISCELLANEOUS. Subject to any limitations on assignment set
forth herein, all of the terms and provisions of this Lease shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto.
The waiver by Lessor of any term, covenant or condition herein
contained shall not be deemed to be a waiver of the same or any other term,
covenant or condition or any subsequent breach of the same of any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Lessor shall not constitute a waiver of any preceding breach by
Lessee of any term, covenant or condition of this Lease, other than the failure
of Lessee to pay the particular rent so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such rent.
This Lease shall be governed by and construed in accordance with law of
Utah.
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<PAGE> 18
The invalidity or enforceability of any provision hereof shall not
affect or impair any other provision hereof.
The term "Lessor" as used herein shall include the agents, officers and
employees thereof. If there is more than one Lessee, the obligations of Lessee
hereunder shall be joint and several.
Paragraph heading ins this Lease are for convenience only and shall not
define or limit the scope or intent of any provision hereof.
Lessee shall not record this Lease or a Memorandum thereof without the
written consent of Lessor. Lessor may file this Lease for record with the
Recorder of the County in which the Leased Property is located.
Any consent required or permitted herein of Lessor or Lessee, as the
case may be, shall not be unreasonably withheld or delayed.
ARTICLE 38. ENTIRE AGREEMENT. This Lease and the Exhibits and addenda
if any, attached hereto constitute the entire agreement between the parties. All
Exhibits and addenda mentioned in this Lease are incorporated herein by
reference. No subsequent amendment to this Lease shall be binding upon Lessor or
Lessee unless reduced to writing and signed by the party to be charged
therewith. Submission of this Lease for examination does not constitute an
option for the Leased Property and becomes effective as a Lease only upon
execution and delivery thereof by Lessor to Lessee. If any provision contained
in an Exhibit or addendum is inconsistent with a provision in the body of this
Lease, the provision contained in said Exhibit or addendum shall control. It is
hereby agreed that this Lease contains no restrictive covenants binding on other
lessees or exclusive use provisions in favor of Lessee. There are no
representations or promises by either party to the other except as are
specifically set forth herein. This Lease supersedes and revokes all previous
conversations, negotiations, arrangements, letters of intent, writings,
brochures, understandings, and information conveyed, whether oral or in writing,
between the parties hereto or their respective representatives or any agents of
any of them.
ARTICLE 39. AUTHORITY OF SIGNATORIES. Each person executing this Lease
individually and personally represents and warrants that he is duly authorized
to execute and deliver the same on behalf of the entity for which he is signing
(whether it be a corporation, general or limited partnership or otherwise) and
that this Lease is binding upon said entity in accordance with its terms.
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<PAGE> 19
IN WITNESS WHEREOF, Lessor and Lessee executed this Lease as of the
date first above written.
LESSOR
NOVATIONS PARTNERS, L.L.C., a Utah
limited liability company
By its Manager:
NOVATIONS GROUP, INC., a Utah
corporation
By /s/ Randall G. Stott
----------------------------------------
Its Managing Director
-------------------------------------
LESSEE
NOVATIONS GROUP, INC., a Utah corporation
By /s/ Randall G. Stott
---------------------------------------
Its Managing Director
-----------------------------------
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<PAGE> 20
EXHIBIT A
RENT SCHEDULE
<TABLE>
<CAPTION>
Minimum Rent: Lease Year: Annual Rent Monthly Rent
<S> <C> <C> <C>
1 $300,000.00 $25,000.00
2 $309,000.00 $25,750.00
3 $318,270.00 $26,522.50
4 $327,818.10 $27,318.18
5 $337,652.64 $28,137.72
Option term:
6 $337,652.64 $28,137.72
7 $347,782.22 $28,981.85
8 $358,215.69 $29,851.31
9 $368,962.16 $30,746.85
10 $380,031.02 $31,669.25
</TABLE>
-20-
<PAGE> 1
EXHIBIT 10.22
CONSULTING AGREEMENT
THIS AGREEMENT is made and entered into effective as of _______________
by and among Provant, Inc., a Delaware corporation (including, for purposes of
Sections 5(c), 7, 8, 9 and 12(a), its direct and indirect subsidiaries,
the "Company"), and Donald W. Glazer of Newton, Massachusetts (the
"Consultant").
In consideration of the mutual promises, terms, provisions and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. ENGAGEMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby engages the Consultant as an independent
contractor and the Consultant hereby accepts such retention by the Company.
