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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 1999
REGISTRATION NO. 333-59909
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONLEY, CANITANO & ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
OHIO 34-1375019 7373
(State or Other Jurisdiction of (I.R.S. Employer (Primary Standard Industrial
Incorporation or Organization) Identification Number) Classification Code Number)
</TABLE>
CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
PAUL A. FARMER
CHIEF FINANCIAL OFFICER
CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies to:
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DAVID P. PORTER, ESQ. ELLEN B. CORENSWET, ESQ.
JONES, DAY, REAVIS & POGUE BABAK YAGHMAIE, ESQ.
NORTH POINT, 901 LAKESIDE AVENUE BROBECK, PHLEGER & HARRISON LLP
CLEVELAND, OHIO 44114 1633 BROADWAY, 47TH FLOOR
NEW YORK, NEW YORK 10019
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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 REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
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.
SUBJECT TO COMPLETION DATED , 1999
PROSPECTUS
, 1999
5,000,000 SHARES
CCAI LOGO
COMMON STOCK
Of the 5,000,000 shares (the "Shares") of common stock, no par value (the
"Common Stock"), being offered hereby (the "Offering"), 4,000,000 shares are
being sold by Conley, Canitano & Associates, Inc. ("CCAi" or the "Company") and
1,000,000 shares are being sold by certain shareholders (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
Prior to the Offering, there has been no public market for the Shares. It
is currently anticipated that the initial offering price will be between $10.00
and $12.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "CCAI."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total (3)........................... $ $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $1,500,000, payable by the Company.
(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 750,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholders will be $ , $ , $ and $ , respectively.
See "Principal and Selling Shareholders" and "Underwriting."
The Shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Shares will be made in New York, New York, on or
about , 1999.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD INVESTMENTS INC.
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[INSIDE FRONT COVER]
[Description of graphics: In the top left corner appears the Company's logo. In
the top right corner appears a picture of the Company's headquarters with a
description labeled "Conley-Canitano High Technology Headquarters."]
[STYLIZED TEXT]: "Harnessing the Power of Information Technology"
[TEXT]: "Empowered by a seasoned crew of IT consultants with a blend of
functional and technical experience, Conley-Canitano provides rapid Enterprise
Resource Planning implementation services and a comprehensive range of related
services demanded by middle market organizations."
[STYLIZED TEXT]: "Company of Employees"
[STYLIZED TEXT]: "Extensive Experience"
[STYLIZED TEXT]: "Rapid ERP Implementations"
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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This Prospectus includes forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify forward-
looking statements. These forward-looking statements speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
------------------------
CCAi and FIRM are trademarks of the Company. This Prospectus also includes
names, trademarks, service marks and registered trademarks and service marks of
companies other than the Company.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements and Notes thereto included
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors" beginning on page 8. Unless otherwise
indicated, all information contained in this Prospectus: (i) assumes no exercise
of the Underwriters' over-allotment option and (ii) reflects the conversion of
all of the outstanding shares of the Company's Convertible Preferred Stock,
$0.01 par value per share (the "Convertible Preferred Stock") into 2,504,000
shares of Common Stock and 250,400 shares of Series A Redeemable Preferred
Stock, $0.01 par value per share (the "Redeemable Preferred Stock"), all to be
effected immediately prior to the consummation of the Offering. Unless otherwise
indicated, the terms "Company" and "CCAi" refer to Conley, Canitano &
Associates, Inc.
THE COMPANY
CCAi is a leading provider of rapid implementations of Enterprise Resource
Planning ("ERP") applications. CCAi also offers its clients a comprehensive
range of related services, including post-implementation and platform
independent services, such as network and Windows NT support, custom application
development, mainframe and legacy application support, Year 2000 compliance and
remote support. The Company's services are primarily targeted at middle market
organizations, or divisions of larger organizations, with annual revenues
between $200 million and $2.5 billion. The Company's rapid ERP implementation
services enable its clients to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits. The
Company provides its services to clients across a broad spectrum of industries,
including aerospace, automotive, chemical process, communications, consumer
products, energy, financial and professional services, industrial,
pharmaceutical and health care, publishing, retail, semiconductor and
technology. CCAi's clients include Aluminum Company of America, BP America Inc.,
Brush Wellman Inc., Dow Chemical Co., Eaton Corporation, General Motors
Corporation ("GM"), Goodyear Tire & Rubber Co., KeyCorp, Master Builders, Inc.,
OfficeMax, Inc. and Rockwell Semiconductor Systems, Inc.
CCAi has established strategic relationships with leading software
application vendors, hardware vendors and other information technology ("IT")
service providers, including multinational consulting firms. For example, the
Company has a relationship with SAP America, Inc. ("SAP") dating from 1989 and
has been an SAP National Implementation Partner since 1994. In addition, the
Company is a member of SAP's National Advisory Board and was involved in the
development of SAP's Accelerated SAP methodology ("ASAP"), which has become an
industry standard for rapid SAP implementations. In 1997, the Company became one
of SAP's first ASAP Partners and has since become one of the first organizations
to certify 100 consultants in the ASAP methodology. CCAi recently received the
1998 Partner Award of Excellence from SAP. Also, CCAi has been an Oracle
Corporation ("Oracle") Alliance Member since 1997 and has recently been selected
to become one of 26 Oracle Service Providers in the United States. The Company
utilizes its own rapid implementation methodology, known as Fast Implementation
Roadmap Methodology ("FIRM"), for Oracle ERP applications. In 1998, CCAi was
named by Compaq Computer Corporation ("Compaq") as one of its first regional
configuration support centers to provide rapid implementation and related
services in connection with R/3PAQ, a preconfigured ERP solution jointly
developed by Compaq and SAP. In addition, the Company has been an integral
member of implementation teams managed by Andersen Consulting LLP ("Andersen
Consulting"), Electronic Data Systems Corporation ("EDS"), Ernst & Young LLP
("Ernst & Young") and SAP.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
Organizations are increasingly using third-party service providers to implement
ERP applications in order to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits.
According to Forrester Research, Inc., a market research company, the worldwide
market for ERP applications and services totaled approximately $15 billion in
1997 and is projected to grow to approximately $32 billion by 2000, representing
a compound annual growth rate of approximately 29%. In addition, according to
industry sources, for every dollar spent on ERP applications, four to six
dollars are spent on ERP implementation and related services. The Company
believes that a large portion of this market is represented by middle market
organizations and that the need for third-party ERP implementation and related
services is
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particularly acute among these organizations. Middle market organizations expect
timely and substantial economic returns from their ERP investments and are
particularly sensitive to the risk of cost overruns and delays associated with
poorly managed ERP implementations. In addition, these organizations are under
growing pressure from their Fortune 500 customers to rapidly implement
compatible ERP applications.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, that in a resource constrained industry, it distinguishes
itself from its competitors by recruiting and retaining consultants with both
practical business and relevant IT experience, thereby enhancing the Company's
ability to identify industry-specific business issues and develop practical IT
solutions to address such issues. CCAi's consultants who perform ERP
implementations generally have 10 to 15 years of business or IT experience,
including three to five years of ERP implementation experience.
The Company's objective is to be a leading provider of IT solutions to the
middle market by continuing to deliver rapid ERP implementations and related
services. CCAi intends to achieve this objective by (i) expanding its base of
highly skilled employees and promoting an entrepreneurial culture; (ii)
leveraging its existing strategic relationships and seeking new relationships
with leading developers of complementary enterprise-wide applications; (iii)
broadening its presence in targeted geographic regions; (iv) expanding its
service offerings; and (v) pursuing strategic acquisitions. In April 1998, the
Company completed the acquisition of Kelly-Levey & Associates, Inc. ("KLA"). In
January 1999, the Company completed the acquisition of Bureau van Dijk Computer
Services, Inc. ("BVD"). These acquisitions enabled the Company to acquire highly
skilled ERP consultants, obtain additional recruiting and sales and marketing
opportunities, gain ERP implementation expertise in the automotive,
semiconductor and financial services industries and enhance its presence in the
Atlanta, Cincinnati and San Diego markets. For a description of the
consideration paid in these acquisitions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Overview."
The Company is an Ohio corporation formed in 1983 and maintains its
principal executive office at the CCAi Renaissance Centre, 5800 Landerbrook
Drive, Mayfield Heights, Ohio 44124. The Company's telephone number is (440)
684-6600.
THE OFFERING
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Common Stock offered by the Company......................... 4,000,000 shares
Common Stock offered by the Selling Shareholders............ 1,000,000 shares
Common Stock to be outstanding after the Offering........... 13,626,950 shares (1)
Use of Proceeds............................................. To repay indebtedness of
approximately $23.6 million, to
redeem all outstanding shares of
Redeemable Preferred Stock for
approximately $15.8 million and
for general corporate purposes,
including working capital. See
"Use of Proceeds."
Nasdaq National Market symbol............................... CCAI
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(1) Excludes (i) 64,734 shares of Common Stock subject to outstanding
compensatory options as of September 30, 1998 issued in connection with the
KLA acquisition (the "KLA Options"); (ii) 195,266 shares of Common Stock
subject to outstanding warrants as of September 30, 1998 issued in
connection with the KLA acquisition (the "KLA Warrants"); (iii) 350,300
shares of Common Stock subject to options outstanding under the Company's
1997 Equity and Performance Incentive Plan (the "1997 Equity and Performance
Plan"); (iv) 2,072,750 additional shares of Common Stock reserved for
issuance under the 1997 Equity and Performance Plan; and (v) 500,000
additional shares of Common Stock reserved for issuance pursuant to the
Company's Employee Stock Purchase Plan (the "Purchase Plan"). See
"Management -- Employee Benefits Plans" and Notes 11 and 12 of Notes to
Financial Statements.
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SUMMARY FINANCIAL DATA
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YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues............... $ 11,107 $ 17,994 $ 32,218 $ 55,087 $ 23,205 $ 35,988 $ 49,809
Cost of revenues....... 6,985 10,978 19,222 34,457 13,372 21,493 30,428
Gross profit........... 4,122 7,016 12,996 20,630 9,833 14,495 19,381
Income from
operations........... 380 1,135 3,706 2,776 2,688 3,402 3,891
Net income (loss) per
share (prior to
accretion):
Basic................ $ 0.01 $ 0.04 $ 0.16 $ (0.03) $ 0.11 $ 0.14 $ 0.06
Diluted.............. $ 0.01 $ 0.04 $ 0.15 $ (0.03) $ 0.11 $ 0.13 $ 0.06
Net income (loss) per
share:
Basic................ $ 0.01 $ 0.04 $ 0.15 $ (0.03) $ 0.11 $ 0.11 $ 0.04
Diluted.............. $ 0.01 $ 0.04 $ 0.15 $ (0.03) $ 0.11 $ 0.11 $ 0.04
Weighted average shares
outstanding:
Basic................ 13,836,080 13,836,080 13,579,423 13,879,423 13,666,370 13,326,950 13,626,950
Diluted.............. 14,097,742 14,097,742 13,841,085 14,141,085 13,928,032 13,588,612 13,888,612
</TABLE>
<TABLE>
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AS OF SEPTEMBER 30, 1998
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ACTUAL PRO FORMA(2) PRO FORMA
AS ADJUSTED
(UNAUDITED)(3)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 1,415 $ 1,595 $ 1,665
Working capital.......................................... 2,421 3,023 3,093
Total assets............................................. 20,682 43,533 43,228
Line of credit........................................... 5,500 23,600 --
Redeemable securities.................................... 18,312 18,312 --
Total shareholders' equity (deficit)..................... (11,835) (9,030) 32,577
</TABLE>
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(1) The pro forma statements of summary income data for the year ended December
31, 1997 and for the nine months ended September 30, 1998 are presented as
if the acquisitions of KLA and BVD had been consummated as of January 1,
1997. See "Unaudited Pro Forma Statements of Operations Data" and Notes
thereto.
(2) The pro forma balance sheet data as of September 30, 1998 is presented as if
the acquisition of BVD had been completed on September 30, 1998.
(3) Pro forma as adjusted to give effect to (i) the acquisition of BVD as if it
had been completed on September 30, 1998; (ii) the conversion of all
outstanding shares of Convertible Preferred Stock into 2,504,000 shares of
Common Stock and 250,400 shares of Redeemable Preferred Stock immediately
prior to the consummation of the Offering; (iii) the sale of 4,000,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $11.00 per share, after deducting estimated underwriting discounts
and commissions and Offering expenses payable by the Company; and (iv) the
application of the estimated net proceeds of the Offering, including the
redemption of the 250,400 shares of Redeemable Preferred Stock. See "Use of
Proceeds" and "Capitalization."
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RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
Dependence on SAP and Other Relationships. The Company has historically
derived, and expects to continue to derive, a significant portion of its
revenues from implementations of SAP's ERP applications and related services.
For the three years ended December 31, 1995, 1996 and 1997 and for the nine
months ended September 30, 1998, approximately 55%, 69%, 75% and 80%,
respectively, of CCAi's revenues were derived from engagements in which the
Company implemented SAP applications. CCAi's future success depends largely on
its continued relationship with SAP, including its continued status as an SAP
National Implementation Partner and as an ASAP Partner. CCAi's status as an SAP
National Implementation Partner is awarded by SAP on an annual basis pursuant to
contract. To achieve such status, CCAi was required to demonstrate: (i) customer
satisfaction with the Company's SAP-related services; (ii) expertise with SAP
software; and (iii) an employee base containing an appropriate number of
SAP-experienced consultants. Annual renewal of CCAi's contract and its National
Implementation Partner status is subject to SAP's review of the Company's
performance according to certain criteria, including: (i) customer satisfaction;
(ii) number and scope of engagements completed; and (iii) thoroughness of
consultant training. There can be no assurance that the Company's contract and
its National Implementation Partner status will be renewed or amended by SAP on
terms acceptable to the Company, if at all.
The Company has a strategic relationship with Oracle and has been an Oracle
Alliance Member since 1997. The Company has recently been selected to become one
of 26 Oracle Service Providers in the United States. CCAi's future success in
its Oracle-related services depends on its continued relationship with Oracle
and its continued status as an Oracle Alliance Member. This status is awarded by
Oracle pursuant to contract and may be terminated by Oracle upon 30 days' notice
to the Company. The Company also maintains relationships with software and
hardware vendors and other IT service providers, such as multinational
consulting firms. These relationships, whether contractual or otherwise, may be
terminated by either party with little or no notice. There can be no assurance
that CCAi's relationship with Oracle or with these other vendors and IT service
providers will continue under terms acceptable to the Company, if at all.
If CCAi's relationship with SAP, Oracle or the other organizations with
which the Company maintains strategic relationships deteriorates, or if SAP,
Oracle or one of the other organizations with which the Company maintains
strategic relationships elects to compete directly with the Company, the
Company's business, operating results and financial condition could be
materially adversely affected. Moreover, in the event that the demand for such
organizations' products and services lessens or fails to grow, the Company's
business, operating results and financial condition could be materially
adversely affected. The Company also intends to pursue other strategic
relationships with leading client/server software solution providers. There can
be no assurance that CCAi will be successful in establishing relationships with
the vendors of such software or that such relationships will be successful once
established. The Company's failure to establish or maintain any such
relationships could materially adversely affect the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business -- The
CCAi Solution" and " -- Competition."
Dependence on Recruiting and Retaining Consultants. CCAi's business entails
the delivery of professional IT services, and its success depends in large part
upon its ability to recruit, motivate and retain highly skilled consultants with
the functional and technical skills and experience necessary to deliver the
Company's services. Because there is a limited pool of such qualified employee
candidates, competition for such consultants is intense and is likely to remain
so. There can be no assurance that the Company will be able to recruit, motivate
and retain sufficient numbers of highly skilled consultants in the future. A
failure to do so could materially adversely affect the Company's business,
operating results and financial condition, including its ability to secure and
complete engagements. See "Business -- Human Resources" and "-- Competition."
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Management of Growth. CCAi has experienced, and expects to continue to
experience, rapid growth that has challenged, and may continue to challenge, the
Company's managerial and other resources. Between September 30, 1997 and
September 30, 1998, the number of consultants employed by the Company increased
to 261 from 177, and further significant increases are anticipated. In addition,
the Company's revenues increased 55.1% from $23.2 million for the nine months
ended September 30, 1997 to $36.0 million for the nine months ended September
30, 1998. The Company has recently opened offices in Cincinnati, Dallas and San
Francisco and plans to open additional offices over the next 12 months. As a
result of the acquisition of BVD, the Company now has an office in Atlanta and
an established presence in San Diego. The Company's inability to generate
sufficient additional revenues to offset the costs associated with such
expansion, or to successfully integrate these offices into the Company's
operations, could materially adversely affect the Company's business, operating
results and financial condition. CCAi's success in managing its growth will
depend on its ability to continue to enhance its operating, financial and
managerial resources and to recruit, motivate and retain its expanding work
force. If CCAi is unable to manage growth effectively, the quality of the
Company's services, its ability to retain key employees and its business,
operating results and financial condition could be materially adversely
affected. Moreover, there can be no assurance that CCAi's business will continue
to grow. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Strategy" and "-- Human Resources."
Variability and Seasonality of Quarterly Operating Results. CCAi's revenues
and operating results are subject to significant variation from
quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
client engagements commenced and completed during a quarter, the number of
billable days in a quarter, the timing of office and service expansion and the
timing of expenditures. Because a high percentage of CCAi's expenses are
relatively fixed, a variation in the number of engagements or the timing of the
initiation or the completion of such engagements, particularly at or near the
end of any quarter, can cause significant variations in operating results from
quarter-to-quarter and could result in losses to the Company. In addition,
CCAi's engagements are generally terminable by the client without penalty.
Unanticipated termination of an engagement, a client's decision not to proceed
to the next phase of an engagement as anticipated by the Company, completion
during a quarter of several engagements without the deployment of consultants to
new engagements or expansion of existing engagements could result in the
Company's underutilization of employees and could, therefore, materially
adversely affect the Company's business, operating results and financial
condition. To the extent that increases in the number of employees do not result
in corresponding increases in revenues, the Company's business, operating
results and financial condition could be materially adversely affected. Further,
it is difficult for the Company to forecast the timing of revenues because
engagement cycles depend on factors such as the size and scope of engagements
and circumstances specific to particular clients. Because the Company derives
revenues only when its consultants are billing on engagements, its business,
operating results and financial condition are materially adversely affected due
to vacations, training schedules, sick days, holidays, inclement weather or
other similar events. For example, the Company has historically generated lower
margins during the second and fourth quarters of the year due to a lower number
of billable days resulting from training schedules and the number of vacations
and holidays in those quarters. Given all of the foregoing, the Company believes
that quarter-to-quarter comparisons of its operating results are not necessarily
meaningful, and that such results for one quarter should not be relied upon as
an indication of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
Risks Associated With Acquisition of KLA and BVD. The Company acquired KLA
in April 1998 and BVD in January 1999. The success of these acquisitions will
depend on a number of factors, including the Company's ability to integrate
their businesses and operations with those of the Company, to retain certain key
employees formerly employed by KLA and BVD and to preserve and expand their
businesses and operations. There can be no assurance that the Company will be
able to successfully integrate and operate their businesses or that it will
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not experience losses as a result of the acquisitions. Failure to achieve the
anticipated benefits of the acquisitions or to successfully integrate the
operations of KLA and BVD could materially adversely affect the business,
operating results and financial condition of the Company. Moreover, goodwill as
a result of the acquisitions is being amortized by the Company on a
straight-line basis over 20 years. In accordance with Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company will
continually evaluate whether later events and circumstances have occurred that
indicate the remaining goodwill may warrant revision. There can be no assurance
that the Company will not be required to undertake such revisions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks of Acquisition Strategy. The Company intends to further expand its
business and operations by pursuing acquisitions of complementary ERP
implementation and IT consulting businesses. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
predicted. CCAi expects to face competition for acquisition candidates, which
may limit the number of acquisition opportunities available to the Company and
may lead to higher purchase prices or transaction costs. There can be no
assurance that CCAi will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses without
substantial costs, including costs in pursuing and negotiating with acquisition
candidates, delays in consummating such acquisitions or other operational or
financial difficulties. In addition, such a strategy involves a number of other
risks, including failure of the acquired businesses to achieve expected results,
diversion of management's attention and resources to acquisitions, failure to
retain key clients or personnel of the acquired businesses and risks associated
with unanticipated events, liabilities or contingencies. Client dissatisfaction
or performance problems relating to an acquired business could negatively affect
the reputation of CCAi as a whole. Acquisitions accounted for under the purchase
method of accounting may result in substantial annual noncash amortization
charges for goodwill and other intangible assets in the Company's statements of
operations. In addition, the Company could be obligated to make substantial cash
payments related to any such acquisition. There can be no assurance that the
Company will derive any value or benefit from any such payments. If CCAi is
unable to acquire complementary ERP implementation and IT consulting businesses
on reasonable terms or successfully integrate and manage acquired companies, or
if performance problems occur at acquired companies, CCAi's business, operating
results and financial condition may be materially adversely affected. See "Use
of Proceeds" and "Business -- Growth Strategy."
Rapid Technological Change; Dependence on New Solutions. The IT industry is
characterized by rapid technological change, evolving industry standards,
changing client preferences and new and frequent product and service
introductions. CCAi's continued success is dependent in part on its ability to
stay abreast of such continuing changes. There can be no assurance that CCAi
will be successful in identifying and addressing these developments on a timely
basis or that, if CCAi does identify and address such developments, CCAi will be
successful in the marketplace. In addition, there can be no assurance that
products, technologies or services developed or offered by others will not
render the Company's services noncompetitive. CCAi's failure to identify and
address these developments could materially adversely affect the Company's
business, operating results and financial condition.
Highly Competitive Information Technology Services Industry. The market for
CCAi's services is highly competitive. CCAi believes that its principal
competitors include the internal information systems groups of its prospective
clients, IT consulting companies, systems integration firms and the consulting
divisions of software applications vendors, some of which are also clients of
the Company. Many of CCAi's competitors have longer operating histories, possess
greater industry and name recognition and have significantly greater financial,
technical and marketing resources than the Company. In addition, there are
relatively low barriers to entry into CCAi's market, and the Company has faced,
and expects to continue to face, additional competition from new entrants into
its market, including new entrants operating offshore who may have lower fixed
operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
CCAi believes that the principal competitive factors in its market include
quality of service, speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes
10
<PAGE> 13
its ability to compete also depends in part on a number of competitive factors
outside its control. These include the ability of its competitors to recruit,
motivate and retain project managers and other senior professionals, develop
services that are competitive with the Company's services and respond to
customer needs. There can be no assurance that the Company will be able to
compete successfully with its competitors. See "Business -- The CCAi Solution"
and "-- Competition."
Engagement Risks. Many of CCAi's engagements are critical to the operations
of its clients' businesses and provide benefits that may be difficult to
quantify. The Company's inability to meet a client's expectations in any
engagement, especially in performing mission and time critical projects such as
Year 2000 compliance services, could have a material adverse effect on the
client and, therefore, could give rise to claims against the Company or damage
the Company's reputation, which could in turn materially adversely affect the
Company's business, operating results and financial condition. In addition, most
of the Company's contracts are terminable by its clients with little or no
notice to the Company and without penalty. The cancellation or a significant
change in the scope of engagements could materially adversely affect the
Company's business, operating results and financial condition.
The Company faces increased pressure to undertake engagements on a
fixed-fee basis, instead of on a time and materials basis. The failure of the
Company to complete a fixed-fee engagement within budget could expose the
Company to risks associated with cost overruns, which could materially adversely
affect the Company's business, operating results and financial condition. These
risks may be heightened if the Company acts as a subcontractor on a fixed-fee
engagement because of its limited ability to control engagement variables and to
negotiate directly with the client.
Concentration of Revenues. Since its inception, the Company has derived a
significant portion of its revenues from a relatively limited number of clients.
For example, for the years ended December 31, 1995, 1996 and 1997 and for the
nine months ended September 30, 1998, the Company's 10 largest clients accounted
for approximately 51%, 43%, 39% and 41% of its revenues, respectively. For the
nine months ended September 30, 1998, one of the Company's clients accounted for
11% of revenues. There can be no assurance that these clients will continue to
hire the Company for additional engagements or do so at the same revenue levels.
Clients engage the Company on an engagement-by-engagement basis, and a client
can generally terminate a contract with little or no notice to the Company and
without penalty. The loss of any such client, or a reduction in the scope of
engagements undertaken for such a client, could materially adversely affect the
Company's business, operating results and financial condition. In addition,
there can be no assurance that the portion of the Company's revenues
attributable to a relatively limited number of clients will not increase in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Clients and Representative Engagements."
Reliance on Key Executives. The success of CCAi has been highly dependent
upon certain key executives and senior managers, particularly the Company's
founders, Nicholas A. Canitano, Kenneth L. Conley, Karen M. Conley and Annette
M. Canitano (collectively, the "Founders"). None of these individuals has
entered into an employment agreement with CCAi, and there is no guarantee that
any of these individuals will continue his or her employment with the Company.
The loss of the services of any of these persons for any reason could materially
adversely affect the Company's business, operating results and financial
condition. The Company maintains, and is the beneficiary of, key person life
insurance on the lives of Nicholas A. Canitano and Kenneth L. Conley, each in
the face amount of $2,000,000, and on the lives of Karen M. Conley and Annette
M. Canitano, each in the face amount of $1,000,000. In the event of the death of
any of the Founders, the applicable sum would be paid to the Company to offset
the financial effect of such death. No assurance can be given, however, that
such amount of insurance would be adequate for that purpose. The Company does
not maintain key life insurance on any of its other executive officers or
employees. See "Management."
Government Regulation of Immigration. The Company recruits certain of its
IT professionals from countries outside the United States to avail itself of the
best available consulting talent and, therefore, must comply with the
immigration laws in the countries in which it operates, particularly in the
United States and Canada. There is a limit on the number of new H-1B permits
that may be approved in any year. In years in which
11
<PAGE> 14
this limit is reached, the Company may be unable to obtain enough H-1B permits
to meet its requirements. If the Company were unable to obtain H-1B permits for
its employees in sufficient quantities or at a sufficient rate, the Company's
business, operating results and financial condition could be materially
adversely affected. Furthermore, Congress and administrative agencies with
jurisdiction over immigration matters have periodically expressed concerns over
the levels of legal and illegal immigration into the U.S. These concerns have
often resulted in proposed legislation, rules and regulations aimed at reducing
the number of work permits that may be issued. Any changes in such laws and
regulations that make it more difficult to hire foreign nationals or that limit
the ability of the Company to retain employees who are foreign nationals could
require the Company to incur additional unexpected labor costs and other
expenses and limit the Company's ability to implement its expansion strategy.
Any such restrictions or limitations on the Company's ability to hire
professionals from countries outside the United States could materially
adversely affect the Company's business, operating results and financial
condition. See "Business -- Human Resources."
Significant Influence of Principal Shareholders. Upon consummation of the
Offering, the executive officers and directors of the Company and their
affiliates will beneficially own approximately 40% of the outstanding shares of
Common Stock. While there is no agreement among the executive officers and
directors of the Company regarding the voting of their Common Stock, if voted
together, they will effectively control the outcome of any matters requiring
shareholder approval, including the election of the members of the Board of
Directors. Such influence could materially adversely affect the market price of
the Common Stock or delay or prevent a change in control of the Company. See
"Principal and Selling Shareholders."
Dependence on Intellectual Property Rights. CCAi's success is dependent
upon certain methodologies and other proprietary intellectual property rights.
Software developed by the Company for a client is typically assigned to the
client. CCAi also independently develops certain foundation and application
software products, or software "tools" that remain the property of the Company.
CCAi relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. CCAi enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance that the steps taken by CCAi in this
regard will be adequate to deter misappropriation of the Company's proprietary
information, that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights or that such steps
will prevent the Company's employees from using intellectual property belonging
to others. Although CCAi believes its services do not infringe on the
intellectual property rights of others and it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of claims alleging infringement of third-party intellectual
property rights, including the rights of its clients. Any such claims could
require CCAi to expend significant resources in litigation, pay damages, cease
using infringing intellectual property, develop non-infringing intellectual
property or acquire licenses to the intellectual property that is the subject of
asserted infringement. See "Business -- Intellectual Property Rights."