2. TERM. Subject to earlier termination as hereafter provided, the
Consultant's engagement hereunder shall be for a term of two (2) years,
commencing effective upon the closing of the Company's initial public offering
(the "IPO") of its common stock, $.01 par value per share (the "Effective
Date"). The term of this Agreement, as from time to time extended or renewed, is
hereafter referred to as "the term of this Agreement" or "the term hereof."
3. SERVICES.
(a) During the term hereof, the Consultant shall provide
business development and acquisition related services to the Company.
The Consultant shall perform such reasonable additional services as may
be requested by the Company from time to time.
(b) In the performance of his services hereunder, the
Consultant shall devote his business judgment, skill and knowledge to
the advancement of the business and interests of the Company.
(c) During the term hereof, the Consultant shall report to and
the services he provides shall be directed by the Chief Executive
Officer of the Company.
(d) During the term hereof, the Consultant shall not be
required to devote more than one (1) day per week to the performance of
his duties hereunder.
(e) The Company shall not require the Consultant to relocate or
reassign the Consultant to any location beyond a fifty (50) mile radius
of the location of the Company's principal corporate headquarters as of
the date hereof, nor shall the Consultant's duties hereunder be
materially changed, without the Consultant's prior written consent.
<PAGE> 2
4. COMPENSATION AND BUSINESS EXPENSES. As compensation for all
services performed by the Consultant under and during the term hereof and
subject to performance of the Consultant's duties and obligations, pursuant to
this Agreement or otherwise:
(a) CONSULTING FEE. During the term hereof, the Company shall
pay the Consultant a consulting fee at the rate of One Hundred
Twenty-Five Thousand Dollars ($125,000) per annum, payable in
accordance with the payroll practices of the Company for its
consultants and subject to increase from time to time by the Company in
its sole discretion. Such consulting fee, as from time to time
increased, is hereafter referred to as the "Consulting Fee."
(b) BUSINESS EXPENSES. The Company shall pay or reimburse the
Consultant for all reasonable and necessary business expenses incurred
or paid by the Consultant in the performance of his duties and
responsibilities hereunder, subject to any maximum annual limit and
other restrictions on such expenses set by the Board and to such
reasonable substantiation and documentation as may be specified by the
Company from time to time.
5. TERMINATION OF SERVICES. Notwithstanding the provisions of
Section 2 hereof, the Consultant's retention hereunder shall terminate prior to
the expiration of the term hereof under the following circumstances:
(a) DEATH. In the event of the Consultant's death during the
term hereof, the Consultant's engagement hereunder shall immediately
and automatically terminate. In that event, the Company shall pay to
the Consultant's designated beneficiary or, if no beneficiary has been
designated by the Consultant, to his estate, any earned and unpaid
Consulting Fee, prorated through the date of his death.
(b) DISABILITY.
(i) The Company may terminate the Consultant's
engagement hereunder, upon notice to the Consultant, in the event
that the Consultant becomes disabled during his engagement
hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is
unable to perform substantially all of his duties and
responsibilities hereunder for ninety (90) days during any period
of three hundred sixty-five (365) consecutive calendar days.
(ii) If any question shall arise as to whether, during
any period, the Consultant is disabled through any illness,
injury, accident or condition of either a physical or
psychological nature such that he is
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<PAGE> 3
unable to perform substantially all of his duties and
responsibilities hereunder, the Consultant may, and at the request
of the Company shall, submit to a medical examination by a
physician selected by the Company to whom the Consultant or his
duly appointed guardian, if any, has no reasonable objection, to
determine whether the Consultant is so disabled, and such
determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Consultant shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the
Consultant.
(c) By the Company for Cause. The Company may terminate the
Consultant's engagement hereunder for Cause at any time upon notice to
the Consultant setting forth in reasonable detail the nature of such
Cause. The following, as determined by the Board in its reasonable and
good faith judgment, shall constitute Cause for termination: (i)
conviction in a court of law of any felony or a plea of NOLO CONTENDERE
to such an offense, (ii) commission of any act involving theft,
embezzlement, fraud, dishonesty or moral turpitude which act relates to
or otherwise has an adverse effect (including through publicity) on the
Company, (iii) material breach of any of the material provisions of
this Agreement (other than breaches of the nature described in clause
(iv) below) or of any other material agreement between the Consultant
and the Company, or (iv) repeated and consistent willful misconduct or
dereliction of duty in the performance of his duties under this
Agreement, which conduct or failure continues for more than thirty (30)
days after notice given to the Consultant, such notice to set forth in
reasonable detail the nature of such conduct or failure. Upon the
giving of notice of termination of the Consultant's engagement
hereunder for Cause, the Company shall not have any further obligation
or liability to the Consultant, other than for Consulting Fees earned
and unpaid and unreimbursed business expenses outstanding at the date
of termination.