Risks Associated With Year 2000 Compliance. Many existing computer systems
and applications, and other control devices, use only two digits to identify a
year in the date code field, and were not designed to account for the upcoming
change in the century. As a result, such systems and applications could fail or
create erroneous results unless corrected so that they can process dates in the
Year 2000 and beyond. The Company and its clients rely on their systems,
applications and devices in operating and monitoring all major aspects of their
businesses, including financial systems (such as general ledger, accounts
payable and accounts receivable modules), customer services, infrastructure,
embedded computer chips, networks and telecommunications equipment and end
products. The Company and its clients also rely directly and indirectly, on
external systems of business enterprises such as customers, suppliers,
creditors, financial organizations, and of governmental entities, both domestic
and international, for accurate exchange of data.
The Company's Year 2000 assessment is conducted by the Company's IT
department and executive management. The Company's assessment of the Year 2000
issue has been broadly divided among hardware systems, software systems,
telecommunications, data communications, facilities, internal business
applications, external business applications and services offered by CCAi. All
hardware systems are being inventoried, audited
12
<PAGE> 15
and tested for Year 2000 compliance. All personal computer systems are in
material compliance or will be replaced in 1999. Software systems include
operating systems, applications and utilities. All business critical software
systems have been assessed and are in material compliance. The
telecommunications systems in use at CCAi are comprised of voice, facsimile,
voice mail and video teleconferencing. All telecommunications systems have been
assessed and are in material compliance. The data communications systems
employed by CCAi include local area as well as wide area networking. The
Company's data communications systems are in material compliance.
CCAi employs two major internal business applications, which are
significant in its business operations. These applications are its financial and
payroll systems, which are commercial off-the-shelf items and include ongoing
support. Both the systems have been assessed for Year 2000 compliance and are in
material compliance. CCAI has an aggressive training program and has created an
environment in which issues and solutions relating to Year 2000 problems are
exchanged and implemented. The Year 2000 issues with regard to CCAi's facilities
have also been assessed and found to be in material compliance. There is a
combination of hardware, software and communications elements involved with
CCAI's headquarters and other offices. These are broadly grouped into physical
security systems, fire alarm and fire control systems, heating and cooling
systems, elevator systems, irrigation systems, lighting and emergency services.
Based on the information currently available, the Company does not
anticipate any significant investments and therefore, believes that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition. However,
there can be no assurance that the Company, or its clients, will not encounter
unexpected costs or disruption in their businesses as a result of the Year 2000
issue. In addition, even if the internal system of the Company are not
materially affected by the Year 2000 issue, the Company's business, operating
results and financial condition could be materially adversely affected through
disruption in the operation of the enterprises with which the Company interacts.
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Common Stock, and there is no
assurance an active trading market will develop or be sustained after the
Offering. The initial public offering price will be determined through
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the market price of the Common Stock after the
Offering. The trading price of the Common Stock is likely to be highly volatile
and may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to patents, copyrights or proprietary rights,
conditions and trends in the IT consulting industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the public equity markets from time to time have experienced
significant price and volume fluctuations that particularly have affected the
stock prices of technology companies. These broad market fluctuations, as well
as shortfalls in sales or earnings as compared with securities analysts'
expectations, changes in such analysts' recommendations or projections and
general economic and market conditions, may materially adversely affect the
market price of the Common Stock. See "Underwriting."
Certain Anti-Takeover Effects. Certain provisions of the Company's Second
Amended and Restated Articles of Incorporation (the "Articles of Incorporation")
and Amended and Restated Code of Regulations (the "Code of Regulations"), as
well as Ohio statutes, may be deemed to have certain anti-takeover effects. Such
provisions, including those providing for the possible issuance of preferred
stock, and the division of the Company's Board of Directors into two classes of
directors, may make it more difficult for other persons, without the approval of
the Company's Board of Directors, to make a tender offer or acquisitions of
substantial amounts of the Common Stock or to launch other takeover attempts
that a shareholder might consider to be in such shareholder's best interest.
These provisions could limit the price that certain investors might be willing
to pay in the future for shares of Common Stock. See "Description of Capital
Stock -- Certain Articles of Incorporation and Code of Regulations Provisions
and Ohio Law; Anti-Takeover Provisions."
Shares Eligible for Future Sale; Registration Rights Agreements. Sales of
significant amounts of Common Stock in the public market after the Offering or
the perception that such sales will occur could materially
13
<PAGE> 16
adversely affect the market price of the Common Stock or the future ability of
the Company to raise capital through an offering of its equity securities. Of
the 13,626,950 shares of Common Stock to be outstanding upon completion of the
Offering, the 5,000,000 shares offered hereby will be eligible for immediate
sale in the public market without restriction unless such Shares are purchased
by "affiliates" of the Company within the meaning of Rule 144 ("Rule 144") under
the Securities Act of 1933, as amended (the "Securities Act").
The remaining 8,626,950 shares of Common Stock held by existing
shareholders upon completion of the Offering will be "restricted securities" as
that term is defined in Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Directors, officers and certain
shareholders of the Company holding an aggregate of 8,626,950 shares of Common
Stock have agreed that they will not sell, directly or indirectly, any Common
Stock without the prior consent of Donaldson, Lufkin & Jenrette Securities
Corporation for a period of 180 days from the date of this Prospectus (the
"Lock-up Agreements"). Subject to these Lock-up Agreements, additional shares of
Common Stock will be available for sale in the public market (subject in the
case of shares held by affiliates in compliance with certain volume
restrictions) as follows: (i) 8,326,950 shares will be eligible for sale upon
the expiration of the Lock-Up Agreements 180 days after the date of this
Prospectus; (ii) 150,000 shares will be eligible for sale after January 2000;
and (iii) 150,000 shares will be eligible for sale after January 2001.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 up to 3,000,000 shares of Common
Stock issuable under the 1997 Equity and Performance Plan and the Purchase Plan
(collectively, the "Stock Plans"). Of the 3,000,000 shares of Common Stock
issuable under the Stock Plans, 350,300 shares are subject to outstanding
options as of September 30, 1998, none of which will be exercisable at the time
of the Offering. The Company also has reserved 195,266 shares of Common Stock
for issuance upon exercise of the KLA Warrants and 64,734 shares of Common Stock
for issuance upon exercise of the KLA Options.
Upon completion of the Offering, the holders of 2,873,527 shares of Common
Stock will be entitled to certain registration rights with respect to such
shares. If such holders, by exercising their registration rights, cause a large
number of shares of Common Stock to be registered and sold in the public market,
such sales could have an adverse effect on the market price of the Common Stock.
In addition, if the Company is required, pursuant to such registration rights,
to include shares held by such persons in a registration statement, which the
Company files to raise additional capital, the inclusion of such shares could
adversely affect the Company's ability to raise needed capital. See "Certain
Transactions," "Management -- Employee Benefit Plans," "Shares Eligible for
Future Sale," and "Principal and Selling Shareholders."
Significant Unallocated Net Proceeds. The principal purposes of the
Offering are to obtain additional working capital, create a public market for
the Common Stock, provide liquidity to the Company's shareholders, enhance the
Company's ability to use its Common Stock as a means of recruiting, motivating
and retaining key employees and facilitate the Company's future access to public
equity markets. A substantial portion of the anticipated net proceeds of the
Offering has not been designated for specific uses. CCAi expects to use the net
proceeds from the Offering for: (i) repayment in full of estimated indebtedness
of approximately $23.6 million; (ii) redemption of all outstanding shares of
Redeemable Preferred Stock for approximately $15.8 million; and (iii) general
corporate purposes, including working capital. Although the Company has no
plans, commitments or agreements with respect to any material acquisitions as of
the date of this Prospectus, the Company may seek acquisitions of businesses or
service offerings that are complementary to those of the Company, and a portion
of the net proceeds may be used for such acquisitions. Accordingly, the Company
will have significant flexibility in applying the net proceeds of the Offering.
See "Use of Proceeds."
Benefits Of Offering To Current Shareholders. In addition to the Selling
Shareholders receiving an estimated $10.2 million in net proceeds from the
Offering, the Offering will benefit the current shareholders by establishing a
public market for the Common Stock and providing significantly increased
liquidity to current shareholders for the shares of Common Stock they will own
after the Offering. The shares of Common Stock that will be owned by the Selling
Shareholders after this Offering will have a value of approximately $31.4
million, assuming a market price equal to the initial public offering price
(assumed to be $11.00 per share and assuming no exercise of the Underwriters'
over-allotment option). The shares of Common Stock that will be owned by all
executive officers and directors as a group after this Offering will have a
value of approximately $60.1 million,
14
<PAGE> 17
assuming a market price equal to the initial public offering price (assumed to
be $11.00 per share and assuming no exercise of the Underwriters' over-allotment
option). The existing shareholders acquired their shares of Common Stock for
approximately $19.0 million. See "Dilution" and "Principal and Selling
Shareholders."
Dilution. Investors participating in the Offering will incur immediate and
substantial dilution of net tangible book value per share of $10.61 from an
assumed initial public offering price of $11.00 per share. To the extent
outstanding options to purchase shares of Common Stock are exercised, there will
be further dilution to investors participating in the Offering. There can be no
assurance that the Company will not require additional funds to support its
working capital requirements or for other purposes, in which case the Company
may seek to raise such additional funds through public or private equity
financing or from other sources. There can be no assurance that such additional
financing will be available or that, if available, such financing will be
obtained on terms favorable to the Company and would not result in additional
dilution of the Company's shareholders. See "Dilution."
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to CCAi from the sale of the 4,000,000 shares offered by
the Company pursuant to the Offering are estimated to be approximately $39.4
million ($45.6 million if the Underwriters' over-allotment option is exercised
in full), at an assumed offering price of $11.00 per share after deducting the
estimated underwriting discounts and commissions and Offering expenses payable
by the Company. The principal purposes of the Offering are to obtain additional
working capital, create a public market for the Common Stock, provide liquidity
to the Company's shareholders, enhance the Company's ability to use its Common
Stock as a means of attracting, motivating and retaining key employees and
facilitate the Company's future access to public equity markets. CCAi expects to
use the net proceeds from the Offering: (i) to repay in full existing
indebtedness of approximately $23.6 million (of which approximately $18.1
million was incurred in connection with the acquisition of BVD) under the
Company's revolving line of credit with Fleet National Bank ("Fleet Bank") with
an interest rate equal to LIBOR (5.625% at September 30, 1998) plus up to 3.25%
or the bank's prime rate (8.5% at September 30, 1998) plus up to 1.50%; (ii) to
redeem all outstanding shares of Redeemable Preferred Stock for approximately
$15.8 million; and (iii) for general corporate purposes, including working
capital. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary businesses or service offerings. Although the
Company may periodically review potential acquisition opportunities, there are
no current agreements with respect to any such transactions. Pending such uses,
the Company intends to invest the net proceeds from the Offering in short-term,
investment-grade, interest-bearing securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any dividends. The Company does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business. The payment of dividends in the future,
if any, will be at the discretion of the Board of Directors.
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<PAGE> 19
CAPITALIZATION
The following table sets forth as of September 30, 1998 the capitalization
of the Company, the pro forma capitalization of the Company after giving effect
for the BVD acquisition as if the acquisition had been completed on September
30, 1998 and pro forma as adjusted to give effect to (i) the conversion of all
outstanding shares of Convertible Preferred Stock into 2,504,000 shares of
Common Stock and 250,400 shares of Redeemable Preferred Stock immediately prior
to the consummation of the Offering, (ii) the redemption of the 250,400
outstanding shares of Redeemable Preferred Stock to be effected immediately upon
consummation of the Offering, (iii) the acquisition of BVD as if the acquisition
had been completed on September 30, 1998, (iv) the amendment to the Articles of
Incorporation adopted by the Company's Board of Directors and shareholders
increasing the number of authorized shares of preferred stock and Common Stock,
(v) the sale of 4,000,000 shares offered hereby at an assumed initial public
offering price of $11.00 per share, after deducting estimated underwriting
discounts and commissions and Offering expenses payable by the Company and (vi)
the application of the estimated net proceeds of the Offering. See "Use of
Proceeds." The information set forth below should be read in conjunction with
the Financial Statements and related Notes thereto included elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------------
ACTUAL PRO FORMA PRO FORMA
AS ADJUSTED
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Line of credit............................................ $ 5,500 $ 23,600 $ --
Redeemable securities..................................... 18,312 18,312 --
Shareholders' equity (deficit):
Preferred Stock, voting, $.01 par value, authorized
500,800 shares, 250,400 shares issued and
outstanding, 250,400 shares issued and outstanding
pro forma and no shares outstanding pro forma as
adjusted........................................... -- -- --
Preferred Stock, non-voting no par value, authorized
5,000,000 shares, none issued...................... -- -- --
Preferred Stock, voting, no par value, authorized
5,000,000 shares, none issued...................... -- -- --
Common Stock, no par value, authorized 45,000,000
shares, 6,822,950 shares issued and outstanding,
7,122,950 shares issued and outstanding pro forma
and 13,626,950 shares issued and outstanding pro
forma as adjusted (1).............................. 8 8 15
Additional paid-in capital........................... 359 3,164 42,580
Retained earnings (accumulated deficit).............. (11,843) (11,843) (9,659)
Less: note receivable from shareholder............... (359) (359) (359)
-------- -------- -------
Total shareholders' equity (deficit)............... (11,835) (9,030) 32,577
-------- -------- -------
Total capitalization............................ $ 11,977 $ 32,882 $32,577
======== ======== =======
</TABLE>
- ---------------
(1) Excludes (i) 64,734 shares of Common Stock subject to the KLA Options, (ii)
195,266 shares subject to the KLA Warrants, (iii) 350,300 shares of Common
Stock subject to options outstanding under the 1997 Equity and Performance
Plan; (iv) 2,072,750 additional shares of Common Stock reserved for issuance
pursuant to the 1997 Equity and Performance Plan; and (v) 500,000 additional
shares of Common Stock reserved for issuance pursuant to the Purchase Plan.
See "Management -- Employee Benefits Plans" and Notes 11 and 12 of Notes to
Financial Statements.
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<PAGE> 20
DILUTION
As of September 30, 1998, the pro forma net tangible deficit of the Company
was ($18.0 million) or ($1.87) per share of Common Stock. Pro forma net tangible
book value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding
after giving effect for the BVD acquisition as if it had been completed on
September 30, 1998 and after the conversion of all outstanding shares of
Convertible Preferred Stock into 2,504,000 shares of Common Stock. After giving
effect to the sale by the Company of the 4,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per share,
after deducting the underwriting discounts and commissions and estimated
Offering expenses payable by the Company, after the conversion of all
outstanding shares of Convertible Preferred Stock into 2,504,000 shares of
Common Stock and the redemption of the Redeemable Preferred Stock and after
giving effect for the BVD acquisition, the pro forma as adjusted net tangible
book value of the Company as of September 30, 1998 would have been $5.3 million,
or $0.39 per share of Common Stock. This represents an immediate increase in net
tangible book value of $2.26 per share of Common Stock to existing shareholders
and an immediate dilution of $10.61 per share to new shareholders. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible deficit per share before the
Offering............................................... $(1.87)
Increase per share attributable to new investors.......... 2.26
------
Pro forma as adjusted net tangible book value per share
after the Offering........................................ 0.39
------
Dilution per share to new investors......................... $10.61
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1998, the difference between the existing shareholders (including shares issued
in the BVD transaction and the conversion of the Convertible Preferred Stock)
and new shareholders with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price paid per share by existing shareholders and by new shareholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. 9,626,950 70.6% $19,049,235 30.2% $ 1.98
New shareholders....................... 4,000,000 29.4 44,000,000 69.8 11.00
---------- ----- ----------- -----
Total........................ 13,626,950 100.0% $63,049,235 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables and calculations assume no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants. As of September 30, 1998, there were 64,734 shares of Common Stock
subject to the KLA Options; 195,266 shares of Common Stock subject to the KLA
Warrants; 350,300 shares of Common Stock subject to options outstanding under
the 1997 Equity and Performance Plan; 2,072,750 additional shares of Common
Stock reserved for issuance pursuant to such plan; and 500,000 additional shares
of Common Stock reserved for issuance pursuant to the Purchase Plan. See
"Management -- Employee Benefit Plans," and "Shares Eligible for Future Sale."
18
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the Company's financial
statements and Notes thereto included elsewhere in this Prospectus. The
Statements of Income Data presented below for each of the years in the three
year period ended December 31, 1997 and the nine months ended September 30, 1998
and the Balance Sheet Data, as of December 31, 1996 and 1997 and September 30,
1998, have been derived from the Company's financial statements included
elsewhere in this Prospectus, which have been audited by PricewaterhouseCoopers
LLP, whose report with respect thereto is included elsewhere in this Prospectus.
The Balance Sheet Data as of December 31, 1995 and 1994 has been derived from
audited financial statements not included herein. The Balance Sheet Data as of
December 31, 1993 and the Statements of Income Data for the ten months ended
December 31, 1993, for the year ended December 31, 1994 and for the nine months
ended September 30, 1997 have been derived from the unaudited financial
statements of the Company. In the opinion of management, the unaudited financial
statements include all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of its financial position and
operating results for such periods. The selected financial data for the nine
months ended September 30, 1998 are not necessarily indicative of the results to
be expected for the year ending December 31, 1998 or any other future period.
See the financial statements and the related Notes thereto included elsewhere in
the Prospectus.
[CAPTION]
<TABLE>
<CAPTION>
TEN MONTHS NINE MONTHS ENDED
ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------------------------------- ----------------------------
1993 (1) 1994 1995 1996 1997 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1998
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................... $4,559 $6,149 $11,107 $17,994 $32,218 $23,205 $35,988
Cost of revenues........... 2,968 3,977 6,985 10,978 19,222 13,372 21,493
------ ------ ------- ------- ------- ------- -------
Gross profit............... 1,591 2,172 4,122 7,016 12,996 9,833 14,495
Selling, general and
administrative
expenses................. 1,428 2,066 3,038 4,204 6,555 4,929 7,454
Incentive compensation..... 258 216 678 1,647 2,700 2,191 2,586
Acquisition compensation... -- -- -- -- -- -- 725
Depreciation and
amortization............. 39 22 26 30 35 25 328
------ ------ ------- ------- ------- ------- -------
(Loss) income from
operations............... (134) (132) 380 1,135 3,706 2,688 3,402
Interest income............ 1 0 3 6 20 13 21
Interest expense........... (27) (40) (38) (89) (107) (87) (230)
------ ------ ------- ------- ------- ------- -------
(Loss) income before
provision for income
taxes.................... (160) (172) 345 1,052 3,619 2,614 3,193
(Benefit from) provision
for income taxes......... (69) (80) 180 461 1,495 1,080 1,393
------ ------ ------- ------- ------- ------- -------
Net (loss) income.......... $ (91) $ (92) $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
====== ====== ======= ======= ======= ======= =======
Accretion to redemption
value of redeemable
securities............... -- -- -- -- (92) -- (342)
------ ------ ------- ------- ------- ------- -------
Net (loss) income available
to common shareholders... $ (91) $ (92) $ 165 $ 591 $ 2,032 $ 1,534 $ 1,458
====== ====== ======= ======= ======= ======= =======
Net (loss) income per
share:
Basic.................... $(0.01) $(0.01) $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Diluted.................. $(0.01) $(0.01) $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Weighted average shares
outstanding:
Basic.................... 13,836,080 13,836,080 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
Diluted.................. 14,097,942 14,097,742 14,097,742 14,097,742 13,841,085 13,928,032 13,588,612
</TABLE>
- ---------------
(1) Reflects a change in the Company's fiscal year to the calendar year
effective as of December 31, 1993.
19
<PAGE> 22
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 66 $ 109 $ 100 $ 362 $ 2,174 $ 1,415
Working capital (deficit).......... 11 (142) (170) 429 2,119 2,421
Total assets....................... 1,175 1,164 2,054 3,697 7,712 20,682
Line of credit..................... -- -- -- 704 698 5,500
Redeemable securities.............. -- -- -- -- 15,970 18,312
Total shareholders' equity
(deficit)........................ 59 (33) (25) 723 (13,294) (11,835)
</TABLE>
20
<PAGE> 23
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
The following Unaudited Pro Forma Statements of Operations Data gives pro
forma effect to the acquisitions of KLA on April 8, 1998 and BVD on January 12,
1999. The Unaudited Pro Forma Statements of Operations Data for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 combine the
historical statements of income of CCAi and the historical statements of
operations of KLA and BVD as if the acquisitions had been completed on January
1, 1997. The Unaudited Pro Forma Statement of Operations Data for the nine
months ended September 30, 1998 reflects the last full quarter of KLA operations
prior to being acquired by CCAi on April 8, 1998 and the historical statements
of operations of BVD for the nine months ended September 30, 1998. This pro
forma data should be read in conjunction with the respective historical
financial statements (including Notes thereto) of CCAi, KLA and BVD,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Notes to Unaudited Pro Forma Statements of Operations Data
presented below and other financial information of CCAi, KLA and BVD appearing
elsewhere herein.
The pro forma adjustments reflecting the consummation of the acquisitions
are based on the purchase method of accounting, available financial information
and certain estimates and assumptions set forth in the Notes to the Unaudited
Pro Forma Statements of Operations Data. The Unaudited Pro Forma Statements of
Operations Data reflects CCAi's best estimates; however, the actual financial
position and results of operations may differ significantly from the pro forma
amounts reflected herein due to various factors, including, without limitation,
access to additional information and changes in value. The pro forma adjustments
do not reflect any operating efficiencies or cost savings that may be achievable
with respect to the combined businesses of CCAi, KLA and BVD.
The following data is not necessarily indicative of the future financial
position or operating results of the combined businesses or the financial
position or operating results of the combined businesses had the acquisition
occurred at the beginning of 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------
PRO FORMA PRO FORMA
KLA BVD PRO FORMA
CCAI KLA ADJUSTMENTS BVD ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $32,218 $8,726 $ (272)(1) $14,415 -- $ 55,087
Cost of revenues................. 19,222 6,589 (272)(1) 8,918 -- 34,457
------- ------ ------- ------- ------- ----------
Gross profit..................... 12,996 2,137 -- 5,497 -- 20,630
Selling, general and
administrative expenses........ 6,555 2,238 (818)(2) 4,446 (602)(9) 11,819
Incentive compensation........... 2,700 -- -- -- -- 2,700
Acquisition compensation......... -- -- 1,825(3,4) -- -- 1,825
Depreciation and amortization.... 35 74 373(5) 33 995(10) 1,510
------- ------ ------- ------- ------- ----------
Income (loss) from operations.... 3,706 (175) (1,380) 1,018 (393) 2,776
Net interest expense (income).... 87 29 469(7) (10) 1,810(11) 2,385
------- ------ ------- ------- ------- ----------
Income (loss) before provision
for (benefit from) income
taxes.......................... 3,619 (204) (1,849) 1,028 (2,203) 391
Provision for (benefit from)
income taxes................... 1,495 (64) (630)(8) 480 (499)(12) 782
------- ------ ------- ------- ------- ----------
Net income (loss)................ $ 2,124 $ (140) $(1,219) $ 548 $(1,704) $ (391)
======= ====== ======= ======= ======= ==========
Accretion to redemption value of
redeemable securities.......... (92) -- -- -- -- (92)
------- ------ ------- ------- ------- ----------
Net income (loss) available to
common shareholders............ $ 2,032 $ (140) $(1,219) $ 548 $(1,704) $ (483)
======= ====== ======= ======= ======= ==========
Net loss per share:
Basic.......................... $ (0.03)
Diluted........................ $ (0.03)
Weighted average shares
outstanding:
Basic.......................... 13,879,423
Diluted........................ 14,141,085
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------------
KLA
THREE
MONTHS
ENDED
MARCH 31, PRO FORMA PRO FORMA
1998 KLA BVD BVD PRO FORMA
CCAi HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS COMBINED
HISTORICAL (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $35,988 $2,570 $(157)(1) $11,408 -- $ 49,809
Cost of revenues............... 21,493 1,542 (157)(1) 7,550 -- 30,428
------- ------ ----- ------- ------- ----------
Gross profit................... 14,495 1,028 -- 3,858 -- 19,381
Selling, general and
administrative expenses...... 7,454 925 (250)(2) 2,814 $ (249)(9) 10,694
Incentive compensation......... 2,586 -- -- -- -- 2,586
Acquisition compensation....... 725 -- 263(3,4) -- -- 988
Depreciation and
amortization................. 328 19 93(5) 36 746(10) 1,222
------- ------ ----- ------- ------- ----------
Income (loss) from
operations................... 3,402 84 (106) 1,008 (497) 3,891
Transaction costs.............. -- 302 (302)(6) -- -- --
Net interest expense
(income)..................... 209 4 120(7) (2) 1,358(11) 1,689
------- ------ ----- ------- ------- ----------
Income (loss) before provision
for (benefit from) income
taxes........................ 3,193 (222) 76 1,010 (1,855) 2,202
Provision for (benefit from)
income taxes................. 1,393 (83) 61(8) 454 (458)(12) 1,367
------- ------ ----- ------- ------- ----------
Net income (loss).............. $ 1,800 $ (139) $ 15 $ 556 $(1,397) $ 835
======= ====== ===== ======= ======= ==========
Accretion to redemption value
of redeemable securities..... (342) -- -- -- -- (342)
------- ------ ----- ------- ------- ----------
Net income (loss) available to
common shareholders.......... $ 1,458 $ (139) $ 15 $ 556 $(1,397) $ 493
======= ====== ===== ======= ======= ==========
Net income per share:
Basic........................ $ 0.04
Diluted...................... $ 0.04
Weighted average shares
outstanding:
Basic........................ 13,626,950
Diluted...................... 13,888,612
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA:
(1) Reflects the elimination of contractual sales and cost of sales that had
been transacted between CCAi and KLA before the acquisition date.
(2) Reflects the elimination of KLA expenses, which consist of the salary
related to an officer of KLA who was not retained by CCAi and certain
nonrecurring travel expenses incurred by KLA officers and employees, that
will no longer be incurred as a result of the KLA acquisition.
(3) Reflects pro forma adjustment to acquisition compensation in the amount of
$0.3 million and $0.1 million for the year ended December 31, 1997 and for
the nine months ended September 30, 1998, respectively, for the
amortization of $0.5 million of compensation expense resulting from the
issuance of the KLA Options. The expense associated with the KLA Options is
amortized on a straight-line basis over the 24 month vesting period for
such options. In connection with the Offering, the KLA Options will fully
vest and the unamortized balance will be included in acquisition
compensation. See Note 12 of Notes to Financial Statements.
(4) Reflects pro forma adjustment to acquisition compensation in the amount of
$1.6 million and $0.1 million for the year ended December 31, 1997 and for
the nine months ended September 30, 1998, respectively, for bonus retention
pool payments to an escrow account for KLA employees retained by CCAi. See
Note 12 of Notes to Financial Statements.
(5) Reflects the pro forma increase in amortization expenses associated with
the amortization of goodwill of $7.5 million resulting from the KLA
acquisition, on a straight-line basis over 20 years.
(6) Reflects transaction costs, which consist of professional services
expenses, incurred by KLA resulting from the KLA acquisition. Transaction
costs incurred by CCAi are included in goodwill. Amortization of goodwill
is included in depreciation and amortization.
22
<PAGE> 25
(7) Reflects the pro forma increase in interest expense associated with the
$8.0 million of borrowings by CCAi in connection with the KLA acquisition.
The borrowings are assumed to have an interest rate of 8.5%, which is the
Company's pro forma cost of borrowing in connection with the KLA
acquisition.
(8) Reflects pro forma adjustments to provision for (benefit from) income taxes
assuming an effective income tax rate of 51.1% and 45.0% for the year ended
December 31, 1997 and for the nine months ended September 30, 1998,
respectively. The difference between the effective income tax rate from the
federal statutory rate is primarily due to nondeductible goodwill
amortization and, to a lesser extent, state taxes.
(9) Reflects pro forma adjustments attributed to royalty expenses, which will
no longer be paid after the acquisition. These royalties were paid to a
company which is partially owned by some of the former shareholders of BVD.
(10) Reflects the pro forma increase in amortization expense associated with the
estimated amortization of goodwill of approximately $19.9 million resulting
from the BVD acquisition, on a straight-line basis over 20 years.
(11) Reflects the pro forma increase in interest expense associated with the
$18.1 million of borrowings by CCAi in connection with the BVD acquisition.
The borrowings are assumed to have an interest rate of 10.0%, which is the
Company's pro forma cost of borrowing in connection with the BVD
acquisition as if the KLA and BVD transactions had been completed on
January 1, 1997.
(12) Reflects pro forma adjustments to provision for (benefit from) income taxes
after adjusting taxable income for nondeductible goodwill and assuming
CCAi's December 31, 1997 effective income tax rate of 41.3%. The remaining
difference between the statutory rate and the effective rate is primarily
the result of state taxes.
23
<PAGE> 26
UNAUDITED PRO FORMA BALANCE SHEET
The following Unaudited Pro Forma Balance Sheet as of September 30, 1998
gives effect to (i) the acquisition of BVD and (ii) the related pro forma
adjustments described in the notes below. This pro forma balance sheet is
presented as if the acquisition had been completed on September 30, 1998.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------------------------------------------
BVD PRO FORMA
CCAi HISTORICAL ADJUSTMENTS PRO FORMA
HISTORICAL(1) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,415 $ 180 $ -- $ 1,595
Accounts receivable, net................................. 7,971 2,293 -- 10,264
Deferred taxes........................................... 745 28 -- 773
Other.................................................... 196 8 -- 204
------- ------ ------- -------
Total current assets............................... 10,327 2,509 -- 12,836
Goodwill, net.............................................. 7,345 -- 19,918(2) 27,263
Property and equipment, net................................ 1,784 391 -- 2,175
Other...................................................... 1,226 33 -- 1,259
------- ------ ------- -------
Total assets....................................... $20,682 $2,933 $19,918 $43,533
======= ====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations................. $ 374 $ -- $ -- $ 374
Accounts payable......................................... 1,337 728 -- 2,065
Due to related parties................................... -- 249 -- 249
Accrued payroll, taxes and benefits...................... 4,992 778 -- 5,770
Income taxes payable..................................... 601 152 -- 753
Other.................................................... 602 -- -- 602
------- ------ ------- -------
Total current liabilities.......................... 7,906 1,907 -- 9,813
Line of credit............................................. 5,500 -- 18,100(3) 23,600
Deferred taxes............................................. 50 39 -- 89
Long-term obligations, less current portion................ 749 -- -- 749
------- ------ ------- -------
Total liabilities.................................. 14,205 1,946 18,100 34,251
Commitments and contingencies.............................. -- -- -- --
Redeemable securities...................................... 18,312 -- -- 18,312
Shareholders' equity (deficit):
Preferred stock, voting, $.01 par value, authorized
500,800, shares, 250,400 shares issued and outstanding
as of September 30, 1998............................... -- -- -- --
Preferred stock, non-voting, no par value, authorized
5,000,000 shares, none issued.......................... -- -- -- --
Preferred stock, voting, no par value, authorized
5,000,000 shares, none issued.......................... -- -- -- --
Common stock, no par value, authorized 45,000,000 shares,
6,822,950 shares issued and outstanding at September
30, 1998 and 7,122,950 shares issued and outstanding
pro forma.............................................. 8 -- -- 8
Common stock, no par value, authorized and issued 1,000
shares................................................. -- 300 (300)(4) --
Additional paid-in capital............................... 359 -- 2,805(4) 3,164
Retained earnings (accumulated deficit).................. (11,843) 687 (687)(4) (11,843)
------- ------ ------- -------
(11,476) 987 1,818 (8,671)
Less: note receivable from shareholder................... (359) -- -- (359)
------- ------ ------- -------
Total shareholders' equity (deficit)............... (11,835) 987 1,818 (9,030)
------- ------ ------- -------
Total liabilities and shareholders' equity
(deficit)........................................ $20,682 $2,933 $19,918 $43,533
======= ====== ======= =======
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(1) Includes the KLA acquisition, which was consummated in April 1998.
(2) Reflects the estimated goodwill resulting from the BVD acquisition.
(3) Reflects the estimated bank borrowings needed to acquire BVD including the
estimated costs associated with the acquisition in the amount of $0.6
million.
(4) Reflects the required adjustments to eliminate BVD's equity and to record
the 300,000 shares of CCAi's Common Stock issued as part of the purchase
price of BVD.
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
section, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results,
performance or achievements expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $200 million and $2.5
billion. The Company's rapid ERP implementation services enable its clients to
reduce the length and risks of implementations, lower overall costs and achieve
early realization of ERP-related benefits. The Company provides its services to
clients across a broad spectrum of industries, including aerospace, automotive,
chemical process, communications, consumer products, energy, financial and
professional services, health care, industrial, publishing, retail and
technology.
From its inception through 1989, CCAi was engaged in the implementation of
mainframe and minicomputer software applications, as well as the development of
custom applications and software products for mainframe and minicomputer
systems. In 1989, the Company participated in one of the first mainframe SAP
implementations in the U.S. and thereafter continued to provide its clients with
mainframe ERP implementations and related services for SAP applications
throughout the early 1990s. With the advent of network-centric solutions and the
availability of affordable personal computers, the Company began to develop
custom applications for network-centric environments and subsequently began to
participate in SAP client/server ERP implementations undertaken by larger IT
service providers at Fortune 500 companies.
Since 1994, when the Company became an SAP National Implementation Partner,
CCAi has differentiated itself by developing expertise as a provider of rapid
ERP implementation services and developing its own rapid implementation
methodology. The Company was involved in the development of SAP's ASAP
methodology, which has become an industry standard for rapid SAP
implementations. In 1997, CCAi became one of SAP's first ASAP Partners and has
since become one of the first organizations to certify 100 consultants in the
ASAP methodology. Also during 1997, the Company expanded its ERP implementation
capabilities by becoming an Oracle Alliance Member and has since developed its
own proprietary rapid implementation methodology, known as FIRM, for Oracle ERP
applications. The Company has recently been selected to become one of 26 Oracle
Service Providers in the United States. Since 1997, the Company has increasingly
undertaken the management of engagements for middle market clients. With the
continuing growth in demand for ERP solutions among middle market organizations,
the Company has focused on providing rapid ERP implementations and related
services for such organizations. In 1998, the Company was one of the first
organizations named by Compaq as a regional configuration support center to
provide rapid implementation and related services in connection with R/3PAQ, a
preconfigured ERP solution jointly developed by Compaq and SAP.
In April 1998, the Company, in an arms-length transaction with parties not
affiliated with the Company, purchased all of the capital stock of KLA by paying
$3.9 million in cash, by issuing the KLA Warrants and by agreeing to make
additional cash payments of (i) $3.4 million, subject to certain revenue targets
and contribution margins during the two-year period following the acquisition
and (ii) $1.1 million in three equal annual installments beginning April 1999.
In addition, the Company agreed to grant the KLA Options and to pay $3.5 million
in retention bonuses at certain intervals to an escrow account which benefits
former KLA employees who remain employees of the Company at such intervals.
Goodwill from the KLA acquisition is being amortized
25
<PAGE> 28
on a straight-line basis over 20 years. In January 1999, the Company, in an
arms-length transaction with parties not affiliated with the Company, purchased
all of the capital stock of BVD by paying $17.5 million in cash and issuing
300,000 shares of restricted Common Stock, which vest in two equal annual
installments. Goodwill from the BVD acquisition will be amortized on a
straight-line basis over 20 years. In accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, the Company will continually evaluate whether later events and circumstances
have occurred that indicate the acquired goodwill may warrant revision. See Note
12 of Notes to Financial Statements.
The Company generates revenues by providing professional services for ERP
implementations and platform independent services. Revenues are recognized as
services are performed. The Company's ERP implementation services are typically
billed at a higher rate than its other services. The Company undertakes
engagements in a variety of roles, including: (i) as the lead consulting firm on
its own engagements; (ii) as a lead consulting firm on a part of larger
engagements undertaken by multinational IT consulting firms or other large
service providers or (iii) as an integral member of a joint engagement team on
such engagements. The Company provides services to its clients predominantly on
a time and materials basis pursuant to written contracts, which can be
terminated with little or no notice, typically not more than 30 days, and
without penalty. The Company typically bills on a bi-weekly basis to monitor
client satisfaction and manage its outstanding accounts receivable balances.
Substantially all of the Company's revenues are derived from clients located in
the U.S. and Canada. Revenues generated in connection with SAP implementations
and related services for the years ended December 31, 1995, 1996 and 1997 and
for the nine months ended September 30, 1998 accounted for approximately 55%,
69%, 75% and 80%, of revenues, respectively. Revenues derived from services
provided to the Company's 10 largest clients for the years ended December 31,
1995, 1996 and 1997 and for the nine months ended September 30, 1998, were
approximately 51%, 43%, 39% and 41% of revenues, respectively. During each of
the years ended December 31, 1995, 1996 and 1997, none of the Company's clients
individually accounted for 10% or more of the Company's revenues. For the nine
months ended September 30, 1998, one of the Company's clients accounted for 11%
of revenues. See "Risk Factors -- Dependence on SAP and Other Relationships" and
"-- Concentration of Revenues."
Gross profit is derived from revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. The Company's
financial performance is primarily based upon billing margin (billable hourly
rate less the consultant's hourly cost) and personnel utilization rates
(billable hours divided by paid hours). Generally, clients are billed for
expenses incurred by the Company on the clients' behalf. To date, the Company
has been able to maintain its billing margins by offsetting increases in
salaries with increases in its hourly rates. Because most of the Company's
engagements are billed on a time and materials basis, increases in its cost of
revenues are generally passed along to the Company's clients. In addition, the
Company closely monitors and attempts to control expenses that are not passed
through to its clients.
The Company continuously monitors its engagements in order to effectively
manage billing and utilization rates. Actual billing rates are established on an
engagement-by-engagement basis. Over the last three years, the Company's average
hourly billing rate has steadily increased. The growth in average hourly billing
rates reflects both an increase in billing rates and a shift towards a higher
percentage of billable hours related to ERP implementations, which command
higher billing rates. The Company assigns consultants to engagements according
to the size, duration, status and degree of complexity of each engagement.
Selling, general and administrative expenses consists of salaries,
benefits, training and travel expenses and other promotional costs. These
expenses are associated with the Company's development of new business and with
the Company's management, finance, marketing and administrative activities.
Incentive compensation consists of amounts paid for non-consultant
discretionary bonuses, sales commissions and company-wide profit sharing to
employees who provide exceptional service to clients or the Company. Incentive
compensation expenses have a large variable component relating to revenue and
profit and, therefore vary based upon the Company's ability to achieve its
operating objectives.
Acquisition compensation consists of bonus retention pool payments to be
made by the Company in connection with the KLA acquisition. In addition,
amortization of the $0.5 million of compensation attributed to the KLA Options
is included in acquisition compensation and is being amortized over the 24 month
vesting
26
<PAGE> 29
period of the options. As a result of the Offering, the KLA Options will fully
vest and, accordingly, the unamortized balance of the compensation will be
charged to acquisition compensation in the quarter in which the Offering is
consummated.
The Company's income tax rates vary from the federal statutory rate of 34%
predominately due to state and local taxes and nondeductible meal expenses. The
decrease in the Company's effective tax rate for the year ended December 31,
1996 relative to the year ended December 31, 1995 was predominantly due to
nondeductible goodwill amortization and meal expenses becoming a smaller
percentage of taxable income. The effective income tax rate for the nine months
ended September 30, 1998 reflects nondeductible goodwill amortization.
RESULTS OF OPERATIONS
The following table sets forth the Statements of Income Data of the
Company, expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 62.9 61.0 59.7 57.6 59.7
----- ----- ----- ----- -----
Gross profit.......................... 37.1 39.0 40.3 42.4 40.3
Selling, general and administrative
expenses................................ 27.4 23.4 20.3 21.3 20.7
Incentive compensation..................... 6.1 9.2 8.4 9.4 7.3
Acquisition compensation................... -- -- -- -- 2.0
Depreciation and amortization.............. 0.2 0.1 0.1 0.1 0.9
----- ----- ----- ----- -----
Income from operations................ 3.4 6.3 11.5 11.6 9.4
Interest income............................ 0.0 0.0 0.1 0.1 0.1
Interest expense........................... (0.3) (0.5) (0.4) (0.4) (0.6)
----- ----- ----- ----- -----
Income before provision for income
taxes.............................. 3.1 5.8 11.2 11.3 8.9
Provision for income taxes................. 1.6 2.6 4.6 4.7 3.9
----- ----- ----- ----- -----
Net income............................ 1.5% 3.2% 6.6% 6.6% 5.0%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Revenues increased 55.1% to $36.0 million for the nine months
ended September 30, 1998 from $23.2 million for the nine months ended September
30, 1997. This increase was predominantly due to the increase in ERP
implementation services provided to clients. The increase in services was made
possible through the increase in the number of consultants to 261 at September
30, 1998 from 177 at September 30, 1997.
Gross Profit. Gross profit increased 47.4% to $14.5 million for the nine
months ended September 30, 1998 from $9.8 million for the nine months ended
September 30, 1997. Gross margin decreased to 40.3% for the nine months ended
September 30, 1998 from 42.4% for the nine months ended September 30, 1997. The
dollar increase was the result of increased revenues, partially offset by
increased cost of revenues. The decrease in gross margin was primarily due to
lower consultant utilization in the nine months ended September 30, 1998
resulting from the time devoted to the KLA acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 51.2% to $7.5 million for the nine months
ended September 30, 1998 from $4.9 million for the nine months ended September
30, 1997. As a percentage of revenues, such expenses decreased to 20.7% for the
nine months ended September 30, 1998 from 21.3% for the nine months ended
September 30, 1997. The dollar increase was predominantly due to the increased
personnel costs needed to support the increase in revenues. The decrease in
selling, general and administrative expenses as a percentage of revenues was
primarily due to an increase in revenues.
27
<PAGE> 30
Incentive Compensation. Incentive compensation increased 18.0% to $2.6
million for the nine months ended September 30, 1998 from $2.2 million for the
nine months ended September 30, 1997. As a percentage of revenues, such expenses
decreased to 7.3% for the nine months ended September 30, 1998 from 9.4% for the
nine months ended September 30, 1997. The dollar increase in incentive
compensation was due to the increase in revenues. The decrease in incentive
compensation as a percent of revenues was primarily related to reduced incentive
compensation payable to the Founders since October 1997.
Acquisition Compensation. Acquisition compensation in the nine months ended
September 30, 1998 includes $0.6 million related to the KLA retention pool and
$0.1 million for compensation amortization related to the KLA Options. The KLA
acquisition was completed in April 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$0.3 million for the nine months ended September 30, 1998 from $25,000 for the
nine months ended September 30, 1997. The increase was primarily due to goodwill
amortization related to the KLA acquisition. The remaining increase was the
result of depreciation associated with furniture, equipment and leasehold
improvements acquired in conjunction with the Company's relocation to new
corporate facilities in January 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased 79.1% to $32.2 million for the year ended
December 31, 1997 from $18.0 million for the year ended December 31, 1996. This
increase was predominantly due to the increase in ERP implementation services
provided to clients. The increase in services was made possible through the
increase of consultants to 191 at December 31, 1997 from 122 at December 31,
1996.
Gross Profit. Gross profit increased 85.3% to $13.0 million for the year
ended December 31, 1997 from $7.0 million for the year ended December 31, 1996.
Gross margin increased to 40.3% for the year ended December 31, 1997 from 39.0%
for the year ended December 31, 1996. Both the dollar and percentage increases
were the result of increased revenues, partially offset by increased cost of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 55.9% to $6.6 million for the year ended
December 31, 1997 from $4.2 million for the year ended December 31, 1996. As a
percentage of revenues, such expenses decreased to 20.3% for the year ended
December 31, 1997 from 23.4% for the year ended December 31, 1996. The dollar
increase was predominantly due to the increased personnel costs needed to
support the increase in revenues. The decrease in selling, general and
administrative expenses as a percentage of revenues was primarily due to an
increase in revenues.
Incentive Compensation. Incentive compensation increased 63.9% to $2.7
million for the year ended December 31, 1997 from $1.6 million for the year
ended December 31, 1996. As a percentage of revenues, such expenses decreased to
8.4% for the year ended December 31, 1997 from 9.2% for the year ended December
31, 1996. The dollar increase in incentive compensation was due to the increase
in revenues. The decrease in incentive compensation as a percentage of revenues
was primarily due to the increase in revenues.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Revenues increased 62.0% to $18.0 million for the year ended
December 31, 1996 from $11.1 million for the year ended December 31, 1995. This
increase was predominantly due to the increase in ERP implementation services
provided to clients. The increase in services was made possible through the
increase of consultants to 122 at December 31, 1996 from 100 at December 31,
1995.
Gross Profit. Gross profit increased 70.2% to $7.0 million in the year
ended December 31, 1996 from $4.1 million for the year ended December 31, 1995.
Gross margin increased to 39.0% for the year ended December 31, 1996 from 37.1%
for the year ended December 31, 1995. Both the dollar and percentage increases
were the result of increased revenues, partially offset by increased cost of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 38.4% to $4.2 million for the year ended
December 31, 1996 from $3.0 million for the year ended December 31, 1995. As a
percentage of revenues, such expenses decreased to 23.4% for the year ended
December 31, 1996
28
<PAGE> 31
from 27.4% for the year ended December 31, 1995. The dollar increase was
predominantly due to increased personnel costs needed to support the increase in
revenues. The decrease in selling, general and administrative expenses as a
percentage of revenues was primarily due to an increase in revenues.
Incentive Compensation. Incentive compensation increased 142.9% to $1.6
million for the year ended December 31, 1996 from $0.7 million for the year
ended December 31, 1995. As a percentage of revenues, such expenses increased to
9.2% for the year ended December 31, 1996 from 6.1% for the year ended December
31, 1995. Both the dollar and percentage increases were the result of increased
revenues.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly operating
results for each of the quarters for the years ended December 31, 1996 and 1997
and for the nine months ended September 30, 1998. In management's opinion, this
unaudited information has been prepared on the same basis as the audited
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented when read in conjunction with the financial statements
and Notes thereto included elsewhere in this Prospectus. The Company believes
that quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $3,926 $3,943 $4,822 $5,302 $6,535 $7,799 $8,871 $9,013 $9,902
Cost of revenues....... 2,255 2,550 2,826 3,347 3,548 4,643 5,181 5,850 5,762
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 1,671 1,393 1,996 1,955 2,987 3,156 3,690 3,163 4,140
Selling, general and
administrative
expenses............. 838 936 1,194 1,236 1,380 1,600 1,949 1,626 2,017
Incentive
compensation......... 433 286 337 591 601 658 932 509 984
Acquisition
compensation......... -- -- -- -- -- -- -- -- --
Depreciation and
amortization......... 7 7 7 9 8 8 9 10 24
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations........... 393 164 458 119 998 890 800 1,018 1,115
Interest income........ 1 1 2 2 4 4 5 7 7
Interest expense....... (18) (26) (23) (21) (35) (21) (31) (20) (12)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
provisions for income
taxes................ 376 139 437 100 967 873 774 1,005 1,110
Provision for income
taxes................ 165 61 192 43 399 361 320 415 471
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income............. $ 211 $ 78 $ 245 $ 57 $ 568 $ 512 $ 454 $ 590 $ 639
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTERS ENDED
--------------------
JUNE 30, SEPT. 30,
1998 1998
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues............... $12,122 $13,964
Cost of revenues....... 7,565 8,166
------- -------
Gross profit........... 4,557 5,798
Selling, general and
administrative
expenses............. 2,340 3,097
Incentive
compensation......... 607 995
Acquisition
compensation......... 362 363
Depreciation and
amortization......... 151 153
------- -------
Income from
operations........... 1,097 1,190
Interest income........ 8 6
Interest expense....... (120) (98)
------- -------
Income before
provisions for income
taxes................ 985 1,098
Provision for income
taxes................ 434 488
------- -------
Net income............. $ 551 $ 610
======= =======
</TABLE>
29
<PAGE> 32
The following table sets forth certain unaudited quarterly operating
results as a percentage of revenues, as applicable, for each of the quarters for
the years ended December 31, 1996 and 1997 and for the nine months ended
September 30, 1998:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....... 57.4 64.7 58.6 63.1 54.3 59.5 58.4 64.9 58.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit........... 42.6 35.3 41.4 36.9 45.7 40.5 41.6 35.1 41.8
Selling, general and
administrative
expenses............. 21.4 23.7 24.8 23.3 21.1 20.5 22.0 18.0 20.4
Incentive
compensation......... 11.0 7.3 7.0 11.1 9.2 8.4 10.5 5.7 9.9
Acquisition
compensation......... -- -- -- -- -- -- -- -- --
Depreciation and
amortization......... 0.2 0.1 0.1 0.2 0.1 0.2 0.1 0.1 0.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from
operations........... 10.0 4.2 9.5 2.3 15.3 11.4 9.0 11.3 11.3
Interest income........ 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.0
Interest expense....... (0.4) (0.7) (0.4) (0.4) (0.5) (0.3) (0.3) (0.3) (0.1)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before
provisions for income
taxes................ 9.6 3.5 9.1 1.9 14.8 11.2 8.8 11.1 11.2
Provision for income
taxes................ 4.2 1.5 4.0 0.8 6.1 4.6 3.7 4.6 4.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income............. 5.4% 2.0% 5.1% 1.1% 8.7% 6.6% 5.1% 6.5% 6.4%
===== ===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
QUARTERS ENDED
--------------------
JUNE 30, SEPT. 30,
1998 1998
-------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues............... 100.0% 100.0%
Cost of revenues....... 62.4 58.5
----- -----
Gross profit........... 37.6 41.5
Selling, general and
administrative
expenses............. 19.3 22.2
Incentive
compensation......... 5.0 7.1
Acquisition
compensation......... 3.0 2.6
Depreciation and
amortization......... 1.3 1.1
----- -----
Income from
operations........... 9.0 8.5
Interest income........ 0.1 0.1
Interest expense....... (1.0) (0.7)
----- -----
Income before
provisions for income
taxes................ 8.1 7.9
Provision for income
taxes................ 3.6 3.5
----- -----
Net income............. 4.5% 4.4%
===== =====
</TABLE>
The Company's quarter-to-quarter increase in revenues was primarily due to
increased business activity. This increase was predominantly due to the increase
in ERP implementation services provided to clients. Cost of revenues increased
due to the growing number of consultants needed to support the growing demand
for the Company's services.
Variable utilization rates and average billing rates cause quarterly
fluctuations in cost of revenues as a percent of revenues. For the quarters
ended June 30, 1996, December 31, 1996, June 30, 1997, December 31, 1997 and
June 30, 1998, gross margins were adversely affected by lower utilization rates.
Lower utilization rates during the second and fourth quarters are primarily due
to a lower number of billable days resulting from training schedules and the
number of vacations and holidays in those quarters. Utilization rates may
continue to cause gross margins to vary in the future based on factors such as
training schedules, vacations, sick days, holiday schedules, recruiting
requirements, start-up of new engagements and administrative requirements of the
Company's employees.
Selling, general and administrative expenses have increased in absolute
dollars over the quarters presented due to increased salaries, benefits,
training and travel expenses and other promotional costs. Selling, general and
administrative expenses have varied from quarter-to-quarter as a percent of
revenues primarily due to the timing of training or promotional conferences
attended by Company personnel.
CCAi's revenues and operating results are subject to significant variation
from quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
engagements commenced and completed during a quarter, the number of billable
days in a quarter, the timing of office and service expansion, training
schedules and the timing of expenditures. Because a high percentage of CCAi's
expenses are relatively fixed, a variation in the number of engagements or the
timing of the initiation or the completion of engagements, particularly at or
near the end of any quarter, can cause significant variations in operating
results from quarter-to-quarter and could result in losses to the Company. In
addition, CCAi's engagements are generally terminable by the client without
penalty.
Unanticipated termination of an engagement, a client's decision not to
proceed to the next phase of an engagement as anticipated by the Company,
completion during a quarter of several client engagements without the deployment
of consultants to new engagements or expansion of existing engagements could
result in the Company's underutilization of employees and could, therefore,
materially adversely affect the Company's
30
<PAGE> 33
business, operating results and financial condition. To the extent that
increases in the number of consultants do not result in corresponding increases
in revenues, the Company's business, operating results and financial condition
could be materially adversely affected. Further, it is difficult for the Company
to forecast the timing of revenues because engagement cycles depend on factors
such as the size and scope of assignments and circumstances specific to
particular clients. Because the Company derives revenues only when its
consultants are billing on engagements, its business, operating results and
financial condition are materially adversely affected due to vacations, training
schedules, holidays, inclement weather or other similar events. For example, the
Company has generated lower operating margins during the second and fourth
quarters of the year due to a lower number of billable days resulting from
training schedules and the number of vacations and holidays in those quarters.
Given all of the foregoing, the Company believes that quarter-to-quarter
comparisons of its operating results of preceding quarters are not necessarily
meaningful, and that such results for one quarter should not be relied upon as
an indication of future performance.
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations primarily through internally
generated funds. Working capital needs have been periodically supplemented by
borrowings under the Company's revolving credit facilities. Working capital was
$0.4 million, $2.1 million and $2.4 million at December 31, 1996 and 1997 and
September 30, 1998, respectively.
Net cash provided by operating activities was $0.2 million, $2.1 million
and $0.7 million for the years ended December 31, 1996 and 1997 and for the nine
months ended September 30, 1998, respectively. The increase in cash provided by
operating activities in the nine months ended 1998 and the year ended 1997
compared to 1996 was primarily the result of the increased net income and due to
increases in accruals and other current liabilities, partially offset increases
in accounts receivable. Accounts receivable increased from December 31, 1997 to
September 30, 1998 primarily as a result of increased revenue and the timing of
billings.
Net cash used in investing activities was $51,700, $0.4 million and $5.0
million for the years ended December 31, 1996 and 1997 and for the nine months
ended September 30, 1998, respectively. In April 1998, the Company completed the
KLA acquisition with a net cash outlay of $3.9 million. See Note 12 of Notes to
Financial Statements. During the year ended December 31, 1997 and the nine
months ended September 30, 1998, net cash used in investing activities reflected
the Company's use of $0.4 million and $1.1 million, respectively, of funds for
furniture, equipment and leasehold improvements in a new corporate facility.
In January 1999, in order to finance the BVD acquisition, the Company
refinanced its then existing revolving credit facility with Fleet Bank. The
Fleet Bank line of credit permits the Company to borrow up to $27.5 million and
is collateralized by substantially all of CCAi's assets. Borrowings under the
line of credit are limited to 80% of qualified receivables plus $20.0 million
and to multiples of the Company's latest aggregated four quarters' earnings
before interest, taxes, depreciation, amortization and other non-cash expenses.
The interest rate is LIBOR plus up to 3.25% to the extent the Company borrows
funds for a certain period of time, and the bank's prime rate (8.5% at September
30, 1998) plus up to 1.50%, on the remaining outstanding balance. The line of
credit contains various financial and operating covenants and restricts, among
other things, the Company's ability to incur additional indebtedness, sell or
transfer assets or make investments and pay dividends. At September 30, 1998,
$5.5 million was outstanding under the Fleet Bank line of credit. In January
1999, the Company borrowed $18.1 million for the BVD acquisition. The Company
intends to use a portion of the net proceeds of the Offering to repay amounts
outstanding under the line of credit. See "Use of Proceeds" and Note 4 of Notes
to Financial Statements.
Net cash provided by financing activities totaled $0.1 million, $0.1
million and $3.5 million for the years ended December 31, 1996 and 1997 and for
the nine months ended September 30, 1998, respectively. In October 1997, the
Company sold certain shares of Common Stock and Convertible Preferred Stock for
an
31
<PAGE> 34
aggregate purchase price of $17.5 million ($15.9 million, net of $1.6 million of
transaction expenses). Contemporaneously with such sale, the Company paid $15.9
million to purchase shares of Common Stock from affiliates of the Founders. See
"Certain Transactions" and Note 9 of Notes to Financial Statements.