6. EFFECT OF TERMINATION. Upon termination of this Agreement, all
obligations and provisions of this Agreement shall terminate except with respect
to any accrued and unpaid monetary obligations and except for the provisions of
Section 7 through (and inclusive of) 22 hereof.
7. COVENANT NOT TO COMPETE. Provided only that the Company is not
then in default on its payment obligations under this Agreement, for a period
of five (5) years from the Effective Date the Consultant will not engage or
become interested, directly or indirectly, as an owner, employee, director,
partner, consultant, through stock ownership, investment of capital, lending of
money or property, rendering of services, or otherwise, either alone or in
association with others, in the operation, management or supervision of any
type of business or enterprise in any way similar
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<PAGE> 4
to or competitive with the business of the Company. In addition, during such
period the Consultant will not, directly or indirectly, whether on his behalf or
on behalf of anyone else, (i) solicit or accept orders from any present or past
customer of the Company for a product or service offered or sold by, or
competitive with a product or service offered or sold by, the Company; (ii)
induce or attempt to induce any such customer to reduce such customer's
purchases from the Company; (iii) use for the benefit of the Consultant or
disclose the name and/or requirements of any such customer to any other person
or persons, natural or corporate; or (iv) solicit any of the Company's employees
or consultants to leave the employ of the Company or hire anyone who was an
employee of the Company or a consultant to the Company at any time within one
year prior to the date the Consultant's consulting relationship with the Company
terminated. The foregoing restrictions shall not prevent the Consultant from
hiring or otherwise engaging any professional firm.
8. CONFIDENTIAL INFORMATION.
(a) The Consultant acknowledges that the Company will
continually develop Confidential Information, that the Consultant may
develop Confidential Information for the Company and that the
Consultant may learn of Confidential Information during the course of
his consulting relationship with the Company. The Consultant agrees
that, except as required for the proper performance of his duties for
the Company, he will not, directly or indirectly, use or disclose any
Confidential Information, as defined below. The Consultant understands
and agrees that this restriction will continue to apply after his
consulting relationship with the Company terminates, regardless of the
reason for termination.
(b) The Consultant agrees that all Confidential Information
which he creates or to which he has access as a result of his
engagement hereunder is and shall remain the sole and exclusive
property of the Company. Except as required for the proper performance
of his duties, the Consultant will not copy any documents, tapes or
other media containing Confidential Information ("Documents") or remove
any Documents, or copies thereof, from Company premises. The Consultant
will return to the Company immediately after his consulting
relationship with the Company terminates, and at such other times as
may be specified by the Company, all Documents and copies thereof and
all other property of the Company then in his possession or control.
9. ENFORCEMENT OF COVENANTS. The Consultant acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
The Consultant further agrees that all goodwill of the Company is its exclusive
property. The Consultant further acknowledges and agrees that, were he to breach
any of the covenants contained in Section 7 or 8 hereof, the damage would be
irreparable. The
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<PAGE> 5
Consultant therefore agrees that the Company, in addition to any other remedies
available to it, shall be entitled to preliminary and permanent injunctive
relief against any breach or threatened breach by the Consultant of any of said
covenants, without having to post bond, provided the Company has made a prima
facie showing of such a breach or threatened breach.
10. INDEMNIFICATION. Subject to the second sentence of this Section 10,
the Company agrees to indemnify the Consultant against all liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise or
as fines and penalties, together with counsel fees, in each case reasonably
incurred by him in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, in which he may be involved
or with which he may be threatened during the term of this Agreement or
thereafter, in each case to the extent incurred by reason of his serving or
having served (a) as an agent of the Company, or (b) at its request as a
director, officer or agent of any organization in which the Company directly or
indirectly owns shares or of which it is directly or indirectly a creditor, or
(c) at its request in any capacity with respect to any employee benefit plan.