The Company believes that the proceeds from the sale of the Shares offered
hereby together with the cash provided from the operations will be sufficient,
based on the Company's current operating plans, to meet the Company's working
capital and capital expenditure requirements for the next 24 months. At
September 30, 1998, the Company had no material commitments for capital
expenditures. To the extent the Company is unable to fund its operations from
cash flows, the Company may need to obtain financing from external sources in
the form of either additional equity or indebtedness. There can be no assurance
that additional financing will be available at all, or that, if available, such
financing will be obtainable on terms favorable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 ("SFAS 128") Earnings per Share, which changes the method of
calculating earnings per share. SFAS 128 requires the presentation of "basic"
earnings per share and "diluted" earnings per share on the face of the income
statement. Basic earnings per share is computed by dividing the net income
available to common shareholders by the weighted average shares of outstanding
common stock. The calculation of diluted earnings per share is similar to basic
earnings per share except that the denominator includes dilutive common stock
equivalents such as stock options and warrants. The statement is effective for
financial statements for periods ending after December 15, 1997 and has been
adopted by the Company in the quarter ended December 31, 1997. The Company
adopted SFAS No. 128 for all periods reported herein.
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), Reporting
Comprehensive Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an
Enterprise and Related Information. SFAS 130 establishes standards for reporting
comprehensive income and SFAS 131 establishes standards for reporting
information about operating segments. In February 1998, the FASB issued
Statement No. 132 ("SFAS 132"), Employers' Disclosures about Pension and Other
Postretirement Benefits. SFAS 132 establishes standards for reporting
information regarding disclosures about pensions and other postretirement
benefits. The Company is required to adopt these statements in 1998. In June
1998, the FASB issued Statement No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes standards for reporting
derivative instruments and hedging activities. The Company does not believe the
adoption of the above SFAS statements will have a significant impact on the
Company's financial statements or related disclosures.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date code field, and were not
designed to account for the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process dates in the Year 2000 and beyond. The Company and its
clients rely on their systems, applications and devices in operating and
monitoring all major aspects of their businesses, including financial systems
(such as general ledger, accounts payable and accounts receivable modules),
customer services, infrastructure, embedded computer chips, networks and
telecommunications equipment and end products. The Company and its clients also
rely directly and indirectly, on external systems of business enterprises such
as customers, suppliers, creditors, financial organizations, and of governmental
entities, both domestic and international, for accurate exchange of data.
The Company's Year 2000 assessment is conducted by the Company's IT
department and executive management. The Company's assessment of the Year 2000
issue has been broadly divided among hardware systems, software systems,
telecommunications, data communications, facilities, internal business
applications, external business applications and services offered by CCAi. All
hardware systems are being inventoried, audited and tested for Year 2000
compliance. All personal computer systems are in material compliance or will be
replaced in 1999. Software systems include operating systems, applications and
utilities. All business critical software systems have been assessed and are in
material compliance. The telecommunications systems in use at
32
<PAGE> 35
CCAi are comprised of voice, facsimile, voice mail and video teleconferencing.
All telecommunications systems have been assessed and are in material
compliance. The data communications systems employed by CCAi include local area
as well as wide area networking. The Company's data communications systems are
in material compliance.
CCAi employs two major internal business applications, which are
significant in its business operations. These applications are its financial and
payroll systems, which are commercial off-the-shelf items and include ongoing
support. Both the systems have been assessed for Year 2000 compliance and are in
material compliance. CCAI has an aggressive training program and has created an
environment in which issues and solutions relating to Year 2000 problems are
exchanged and implemented. The Year 2000 issues with regard to CCAi's facilities
have also been assessed and found to be in material compliance. There is a
combination of hardware, software and communications elements involved with
CCAi's headquarters and other offices. These are broadly grouped into physical
security systems, fire alarm and fire control systems, heating and cooling
systems, elevator systems, irrigation systems, lighting and emergency services.
Based on the information currently available, the Company does not
anticipate any significant investments and therefore, believes that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition. However,
there can be no assurance that the Company, or its clients, will not encounter
unexpected costs or disruption in their businesses as a result of the Year 2000
issue. In addition, even if the internal system of the Company are not
materially affected by the Year 2000 issue, the Company's business, operating
results and financial condition could be materially adversely affected through
disruption in the operation of the enterprises with which the Company interacts.
33
<PAGE> 36
BUSINESS
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $200 million and $2.5
billion. The Company's rapid ERP implementation services enable its clients to
reduce the length and risks of implementations, lower overall costs and achieve
early realization of ERP-related benefits.
CCAi has established numerous strategic relationships with leading software
application vendors, hardware vendors and other IT service providers, including
multinational consulting firms. The Company has a relationship with SAP dating
from 1989 and has been an SAP National Implementation Partner since 1994. In
addition, the Company is a member of SAP's National Advisory Board and was
involved in the development of ASAP, which has become an industry standard for
rapid SAP implementations. In 1997, the Company became one of SAP's first ASAP
Partners and has since become one of the first organizations to certify 100
consultants in SAP's ASAP methodology. CCAi recently received the 1998 Partner
Award of Excellence from SAP. Also, CCAi has been an Oracle Alliance Member
since 1997 and utilizes its own rapid implementation methodology, known as FIRM,
for Oracle ERP applications. The Company has recently been selected to become
one of 26 Oracle Service Providers in the United States. In addition, the
Company has been an integral member of implementation teams managed by Andersen
Consulting, EDS, Ernst & Young and SAP. In 1998, the Company was one of the
first organizations named by Compaq as a regional configuration support center
to provide rapid implementation and related services in connection with R/3PAQ,
a preconfigured ERP solution jointly developed by Compaq and SAP.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, in a resource constrained industry, it distinguishes itself
from its competitors by recruiting and retaining consultants with practical
business and relevant IT experience, which enhance the Company's ability to
identify industry-specific business issues and develop practical IT solutions to
address such issues. CCAi's consultants who perform ERP implementations
generally have 10 to 15 years of business or IT experience, including three to
five years of ERP implementation experience.
INDUSTRY BACKGROUND
Today's global business environment is rapidly changing due to increased
competition, deregulation and technological advances. In this environment,
organizations are constantly assessing the need for fundamental improvements in
such core business functions as product development, service delivery,
manufacturing, human resources, finance and accounting. To meet this need and
succeed in the marketplace, organizations are increasingly turning to IT
solutions that can be easily adapted to changing business requirements in order
to improve the quality of products and services, shorten time to market and
reduce costs. As a result, IT-related decisions have become mission critical
within an organization's overall strategy.
Recent technological advancements have caused many organizations to migrate
from legacy mainframe systems running proprietary software to open systems and
scalable client/server architectures based on personal computers using local and
wide area networks, running shared databases and packaged software applications.
For many organizations, an integral part of this migration is the implementation
of complementary, fully-integrated, enterprise-wide applications developed and
marketed by leading vendors such as SAP and Oracle. ERP applications address
enterprise-wide management needs, including product development, distribution
and logistics, finance and accounting, human resources and electronic data
interchange. ERP applications greatly enhance operational efficiencies by
enabling an organization to access and utilize information across the
enterprise. Moreover, when implemented successfully, ERP applications enable the
cost-effective redesign of critical business processes.
According to International Data Corp., a market research company, the
worldwide market for IT services is estimated to be $250 billion in 1997 and is
projected to increase to over $370 billion by 2000. According to
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<PAGE> 37
industry sources, the demand for ERP applications and services represent two of
the fastest growing segments of this market. According to Forrester Research,
Inc., a market research company, the worldwide market for ERP applications and
services totaled approximately $15 billion in 1997 and is projected to grow to
approximately $32 billion by 2000, representing a compound annual growth rate of
approximately 29%. In addition, according to industry sources, for every dollar
spent on ERP applications, four to six dollars are spent on ERP implementation
and related services. The Company believes that a large portion of this growth
is represented by middle market companies.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
In addition, ERP implementations and related services typically require a large
number of highly specialized consultants with industry and ERP application
knowledge necessary to successfully configure the application to the
organization's needs. Implementations also require ongoing modifications to
continuously support an organization's evolving business processes. Generally,
internal IT departments do not have the resources required to successfully
manage the complex task of implementing and supporting such industry specific IT
solutions. Moreover, external competitive pressures are driving many
organizations to focus on their critical business processes and to control
expenses, including those associated with IT. As a result, organizations are
increasingly using third-party service providers to implement ERP applications
in order to reduce the length and risks of implementations, lower overall costs
and achieve early realization of ERP-related benefits.
The Company believes the need for third-party ERP implementation and
related services is particularly acute among middle market organizations. Such
organizations are directing substantial resources to their ERP implementations
and are particularly sensitive to the risk of cost overruns and delays
associated with poorly managed ERP implementations. Such organizations expect
timely and substantial economic returns from their ERP investments in the form
of lower costs and early realization of ERP-related benefits. In addition, these
organizations are under growing pressure from their Fortune 500 customers to
rapidly implement compatible ERP solutions. As a result, middle market
organizations are selective in identifying third-party ERP implementation
partners. Large IT service providers, such as multinational consulting firms,
however, typically do not target middle market organizations, but instead focus
on system implementations and related consulting engagements with Fortune 500
companies and other large organizations. Conversely, most small IT service
providers lack sufficient breadth of services, ERP implementation expertise,
financial resources or industry knowledge to adequately address the needs of
middle market organizations.
THE CCAI SOLUTION
CCAi provides its clients with a broad range of highly specialized IT
solutions that enable the rapid and cost-effective implementation of ERP
applications and facilitate the early realization of ERP-related benefits. Key
elements of the CCAi solution include the following:
Rapid, Cost-Effective Implementations. The Company uses rapid SAP
implementation methodologies and experienced consultants to deliver on-time and
on-budget implementations. The Company's consultants combine both ERP
implementation expertise and industry knowledge to deliver rapid configurations
and implementations that address each client's particular needs. The Company has
focused on providing ERP implementation services since 1994 when it developed
its own rapid implementation methodology. More recently, CCAi was involved in
the development of SAP's ASAP methodology, which has become an industry standard
for rapid SAP implementations. CCAi utilizes the ASAP methodology for
predominantly all of the SAP implementations it manages, and the Company
believes, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP implementation consultants. In addition, in
1997, the Company became an Oracle Alliance Member and now utilizes its own
rapid implementation methodology, known as FIRM, for Oracle ERP implementations.
Highly Skilled Functional and Technical Consultants. The Company provides
value-added ERP implementation and related services through a combination of
highly skilled functional and technical consultants. CCAi's functional
consultants typically have 10 to 15 years of business experience in areas such
as finance, accounting, logistics, manufacturing, operations and engineering,
including three to five years of ERP implementation
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experience. CCAi's technical consultants typically have 10 to 15 years of IT
experience, including IT management, programming, systems analysis, application
development and ERP implementation. The Company assigns its consultants to
engagements that leverage their industry, implementation and technical
experience to reduce ERP implementation times, lower overall engagement costs
and increase returns on ERP investments.
Strong Strategic Relationships. CCAi has strong strategic relationships
with some of the world's leading developers of software applications, hardware
vendors, and other IT service providers, such as multinational consulting firms.
The Company's relationships with organizations such as SAP, Oracle, Microsoft
Corporation ("Microsoft"), Compaq, Data General Corp. ("Data General") and
Sterling Software, Inc. provide it with early exposure to new products, services
and enhancements in implementation methodologies and enable the Company to offer
its clients a greater variety of services. For example, the Company was named by
Compaq as one of its first regional configuration support centers to provide
rapid implementation services in connection with R/3PAQ, a preconfigured ERP
solution jointly developed by Compaq and SAP. In addition, the Company's
relationships with other IT service providers offer the Company early exposure
to evolving business processes as tested and adopted in the Fortune 500
marketplace, which in turn allows the Company to offer such services on a more
cost-effective basis to its middle market clients.
Employee Focused, Scalable Business Model. CCAi is a "company of employees"
and has adopted a scalable business model focused on supporting long-term
relationships with its employees. The Company has developed a flat, flexible and
scalable management organization designed to provide each CCAi consultant with
access to substantial administrative and practice support resources and training
and career development guidance. The Company believes it has a lower consultant
turnover rate than the industry average and accordingly is able to offer its
clients a stable team of consultants that provide superior services and greatly
enhance client satisfaction. As a result, the Company rarely utilizes
independent contractors.
Broad Range of Complementary Services. CCAi provides a broad range of
complementary services. The Company's consultants have expertise in IT services
ranging from the implementations of SAP and Oracle applications, including
interface design and development and process re-engineering, to an array of
post-implementation and platform independent services, such as network and
Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance, on-site knowledge transfer, systems
level technical support, network level technical and installation support and
remote support.
GROWTH STRATEGY
CCAi's objective is to be a leading provider of IT solutions to the middle
market by continuing to deliver rapid ERP implementations and related services.
CCAi's growth strategy emphasizes the following key elements:
Expand Base of Highly Skilled Employees. The Company believes significant
demand exists for its ERP implementation and related services. In order to meet
such demand, CCAi intends to continue to invest significant financial and
management resources to expand its base of highly skilled employees. By
continuing to promote and enhance a corporate culture that rewards creativity
and an entrepreneurial spirit, the Company believes it can recruit and retain
the employees required to meet its clients' growing demands. Key elements of the
Company's recruiting and retention package include competitive base salary and
incentive compensation. In addition, the Company's flexible and scalable
management organization is designed to provide consultants with administrative
and practice support resources as well as training and career development
guidance.
Leverage Strategic Relationships. The Company intends to leverage its
strategic relationships with its clients and leading software and hardware
vendors to maximize marketing and sales opportunities, refine rapid
implementation and pre-configured ERP methodologies and enhance its consultants'
relevant technical knowledge. For example, CCAi often participates with software
vendors such as SAP and Oracle in pre-sale activities and in the design of
appropriate ERP solutions. The Company intends to form similar relationships
with other software developers of complementary enterprise-wide applications,
including supply chain management, sales force automation and process control
automation. In addition, the Company intends to continue to leverage its
relationships with other IT service providers to pursue opportunities within
market segments that may not otherwise be available to the Company on its own.
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Broaden Geographic Presence. The Company intends to establish offices in
targeted geographic regions where CCAi has established a significant local
presence in terms of consultants, clients, or both. The Company has recently
opened offices in Atlanta, Cincinnati, Dallas, San Diego and San Francisco and
plans to open additional offices over the next 12 months. As a result of the
acquisition of BVD, the Company now has an office in Atlanta and has also
established a presence in San Diego. CCAi believes that establishing and
maintaining local offices will help the Company recruit and retain consultants
with strong ties to local markets, as well as attracting clients who prefer to
engage a services firm with a local presence. The Company also believes a local
presence in these markets will enable it to strengthen relationships with local
representatives of SAP, Oracle and other software application vendors, as well
as hardware vendors. The Company's new offices will be organized to provide
sales, marketing and recruiting support services for its consultants in the
targeted regions.
Expand Service Offerings. The Company believes it can increase revenues
from existing clients and attract new clients by selectively expanding its
service offerings. In order to capitalize on the full advantages of
enterprise-wide capabilities, organizations are seeking complementary
applications such as supply chain management, sales force automation, customer
resource management, process control automation and e-commerce. The Company
intends to offer additional value-added services to assist its clients in
adopting such applications. The Company also believes it can leverage its
relationships with industry-leading companies in the automotive, aerospace and
financial services industries to provide implementation and related services to
such companies' supply chain. For example, CCAi believes that its experience in
assisting in the implementation of SAP at GM provides CCAi with a competitive
advantage in obtaining implementations for GM's direct and indirect vendors. The
Company intends to offer prospective clients in such industries, particularly
suppliers of its clients, the latest in pre-configured ERP applications and
standardized implementation services for such industries.
Pursue Strategic Acquisitions. The Company intends to continue to pursue
strategic acquisitions that will provide additional well-trained, high-quality
professionals, new service offerings, additional industry expertise, a broader
client base and an expanded geographic presence. The Company recently completed
the acquisitions of KLA and BVD, which enabled the Company to acquire highly
skilled ERP consultants, obtain additional recruiting and sales and marketing
opportunities, gain SAP implementation expertise in the automotive,
semiconductor and financial services industries, and enhance its presence in the
Atlanta, Cincinnati and San Diego markets.
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SERVICES
CCAi's services are focused on reducing the time and cost associated with
implementing and integrating IT solutions. CCAi undertakes engagements in a
variety of roles including: (i) as the lead consulting firm on its own
engagements, (ii) as the lead consulting firm on a part of larger engagements
undertaken by multinational IT consulting firms or other large service providers
or (iii) as an integral member of a joint engagement team on such engagements.
In almost all cases, the Company provides its services on a time and materials
basis. The Company's services include:
<TABLE>
<CAPTION>
CCAI SERVICES DESCRIPTION
<S> <C> <C> <C>
Engagement Management - Develop engagement scope and budget
- Manage implementation engagements and budgets
Process Re-engineering - Analyze and prioritize current business
processes
- Focus clients on processes yielding greatest
business benefits
- Map to proven solutions and best business
practices
- Provide functional consulting expertise
Interface Design and Development - Analyze existing legacy applications
- Design database conversion interfaces
On-site Knowledge Transfer and Training - Create knowledge transfer programs for clients'
employees
- Develop customized training programs
- Provide product training
Systems Level Technical Support - Coordinate hardware and operating system
installations
- Provide system upgrades and configurations
- Integrate back-office products with ERP
solutions
Network Level Technical Support - Install and configure networks
- Manage installed networks
Programming Services - Provide services for full range of programming
languages, including Visual Basic, C, C++ and
COBOL
- Provide experts in use of various tools and
database products, including Access,
PowerBuilder, Developer 2000 and COOL:Gen
- Develop Internet-based applications utilizing
HTML, ActiveX and Java
- Support legacy applications
Outsourced/Remote Support - Offer support center based implementation teams
- Offer help-desk and upgrade support
- Provide platform outsourcing
</TABLE>
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CCAi offers its clients ERP implementation and platform independent
services. The following is a description of such services:
ERP Implementation Services. The Company provides a full range of ERP
implementation services in both rapid and traditional ERP engagements. The
Company has a relationship with SAP dating from 1989 and has been an SAP
National Implementation Partner since 1994. In addition, the Company is a member
of SAP's National Advisory Board and was involved in the development of SAP's
ASAP methodology, which has become an industry standard for rapid SAP
implementations. In 1997, the Company became one of SAP's first ASAP Partners
and has since become one of the first organizations to certify 100 consultants
in the ASAP methodology. In addition to rapid implementations, the Company also
performs traditional ERP implementation engagements, which typically are
conducted over a more extended period of time, with larger teams of consultants
and greater customization.
Rapid ERP implementation has become a central focus of CCAi's service
offerings and has been a growing part of its business since 1994. Because of the
importance of rapid ERP implementations to the Company's middle market clients,
CCAi has consultants with expertise in Oracle's FastForward methodology and
SAP's ASAP methodology. The Company utilizes its own rapid implementation
methodology, known as FIRM, for Oracle ERP applications. CCAi utilizes the ASAP
methodology for predominantly all the SAP implementations it manages and
believes that, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP consultants.
CCAi's ASAP implementations utilize SAP's five-phased ASAP approach. The
first phase, Project Preparation, provides initial planning and preparation for
SAP's R/3 implementation. The second phase, Business Blueprint, involves the
detailed documentation of the business process requirements of the client. In
the third phase, Realization, all of the business and process requirements are
implemented in two work packages. The fourth phase, Final Preparation, entails
complete testing, end-user training, system management and cut over activities
and resolution of all critical open issues. In phase five, Go Live and Support,
the project is transitioned to a live, productive operation.
Platform Independent Services. The Company provides platform independent
services both on a stand-alone basis and in conjunction with ERP
implementations. These services are designed to assist organizations in software
application design, development and maintenance across a broad spectrum of
computing environments. These services span client/server, midrange, mainframe
and Internet-based solutions. The Company's consultants and software developers
typically are engaged for part or all of the lifecycle of application
development, from requirements analysis and systems planning through coding,
testing, deployment and maintenance. The Company uses rapid prototyping and
application development tools, commercially available database software and
other standard development tools.
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The following chart details the Company's platform independent services:
<TABLE>
<CAPTION>
CCAI SERVICES DESCRIPTION
<S> <C> <C> <C>
IT Consulting - Assist organizations in reengineering business
processes
- Plan migration of clients' legacy systems to
networked, distributed, client/server
architectures
- Model core systems, including architecture,
design, gap analysis, testing and engagement
management functions
Application Development - Develop software applications in a full range
of programming languages including Visual
Basic, C, C++ and COBOL
- Design systems using rapid prototyping and
application development tools (Developer 2000
and COOL:Gen), database software (Access and
SQL Server) and standard development tools
(PowerBuilder)
- Upgrade and maintain software applications
Outsourcing, Training and Remote Support - Augment clients' internal resources with
skilled IT professionals
- Provide outsourced IT support
- Provide consulting services for Year 2000
compliance
- Support databases and operating systems
- Train clients' personnel in packaged and custom
software applications
</TABLE>
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CLIENTS AND REPRESENTATIVE ENGAGEMENTS
CCAi provides its services to a diverse group of organizations across a
broad spectrum of industries. These clients generally have substantial recurring
requirements for IT services and products and have typically maintained ongoing,
long-term relationships with the Company. The Company had no client that
represented more than 10% of its annual revenues in each of the three years
ended December 31, 1995, 1996 and 1997. For the nine months ended September 30,
1998, one of the Company's clients, Brush Wellman Inc., accounted for 11% of the
Company's revenues. The following table presents a representative list of
clients that have directly engaged CCAi to perform a variety of IT services:
<TABLE>
<CAPTION>
AEROSPACE AND AUTOMOTIVE CHEMICAL PROCESS COMMUNICATIONS
------------------------ ---------------- --------------
<S> <C> <C>
Aircraft Braking Systems Corp. Akzo Nobel N.V. GTE Corp.
Aluminum Company of America Dow Chemical Co. Reltec Corp.
General Motors Corporation Henkel Corp. Voice-Tel Enterprises, Inc.
Lockheed Martin Energy
Research Corp.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL AND PROFESSIONAL
CONSUMER PRODUCTS ENERGY SERVICES
----------------- ------ --------------------------
<S> <C> <C>
American Greetings Corp. BP America Inc. Andersen Consulting LLP
ChemRex, Inc. Lockheed Martin Energy Electronic Data Systems
Master Builders, Inc. Systems, Inc. Corporation
Ernst & Young LLP
KeyCorp
</TABLE>
<TABLE>
<CAPTION>
PHARMACEUTICAL AND
HEALTH CARE INDUSTRIAL PUBLISHING
------------------ ---------- ----------
<S> <C> <C>
Medical Mutual of Ohio Alcan Aluminum Company Antioch Publishing Co.
University Hospitals of Cleveland Brush Wellman Inc. Simon & Schuster Inc.
UCB Pharma, Inc. Continental General Tire Bantam Doubleday Dell Publishing
Pyxis Corporation Inc. Group Inc.
Eaton Corporation
Goodyear Tire & Rubber Co.
OwensCorning
Tremco, Inc.
USS/Kobe Steel Co.
</TABLE>
<TABLE>
<CAPTION>
RETAIL TECHNOLOGY SEMICONDUCTOR
------ ---------- -------------
<S> <C> <C>
Cole National Corp. Compaq Computer Burr Brown Corporation
OfficeMax, Inc. Corporation Rockwell Semiconductor Systems,
Hewlett-Packard Inc.
Company Triquint Semiconductor Inc.
SAP America, Inc.
</TABLE>
Three examples of the Company's engagements include the following:
SAP Implementation and Platform Independent Services. A manufacturer of
specialty metals and alloys, with approximately $400 million in annual revenues,
engaged CCAi to revitalize its implementation initiative. The SAP implementation
was complex because of the involvement of four service centers, two large
manufacturing plants, four specialty division sites, a mining operation and the
corporate headquarters. CCAi was engaged because of its implementation plan
using SAP's ASAP methodology and its stable team of highly-skilled consultants.
The initial implementation phase included traditional financials and logistics
modules along with more complex modules such as variant configuration, product
costing and process industry production. The client currently has five of its
facilities live on SAP and is on-time and on-budget to complete the
implementation for the entire organization during the first quarter of 1999.
CCAi also provided the client with Year 2000 compliance services with respect to
the client's AS400 legacy system.
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ASAP Implementation. CCAi successfully implemented SAP in one of the first
ASAP implementations in the Midwest. The client is a manufacturer of concrete
add mixtures and specialty sealants with approximately $250 million in annual
revenues. To support its growth strategy, the client needed to replace a
customized legacy system. CCAi was engaged to help implement SAP's R/3 on a new
HP-Unix platform. Besides the standard suite of applications, this
implementation included the new environmental, health and safety module as well
as plant maintenance, quality management and process industry production
modules. Over an eight month period, eight to 10 CCAi consultants implemented
the applications on-time and on-budget, earning a performance bonus.
ASAP Implementation. CCAi successfully implemented SAP utilizing the ASAP
implementation methodology at a Midwest publisher of non-literary products. With
revenues of over $150 million, the client installed SAP's R/3 to be better
positioned for its anticipated growth and the complexities that its legacy
systems were unable to handle. Phase one of the project was installed by a
global SAP implementation partner. The project was running past schedule and
over budget by 150%. As a result, in February 1998, CCAi was engaged to
implement the second phase of the project as the lead implementor, including an
additional plant and corporate wide financials. CCAi completed the blueprinting
phase of the project on-time and SAP R/3 was implemented on-time and on-budget,
establishing a target go-live date at the end of 1998.
HUMAN RESOURCES
CCAi's success depends in large part upon its ability to recruit, motivate
and retain highly skilled IT professionals. These professionals are in great
demand and are likely to remain a limited resource for the foreseeable future.
As of December 31, 1998, the Company had 338 employees, 276 of whom were
consultants. Upon completion of the BVD acquisition on January 12, 1999, the
Company had 398 employees, 336 of whom were consultants. The Company believes
that its employee-focused culture and organization, including its recruiting,
training, compensation, support and mentoring programs, are directly related to
its ability to recruit, train, motivate and retain its consultants.
Recruiting. CCAi dedicates significant resources to recruiting highly
motivated and skilled consultants with functional, consulting and technology
business experience. The Company recruits and employs consultants with a range
of diverse business backgrounds, including accounting, finance, engineering,
logistics, manufacturing and operations. The technical experience of the
Company's consultants is equally wide ranging, covering areas such as IT
management, programming, systems analysis and application development. CCAi
maintains a rigorous hiring program administered by its in-house recruiters.
Before employment determinations are made, applicants are screened in a highly
selective process by several levels of management for technical skills,
functional business expertise and cultural fit.
Compensation. The Company offers competitive base salary and incentive
compensation packages. As part of their compensation package, the Company's
consultants are eligible for monthly and quarterly cash bonuses and participate
in the 1997 Equity and Performance Plan. The cash bonuses earned by the
Company's consultants are based on a percentage of the revenue the individual
consultant contributes to the Company. See "Management -- Employee Benefit
Plans."
Career Development, Support and Training. The Company focuses significant
resources on the career development of its consultants. The Company has
developed a flat, flexible and scalable management organization designed to
provide each CCAi consultant with access to substantial administrative and
practice support resources and training and career development guidance. The
Company is organized so that each consultant is mentored and supervised by two
senior consultants: a Managing Associate, who focuses on the consultant's
performance and administrative needs, and an Advisory Associate, who provides
technical expertise and guidance and focuses on the consultant's training and
career development needs. Each CCAi consultant is also assigned an Advocate
responsible for assisting the consultant with travel arrangements, time and
expense reports and other administrative matters. The Company provides an
extensive training program for its consultants focused on "best of breed"
technologies and practices. The program includes in-house instruction and
external
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training often offered in conjunction with one of the software application
vendors with whom the Company maintains a strategic relationship.
Quality Assurance. CCAi has developed a formal quality assurance program
led by a full-time quality program manager. The program, which is fully
automated, measures both client and employee satisfaction and is a tool used for
employee and manager performance reviews. The quality assurance process
commences at the beginning of an engagement. The Account Executives and project
managers assigned to a particular engagement work closely with the client to
document the clients' expectations for the engagement. Subsequently, performance
audits of each consultant assigned to such engagement are conducted every 90
days. These audits are then used in each consultant's annual performance review.
CCAi recently received the 1998 Partner Award of Excellence from SAP.
SALES AND MARKETING
CCAi markets and sells its ERP implementation and related services
predominantly in the U.S. and Canada through its network of strategic
relationships and its direct sales force. The Company's sales organization
leverages CCAi's referenceable client portfolio to acquire new clients. Multiple
engagements from current or prior clients, and the reputation of CCAi's
consultants and management, are also meaningful sources of new business for the
Company.
Strategic Relationships. The Company has established a number of formal and
informal marketing relationships with leading software and hardware vendors.
CCAi derives a substantial number of leads for new engagements from such
relationships. In addition, its strategic relationships with SAP and Oracle
involve coordinated sales and marketing efforts, as well as trade show
activities specifically targeted to the ERP implementation industry. The
Company's other strategic relationships with Compaq, Data General, Microsoft and
Sterling Software, Inc. also offer opportunities for joint marketing activities.
The Company also has strategic relationships with multinational consulting firms
and other IT service providers. These relationships give CCAi access to
engagement opportunities in geographic locations and within certain market
segments that might otherwise be unavailable to the Company.
Direct Sales. The Company's direct sales force includes account executives
who are responsible for developing, maintaining and managing long-term client
and strategic relationships. The account executives are also responsible for
identifying new engagement opportunities directly with clients or through
strategic relationships. Account executives rely on continual communications
with clients, prospective clients and the organizations with which the Company
maintains strategic relationships to build CCAi's relationships and also work
with CCAi's consultants to analyze prospective client needs and demonstrate the
Company's services.
Marketing. The Company supports its sales efforts with a comprehensive
marketing program that features its alliances with SAP, Oracle and Microsoft and
includes trade shows, contributing articles to industry publications, public
relations, ERP industry meetings and conferences, the creation of collateral
marketing materials and the Company's Internet site. The program is designed to
strengthen the CCAi brand name and generate new client and strategic
relationships.
COMPETITION
The market for CCAi's services is highly competitive. CCAi believes that
its principal competitors include the internal information systems groups of its
prospective clients, IT consulting companies, systems integration firms and the
consulting divisions of software applications vendors, some of which are also
clients of the Company. Many of CCAi's competitors have longer operating
histories, possess greater industry and name recognition and have significantly
greater financial, technical and marketing resources than the Company. In
addition, there are relatively low barriers to entry into CCAi's market, and the
Company has faced, and expects to continue to face, additional competition from
new entrants into its market, including new entrants offshore who may have lower
fixed operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
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CCAi believes that the principal competitive factors in its market include
quality of service, speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes its ability to compete also depends in part on a number of competitive
factors outside its control. These include the ability of its competitors to
recruit, motivate and retain project managers and other senior professionals,
develop services competitive with the Company's services and respond to customer
needs. There can be no assurance that the Company will be able to compete
successfully with its competitors. See "Business -- The CCAi Solution" and "Risk
Factors -- Highly Competitive Information Technology Services Industry."
INTELLECTUAL PROPERTY RIGHTS
CCAi's success is dependent upon certain methodologies and other
proprietary intellectual property rights. Software developed by the Company for
a client is typically assigned to the client. CCAi also independently develops
certain foundation and application software products, or software "tools," that
remain the property of the Company. CCAi relies upon a combination of
nondisclosure and other contractual arrangements and trade secret, copyright and
trademark laws to protect its proprietary rights and the proprietary rights of
third parties from whom the Company licenses intellectual property. CCAi enters
into confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by CCAi
in this regard will be adequate to deter misappropriation of the Company's
proprietary information, that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights or
that such steps will prevent the Company's employees from using intellectual
property belonging to others. Although CCAi believes that its services do not
infringe on the intellectual property rights of others and it has all rights
necessary to utilize the intellectual property employed in its business, the
Company is subject to the risk of claims alleging infringement of third-party
intellectual property rights, including the rights of its clients. Any such
claims could require CCAi to expend significant resources in litigation, pay
damages, cease using infringing intellectual property, develop non-infringing
intellectual property or acquire licenses to the intellectual property that is
the subject of asserted infringement. See "Risk Factors -- Dependence on
Intellectual Property Rights."
PROPERTY
The Company's corporate headquarters is located in Mayfield Heights, Ohio.
Currently, the Company's lease on these premises covers approximately 27,000
square feet and expires in January, 2003, with three renewal options for five
years each. The lease provides for payments of approximately $412,000 annually.
The Founders have a 30% ownership interest in the entity that owns the Company's
corporate headquarters. The Company also leases additional facilities in
Atlanta, Cincinnati, Cleveland, Dallas and San Francisco. The Company believes
that its properties are adequate for its needs and suitable additional or
replacement space will be available when required on terms acceptable to the
Company. See "Certain Transactions -- Corporate Headquarters Lease."
LEGAL PROCEEDINGS
The Company is not involved in any legal proceeding that the Company's
management believes is likely to have a material adverse effect on the Company.
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MANAGEMENT
The directors, executive officers and other senior managers of the Company
and their respective ages as of September 30, 1998, and positions are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors and Executive Officers:
Nicholas A. Canitano...................... 50 Chairman of the Board and Chief Executive
Officer
Kenneth L. Conley......................... 54 President, Chief Operating Officer and Director
Karen M. Conley........................... 43 Executive Vice President, Treasurer and
Director
Annette M. Canitano....................... 48 Executive Vice President, Secretary and
Director
Paul A. Farmer............................ 40 Chief Financial Officer and Vice President
A. Bruce Johnston (1)(2).................. 38 Director
Kenneth T. Schiciano (1)(2)............... 36 Director
Ivan J. Winfield (1)(2)................... 64 Director
Other Senior Managers:
Jack L. Rhyne............................. 51 Vice President of Enterprise Systems
Ronnie K. Crumpler........................ 50 Vice President of Vertical Market Development
Luc P. De Groof........................... 51 Regional Vice President
Timothy S. Flowers........................ 43 Vice President of Sales and Marketing
Susan V. Lebas............................ 38 Vice President of Recruiting
Timothy M. May............................ 39 Vice President of Sales and Marketing
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
Nicholas A. Canitano is currently serving in the capacity of Chairman and
Chief Executive Officer of the Company and has held various management positions
with the Company since its inception in 1983. Prior to founding CCAi, he was
employed in a variety of information systems managerial positions.
Kenneth L. Conley is currently serving in the capacity of President and
Chief Operating Officer of the Company and has held various management positions
with the Company since its inception. Prior to founding CCAi, he was employed by
International Business Machines Corporation ("IBM") in a variety of sales and
marketing positions.
Karen M. Conley is currently serving in the capacity of Executive Vice
President and Treasurer and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by IBM as
a Marketing Representative.
Annette M. Canitano is currently serving in the capacity of Executive Vice
President and Secretary and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by a
financial services company.
Paul A. Farmer joined the Company in April 1998 as the Chief Financial
Officer and also currently serves as Vice President, Assistant Secretary and
Assistant Treasurer. Mr. Farmer is a certified public accountant and, prior to
joining CCAi, held various positions, including Chief Financial Officer, Chief
Administrative Officer, Treasurer and Secretary with TCSI Corporation, a
telecommunications software service provider, from 1993 to 1997; Vice President,
Secretary, Treasurer and Corporate Controller with Technology Solutions Company,
an IT consulting firm, from 1990 to 1993; and Senior Audit Manager with Price
Waterhouse from 1982 to 1990.
A. Bruce Johnston has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1996. Mr. Johnston
was a Vice President of TA Associates, a venture capital firm,
45
<PAGE> 48
from June 1992 to December 1995. Mr. Johnston serves as Director of Expert
Software Inc., a software company, Restrac Inc., a software company, and several
privately-held companies.
Kenneth T. Schiciano has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1995. Mr. Schiciano
was a Vice President of TA Associates from August 1989 to December 1994. Mr.
Schiciano serves as a Director of Galaxy Telecom LP, a cable television
multi-systems operator, and several privately held companies.
Ivan J. Winfield has served as a Director of the Company since August 1998
and is currently Associate Professor and Executive in Residence at Baldwin
Wallace College in Berea, Ohio. Mr. Winfield retired as a partner from Coopers &
Lybrand, L.L.P. in 1994 where he practiced since 1970. He is also a Director of
OfficeMax, Inc., a discount office product merchandiser, Rainbow Rentals, Inc.,
a consumer product merchandiser, Boykin Lodging Company, a real estate
investment trust, HMI Industries, Inc., primarily a manufacturer of consumer
products, and International Total Service, Inc., a provider of aviation contract
support services.
Jack L. Rhyne joined CCAi in 1994 as the Manager of SAP Enterprise Systems
and is currently Vice President of Enterprise Systems. Prior to joining CCAi,
Mr. Rhyne was employed by ICI Explosives Environmental Co., a chemical and
explosives company, from 1990 to 1994 in a variety of positions including as a
Technical Project Manager implementing SAP solutions at various sites in the
U.S. and Canada. Prior to 1990, Mr. Rhyne held a variety of executive positions
in IT-related companies, OEM distributors and software development
organizations.
Ronnie K. Crumpler joined CCAi in April 1998 as part of the acquisition of
KLA and is currently the Company's Vice President of Vertical Market
Development. Prior to joining CCAi, Mr. Crumpler was Chairman of the Board and
Chief Operating Officer of KLA from November 1996 to April 1998. Prior to his
employment with KLA, Mr. Crumpler held a variety of positions with several
management consulting firms, including A.T. Kearney from January 1996 to
November 1996, Enterprise Solutions Management Consulting from June 1995 to
January 1996 and Ernst & Young from June 1993 to June 1995. Prior to this, Mr.
Crumpler served as president of a private consulting firm and held a variety of
positions with Dow Chemical Co. for 19 years.
Luc P. De Groof joined CCAi in January 1999 as part of the acquisition of
BVD and is currently the Company's Regional Vice President of the Southeast. Mr.
De Groof was serving in the capacity of President and Chief Executive Officer of
BVD. Prior to founding BVD in the US, he was a Services Manager with SAP Belgium
from 1992 to 1993 and held various management positions with major Belgian IT
consulting firms, including Bureau van Dijk Computer Services, S.A. (Europe)
from January 1989 to December 1977 and SEMA Group from September 1977 to
December 1988.
Timothy S. Flowers joined CCAi in 1990 and is currently a Vice President of
Sales and Marketing. Prior to joining CCAi, Mr. Flowers was employed by
Automated Data Processing, Inc., a payroll services provider, from 1982 to 1989
in a variety of management and marketing positions, including Technical Support
and Implementation Manager for a variety of accounting software products.
Susan V. Lebas joined CCAi in 1987 and is currently the Vice President of
Recruiting. Prior to joining CCAi, Ms. Lebas served in a variety of industries
in an administrative capacity.
Timothy M. May joined CCAi in 1995 and is currently a Vice President of
Sales and Marketing for the Company. From 1994 to 1995, Mr. May was the Vice
President of Marketing for Enterprise Network Services, Inc., a network
management provider. From 1992 to 1994, Mr. May was employed as an Area Sales
Manager by Global Software, Inc., a software company. Prior to 1992, Mr. May was
employed by IBM for 10 years in a variety of marketing positions.
BOARD OF DIRECTORS
The Company's Articles of Incorporation and Code of Regulations provide
that the Company's Board of Directors be comprised of not less than six and not
more than 16 directors. The Board is currently comprised of
46
<PAGE> 49
seven members. The Company's Board of Directors is divided into two classes and
the Company intends to designate the terms of each of the Directors prior to the
consummation of the Offering. Each director holds office until his or her
successor is duly elected and qualified, or until such Director's earlier death,
resignation or removal.
Two of the Company's current directors, Messrs. Johnston and Schiciano,
were nominated and elected to the Company's Board of Directors as designees of
TA Associates in accordance with a voting agreement contained in the Stock
Purchase and Shareholders Agreement dated October 15, 1997. The voting
provisions of this agreement terminate upon consummation of the Offering.
Executive officers of the Company are appointed by, and serve at the discretion
of, the Board of Directors. Nicholas A. Canitano and Annette M. Canitano are
husband and wife, and Kenneth L. Conley and Karen M. Conley are husband and
wife. See "Certain Transactions."
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Messrs. Johnston,
Schiciano and Winfield, makes recommendations concerning the engagement of
independent public accountants, reviews the scope and results of the audit with
the independent public accountants, reviews the Company's annual operating
results with management and the independent accountants, considers the adequacy
of the internal accounting procedures and considers the effect of such
procedures on the accountants' independence.
The Compensation Committee, consisting of Messrs. Johnston, Schiciano and
Winfield, reviews and recommends the compensation arrangements for officers and
other employees, determines the options or stock to be granted to eligible
persons under the 1997 Equity and Performance Plan and takes such other actions
as may be required in connection with the Company's compensation and incentive
plans.
DIRECTOR COMPENSATION
The Code of Regulations provide that the non-employee directors may receive
compensation and expense reimbursement for serving on the Company's Board of
Directors, including committees thereof, and for other services related to a
director's membership.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation earned for the years ended December 31, 1997
and December 31, 1998 for the Company's Chief Executive Officer and the
Company's three other executive officers during 1997 and the Company's four
other executive officers during 1998 (the "Named Executive Officers"):
47
<PAGE> 50
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
---------------------------------------- RESTRICTED ALL OTHER
SALARY BONUS STOCK AWARD COMPENSATION(2)
------------------- ------------------ ------------- ---------------
NAME AND POSITION 1997 1998 1997 1998(1) 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nicholas A. Canitano............. $224,200 $248,077 $466,194 -- -- -- $4,750 $5,000
Chairman of the Board and Chief
Executive Officer
Kenneth L. Conley................ 197,579 248,077 476,486 -- -- -- 4,750 5,000
President and Chief Operating
Officer
Karen M. Conley.................. 211,352 151,923 93,959 -- -- -- 4,750 3,510
Executive Vice President and
Treasurer
Annette M. Canitano.............. 185,620 151,923 103,362 -- -- -- 4,750 4,510
Executive Vice President and
Secretary
Paul A. Farmer (3)............... -- 101,370 -- -- -- -- -- 3,089
Chief Financial Officer and Vice
President
</TABLE>
- ---------------
(1) In 1998, the Company accrued bonuses to each of the Named Executive
Officers, which will be paid in January 1999, as follows: Nicholas A.
Canitano -- $125,000; Kenneth L. Conley -- $125,000; Karen M.
Conley -- $75,000; Annette M. Canitano -- $75,000; and Paul A.
Farmer -- $82,500.
(2) Represents matching payments under the Company's 401(k) Plan.
(3) Mr. Farmer joined the Company in April 1998. In May 1998, Mr. Farmer was
issued 76,950 shares of restricted Common Stock under the 1997 Equity and
Performance Plan. On each anniversary of the grant date, one third of Mr.
Farmer's restricted stock will vest. Mr. Farmer paid the purchase price for
the restricted stock by executing and delivering to the Company a promissory
note in the principal amount of $359,356. No dividends will be paid on these
shares of restricted Common Stock.
EMPLOYEE BENEFIT PLANS
1997 Equity and Performance Incentive Plan. Upon the consummation of the
Offering, the Company will have an aggregate of 2,072,750 shares of Common Stock
reserved for issuance under the 1997 Equity and Performance Plan, which may be
granted to directors, consultants, key employees and officers of the Company.
The 1997 Equity and Performance Plan is administered by the Compensation
Committee and provides for awards, including restricted shares of Common Stock,
deferred shares of Common Stock and options to purchase shares of Common Stock,
including Incentive Stock Options ("ISOs") (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")).
The exercise price for options may be paid as follows: (i) in cash or check
payable to the Company; (ii) by actual or constructive transfer to the Company
of Common Stock owned by the optionee having a value at the time of exercise
equal to the option price and which have been held by the optionee for at least
six months; or (iii) by a combination of such methods of payment. In the case of
a stock option that is not an ISO, the exercise price per share of Common Stock
may be less than the fair market value per share of Common Stock on the date of
the grant. Any grant may provide for payment of the option price in
installments, upon terms determined by the Board of Directors, including,
without limitation, pursuant to a promissory note. ISOs to be granted under the
1997 Equity and Performance Plan must be exercised within 10 years from the date
of grant. Each option will become exercisable over a period of time as the
optionee provides services to the Company; provided, however, that each option
will accelerate in the event of a sale of a majority of the outstanding Common
Stock of the Company, a sale of substantially all of the Company's assets or
other similar transactions and events as determined by the Board of Directors of
the Company (a "Change in Control"). Each grant or sale of restricted stock will
vest over a period of not less than two years to be determined by the Board of
Directors at the date of the grant or issuance; provided, however, that the
Board of Directors of the Company may accelerate vesting upon a Change in
Control or public offering. Each grant or sale of deferred shares of Common
Stock entitles the
48
<PAGE> 51
recipient to receive Common Stock (or equivalent in other property, including
cash) upon the fulfillment of specified objectives over a period of not less
than one year, except, if the Board of Directors so determines, each payment may
be accelerated in the event of a Change in Control or public offering.
The Board of Directors can amend or terminate the 1997 Equity and
Performance Plan at any time. In the event of any change in the capital
structure of the Company, such as a stock dividend or stock split, the Board of
Directors may make equitable adjustments to outstanding unexercised awards and
to the provisions of the 1997 Equity and Performance Plan so that the net value
of the award is not changed. If the Company becomes a party to a merger,
reorganization, liquidation or similar transaction, the Board of Directors may
make such arrangements it deems advisable regarding outstanding awards, such as
substituting new awards for outstanding awards, assuming outstanding awards or
terminating or paying for outstanding awards.
No awards were made under the 1997 Equity and Performance Plan in 1997, and
none were outstanding at December 31, 1997. At September 30, 1998, options for
350,300 shares were outstanding under the 1997 Equity and Performance Plan.
Currently, no grants or issuances under the 1997 Equity and Performance
Plan have been made to executive officers other than Paul A. Farmer. On May 11,
1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock under the
1997 Equity and Performance Plan for a purchase price of $4.67 per share. See
"Certain Transactions."
401(k) Plan. The Company maintains a 401(k) profit sharing and defined
contribution plan (the "401(k) Plan"). All employees of the Company who have
reached 21 years of age and have completed six months of service are eligible to
participate in the 401(k) Plan, pursuant to which each participant may
contribute up to 15% of eligible compensation (up to a statutorily prescribed
annual limit of $10,000 in 1998). The Company currently matches contributions
made by employees to the 401(k) Plan. The amount of the match is determined at
the discretion of the Company. A profit sharing contribution may also be made
each year at the discretion of the Company. All amounts contributed by employee
participants and earnings on these contributions are fully vested at all times.
Employee participants may elect to invest their account balances in various
established funds. During 1997, each of the Named Executive Officers
participated in the 401(k) Plan as indicated in the Summary Compensation Table.
1998 Employee Stock Purchase Plan. In December 1998, the Company
established the Purchase Plan and reserved an aggregate of 500,000 shares of
Common Stock for issuance under the Purchase Plan. Currently, no shares of
Common Stock have been issued under the Purchase Plan. The Purchase Plan will be
intended to qualify under Section 423 of the Code and will permit eligible
employees of the Company whose customary employment is a minimum of 20 hours per
week to purchase shares of Common Stock through payroll deductions of up to 10%
of the employee's gross regular earnings on an annualized basis, provided that
no employee may purchase more than 5,000 shares of Common Stock on any Purchase
Date (as defined in the Purchase Plan), with the first offering period
commencing on the first day of the first quarter following the Offering. The
price of shares of Common Stock purchased under the Purchase Plan will be 85% of
the fair market value of the Common Stock (as calculated in the Purchase Plan).
The Purchase Plan will be administered by the Compensation Committee. The Board
of Directors will be able to amend or terminate the Purchase Plan at any time.
Other. The Company maintains customary health and benefit plans for its
employees. The Company does not maintain any defined benefit pension plans.
BONUSES
The Company grants annual bonuses to its executive officers. These bonuses
are determined by the Compensation Committee of the Board of Directors of the
Company and are based on the attainment of individual performance targets and
the financial performance of the Company.
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<PAGE> 52
CERTAIN TRANSACTIONS
The 1997 Transactions. In July 1997, the Company repurchased 509,130 shares
of Common Stock owned by Joseph Minadeo for an aggregate amount of $171,429. Mr.
Minadeo is the brother of Annette M. Canitano, the Company's Executive Vice
President, Secretary and a Director, and was an original investor in the
Company.
In October 1997, the Company entered into a series of transactions
(collectively, the "1997 Transactions") wherein TA Associates, including the
following affiliated groups: TA/Advent VIII L.P., Advent Atlantic and Pacific
III, L.P. and TA Venture Investors Limited Partnership (collectively, the "TA
Investors"), and McDonald & Company Securities, Inc., including the following
affiliated groups: McD Venture Capital Fund, L.P. and GHK Investments, L.L.C.
(collectively, the "McDonald Investors") purchased a total of 250,400 shares of
Convertible Preferred Stock and 1,350,000 shares of Common Stock from the
Company for an aggregate purchase price of $17.5 million ($15.9 million, net of
$1.6 million of transaction expenses). Immediately prior to the consummation of
the Offering, the Convertible Preferred Stock sold by the Company in the 1997
Transactions will be converted into 2,504,000 shares of Common Stock and 250,400
shares of Redeemable Preferred Stock. Upon consummation of the Offering, the
Redeemable Preferred Stock will be redeemed for $15.8 million, using a portion
of the net proceeds from the Offering. See "Use of Proceeds."
As part of the 1997 Transactions and under the terms of the Stock Purchase
and Shareholders Agreement, dated October 15, 1997 (the "1997 Agreement"), among
TA Investors, McDonald Investors, the Founders, NAC Enterprises, Inc., CKCK
Enterprises, Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust and the Company, each of TA Investors and McDonald
Investors was granted certain demand and "piggyback" registration rights and
certain other preferential rights, including: (i) rights to participate in sales
of additional shares; and (ii) rights of first refusal and co-sale involving the
Company's securities. In addition, TA Investors, McDonald Investors, the Company
and the Founders entered into a voting agreement whereby the parties agreed to
vote all shares of the Company's capital stock held by them (and any other
securities over which the Founders exercise voting control) as to cause the
Board of Directors of the Company to include Messrs. Johnston and Schiciano (so
long as each remains in the employ of TA Associates) and one independent
director nominated by TA Associates. Except for the registration rights granted
to each of TA Investors and McDonald Investors, the preferential rights
contained in the 1997 Agreement terminate upon consummation of the Offering.
Also as part of the 1997 Transactions, the Company repurchased an aggregate
of 1,350,000 shares of Common Stock for $15.9 million from the Founders,
including: (i) 675,000 shares of Common Stock from NAC Enterprises, Inc., of
which the Annette M. Canitano Trust and the Nicholas A. Canitano Trust,
affiliates of Mr. and Mrs. Canitano, directors of the Company, are the sole
shareholders; (ii) 610,000 shares of Common Stock from CKCK Enterprises, Inc.,
of which the Karen M. Conley Trust and the Kenneth L. Conley Trust, affiliates
of Mr. and Mrs. Conley, directors of the Company, are the sole shareholders;
(iii) 32,500 shares of Common Stock from the Kenneth L. Conley Charitable
Remainder Trust, a charitable remainder trust established by Kenneth L. Conley,
a director of the Company; and (iv) 32,500 shares of Common Stock from the Karen
M. Conley Charitable Remainder Trust, a charitable remainder trust established
by Karen M. Conley, a director of the Company.
Upon the consummation of the 1997 Transactions, the Company paid Mr.
Minadeo an additional $205,000 in accordance with the terms of certain change of
control provisions contained in the documentation of the July 1997 repurchase of
shares of Common Stock from Mr. Minadeo.
Employment Agreement. The Company is party to an employment agreement with
Paul A. Farmer, pursuant to which Mr. Farmer serves as Chief Financial Officer
and Vice President of the Company. The agreement provides for an annual base
salary of $165,000, an annual bonus up to a maximum of 50% of base salary to be
determined by the Compensation Committee, benefits under the Company's benefit
plans and payment of all reasonable relocation costs incurred by Mr. Farmer.
Although Mr. Farmer's employment may be terminated at any time, the agreement
also provides that upon the termination of Mr. Farmer's employment with the
Company, other than for cause or retirement, the Company shall pay Mr. Farmer an
amount equal to the greater of six months' salary, or the value of his unvested
restricted stock at the time of the termination. Mr. Farmer is also subject to
noncompetition, nondisclosure and nonsolicitation covenants.
50
<PAGE> 53
In May 1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock
under the 1997 Equity and Performance Plan. On each anniversary of the grant
date, one third of Mr. Farmer's restricted stock will vest. Mr. Farmer paid the
purchase price for the restricted stock by executing and delivering to the
Company a promissory note (the "Note") in the principal amount of $359,356. The
Note is due and payable on May 11, 2004, and accrues interest on the unpaid
principal amount at 6% per annum until the Note is paid in full. Accrued
interest is payable in June and December of each year during the term of the
Note, including May 11, 2004. The Note also becomes due and payable six months
after any date on which Mr. Farmer ceases to be employed for any reason by the
Company. See "Management -- Employee Benefit Plans."
Employment of Related Individuals. Brian Conley, Kenneth L. Conley's son,
who is an employee working as an ERP implementation consultant to the Company's
clients, received cash compensation of $125,400 in 1997 and $133,000 in 1998 as
well as options to purchase 1,500 shares of Common Stock under the 1997 Equity
and Performance Plan. Linda Neumann, Karen M. Conley's sister, who serves as the
Company's Controller, received cash compensation of $88,200 in 1997 and $102,500
in 1998 as well as options to purchase 2,000 shares of Common Stock under the
1997 Equity and Performance Plan. Donald Neumann, Linda Neumann's husband, who
is an employee working as an ERP implementation consultant with the Company to
the Company's clients, received cash compensation of $36,500 in 1997 and $42,300
in 1998 as well as options to purchase 1,500 shares of Common Stock under the
1997 Equity and Performance Plan.
Loans. Various other loans have periodically been made by the Company to
the Founders. In April 1997, the Company made loans to Nicholas A. and Annette
M. Canitano and Kenneth L. and Karen M. Conley each in an amount of $44,500. In
March 1998, the Company made loans to Mmes. Canitano and Conley, each in an
amount of $64,092. Each such loan bore interest at 10% and such loans have been
repaid in full.
Corporate Headquarters Lease. The Company leases its corporate headquarters
in Mayfield Heights, Ohio, from an entity that is 30% owned by the Founders with
rental payments of approximately $412,000 annually. The term of the lease, which
commenced in January 1998, expires in January 2003 and includes three five-year
renewal options. The Company believes that the terms of the lease are no less
favorable to the Company than those that could have been obtained from an
independent third party lessor at the time the lease was executed. See
"Business -- Property."
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<PAGE> 54
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of January 12,
1999, after giving effect to the conversion of Convertible Preferred Stock into
shares of Common Stock, by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock; (ii) each
of the Company's executive officers; (iii) each director of the Company; and
(iv) all directors and executive officers of the Company as a group. The address
of each of the officers and directors of the Company is c/o Conley, Canitano &
Associates, Inc., CCAi Renaissance Centre, 5800 Landerbrook Drive, Mayfield
Heights, Ohio 44124.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (1) NUMBER AFTER OFFERING
--------------------- OF SHARES ---------------------
NUMBER BEING NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT OFFERED OF SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Nicholas A. Canitano (2)............... 1,749,000 18.2% -- 1,749,000 12.8%
Kenneth L. Conley (3).................. 1,697,750 17.6 -- 1,697,750 12.5
Karen M. Conley (4).................... 1,397,750 14.5 -- 1,397,750 10.3
Annette M. Canitano (5)................ 1,349,000 14.0 -- 1,349,000 9.9
Paul A. Farmer (6)..................... 76,950 * -- 76,950 *
A. Bruce Johnston (7).................. 8,960 * -- 8,960 *
Kenneth A. Schiciano (8)............... 10,560 * -- 10,560 *
TA Associates, Inc. (9)................ 3,743,890 38.9 971,430 2,772,460 20.3
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
McDonald Investments Inc.(10).......... 110,110 1.1 28,570 81,540 *
Other Selling Shareholders as a group
( persons)(11)...................... -- -- --
All executive officers and directors as
a group (7 persons).................. 5,464,970 56.8% -- 5,464,970 40.1%
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1.0% of the outstanding Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of stock options or exercisable within 60 days hereof are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except for shares held jointly with a person's spouse
or subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
the sole voting and disposition power with respect to all shares of Common
Stock shown as beneficially owned by such shareholder.