Notwithstanding the immediately preceding sentence, the Company shall not
indemnify the Consultant if the Consultant (i) did not act in good faith and in
a manner the Consultant reasonably believed to be in or not opposed to the best
interests of the Company, or (ii) with respect to any criminal action or
proceeding, had reasonable cause to believe that the Consultant's conduct was
unlawful.
11. CONFLICTING AGREEMENTS. The Consultant hereby represents and
warrants that the execution of this Agreement and the performance of his
obligations hereunder will not breach or be in conflict with any other agreement
to which the Consultant is a party or is bound and that the Consultant is not
subject to any covenants against competition or similar covenants that would
affect the performance of his obligations hereunder. The Consultant will not
disclose or use any proprietary information of a third party without such
party's consent.
12. DEFINITIONS. Words or phrases which are initially capitalized or
are within quotation marks shall have the meanings provided in this Section 12
and as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
(a) "Confidential Information" means any and all information,
inventions, discoveries, ideas, research, engineering methods,
practices, processes, systems, formulae, designs, concepts, products,
projects, improvements and developments that are not generally known by
others, developed by or known to the Consultant prior to or during the
term of this Agreement and relating in any material respect to the
Company, including its business, products or services (or learned by
the Consultant after the term hereof from a source known to the
Consultant to be violating an obligation to
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<PAGE> 6
the Company not to disclose the same) or that are developed by the
Consultant during the term of this Agreement and that have
applicability to the business, products or services of the Company,
including but not limited to (i) products and services, technical data,
methods and processes, (ii) marketing activities and strategic plans,
(iii) costs and sources of supply, (iv) the identity and special needs
of customers and prospective customers and vendors and prospective
vendors, and (v) the people and organizations with whom the Company has
or plans to have business relationships and those relationships.
Confidential Information also includes such information that the
Company may receive or has received belonging to customers or others
who do business with the Company and any publication or literary
creation of the Consultant, developed in whole or in significant part
during the term hereof, in whatever form published, whose content in
whole or in part is competitive in any material respect with the
products or services offered by the Company (including as such products
or services could reasonably be expected to evolve or be extended in
the foreseeable future).
(b) "Person" means an individual, a corporation, an
association, a partnership, an estate, a trust and any other entity or
organization.
13. ASSIGNMENT. Neither the Company nor the Consultant may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Consultant in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person unless the Consultant shall object in writing to such assignment
within 60 days following the effective date thereof, in which event the
Consultant's sole remedy shall be to terminate this Agreement, which termination
shall have the effect set forth in Section 6 hereof. This Agreement shall inure
to the benefit of and be binding upon the Company and the Consultant, and their
respective successors, executors, administrators, heirs and permitted assigns.
14. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
15. WAIVER. No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party. The failure of either
party to require the performance of any term or obligation of this Agreement, or
the waiver by
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<PAGE> 7
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
16. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Consultant at his
last known address on the books of the Company or, in the case of the Company,
at the Company's principal place of business, to the attention of the Chief
Executive Officer, or to such other address as either party may specify by
notice to the other actually received.
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Consultant's consulting relationship with the Company, including without
limitation any agreements relating to any consulting relationship between the
Consultant and any corporate predecessor or promoter of the Company, any such
agreement being hereby terminated by the mutual agreement of the parties without
liability to either party.
18. INDEPENDENT CONTRACTOR. No provision of this Agreement shall be
construed to make the Consultant an employee of the Company or to make the
Consultant and the Company partners or joint venturers. The Consultant hereby
acknowledges that he is solely responsible for the payment of all taxes on his
fees under this Agreement.
19. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Consultant and by an expressly authorized
representative of the Company.
20. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. GOVERNING LAW. This Agreement shall be construed and enforced
under and be governed in all respects by the laws of the Commonwealth of
Massachusetts, without regard to the conflict of laws principles thereof.
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<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Consultant and by the Company by its respective duly
authorized representative, as of the date first above written.
CONSULTANT PROVANT, INC.
_______________________________ By: _______________________
Donald W. Glazer Name:
Title:
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<PAGE> 1
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 7, 1998
<PAGE> 1
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 7, 1998
<PAGE> 1
EXHIBIT 99.16
If nominated or otherwise chosen to be a director of the Company, I hereby
consent to being named in the Company's Registration Statement on Form S-1 as an
individual who has agreed to serve in such capacity. If chosen to become an
officer of the Company, I hereby consent to act as such.
Signature /s/ Esther T. Smith
--------------------------
Dated: April 6, 1998