(2) Nicholas A. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which he is trustee and has sole power of voting
and for which Annette M. Canitano, his wife, has sole power of disposition
and 400,000 shares held in trusts for which he is trustee and has sole
power of disposition. Except as noted, the shares shown do not include
shares owned by Annette M. Canitano.
(3) Kenneth L. Conley has beneficial ownership of 300,000 shares of Common
Stock held in trust for which he is trustee and has sole power of voting
and for which Karen M. Conley, his wife, has sole power of disposition,
400,000 shares held in trusts for which he has sole power of disposition
and 125,000 shares held in trust for which he has shared power of
disposition with Karen M. Conley. Except as noted, the shares shown do not
include shares owned by Karen M. Conley.
(4) Karen M. Conley has beneficial ownership of 300,000 shares of Common Stock
held in trust for which she is trustee and has sole power of disposition
and 125,000 shares held in trusts for which she has shared power of
disposition with Kenneth L. Conley. Except as noted, the shares shown do
not include shares owned by Kenneth L. Conley.
(5) Annette M. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which she is trustee and has sole power of
disposition and for which Nicholas A. Canitano, her husband, has sole power
of voting. Except as noted, the shares shown do not include shares owned by
Nicholas A. Canitano.
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<PAGE> 55
(6) All shares owned by Mr. Farmer are restricted Common Stock issued pursuant
to the Company's 1997 Equity and Performance Plan. See "Certain
Transactions."
(7) Includes 8,960 shares of Common Stock beneficially owned by Mr. Johnston
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Johnston
disclaims beneficial ownership.
(8) Includes 10,560 shares of Common Stock beneficially owned by Mr. Schiciano
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Schiciano
disclaims beneficial ownership.
(9) Includes shares of Common Stock beneficially owned by affiliates of TA
Associates as follows: (i) 61,980 shares held by TA Venture Investors
Limited Partnership; (ii) 3,100,070 shares held by TA/Advent VIII L.P.; and
(iii) 581,840 shares held by Advent Atlantic and Pacific III, L.P.
(10) Includes (i) 77,090 shares of Common Stock held by McDonald Investments
Inc.; (ii) 22,020 shares held by McD Venture Capital Fund, L.P., an
affiliate of McDonald Investments Inc.; and (iii) 11,000 shares held by GHK
Investments, L.L.C., an affiliate of McDonald Investments Inc.
(11) Each other Selling Shareholder beneficially owns less than 1% of the
outstanding shares of Common Stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the consummation of the Offering, the Articles of Incorporation will
provide that the Company may issue up to 45,000,000 shares of Common Stock, and
(i) 500,800 shares of preferred stock, par value $.01 per share, (ii) 5,000,000
shares of non-voting "preferred stock", no par value, and (iii) 5,000,000 shares
of voting preferred stock, no par value (collectively, the "Preferred Stock").
As of January 12, 1999, there were 7,122,950 shares of Common Stock issued and
outstanding which were held by 31 shareholders of record, and there were 250,400
shares of Convertible Preferred Stock issued and outstanding which were held by
six shareholders of record.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the shareholders and do not
have preemptive rights. The Articles of Incorporation do not provide for
cumulative voting for the election of directors. 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. All outstanding shares of Common Stock are, and the Common
Stock to be sold in the Offering, when issued and paid for, will be, fully paid
and nonassessable. In the event of any liquidation, dissolution or winding-up of
the affairs of the Company, holders of Common Stock are 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 liquidation payments
to holders of outstanding shares of Preferred Stock. See "Dividend Policy" and
"Description of Capital Stock -- Ohio Law and Certain Articles of Incorporation
and Code of Regulations Provisions; Anti-Takeover Effects."
PREFERRED STOCK
Shares of Preferred Stock may be issued by the Company in series with such
preferences and designations as the Board of Directors of the Company may from
time to time determine. The Board of Directors of the Company can, without
shareholder approval, issue Preferred Stock with voting, dividend, liquidation
and conversion rights, which could dilute the voting strength of the holders of
the Common Stock and may assist management in impeding a takeover or attempted
change in control. In connection with the 1997 Transactions, the Board of
Directors of the Company created the Convertible Preferred Stock. Immediately
prior to consummation of the Offering, the 250,400 issued and outstanding shares
of Convertible Preferred Stock will automatically convert into 2,504,000 shares
of Common Stock and 250,400 shares of Redeemable Preferred Stock. Upon
consummation of the Offering, all 250,400 then issued and outstanding shares of
Redeemable Preferred Stock will immediately be redeemed by the Company for
approximately $15.8 million using a portion
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<PAGE> 56
of the net proceeds of the Offering. As a result, subsequent to the Offering,
there will be no shares of Preferred Stock outstanding. See "Use of Proceeds."
CERTAIN ARTICLES OF INCORPORATION AND CODE OF REGULATIONS PROVISIONS AND OHIO
LAW; ANTI-TAKEOVER EFFECTS
Certain Articles of Incorporation and Code of Regulations Provisions. The
Articles of Incorporation provide for a classified Board of Directors. Other
than those who may be expressly elected by virtue of the terms of any preferred
stock designation, the directors are divided into two classes. The directors are
elected for terms that are staggered so that the terms of one-half of the
directors expire each year. Except as may be provided in any preferred stock
designation, the Code of Regulations do not permit the shareholders to remove a
director.
The above-described provisions of the Articles of Incorporation and Code of
Regulations may have certain anti-takeover effects. Such provisions, in addition
to the provisions described below and the possible issuance of Preferred Stock
discussed above, may make it more difficult for other persons, without the
approval of the Company's Board of Directors, to make a tender offer or
acquisitions of substantial amounts of the Common Stock or to launch other
takeover attempts that a shareholder might consider to be in such shareholder's
best interests.
Ohio Law. The Company is subject to several anti-takeover provisions under
Ohio law that apply to Ohio public corporations. These provisions make it more
difficult for other persons, without the approval of the Company's Board of
Directors, to make a tender offer or acquisitions of substantial amounts of the
Common Stock or to launch other takeover attempts that a shareholder might
consider in such shareholder's best interests.
Ohio Control Share Acquisition Act. Under Ohio's Control Share Acquisition
Act (the "Acquisition Act"), any "control share acquisition" of an Ohio public
corporation may be made only with the prior authorization of the shareholders of
the corporation in accordance with the provisions of the Acquisition Act. A
"control share acquisition" is defined under the Acquisition Act to mean the
acquisition, directly or indirectly, by any person of shares of a public
corporation that, when added to all other shares of the corporation such person
owns, would entitle such person, directly or indirectly, to exercise voting
power in the election of directors within the following ranges: more than 20%,
more than 33% and a majority.
The Acquisition Act further specifies that the shareholders of the
corporation must approve the proposed control share acquisition by certain
percentages at a special meeting of shareholders at which a quorum is present.
In order to comply with the Acquisition Act, the acquiring person may only
acquire the stock of the Ohio public corporation upon the affirmative vote of:
(i) a majority of the voting power of the corporation that is represented in
person or by proxy at the special meeting; and (ii) a majority of the voting
power of the corporation that is represented in person or by proxy at the
special meeting, excluding those shares of the corporation deemed to be
"interested shares" for purposes of the Acquisition Act.
"Interested shares" are defined under the Acquisition Act to mean shares in
respect of which the voting power is controlled by any of the following persons:
(i) an acquiring person; (ii) any officer of the Ohio public corporation; and
(iii) any employee who is also a director of the corporation. "Interested
shares" also include shares of the corporation that are acquired by any person
after the date of the first public disclosure of the proposed acquisition and
prior to the record date for the applicable special meeting, if either (i) the
aggregate consideration paid by such person, and any person acting in concert
with him or her, for such shares of the Ohio public corporation exceeds $250,000
or (ii) the number of shares acquired by such person, and any person acting in
concert with him or her, exceeds 1.5% of the outstanding shares of the
corporation, or if shares are acquired after the record date for the applicable
special meeting accompanied by the voting power for such special meeting.
Ohio Merger Moratorium Act. The Company is also subject to Ohio's Merger
Moratorium Act. The Merger Moratorium Act generally prohibits a wide range of
business combinations and other transactions (including mergers, consolidations,
asset sales, loans, disproportionate distributions of property and
disproportionate issuances or transfers of shares or rights to acquire shares)
between an Ohio corporation and a person that owns beneficially (within the
meaning of the Securities Act), alone or with other related parties, shares
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<PAGE> 57
representing at least 10% of the voting power of the corporation (an "Interested
Shareholder") for a period of three years after such person becomes an
Interested Shareholder, unless, prior to the date that the Interested
Shareholder became such, the directors approve either the transaction or the
acquisition of the corporation's shares that resulted in the person becoming an
Interested Shareholder. Following the three-year moratorium period, the
corporation may engage in covered transactions with an Interested Shareholder
only if, among other things, (i) the transaction receives the approval of the
holders of two-thirds of all the voting shares and the approval of the holders
of a majority of the voting shares held by persons other than an Interested
Shareholder or (ii) the remaining shareholders receive an amount for their
shares equal to the higher of the highest amount paid in the past by the
Interested Shareholder for the corporation's shares or the amount that would be
due the shareholders if the corporation were to dissolve.
Ohio Control Bid Statute. The Company is also subject to Ohio's Control Bid
Statute. Ohio's Control Bid Statute provides that no offeror may make a "control
bid" pursuant to a tender offer or a request or invitation for tenders unless,
on the day the offeror commences a control bid, it files with the Ohio Division
of Securities (the "Securities Division") and the target company certain
information in respect of the offeror, his or her ownership of the corporation's
shares and his or her plans for the corporation (including, among other things,
plans to terminate employee benefits plans, close any plant or facility or
reduce the work force). If the Securities Division determines that the offeror's
disclosures are inadequate, it must act within five calendar days from the date
of the offeror's filing to issue a suspension order. If a bid is suspended, a
hearing must be held within 10 calendar days from the date of the Securities
Division's suspension order. The hearing procedure must be completed no later
than 14 calendar days after the date on which the suspension was imposed.
A "control bid" under Ohio's Control Bid Statute is defined as the purchase
of or an offer to purchase an equity security of an issuer with certain
connections to Ohio from a resident of Ohio if (i) after the purchase of such
security, the offeror would directly or indirectly be the beneficial owner of
more than 10% of any class of the issued and outstanding equity securities of
the issuer or (ii) the offeror as the issuer, there is a pending control bid by
a person other than the issuer and the number of issued and outstanding shares
of the corporation will be reduced by more than 10%.
Fiduciary Duty Statute. Ohio law also provides for the right of the Board
of Directors to consider the interests of various constituencies, including
employees, customers, suppliers and creditors of the Company, as well as the
communities in which the Company is located, in addition to the interest of the
Company and its shareholders, in discharging their duties in determining what is
in the Company's best interests.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Generally, a director of an Ohio corporation will not be found to have
violated his fiduciary duties unless there is proof by clear and convincing
evidence that the director has not acted in good faith, in a manner such
director reasonably believes to be in or not opposed to the best interests of
the corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In general, a director is liable
for monetary damages for any action or omission as a director only if it is
approved by clear and convincing evidence that such act or omission was
undertaken either with deliberate intent to cause injury to the corporation or
with reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation must indemnify its directors, as well as its
offices, employees and agents, against expenses where any such person is
successful on the merits or otherwise in defense of an action, suit or
proceeding. A corporation may indemnify such persons in actions, suits and
proceedings (including derivative suits) if the individual has acted in good
faith and in a manner that such director believes to be in or not opposed to the
best interests of the corporation. In the case of a criminal proceeding, the
individual must also have no reasonable cause to believe that his or her conduct
was unlawful. Indemnification may be made only if ordered by a court or if
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such a determination may be made by a majority of the
disinterested directors, by independent legal counsel or by the shareholders. In
order to obtain reimbursement for expenses in advance of the final disposition
of any action, the individual must provide an undertaking to repay the amount if
it is ultimately determined that such director is not entitled to be
indemnified.
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<PAGE> 58
In general, Ohio law requires that all expenses, including attorneys fees,
incurred by a director in defending any action, suit or proceeding to be paid by
the corporation as they are incurred in advance of final disposition if the
director agrees to repay such amounts if it is proved by clear and convincing
evidence that his action or omission was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation and if the director reasonably cooperates with the
corporation concerning the action, suit or proceeding.
The Code of Regulations provides for indemnification, which is coextensive
with that permitted under Ohio law. These provisions do not alter a director's
liability under federal securities laws. The Code of Regulations authorizes the
Company to enter into indemnification agreements with each present and future
director and such officers, employees or agents as specified in the Code of
Regulations. The Code of Regulations also authorizes the Company to enter into
agreements to indemnify such persons to the maximum extent permitted by
applicable law.
REGISTRATION RIGHTS
Under the terms of the 1997 Agreement, at any time after the earlier of
December 31, 1998 or the effective date of an initial public offering by the
Company, the holders of at least 50% of registrable securities (as defined in
the 1997 Agreement), including any shares of Common Stock or any securities
convertible into shares of Common Stock, have the right to require the Company
to register under the Securities Act any or all of such registrable securities,
subject to the conditions and limitations contained in the 1997 Agreement. In
addition, under the terms of the 1997 Agreement, each of TA Investors and
McDonald Investors was granted demand registration rights once the Company
becomes eligible to register securities on Form S-3 under the Securities Act,
subject to conditions and limitations contained in the 1997 Agreement. Also,
each of TA Investors and McDonald Investors was granted certain "piggyback"
registration rights, subject to the conditions and limitations contained in the
1997 Agreement, at any time that the Company undertakes a public offering.
In connection with the KLA acquisition, the Company entered into Warrant
Agreements, dated April 3, 1998 (the "1998 Warrant Agreements") with each of
Ronnie Crumpler, Gary Levey and Anthony Kelly (individually, a "Warrant Holder"
and collectively, the "Warrant Holders") granting the Warrant Holders the right
to purchase an aggregate of 195,266 shares of Common Stock at $0.001 per share.
Upon consummation of the Offering, the Warrants will be exercisable until April
2008. In addition, under the 1998 Warrant Agreements, each Warrant Holder was
granted certain "piggyback" registration rights, subject to the conditions and
limitations contained in the 1998 Warrant Agreements, at any time the Company
undertakes a public offering.
Subsequent to the KLA acquisition, the Company granted the KLA Options to
certain employees of the Company formerly employed by KLA (individually, an
"Option Holder" and collectively, the "Option Holders"). Pursuant to the Option
Agreements (the "Option Agreements" and together with the 1997 Agreement and the
1998 Warrant Agreements, the "Registration Agreements"), the Option Holders were
granted options to purchase an aggregate of 64,734 shares of Common Stock at a
price of $0.001 per share. Upon the consummation of the Offering, the options
will be exercisable. In addition, each Option Holder was granted certain
"piggyback" registration rights, subject to the conditions and limitations
contained in the Option Agreements, at any time the Company undertakes a public
offering.
Pursuant to the Registration Agreements, but subject to the conditions and
limitations set forth in such agreements, the Company is required to: (i) pay
registration expenses (exclusive of underwriting discounts and commissions) in
connection with certain registrations of the Company's securities; (ii) use its
best efforts to effect such registrations; and (iii) indemnify TA Investors,
McDonald Investors, the Warrant Holders and the Option Holders, including
certain of their affiliates, against certain liabilities, including liabilities
under the Securities Act, in connection with the registration of their shares of
Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is National
City Bank in Cleveland, Ohio.
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<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have an aggregate of
13,626,950 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants to purchase shares of Common Stock. Of these shares of Common Stock,
the 5,000,000 shares sold in the Offering are freely tradeable without
restriction or further registration under the Securities Act, except that any
Shares held by "affiliates" of the Company, as that term is defined in Rule 144,
may generally be sold only in compliance with the limitations of Rule 144
described below.
SALES OF RESTRICTED SHARES
The remaining 8,626,950 shares of Common Stock are deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Subject to the Lock-Up Agreements
described below, additional shares of Common Stock will be available for sale in
the public market (subject in the case of shares held by affiliates to
compliance with certain volume restrictions) as follows: (i) 8,326,950 shares
will be eligible for sale upon the expiration of the Lock-up Agreements 180 days
after the date of this Prospectus, (ii) 150,000 shares will be eligible for sale
after January 2000; and (iii) 150,000 shares will be eligible for sale after
January 2001.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 133,000 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person, who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations described above.
An employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits non-affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this Prospectus.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common
Stock, and no precise prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares of Common
Stock for sale will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sale of substantial amounts of Common Stock in the
public market could adversely effect prevailing market prices and could impair
the Company's future ability to raise capital through the sale of its equity
securities.
LOCK-UP AGREEMENTS
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to be settled
by the delivery of Common Stock, or such other securities, in cash or otherwise)
for a period of
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<PAGE> 60
180 days after the date of this Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. In addition, during such
period, the Company has also agreed not to file any registration statement with
respect to, and each of its executive officers, directors and certain
shareholders of Company (including the Selling Shareholders) has agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without Donaldson, Lufkin & Jenrette Securities
Corporation's prior written consent.
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<PAGE> 61
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
January , 1999 (the "Underwriting Agreement"), the Underwriters named
below, who are represented by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), BancBoston Robertson Stephens Inc., Lehman Brothers Inc.
and McDonald Investments Inc. (collectively, the "Representatives"), have
severally agreed to purchase from the Company the respective number of shares of
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
Lehman Brothers Inc.........................................
McDonald Investments Inc....................................
Total............................................. 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company and certain shareholders of the Company have granted to the
Underwriters an option, exercisable within 30 days after the date of this
Prospectus, to purchase, from time to time, in whole or in part, up to an
aggregate of 750,000 additional shares of Common Stock at the initial public
offering price less underwriting discounts and commissions. The Underwriters may
exercise such option solely to cover overallotments, if any, made in connection
with the Offering. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase its pro rata portion of such additional shares based on such
Underwriter's percentage underwriting commitment as indicated in the preceding
table.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
McDonald Investments Inc., one of the Representatives, and one of its
affiliates, are among the Selling Shareholders.
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any
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<PAGE> 62
swap or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to be settled
by the delivery of Common Stock, or such other securities, in cash or otherwise)
for a period of 180 days after the date of this Prospectus without the prior
written consent of DLJ. In addition, during such period, the Company has also
agreed not to file any registration statement with respect to, and each of its
executive officers, directors and certain shareholders of Company (including the
Selling Shareholders) has agreed not to make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the prospects for future earnings of the Company,
the recent market prices of securities of generally comparable companies and the
general condition of the securities markets at the time of the Offering.
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The legality of the issuance of the Shares offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain
legal matters will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, New York, New York.
EXPERTS
The Financial Statements of the Company as of December 31, 1996, December
31, 1997 and September 30, 1998 and for each of the years in the three year
period ended December 31, 1997 and for the nine months ended September 30, 1998
included herein and elsewhere in the Registration Statement and the Financial
Statements of KLA as of December 31, 1996 and December 31, 1997 and for each of
the years in the two year period ended December 31, 1997 included herein and
elsewhere in the Registration Statement, have been included herein in reliance
upon the reports of PricewaterhouseCoopers LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of such firm as
experts in accounting and auditing.
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<PAGE> 63
The Financial Statements of BVD as of December 31, 1996, December 31, 1997
and September 30, 1998 and for each of the years in the two year period ended
December 31, 1997 and for the nine months ended September 30, 1998 included
herein and elsewhere in the Registration Statement have been included herein in
reliance upon the reports of Langford de Kock & Co., independent certified
public accountants, appearing elsewhere herein, and upon the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission Registration Statements on Form
S-1 under the Securities Act, with respect to the Shares. This Prospectus does
not contain all of the information set forth in the Registration Statements,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statements,
including the exhibits and schedules thereto. Statements contained in this
Prospectus as to the 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
Statements, reference is made to such exhibit for a more complete description of
the matters involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statements, including the exhibits
and schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of
either of them or any part thereof may be obtained from such office, upon
payment of the fees prescribed by the Commission. The Registration Statements,
including the exhibits and schedules thereto, are also available on the
Commission's Web site at http://www.sec.gov.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy materials and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Company's Common Stock is listed in the Nasdaq
National Market, and such reports, proxy materials and other information can
also be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20549.
Copies of reports, proxy and information statements and other information
regarding registrants that file electronically are available on the Commission's
Web site.
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CONLEY, CANITANO & ASSOCIATES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REGISTRANT
Conley, Canitano & Associates, Inc.
Report of Independent Certified Public Accountants........ F-2
Balance Sheets -- December 31, 1996 and 1997, September
30, 1998 and pro forma September 30, 1998
(unaudited)............................................ F-3
Statements of Income -- For the years ended December 31,
1995, 1996 and 1997 and for the nine months ended
September 30, 1997 (unaudited) and 1998................ F-4
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1995, 1996 and 1997 and for
the nine months ended September 30, 1998............... F-5
Statements of Cash Flows -- For the years ended December
31, 1995, 1996 and 1997 and for the nine months ended
September 30, 1997 (unaudited) and 1998................ F-6
Notes to Financial Statements............................. F-7
BUSINESS ACQUIRED IN 1998
Kelly-Levey & Associates, Inc.
Report of Independent Certified Public Accountants........ F-17
Balance Sheets -- December 31, 1996 and 1997 and March 31,
1998 (unaudited)....................................... F-18
Statements of Operations -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 (unaudited) and 1998 (unaudited).............. F-19
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1998 (unaudited).......... F-20
Statements of Cash Flows -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 (unaudited) and 1998 (unaudited).............. F-21
Notes to Financial Statements............................. F-22
BUSINESS ACQUIRED IN 1999
Bureau van Dijk Computer Services, Inc.
Independent Auditors' Report.............................. F-25
Balance Sheets -- December 31, 1996 and 1997 and September
30, 1998............................................... F-26
Statements of Income and Retained Earnings -- For the
years ended December 31, 1996 and 1997 and for the nine
months ended September 30, 1997 (unaudited) and 1998... F-27
Statements of Cash Flows -- For the years ended December
31, 1996 and 1997 and for the nine months ended
September 30, 1997 (unaudited) and 1998................ F-28
Notes to Financial Statements............................. F-29
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
CONLEY, CANITANO & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Conley, Canitano &
Associates, Inc. as of December 31, 1996, December 31, 1997 and September 30,
1998, and the related statements of income, shareholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997 and
for the nine months ended September 30, 1998. 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 Conley, Canitano &
Associates, Inc. as of December 31, 1996, December 31, 1997 and September 30,
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 and for the nine months ended
September 30, 1998, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Cleveland, Ohio
January 12, 1999
F-2
<PAGE> 66
CONLEY, CANITANO & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
AS OF DECEMBER 31, PRO FORMA
------------------ (UNAUDITED)
1996 1997 ACTUAL (NOTE 1)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 362 $ 2,174 $ 1,415 $ 1,415
Accounts receivable, less allowance for doubtful
accounts of $110 in 1996, $175 in 1997 and
$327 in 1998................................. 2,794 4,281 7,971 7,971
Deferred taxes.................................. 154 384 745 745
Other........................................... 68 88 196 196
------ -------- ------- -------
Total current assets......................... 3,378 6,927 10,327 10,327
Goodwill, net..................................... -- -- 7,345 7,345
Property and equipment, net....................... 151 549 1,784 1,784
Other............................................. 168 236 1,226 851
------ -------- ------- -------
Total assets................................. $3,697 $ 7,712 $20,682 $20,307
====== ======== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Line of credit.................................. $ 704 $ 698 $ -- $ --
Current portion of long-term obligations........ -- 100 374 374
Accounts payable................................ 237 457 1,337 1,337
Accrued payroll, taxes and benefits............. 1,747 2,773 4,992 4,992
Income taxes payable............................ 237 468 601 601
Other........................................... 24 312 602 602
------ -------- ------- -------
Total current liabilities.................... 2,949 4,808 7,906 7,906
Line of Credit.................................... -- -- 5,500 5,500
Deferred taxes.................................... 25 32 50 50
Long-term obligations, less current portion....... -- 196 749 749
------ -------- ------- -------
Total liabilities............................ 2,974 5,036 14,205 14,205
------ -------- ------- -------
Commitments and contingencies..................... -- -- -- --
Redeemable securities (Note 9).................... -- 15,970 18,312 15,750
------ -------- ------- -------
Shareholders' equity (deficit):
Preferred Stock, voting, $.01 par value,
authorized 500,800 shares, 250,400 issued and
outstanding as of September 30, 1998......... -- -- -- --
Preferred Stock, non-voting no par value,
authorized 5,000,000 shares, none issued..... -- -- -- --
Preferred Stock, voting, no par value,
authorized 5,000,000 shares, none issued..... -- -- -- --
Common stock, no par value, authorized
45,000,000 shares, issued and outstanding
7,255,130 shares at December 31, 1996,
6,746,000 shares at December 31, 1997,
6,822,950 shares at September 30, 1998 and
9,326,950 shares pro forma................... 8 7 8 11
Additional paid-in capital...................... -- -- 359 359
Retained earnings (accumulated deficit)......... 715 (13,301) (11,843) (9,659)
------ -------- ------- -------
723 (13,294) (11,476) (9,289)
Less: note receivable from shareholder.......... -- -- (359) (359)
------ -------- ------- -------
Total shareholders' equity (deficit)......... 723 (13,294) (11,835) (9,648)
------ -------- ------- -------
Total liabilities and shareholders' equity
(deficit).................................. $3,697 $ 7,712 $20,682 $20,307
====== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 67
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ------------------------
1995 1996 1997 1997
(UNAUDITED) 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 11,107 $ 17,994 $ 32,218 $ 23,205 $ 35,988
Cost of revenues................. 6,985 10,978 19,222 13,372 21,493
---------- ---------- ---------- ---------- ----------
Gross profit................ 4,122 7,016 12,996 9,833 14,495
Selling, general and
administrative expenses........ 3,038 4,204 6,555 4,929 7,454
Incentive compensation........... 678 1,647 2,700 2,191 2,586
Acquisition compensation......... -- -- -- -- 725
Depreciation and amortization.... 26 30 35 25 328
---------- ---------- ---------- ---------- ----------
Income from operations...... 380 1,135 3,706 2,688 3,402
Interest income.................. 3 6 20 13 21
Interest expense................. (38) (89) (107) (87) (230)
---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes.............. 345 1,052 3,619 2,614 3,193
Provision for income taxes....... 180 461 1,495 1,080 1,393
---------- ---------- ---------- ---------- ----------
Net income.................. $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
---------- ---------- ---------- ---------- ----------
Accretion to redemption value of
redeemable securities.......... -- -- (92) -- (342)
---------- ---------- ---------- ---------- ----------
Net income available to
common shareholders....... $ 165 $ 591 $ 2,032 $ 1,534 $ 1,458
========== ========== ========== ========== ==========
Net income per share:
Basic.......................... $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Diluted........................ $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
Weighted average shares
outstanding:
Basic.......................... 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
Diluted........................ 14,097,742 14,097,742 13,841,085 13,928,032 13,588,612
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 68
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK NOTE
(AT STATED VALUE) ADDITIONAL RETAINED RECEIVABLE
------------------ PAID-IN EARNINGS FROM
SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDER
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994.................... 7,255,130 $ 8 $ -- $ (41) $ --
Net income................ 165
--------- --- ---- -------- -----
Balance, December 31,
1995.................... 7,255,130 8 -- 124 --
Net income................ 591
--------- --- ---- -------- -----
Balance, December 31,
1996.................... 7,255,130 8 -- 715 --
Purchase and retirement of
common stock............ (509,130) (1) (171)
Treasury shares
purchased...............
Redeemable securities
issued.................. (15,877)
Accretion to redemption
value of redeemable
securities.............. (92)
Net income................ 2,124
--------- --- ---- -------- -----
Balance, December 31,
1997.................... 6,746,000 7 -- (13,301) --
Sale of shares to
officer................. 76,950 1 359
Note receivable from
shareholder............. (359)
Accretion to redemption
value of redeemable
securities.............. (342)
Net income................ 1,800
--------- --- ---- -------- -----
Balance, September 30,
1998.................... 6,822,950 $ 8 $359 $(11,843) $(359)
========= === ==== ======== =====
Pro forma balance,
September 30, 1998 (Note
1) (unaudited).......... 9,326,950 $11 $359 $ (9,659) $(359)
========= === ==== ======== =====
<CAPTION>
TOTAL
TREASURY STOCK SHAREHOLDERS'
---------------------- EQUITY
SHARES AMOUNT (DEFICIT)
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, December 31,
1994.................... -- $ -- $ (33)
Net income................ 165
---------- -------- --------
Balance, December 31,
1995.................... -- -- 132
Net income................ 591
---------- -------- --------
Balance, December 31,
1996.................... -- -- 723
Purchase and retirement of
common stock............ (172)
Treasury shares
purchased............... (1,350,000) (15,877) (15,877)
Redeemable securities
issued.................. 1,350,000 15,877 --
Accretion to redemption
value of redeemable
securities.............. (92)
Net income................ 2,124
---------- -------- --------
Balance, December 31,
1997.................... -- -- (13,294)
Sale of shares to
officer................. 360
Note receivable from
shareholder............. (359)
Accretion to redemption
value of redeemable
securities.............. (342)
Net income................ 1,800
---------- -------- --------
Balance, September 30,
1998.................... -- $ -- $(11,835)
========== ======== ========
Pro forma balance,
September 30, 1998 (Note
1) (unaudited).......... -- $ -- $ (9,648)
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 69
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------------
1995 1996 1997 1997
(UNAUDITED) 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization.............. 26 30 35 26 328
Deferred taxes............................. (171) (83) (223) (75) (293)
Incentive option amortization.............. -- -- -- -- 125
Change in assets and liabilities:
Accounts receivable...................... (907) (1,147) (1,488) (1,660) (1,528)
Other assets............................. 61 (58) (87) (100) (718)
Accounts payable......................... 132 (66) 219 150 (107)
Accrued payroll, taxes and benefits...... 575 790 1,027 278 745
Income taxes payable..................... 76 139 232 322 182
Other liabilities........................ (76) 4 289 215 215
------- -------- -------- -------- --------
Net cash (used in) provided by
operating activities................ (119) 200 2,128 690 749
------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment............ (79) (52) (434) (42) (1,109)
Acquisition of KLA............................ -- -- -- -- (3,905)
------- -------- -------- -------- --------
Net cash used in investing
activities.......................... (79) (52) (434) (42) (5,014)
------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from line of credit.................. 7,920 18,681 28,785 23,535 29,289
Payments on line of credit.................... (7,708) (18,463) (28,792) (23,388) (25,487)
(Payments on) proceeds from long-term
obligations................................ -- -- 296 183 (296)
Net proceeds from sale of redeemable
securities................................. -- -- 15,878 -- --
Purchase of common stock...................... -- -- (16,049) (172) --
Other......................................... (24) (104) -- -- --
------- -------- -------- -------- --------
Net cash provided by financing
activities.......................... 188 114 118 158 3,506
------- -------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents................................... (10) 262 1,812 806 (759)
Cash and cash equivalents, at beginning of
period........................................ 110 100 362 362 2,174
------- -------- -------- -------- --------
Cash and cash equivalents, at end of period..... $ 100 $ 362 $ 2,174 $ 1,168 $ 1,415
======= ======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................... $ 38 $ 93 $ 109 $ 76 $ 208
======= ======== ======== ======== ========
Taxes...................................... $ 270 $ 431 $ 1,485 $ 838 $ 1,498
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 70
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Nine Months
Ended September 30, 1997 and for Pro Forma Information are Unaudited)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Conley, Canitano & Associates, Inc. (the "Company") is a provider of rapid
implementations of Enterprise Resource Planning applications. The Company also
offers its clients a comprehensive range of related services. The Company
provides its services predominately in the United States and Canada. For the
years ended December 31, 1995, 1996 and 1997, approximately 55%, 69% and 75%,
respectively, of the Company's revenues were derived from engagements in which
the Company implemented SAP applications. For the nine months ended September
30, 1997 and 1998, revenues derived from SAP implementations approximated 74%
and 80%, respectively. During the nine months ended September 30, 1998, one of
the Company's clients accounted for approximately 11% of the Company's revenues.
The Company's results of operations include those of Kelly-Levey & Associates,
Inc. ("KLA") since April 8, 1998 (See Note 12).
Interim Unaudited Financial Information
The interim financial statements of the Company as of September 30, 1997
and for the nine month period ended September 30, 1997 have been prepared
without audit. These interim financial statements reflect all normal and
recurring adjustments, which in the opinion of Company management, are necessary
for a fair presentation of the financial position of the Company and its results
of operations for the interim period set forth herein.
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable
includes services performed but not yet billed of $185 and $418 as of December
31, 1996 and 1997, respectively, and $1,186 as of September 30, 1998.
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 may differ from those estimates.
Cash and Cash Equivalents
The Company considers all restricted cash and money market funds with an
original maturity of three months or less to be cash equivalents. The carrying
amount of these instruments approximates fair value.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding accounts receivable.
Amounts related to doubtful accounts that were charged to expense for the
years ended December 31, 1995, 1996 and 1997 totaled $49, $40 and $109,
respectively, and for the nine months ended September 30, 1997 and 1998 totaled
$49 and $45, respectively.
F-7
<PAGE> 71
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 10 years
Computer equipment and software............................. 3 to 6 years
Leasehold improvements...................................... 10 years
</TABLE>
Goodwill
Goodwill resulting from the April 1998 acquisition of KLA is amortized over
20 years which represents management's estimate of the customer relationships
and industry expertise acquired, using the straight-line method. For the nine
months ended September 30, 1998, amortization expense was $180. The Company will
continually evaluate whether later events and circumstances have occurred that
indicate the remaining goodwill may warrant revision.
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of the Company's
assets and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Earnings Per Share
Computations of basic and diluted earnings per share of common stock have
been made in accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings
Per Share. Basic earnings per share is computed by dividing income available to
common shareholders (the numerator) by the weighted average number of common
shares outstanding (the denominator) during the period. Shares issued during the
period are weighted for the portion of the period that they are outstanding. The
computation of diluted earnings per share is similar to the computation of basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
F-8
<PAGE> 72
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per common share ("EPS") were computed as follows:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Net income.................................. $ 165 $ 591 $ 2,124 $ 1,534 $ 1,800
Accretion to redemption value............... -- -- (92) -- (342)
---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders.............................. $ 165 $ 591 $ 2,032 $ 1,534 $ 1,458
========== ========== ========== ========== ==========
Basic EPS:
Weighted average common shares
outstanding............................. 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
========== ========== ========== ========== ==========
Earnings per share........................ $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
========== ========== ========== ========== ==========
Diluted EPS:
Weighted average common shares
outstanding............................. 13,836,080 13,836,080 13,579,423 13,666,370 13,326,950
Shares applicable to dilutive options and
warrants................................ 261,662 261,662 261,622 261,662 261,662
---------- ---------- ---------- ---------- ----------
Shares applicable to diluted earnings..... 14,097,742 14,097,742 13,841,085 13,928,032 13,558,612
========== ========== ========== ========== ==========
Earnings per share........................ $ 0.01 $ 0.04 $ 0.15 $ 0.11 $ 0.11
========== ========== ========== ========== ==========
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other
liabilities, a line of credit and long-term debt. The fair value of these
financial instruments approximates their carrying value.
Accretion to Redemption Value of the Redeemable Securities
As more fully discussed in Note 9, redeemable securities includes 250,400
shares of Convertible Preferred Stock and 1,350,000 shares of Common Stock with
put rights. The 250,400 shares of Convertible Preferred Stock are convertible
into 250,400 shares of Redeemable Preferred Stock and 2,504,000 shares of Common
Stock with put rights, which can be exercised at various times after 2001, 2002
and 2003. All such rights terminate upon the consummation of the proposed
initial public offering of the Company's Common Stock (the "Offering").
Accretion to redemption value represents accretion to the redemption dates
utilizing the interest method from October 1997 (See Note 9).
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000. All such put rights terminate upon the
consummation of the Offering. The warrants are exercisable 24 months after the
closing of the KLA acquisition or upon the consummation of the Offering. The
acquisition compensation expense related to the compensatory options is being
amortized over a 24 month vesting period. The compensatory options vest upon the
consummation of the Offering.
Total accretion for the year ended December 31, 1997 and for the nine
months ended September 30, 1998 was $92 and $342, respectively.
Unaudited Pro Forma Balance Sheet
In conjunction with the Offering, all of the 250,400 shares of Convertible
Preferred Stock will convert into 2,504,000 shares of Common Stock and 250,400
shares of Redeemable Preferred Stock (See Note 9). The unaudited pro forma
balance sheet as of September 30, 1998 reflects the reclassification of the
1,350,000 shares of Common Stock included in the redeemable securities to
shareholders equity as a result of the termination of
F-9
<PAGE> 73
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the put rights and as a result of the conversion of the Convertible Preferred
Stock into 2,504,000 shares of Common Stock and 250,400 shares of Redeemable
Preferred Stock. The unaudited pro forma balance sheet assumes the redemption of
the 250,400 shares of the Redeemable Preferred Stock to be redeemed upon the
consummation of the Offering for $62.90 per share.
Also upon the Offering, the remaining compensatory options (See Note 12)
fully vest and therefore the related unamortized acquisition compensation
recorded in other assets in the amount of $375 has been expensed for purposes of
the September 30, 1998 pro forma balance sheet presentation.
2. NOTES RECEIVABLE
The Company has a $359 promissory note receivable due from an officer of
the Company. The note was issued in exchange for Restricted Stock (See Note 11)
and is treated as a non-cash item for purposes of the statements of cash flow.
Interest at 6% per annum and principal are due and payable on June 30, 2004. The
note provides for accelerated payment if the officer ceases to be employed by
the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------- SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Furniture and fixtures................................ $199 $ 382 $ 974
Computer equipment.................................... 452 492 773
Leasehold improvements................................ 12 223 296
---- ------ ------
663 1,097 2,043
Less: accumulated depreciation........................ 512 548 259
---- ------ ------
Property and equipment, net........................... $151 $ 549 $1,784
==== ====== ======
</TABLE>
4. LINE OF CREDIT
Prior to April 8, 1998, the Company had a $2,500 bank line of credit
expiring May 31, 1998. Interest was payable monthly at the bank's prime rate
(8.25% and 8.5% at December 31, 1996 and 1997, respectively) plus 1.75% through
December 31, 1996 and 1.5% thereafter.
On April 8, 1998, the Company refinanced the line of credit with a line of
credit/term note from another bank simultaneously with the acquisition of KLA
(See Note 12). In January 1999, the Company refinanced the line of credit/term
note to finance the acquisition of Bureau van Dijk Computer Services, Inc.
("BVD") (See Note 14). The January 1999 line of credit/term note is
collateralized by substantially all the Company's assets. The borrowings are
limited to the lesser of $27,500 or 80% of eligible receivables plus $20,000 or
a multiple of the latest aggregated four quarters' EBITDA as defined in the
agreement. The interest rate is LIBOR (5.625% at September 30, 1998) plus up to
3.25% or the bank's prime rate (8.5% at September 30, 1998) plus up to 1.50%.
The line of credit/term note contains various covenants that restrict, among
other things, the Company's ability to incur additional indebtedness, sell or
transfer assets, make investments and pay dividends and requires the Company to
meet various financial covenants. The term portion matures as follows: $500,000
quarterly on September 30, 1999 through June 30, 2000; $750,000 quarterly on
September 30, 2000 through June 30, 2001; $1,000,000 on September 30, 2001 and
December 31, 2001; $1,250,000 on March 31, 2002 and June 30, 2002; $1,500,000
quarterly on September 30, 2002 through June 30, 2003; $2,250,000 on September
30, 2003 and the remainder on December 31, 2003. The balance of the revolving
line of credit is due by June 30, 2001.
F-10
<PAGE> 74
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM OBLIGATIONS
On June 25, 1997, the Company entered into a variable rate note agreement
with a bank for up to $700 at the bank's prime rate (8.5% at December 31, 1997).
Interest only was paid on this note through March 31, 1998 in accordance with
the terms of the note. The Company repaid the note in April 1998.
As part of the KLA acquisition, the Company agreed to pay $1,100 to one of
the KLA majority shareholders in three equal annual installments beginning on
April 3, 1999.
6. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $275 $426 $1,332 $ 985 $1,323
State and local........................ 76 118 386 170 363
---- ---- ------ ------ ------
351 544 1,718 1,155 1,686
Deferred................................. (171) (83) (223) ( 75) (293)
---- ---- ------ ------ ------
$180 $461 $1,495 $1,080 $1,393
==== ==== ====== ====== ======
</TABLE>
The Company estimates the effective income tax rate quarterly using
annualized estimated financial data. The estimated effective income tax rate for
the nine months ended September 30, 1997 was 41.3%. A reconciliation of the
provision for income taxes at the federal statutory rate to that included in the
statements of income is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31, FOR THE
-------------------- NINE MONTHS ENDED
1995 1996 1997 SEPTEMBER 30, 1998
<S> <C> <C> <C> <C>
Tax at federal statutory rate................ 34.0% 34.0% 34.0% 34.0%
Increases in taxes resulting from:
State income taxes, net of federal
benefit................................. 6.8 6.2 6.1 6.2
Goodwill amortization...................... -- -- -- 2.2
Meals and entertainment.................... 7.3 3.6 1.1 1.0
Other...................................... 4.1 0.0 0.1 0.2
---- ---- ---- ----
52.2% 43.8% 41.3% 43.6%
==== ==== ==== ====
</TABLE>
F-11
<PAGE> 75
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax asset are comprised of the
following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts....................... $ 44 $ 71 $124
Accrued compensation and benefits..................... 107 232 355
Other................................................. 3 81 266
---- ---- ----
Deferred tax assets........................... 154 384 745
---- ---- ----
Gross deferred tax liability:
Depreciation.......................................... (25) (32) (50)
---- ---- ----
Deferred tax liability........................ (25) (32) (50)
---- ---- ----
Deferred tax asset, net................................. $129 $352 $695
==== ==== ====
</TABLE>
7. PROFIT SHARING AND 401(k) SAVINGS PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code (the "401(k) Plan") that covers
substantially all the employees of the Company. Under the 401(k) Plan, the
Company may make a matching contribution as well as a discretionary
contribution. The Company's contributions totaled $84, $303 and $596, for the
years ended December 31, 1995, 1996 and 1997, respectively, and totaled $269 and
$456 for the nine months ended September 30, 1997 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES
As of September 30, 1998, the Company leased office space and certain
equipment under various noncancelable operating leases. Lease payments for the
years ended December 31, 1995, 1996 and 1997, were $175, $253 and $358,
respectively, and $281 and $540 for the nine months ended September 30, 1997 and
1998, respectively. On January 3, 1997, the Company entered into an additional
office lease, with a leasing company partially owned by affiliates of the
Company's management and principal shareholders. This lease extends through
December 31, 2002. The lease provides for three successive renewal periods of 60
months each at the Company's option. The monthly lease payment will be adjusted
prior to each annual anniversary date of the lease based on increases in the
consumer price index. The maximum annual increase is 2%. Future minimum lease
payments required under all operating leases are as follows:
<TABLE>
<S> <C>
1998(3 months).................................... $ 237
1999.............................................. 854
2000.............................................. 649
2001.............................................. 619
2002.............................................. 613
------
$2,972
</TABLE>
9. REDEEMABLE SECURITIES
On October 15, 1997, the Company's Amended and Restated Articles of
Incorporation ("Articles") were amended to authorize 500,800 shares of $0.01 par
value Preferred Stock.
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain shareholders for $15,877. The Company then issued 250,400
shares of Convertible Preferred Stock for $17,500 and 1,350,000 shares of Common
Stock for $1, for an aggregate consideration of $17,501 ($15,877, net of $1,624
of related expenses). The 1,350,000 shares of Common Stock may be put back to
the Company on or after
F-12
<PAGE> 76
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
October 15, 2003, if the Company has not completed an offering, for the greater
of $0.4541 per share or fair market value. The Company accounted for these
transactions using the cost method.
The 250,400 shares of Convertible Preferred Stock have certain voting and
other rights and privileges set forth in the Company's Articles. On or after
October 15, 2001 and October 15, 2002, 50% and 100% of the shares, respectively,
can be redeemed by the Company at the option of the holders for the greater of
$69.89 per share or their fair market value as provided for in the Articles.
Holders of Convertible Preferred Stock are entitled to receive dividends, if
declared by the Board of Directors, on an equal basis with the holders of Common
Stock. In connection with the Offering, the 250,400 shares of Convertible
Preferred Stock automatically convert into 2,504,000 shares of Common Stock and
250,400 shares of Redeemable Preferred Stock, and the Redeemable Preferred Stock
will be redeemed for $62.90 per share.
The authorized Preferred Stock also includes 250,400 shares of Redeemable
Preferred Stock that contain similar voting and liquidation preferences as the
Convertible Preferred Stock. The Redeemable Preferred Stock will pay cumulative
dividends at the per share rate per annum of 7% of $62.90. None of the
Redeemable Preferred Stock has been issued.
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000. All such put rights terminate upon the
consummation of the Offering. The warrants are exercisable 24 months after the
closing of the KLA acquisition or upon the consummation of the Offering. The
acquisition compensation expense related to the compensatory options is being
amortized over a 24 month vesting period. The compensatory options vest upon the
consummation of the Offering.
10. COMMON STOCK
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a shareholder for $171. The Company subsequently retired these shares.
In October 1997, the Company effected a 6,364.151-for-1 common stock split.
In addition, in July 1998, the Company effected a 10-for-1 common stock split.
All share and per share amounts herein have been restated to reflect such stock
splits.
In July 1998, the Company's shareholders granted approval to increase
authorized shares of stock to the following:
<TABLE>
<S> <C>
Common Stock, no par value..................... 45,000,000
</TABLE>
11. STOCK OPTIONS AND WARRANTS
During October 1997, the Company and its shareholders adopted the 1997
Equity and Performance Incentive Plan (the "Plan") to attract and retain
directors, officers, employees and consultants. Under the terms of the Plan,
2,072,750 shares of the Company's Common Stock are available for grant. Future
grants, and the provisions thereof, are at the discretion of the Company's Board
of Directors (See Note 14).
On May 11, 1998, options were granted under the Plan to purchase 321,400
shares of Common Stock at $4.67 per share. On August 15, 1998, options were
granted under the Plan to purchase 37,600 shares of Common Stock at $9.35 per
share. Options vest evenly over three to five-year periods. Following each
anniversary date of the grant, 20% of the options may be exercised.
In May 1998, an officer of the Company was granted 76,950 shares of
Restricted Stock under the Plan at a purchase price of $4.67 per share. The
officer paid for the shares with a promissory note (See Note 2).
F-13
<PAGE> 77
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In December 1998, the Company established the 1998 Employee Stock Purchase
Plan, which reserves an aggregate of 500,000 shares of Common Stock for issuance
under the plan. No shares have been issued under this plan (See Note 14).
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations in accounting for its
stock option plan and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-
Based Compensation.
Had compensation cost been determined based on the estimated fair value at
the grant date consistently with the provisions of SFAS No. 123, net income and
net income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Net income available to common shareholders -- as
reported.................................................. $1,458
Net income available to common shareholders -- pro forma.... $1,397
Net income per share -- as reported:
Basic..................................................... $ 0.11
Diluted................................................... $ 0.11
Net income per share -- pro forma:
Basic..................................................... $ 0.10
Diluted................................................... $ 0.10
</TABLE>
The fair value of each option grant and restricted share is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for the grant: dividend yield of 0%;
expected volatility of 47%; risk-free interest rate of 5%; and expected lives of
the options of five years from the date of vesting.
A summary of the status of stock options is presented below:
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1998
-----------------------------
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, beginning of period...................... -- $ --
Granted............................................... 359,000 5.16
Exercised and converted............................... -- --
Forfeited............................................. 8,700 4.94
--------- -----
Outstanding, end of period............................ 350,300 5.17
Options available for grant, end of period............ 2,072,750 --
--------- -----
Options exercisable, end of period.................... -- --
========= =====
</TABLE>
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). The warrants and compensatory options are exercisable
at $0.001 per share of Common Stock 24 months after the closing of the KLA
acquisition or upon the consummation of the Offering. The acquisition
compensation expense related to the compensatory options is being amortized over
a 24 month vesting period. The compensatory options vest upon the consummation
of the Offering.
F-14
<PAGE> 78
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. KLA ACQUISITION
On April 8, 1998, the Company purchased all of the outstanding capital
stock of KLA for a purchase price consisting of $3,552 in cash, the issuance of
warrants to purchase 195,265.98 shares of Common Stock and certain other
consideration. Of the total consideration, $3,377 is subject to certain revenue
targets and contribution margins during the two-year period following April 8,
1998 and $1,123 is payable in three equal annual installments beginning April 3,
1999. In addition, the Company agreed to grant the KLA compensatory options and
to pay $3,500 in retention bonuses at certain intervals to an escrow account
which benefits former KLA employees who remain employees of the Company at such
intervals.
The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Assets acquired............................................. $2,378
Liabilities assumed......................................... (3,374)
Goodwill.................................................... 7,524
Compensatory options........................................ 500
Earn-out liability.......................................... (1,123)
------
5,905
Less: non-cash warrants and options......................... 2,000
Cash paid for acquisition................................... $3,905
</TABLE>
Compensatory options are amortized on a straight-line basis over their 24
month vesting period. Amortization expense for the nine months ended September
30, 1998 was $125 and is included in acquisition compensation. In connection
with the Offering, the compensatory options will fully vest, and the unamortized
balance will be included in acquisition compensation.
As of September 30, 1998, the Company was obligated to make retention bonus
payments to the escrow account as follows:
<TABLE>
<S> <C>
October 3, 1998............................................. $ 700
April 3, 1999............................................... 875
April 3, 2000............................................... 875
October 3, 2000............................................. 1,050
------
$3,500
======
</TABLE>
Compensation expense is recorded as the bonuses are earned. Compensation
expense for these retention bonuses for the nine months ended September 30, 1998
was $600 and is included in acquisition compensation.
13. RELATED PARTY TRANSACTIONS
The Company has a $359 promissory note receivable due from an officer of
the Company (See Note 2).
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a related party (See Note 10).
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain majority shareholders. Simultaneously, the Company issued
1,350,000 shares of its Common Stock and 250,400 shares of Convertible Preferred
Stock (See Note 9).
The Company leases office space from a company owned partially by the
Company's management and principal shareholders (See Note 8).
F-15
<PAGE> 79
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS
The Company's Board of Directors has authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission to
sell up to 4,000,000 shares of the Company's Common Stock in the Offering. CCAi
expects to use the net proceeds from the Offering to redeem all outstanding
shares of Redeemable Preferred Stock (See Note 9), to repay in full existing
indebtedness (See Note 4) and for general corporate purposes, including working
capital. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary businesses and service offerings. Although the
Company may periodically review potential acquisition opportunities, there are
no current agreements with respect to any such transactions. Pending their
application as described above, the proceeds will be invested in short-term,
investment grade, interest-bearing securities.
In December 1998, the Company's Board of Directors authorized an increase
in Company common shares available for grant under the Company's 1997 Equity and
Performance Incentive Plan to 2,500,000 shares (See Note 11).
In December 1998, the Company established the Employee Stock Purchase Plan
(See Note 11).
In January 1999, the Company completed the acquisition of BVD for $17,500
in cash and 300,000 shares of Common Stock, which will vest in two equal annual
installments. The acquisition will be accounted for as a purchase. Goodwill from
the acquisition is estimated to be approximately $19,900.
F-16
<PAGE> 80
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE OWNERS
KELLY-LEVEY & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Kelly-Levey &
Associates, Inc. as of December 31, 1996 and 1997, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. 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 Kelly-Levey & Associates,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
On April 8, 1998, all of the Kelly-Levey & Associates, Inc. common stock
was acquired by Conley, Canitano & Associates, Inc. (See Note 7).
PricewaterhouseCoopers LLP
Cleveland, Ohio
June 8, 1998
F-17
<PAGE> 81
KELLY-LEVEY & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------ MARCH 31,
1996 1997 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 54 $ 176 $ --
Accounts receivable, less allowance for doubtful accounts
of $125 in 1998........................................ 882 1,764 2,425
Deferred taxes............................................ 50
Other..................................................... -- 12 39
---- ------ ------
Total current assets.............................. 936 1,952 2,514
Property and equipment, net................................. 33 262 266
Deferred taxes.............................................. -- 16 49
Other....................................................... 4 11 2
---- ------ ------
Total assets...................................... $973 $2,241 $2,831
==== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ $ -- $ 298 $1,000
Accounts payable.......................................... 41 447 1,012
Accrued payroll, taxes and benefits....................... 676 1,419 878
Income taxes payable...................................... 48 -- --
Other..................................................... -- 1 --
---- ------ ------
Total current liabilities......................... 765 2,165 2,890
Shareholders' equity (deficit):
Common stock, no par value, authorized 1,000,000 shares,
issued and outstanding 321,200 shares at December 31,
1996, issued 329,550 and outstanding 322,850 shares at
December 31, 1997 and issued 331,900 shares and
outstanding 325,200 shares at March 31, 1998........... 2 24 28
Retained earnings (deficit)............................... 206 66 (73)
Treasury stock, 6,700 shares at cost...................... -- (14) (14)
---- ------ ------
Total shareholders' equity (deficit).............. 208 76 (59)
---- ------ ------
Total liabilities and shareholders' equity
(deficit)....................................... $973 $2,241 $2,831
==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 82
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
------------------ --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................... $3,951 $8,726 $1,819 $2,570
Cost of revenues................................... 2,727 6,589 1,434 1,542
------ ------ ------ ------
Gross profit..................................... 1,224 2,137 385 1,028
Selling, general and administrative expenses....... 838 2,238 429 925
Depreciation....................................... 27 74 17 19
------ ------ ------ ------
Income (loss) from operations.................... 359 (175) (61) 84
Transaction costs.................................. -- -- -- 302
Interest expense................................... -- 29 16 4
------ ------ ------ ------
Income (loss) before provision for (benefit from)
income taxes.................................. 359 (204) (77) (222)
Provision for (benefit from) income taxes.......... 153 (64) (28) (83)
------ ------ ------ ------
Net income (loss)................................ $ 206 $ (140) $ (49) $ (139)
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 83
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
(AT STATED VALUE) RETAINED TREASURY STOCK TOTAL
------------------ EARNINGS --------------- SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) SHARES AMOUNT EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......... 321,200 $ 2 $ 53 -- $ -- $ 55
Dividends........................... (53) (53)
Net income.......................... 206 206
------- --- ---- ----- ---- ----
Balance, December 31, 1996.......... 321,200 2 206 -- -- 208
Sale of common shares to
employees......................... 8,350 22 22
Treasury shares purchased from
employees......................... 6,700 (14) (14)
Net loss............................ (140) (140)
------- --- ---- ----- ---- ----
Balance, December 31, 1997.......... 329,550 24 66 6,700 (14) 76
Sale of common shares to employees
(unaudited)....................... 2,350 4 4
Net loss (unaudited)................ (139) (139)
------- --- ---- ----- ---- ----
Balance, March 31, 1998
(unaudited)....................... 331,900 $28 $(73) 6,700 $(14) $(59)
======= === ==== ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 84
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 206 $ (140) $ (49) $ (139)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation.................................. 27 74 18 19
Deferred taxes................................ -- (16) (29) (83)
Change in assets and liabilities:
Accounts receivable......................... (763) (882) (254) (661)
Other assets................................ (1) (19) 2 (18)
Accounts payable............................ (4) 406 314 565
Accrued payroll, taxes and benefits......... 588 743 80 (541)
Income taxes payable........................ 48 (48) (48) --
Other liabilities........................... -- 1 -- (1)
----- ------- ----- -------
Net cash provided by (used in) operating
activities............................. 101 119 34 (859)
----- ------- ----- -------
Cash flows from investing activities:
Purchase of property and equipment............... (59) (303) (56) (23)
----- ------- ----- -------
Net cash used in investing activities.... (59) (303) (56) (23)
----- ------- ----- -------
Cash flows from financing activities:
Proceeds from line of credit..................... -- 5,079 350 1,868
Payments on line of credit....................... -- (4,781) (350) (1,166)
Purchase of common stock......................... -- (14) -- --
Proceeds from sale of common stock............... -- 22 -- 4
Dividends paid................................... (53) -- -- --
----- ------- ----- -------
Net cash (used in) provided by financing
activities............................. (53) 306 -- 706
----- ------- ----- -------
Net (decrease) increase in cash.................... (11) 122 (22) (176)
Cash, at beginning of period....................... 65 54 54 176
----- ------- ----- -------
Cash, at end of period............................. $ 54 $ 176 $ 32 $ --
===== ======= ===== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest...................................... $ -- $ 26 $ 16 $ 4
===== ======= ===== =======
Taxes......................................... $ 57 $ 5 $ 48 $ --
===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 85
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 are Unaudited)
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Kelly-Levey & Associates, Inc. ("KLA") is a Kentucky-based provider of
Enterprise Resource Planning implementation services. KLA provides services to
clients predominately in the United States. Substantially all of KLA's revenues
are derived from services provided as a contractor or a subcontractor to
Electronic Data Systems Corporation ("EDS") and its affiliates for the years
ended December 31, 1996 and 1997 and for the three months ended March 31, 1997
and 1998.
Interim Unaudited Financial Information
The interim statements of operations, shareholders' equity (deficit) and
cash flows of KLA for the three month periods ended March 31, 1997 and 1998 have
been prepared without audit. These interim financial statements reflect all
normal and recurring adjustments, which in the opinion of KLA management, are
necessary for a fair presentation of the financial position of KLA and its
results of operations for the interim periods set forth herein. The results for
the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable
includes services performed but not yet billed of $354 and $43 as of December
31, 1996 and 1997, respectively, and $332 as of March 31, 1998.
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 may differ from those estimates.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding receivables.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5 years
Equipment......................................... 3 years
</TABLE>
F-22
<PAGE> 86
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of KLA's assets
and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
KLA's financial instruments consist principally of cash, accounts
receivable, accounts payable, accrued expenses and other liabilities, a line of
credit and long-term debt. The fair value of these financial instruments
approximates their carrying value.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Furniture and fixtures..................................... $11 $ 32 $ 32
Equipment.................................................. 53 334 357
--- ---- ----
64 366 389
Less: accumulated depreciation............................. 31 104 123
--- ---- ----
Property and equipment, net................................ $33 $262 $266
=== ==== ====
</TABLE>
3. LINE OF CREDIT
As of March 31, 1998, KLA had a $1,000 bank line of credit. Interest was
payable monthly at the lending bank's prime rate (8.5% at December 31, 1997 and
March 31, 1998), plus 0.75%. Borrowings under the line of credit were due on
demand, were personally guaranteed by the shareholders and were collateralized
by substantially all assets of KLA. The line of credit contained restrictive
terms and covenants which imposed certain maintenance of asset requirements.
This line of credit was repaid and cancelled (See Note 8).
4. INCOME TAXES
The provision for (benefit from) income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE THREE
ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------- --------------
1996 1997 1997 1998
<S> <C> <C> <C> <C>
Current:
Federal.............................................. $126 $(39) $ -- $ --
State and Local...................................... 27 (9) -- --
---- ---- ---- ----
153 (48) -- --
Deferred............................................... -- (16) (28) (83)
---- ---- ---- ----
$153 $(64) $(28) $(83)
==== ==== ==== ====
</TABLE>
KLA estimates the effective income tax rate quarterly using annualized
estimated financial data. The estimated effective income tax rate for the three
months ended March 31, 1997 and 1998 was 37.3% and 32.6%,
F-23
<PAGE> 87
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. A reconciliation of the provision for (benefit from) income taxes
at the federal statutory rate to that included in the Statements of Operations
is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
--------------
1996 1997
<S> <C> <C>
Tax (benefit) at federal statutory rate..................... 34.0% (34.0)%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit................ 4.9 (4.5)
Meals and entertainment................................... 3.6 5.6
Other..................................................... 0.2 1.4
---- ------
42.7% (31.5)%
==== ======
</TABLE>
The components of deferred tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $-- $-- $50
Operating loss carryforwards.............................. -- 15 48
Other..................................................... -- 1 1
-- --- ---
Deferred tax assets............................... $-- $16 $99
== === ===
</TABLE>
Operating loss carryforwards are available through December 2017.
5. PROFIT SHARING AND 401(K) SAVINGS PLAN
KLA maintains a qualified cash or deferred compensation plan under section
401(k) of the Internal Revenue Code that covers substantially all the employees
of KLA. Under the Plan, KLA may make a matching contribution as well as a
discretionary contribution. KLA's contributions totaled $46 and $344 for the
years ended December 31, 1996 and 1997, respectively, and $75 for the three
months ended March 31, 1997. No contributions were made during the three months
ended March 31, 1998.
6. COMMITMENTS AND CONTINGENCIES
As of March 31, 1998, KLA leased office space and certain equipment under
various noncancelable operating leases. Lease expense for the years ended
December 31, 1996 and 1997 was $8 and $38, respectively, and for the three
months ended March 31, 1997 and 1998 was $6 and $14, respectively. Future
minimum lease payments required under all operating leases are as follows:
<TABLE>
<S> <C>
1998 (9 months)................................. $ 71
1999............................................ 68
2000............................................ 55
2001............................................ 18
--------
$ 212
========
</TABLE>
7. SUBSEQUENT EVENT
On April 8, 1998, Conley, Canitano & Associates, Inc. purchased all of the
capital stock of KLA.
F-24
<PAGE> 88
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Bureau van Dijk Computer Services, Inc.:
We have audited the accompanying balance sheets of Bureau van Dijk Computer
Services, Inc. as of December 31, 1996 and 1997 and September 30, 1998, and the
related statements of income and retained earnings, and cash flows for the years
ended December 31, 1996 and 1997 and the nine months ending September 30, 1998.
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 Bureau van Dijk Computer
Services, Inc. as of December 31, 1996 and 1997 and September 30, 1998, and the
results of its operations and its cash flows for the years ended December 31,
1996 and 1997 and the nine months ending September 30, 1998, in conformity with
generally accepted accounting principles.
We did not audit the statement of income and retained earnings and cash
flow information for the nine months ended September 30, 1997, and accordingly,
we do not express an opinion on them.
Langford de Kock & Co.
Atlanta, Georgia
January 11, 1998.
F-25
<PAGE> 89
BUREAU VAN DIJK COMPUTER SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
--------------------- SEPTEMBER 30,
1996 1997 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 456 $ 504 $ 180
Accounts receivable:
Trade, net of bad debt allowance of $23 at September
30, 1998.......................................... 2,140 1,280 1,206
Related parties...................................... 28 1,733 1,087
Investment................................................ 100 -- --
Prepaid expenses.......................................... 39 28 8
Deferred taxes............................................ 25 50 28
------ ------ ------
Total current assets.............................. 2,788 3,595 2,509
Property and equipment, net................................. 265 345 391
Other assets................................................ 40 43 33
------ ------ ------
Total assets...................................... $3,093 $3,983 $2,933
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 871 $ 656 $ 728
Accrued compensation and benefits......................... 1,228 885 778
Due to related parties.................................... 387 794 249
Dividends payable......................................... -- 587 --
Loans from employees...................................... -- 172 --
Income taxes.............................................. 106 423 152
------ ------ ------
Total current liabilities......................... 2,592 3,517 1,907
Deferred taxes.............................................. 31 35 39
------ ------ ------
Total liabilities................................. 2,623 3,552 1,946
------ ------ ------
Commitments and contingencies
Shareholders' equity:
Common stock, 1,000 shares, authorized and issued with no
par value.............................................. 300 300 300
Retained earnings......................................... 170 131 687
------ ------ ------
Total shareholders' equity........................ 470 431 987
------ ------ ------
Total liabilities and shareholders' equity........ $3,093 $3,983 $2,933
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 90
BUREAU VAN DIJK COMPUTER SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.......................................... $13,806 $14,415 $10,322 $11,408
Cost of revenue.................................. 8,413 8,918 6,348 7,550
------- ------- ------- -------
Gross profit................................... 5,393 5,497 3,974 3,858
Operating expenses............................... 5,138 4,479 3,659 2,850
------- ------- ------- -------
Income from operations........................... 255 1,018 315 1,008
Interest income, net............................. 33 10 14 2
------- ------- ------- -------
Income before provisions for income taxes........ 288 1,028 329 1,010
Provision for income taxes....................... 160 480 154 454
------- ------- ------- -------
Net income....................................... 128 548 175 556
RETAINED EARNINGS -- BEGINNING................... 42 170 170 131
DIVIDENDS........................................ -- (587) -- --
------- ------- ------- -------
RETAINED EARNINGS -- ENDING...................... $ 170 $ 131 $ 345 $ 687
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 91
BUREAU VAN DIJK COMPUTER SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 128 $ 548 $ 175 $ 556
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation................................... 18 33 24 36
Deferred Taxes................................. 24 (21) (3) 26
Change in assets and liabilities:
Trade receivables........................... (675) 860 685 74
Related party receivables................... (28) (1,705) (945) 646
Prepaid expenses and advances............... (4) 11 (3) 20
Deposits.................................... (2) (3) (3) 10
Accounts payable............................ 477 (215) (3) 72
Accrued compensation and benefits........... 1,031 (343) (626) (107)
Due to related parties...................... (356) 407 480 (545)
Income taxes................................ 88 317 24 (271)
------ ------- ----- -----
Net cash (used in) provided by operating
activities.................................. 701 (111) (195) 517
Cash flows from investing activities:
Purchases of property and equipment............ (130) (113) (97) (82)
Purchases of investments....................... (100) -- -- --
Proceeds on sale of investments................ -- 100 100 --
------ ------- ----- -----
Net cash (used in) provided by investing
activities.................................. (230) (13) 3 (82)
Cash flows from financing activities:
Proceeds from line of credit................... 115 100 100 600
Repayments on line of credit................... (290) (100) (100) (600)
Proceeds from loans from employees............. -- 242 242 --
Repayments on loans from employees............. -- (70) (29) (172)
Dividends paid................................. -- -- -- (587)
------ ------- ----- -----
Net cash (used in) provided by financial
activities.................................. (175) 172 213 (759)
Net increase (decrease) in cash.................. 296 48 21 (324)
Cash and cash equivalents, at beginning of
period......................................... 160 456 456 504
------ ------- ----- -----
Cash and cash equivalents, at end of period...... $ 456 $ 504 $ 477 $ 180
====== ======= ===== =====
Supplemental disclosure of cash flow information:
Cash paid for Interest......................... $ 4 $ 1 $ 1 $ 4
====== ======= ===== =====
Taxes.......................................... $ 42 $ 186 $ 134 $ 719
====== ======= ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 92
BUREAU VAN DIJK COMPUTER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Nine Months
Ended September 30, 1997 are Unaudited)
(In thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Bureau van Dijk Computer Services, Inc. (the "Company") is a service
provider for implementations of Enterprise Resource Planning applications from
SAP. The Company provides its services predominately in the United States. For
the years ended December 31, 1996 and 1997, one customer accounted for
approximately 52% and 16% of the total revenue, respectively. Amounts due from
this customer included in trade accounts receivable at December 31, 1996 and
1997 is $546 and $185, respectively. For the nine months ended September 30,
1998 two customers accounted for 22% of total revenues. Amounts due from these
two customers at September 30, 1998 is $506.
The Company has significant transactions with related parties (see Note 7).
Interim Unaudited Financial Information
The interim statement of income and retained earnings of the Company for
the nine month period ended September 30, 1997 has been prepared without audit.
This interim financial statement reflects all normal and recurring adjustments,
which in the opinion of Company management, are necessary for a fair
presentation of the financial position of the Company and its results of
operations for the interim period set forth herein.
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable at
December 31, 1996 and 1997 and September 30, 1998 do not include any unbilled
services.
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 may differ from those estimates.
Cash and Cash Equivalents
The Company considers all restricted cash and money market funds with an
original maturity of three months or less to be cash equivalents. The carrying
amount of these instruments approximates fair value.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding accounts receivable.
Amounts related to doubtful accounts that were charged to expense for the
years ended December 31, 1996 and 1997 totaled $125 and $0, respectively, and
for the nine months ended September 30, 1998 totaled $23.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
F-29
<PAGE> 93
Depreciation is provided using straight-line methods over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7 years
Computer equipment and software............................. 5 years
Leasehold improvements...................................... 10 years
</TABLE>
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of the Company's
assets and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------- SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Art......................................................... $167 $182 $228
Furniture and fixtures...................................... 92 104 107
Computer equipment and software............................. 37 124 148
Leasehold improvements...................................... 2 2 2
Vehicle..................................................... -- -- 9
---- ---- ----
298 412 494
Less: accumulated depreciation.............................. (33) (67) (103)
---- ---- ----
Property and equipment, net................................. $265 $345 $391
==== ==== ====
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company had a $600 bank line of credit expiring July 31, 1998. Interest
was payable monthly at the bank's prime rate (7.5% and 8.5% at December 31, 1996
and 1997, respectively) plus 1.75%.
On August 5, 1998, the Company secured a $800 line of credit, expiring July
31, 1999, for the purpose of providing short-term working capital. The line of
credit is collateralized by a blanket lien on all accounts receivable of the
Company. The interest rate is the bank's prime rate (8.25% at September 30,
1998) plus 0.5%. This line of credit contains various covenants that restrict,
among other things; the Company's ability to sell or transfer assets; making
changes in the Company's ownership (Note 10); entering into a merger or
consolidation. In addition, the line of credit requires the Company to meet
various financial covenants.
The Company is self-insured for errors and omissions in the performance of
services. No provision has been made for any losses that may arise from such
actions.
4. PROFIT SHARING AND 401(K) SAVINGS PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code (the "401(k) Plan") that covers
substantially all the employees of the Company. Under the 401(k) Plan, the
Company may make a discretionary contribution which becomes progressively fully
vested after 6 years of employee service. The Company's contributions totaled
$62 and $74, for the years ended December 31, 1996 and 1997, respectively, and
$88 for the nine months ended September 30, 1998.
5. LEASE COMMITMENTS
As of September 30, 1998, the Company leased office space and certain
equipment under various noncancelable operating leases. The lease for one of the
office spaces was renewed during 1998 for an additional 5 years ending March
2004. Lease payments under this renewal increase approximately 2.5% per year.
Lease payments for the years ended December 31, 1996 and 1997, were $313 and
$312, respectively, and $253 for the
F-30
<PAGE> 94
nine months ended September 30, 1998. Future minimum lease payments required
under all operating leases are as follows:
<TABLE>
<S> <C>
1998 (3 months)............................................. $ 47
1999........................................................ 266
2000........................................................ 233
2001........................................................ 160
2002........................................................ 129
Thereafter.................................................. 117
----
$952
====
</TABLE>
6. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
YEARS ENDED MONTHS
DECEMBER 31, ENDED
------------ SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Current:
Federal................................................... $106 $418 $360
State and local........................................... 30 83 68
---- ---- ----
136 501 428
Deferred.................................................... 24 (21) 26
---- ---- ----
$160 $480 $454
==== ==== ====
</TABLE>
During 1997, the Company's 1995 U.S. income tax return was audited by the
Internal Revenue Service (IRS). The IRS disallowed certain royalty expenses and
additional taxes of $31 were assessed and paid in 1997.
The Company estimates the effective income tax rate quarterly using
annualized estimated financial data. The estimated effective income tax rate for
the nine months ended September 30, 1998 was 45%. A reconciliation of the
provision for income taxes at the federal statutory rate to that included in the
statements of income is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------
1996 1997
<S> <C> <C>
Tax at federal statutory rate............................... 34.0% 34.0%
Increases in taxes resulting from:
State income taxes, net of federal benefit................ 6.9 5.4
Meals and entertainment................................... 7.1 2.5
Club dues................................................. 2.6 1.6
Royalties................................................. 5.1 --
IRS adjustment............................................ -- 3.0
Other..................................................... (0.1) 0.2
---- ----
55.6% 46.7%
==== ====
</TABLE>
F-31
<PAGE> 95
\The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------ SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Current deferred taxes:
Current assets:
Accrued expenses.............................. $25 $51 $28
Current liabilities:
Prepaids and other............................ -- (1) --
--- --- ---
Net current deferred assets...................... $25 $50 $28
=== === ===
Non-current deferred taxes:
Non-current liabilities:
Depreciation.................................. $31 $35 $39
=== === ===
</TABLE>
7. RELATED PARTY TRANSACTIONS
The dividends payable at December 31, 1997 reflects dividends declared for
the year ending December 31, 1997. These dividends were paid in 1998.
The Company entered into royalty agreements with two related parties at a
combined rate of 10% on gross revenue plus chargeable expenses. One of these
royalty agreements expired at December 31, 1996. The second royalty agreement
was modified to a rate of 4% and 2% on gross revenue plus chargeable expenses
for the years ending December 31, 1997 and 1998, respectively. This royalty
agreement expires December 31, 1998.
The Company subcontracts employees to and from various related parties.
Transactions with related parties are summarized as follows:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED FOR THE NINE
DECEMBER 31, MONTHS ENDED
---------------- SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Royalty expenses incurred to related parties............. $1,434 $ 602 $ 249
Revenue earned from subcontracts with related parties.... -- 2,320 4,423
Cost of revenue incurred with related parties............ 39 168 --
Reimbursement to related parties for operating expenses
incurred............................................... 82 193 43
</TABLE>
8. LOANS TO EMPLOYEES
During 1997 two employees advanced a total of $242 to the Company. These
loans were unsecured, interest free, due and paid in April 1998.
9. INVESTMENT
Short term certificate of deposit with a bank maturing in May 1997,
accruing interest at 5.04%.
10. SUBSEQUENT EVENTS
The Shareholders of the Company are in negotiations to sell their shares to
an unrelated third party. Substantial cost including legal and other consulting
costs will be incurred in connection therewith. Management is unable to estimate
the amount of these costs and no provision has been made for such costs in the
accompanying statements.
F-32
<PAGE> 96
[INSIDE BACK COVER]
[Description of graphics: In the top left corner appears the Company's logo.]
[STYLIZED TEXT:] "Harnessing the Power of Information Technology"
[STYLIZED TEXT:] "Extensive Experience"
[Description of graphics: A configuration of five computers, each consisting of
a monitor, keyboard, and hard-drive, are connected to one line that stretches
across the page. The computers are labeled: "Human Resources," "Inventory,"
"Payroll," "General Ledger," and "Operations."]
[STYLIZED TEXT:] "Rapid ERP Implementations"
[STYLIZED TEXT:] "Company of Employees"
<PAGE> 97
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 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 ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES 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 THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 5
Risk Factors.............................. 8
Use of Proceeds........................... 16
Dividend Policy........................... 16
Capitalization............................ 17
Dilution.................................. 18
Selected Financial Data................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 25
Business.................................. 34
Management................................ 45
Certain Transactions...................... 50
Principal and Selling Shareholders........ 52
Description of Capital Stock.............. 53
Shares Eligible for Future Sale........... 57
Underwriting.............................. 59
Legal Matters............................. 60
Experts................................... 60
Additional Information.................... 61
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, 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.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
5,000,000 SHARES
CCAI LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD INVESTMENTS INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 98
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the Common Shares being
registered hereby.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,376
NASD filing fee............................................. 6,729
NASDAQ National Market listing fee.......................... 2,000
Printing engraving, postage and mailing costs............... 300,000
Accounting fees and expenses................................ 550,000
Legal fees and expenses..................................... 500,000
Transfer agent fees and expenses............................ 5,000
Miscellaneous expenses...................................... 117,895
----------
Total............................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Code of Regulations, consistent with that permitted by the General
Corporation Law of the State of Ohio, as the same may be amended from time to
time, contains provisions eliminating a director's personal liability for
monetary damages resulting from certain breaches of fiduciary duty. These
provisions do not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief, such as an injunction or recision, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
Section 1701.13(E) of the Ohio Revised Code provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party 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 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, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
limited liability company, or a 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 in connection
with such action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgement, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of it self, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to 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 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, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, if he
II-1
<PAGE> 99
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to
the corporation unless, and only to the extent that, the court of common
pleas or the court in which such action or suit was brought determines,
upon application, that, despite the 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 as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the Securities Action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, member, manager, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
division (E)(1) or (2) of this section. Such determination shall be made as
follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened
with any such action, suit, or proceeding referred to in division (E)(1) or
(2) of this section;
(b) If the quorum described in division (E)(4) (a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the Securities
Action, suit, or proceeding referred to in division (E)(1) or (2) of this
section was brought.
Any determination made by the disinterested directors under division (E)(4)
(a) or by independent legal counsel under division (E)(4)(b) of this section
shall be promptly communicated to the person who threatened or brought the
Securities Action or suit by or in the right of the corporation under division
(E)(2) of this section, and within ten days after receipt of such notification,
such person shall have the right to petition the court of common pleas or the
court in which such action or suit was brought to review the reasonableness of
such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding refereed to in division (E)(1) or (2)
of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
Securities Action, suit, or proceeding shall be paid by the corporation as they
are incurred, in advance of the final disposition of the Securities Action,
suit, or proceeding upon receipt of an undertaking by or on behalf of the
director in which be agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing evidence
in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause
injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
Securities Action, suit, or proceeding.
II-2
<PAGE> 100
(b) Expenses, including attorney's fees, incurred by a director, trustee,
officer, employee, member, manager, or agent in defending any action, suit, or
proceeding referred to in division (E)(1) or (2) of this section, may be paid by
the corporation as they are incurred, in advance of the final disposition of the
Securities Action, suit, or proceeding, as authorized by the directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee, member, manager, or agent to repay such amount, if
it ultimately is determined that he is not entitled to be indemnified by the
corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to any other rights granted to those seeking
indemnification under the articles or the regulations, any agreement, a vote of
shareholders or disinterested directors, or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
their offices or positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of credit, or
self-insurance, on behalf of or for any person who is or was a director,
officer, employee, member, manager, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
this section. Insurance may be purchased from or maintained with a person in
which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of expenses as
they are incurred, indemnification, insurance, or other protection that may be
provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions
(E) (1) and (2) of this section do not create any obligation to repay or return
payments made by the corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entities, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee, trustee, member, manager, or agent of another corporation,
domestic or foreign, nonprofit or for profit, limited liability company, or
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
would if he had served the new or surviving corporation in the same capacity.
Prior to the consummation of the Offering, the Company anticipates it will
obtain directors' and officers' liability insurance that covers certain
liabilities and expenses of the Company's directors and officers.
In addition, Section 30 of the Code of Regulations provides that expenses
incurred in defending a civil, criminal or administrative action, suit or
proceeding will be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company, which were not registered under the
Securities Act, have been issued or sold by the Company within the past three
years, except as follows:
(a) On October 15, 1997 the Company sold to TA Investors 243,246
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $17 million, and 1,311,430 shares of Common Stock for an
aggregate purchase price of approximately $1,311. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the
Securities Act.
(b) On October 15, 1997 the Company sold to McDonald Investors 7,154
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $500,000, and 38,570 shares of Common
II-3
<PAGE> 101
Stock for an aggregate purchase price of approximately $38. These
transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(c) Pursuant to the terms of the 1998 Warrant Agreements, on April 3,
1998 the Company granted the Warrant Holders the right to purchase an
aggregate of 195,264 shares of Common Stock at an exercise price of $0.001
per share. Upon consummation of the Offering, the KLA Warrants will be
exercisable. These transactions were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(d) Pursuant to the terms of the Option Agreements , on April 3, 1998
the Company granted employees of the Company previously employed by KLA
options to purchase an aggregate of 64,700 shares of Common Stock at an
exercise price of $0.001 per share. Upon the consummation of the Offering,
the KLA Options will be exercisable. These transactions were undertaken in
reliance upon the exemption from the registration requirements of the
Securities Act afforded by Rule 701 promulgated under the Securities Act.
(e) On May 11, 1998, the Company issued Paul A. Farmer 76,950 shares
of restricted Common Stock under the 1997 Equity and Performance Plan. On
each anniversary of the grant date, one third of Mr. Farmer's restricted
stock will vest. Mr. Farmer paid the purchase price for the restricted
stock by executing and delivering to the Company a promissory note in the
principal amount of $359,356. The note is due and payable on May 11, 2004,
and accrues interest on unpaid principal at 6% per annum until paid in
full. These transactions were undertaken in reliance upon the exemption
from the registration requirements of the Securities Act afforded by Rule
701 promulgated under the Securities Act.
(f) On May 11, 1998, the Company granted options to purchase 320,200
shares of Common Stock under the 1997 Equity and Performance Plan. These
options vest 20% each year over a five-year period. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Rule 701 promulgated under
the Securities Act.
(g) In connection with the purchase of BVD, on January 12, 1999, the
Company issued Luc P. De Groof 300,000 shares of restricted Common Stock.
On each anniversary of the date of grant, one half of Mr. De Groof's
restricted stock will vest.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1** Form of Underwriting Agreement between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc., BancBoston Robertson Stephens and McDonald
Investments Inc.
3.1** Second Amended and Restated Articles of Incorporation of the
Company.
3.2* Amended and Restated Code of Regulations of the Company.
5** Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1* Employment Agreement, dated April 3, 1998, between the
Company and Ronnie Crumpler.
10.2* Employment Agreement, dated April 3, 1998, between the
Company and Gary Levey.
10.3* Form of Employment Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.4* Noncompetition Agreement, dated April 3, 1998, between the
Company and Anthony Kelly.
10.5* Employment Agreement, dated April 23, 1998, between the
Company and Paul A. Farmer.
10.6* Restricted Stock Agreement, dated May 11, 1998, between the
Company and Paul A. Farmer.
10.7* Form of Warrant Agreement, between the Company and Ronnie
Crumpler.
10.8* Form of Warrant Agreement, between the Company and Gary
Levey.
10.9* Form of Warrant Agreement, between the Company and Anthony
Kelly.
</TABLE>
II-4
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.10* Warrant Escrow Agreement, dated April 3, 1998, among the
Company and Ronnie Crumpler, Gary Levey and Anthony Kelly.
10.11* Form of Option Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.12* Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan,
dated April 3, 1998.
10.13* Form of Retention Incentive Bonus Plan Agreement 1998, among
certain former employees, Kelly-Levey & Assoc., Inc. and the
Company.
10.14* Retention Incentive Bonus Plan Escrow Agreement, dated April
3, 1998, among the Company and Kelly-Levey & Assoc., Inc,
Burke & Company, P.L.L. (as representative of the
shareholders), Anthony Kelly, Gary Levey, Ronnie Crumpler,
Trevor Montgomery, Rob Petersen and Don Kirby.
10.15* Earnout Agreement, dated April 3, 1998, among the Company,
Kelly-Levey & Assoc., Inc., Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.16* Earnout Escrow Agreement as amended, dated April 3, 1998,
among the Company, Kelly-Levey & Assoc., Burke & Company,
P.L.L. (as representative of the shareholders), Anthony
Kelly, Gary Levey and Ronnie Crumpler.
10.17* 1997 Stock Purchase and Shareholders Agreement, dated
October 15, 1997, among the Company, Annette M. Canitano,
Nicholas A. Canitano, Karen M. Conley, Kenneth L. Conley,
NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L.
Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust, TA/Advent VIII L.P., Advent
Atlantic and Pacific III L.P., TA Venture Investors Limited
Partnership, Kenneth T. Schiciano, A. Bruce Johnston,
McDonald & Company Securities, Inc., McD Venture Capital
Fund, L.P. and GHK Investments, L.L.C.
10.18* Form of the Company's Incentive Stock Option Agreement.
10.19* Amended and Restated Share Redemption and Purchase
Agreement, dated July 1, 1997, among the Company, Karen M.
Conley, Nicholas A. Canitano, Annette Canitano and Joseph
Minadeo.
10.20* Agreement, dated October 15, 1997, among the Company,
Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley,
Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises,
Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M.
Conley Charitable Remainder Trust, TA/Advent VIII, L.P.,
Advent Atlantic and Pacific L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce
Johnston, McDonald & Company Securities, Inc., McD Venture
Capital Fund, L.P., GHK Investments, L.L.C. and Joseph
Minadeo.
10.21* Stock Redemption Agreement, dated October 15, 1997, between
the Company and NAC Enterprises, Inc.
10.22* Stock Redemption Agreement, dated October 15, 1997, between
the Company and CKCK Enterprises, Inc.
10.23* Stock Redemption Agreement, dated October 15, 1997, between
the Company and Kenneth L. Conley Charitable Remainder
Trust.
10.24* Stock Redemption Agreement, dated October 15, 1997, between
the Company and Karen M. Conley Charitable Remainder Trust.
10.25* The Company's 1997 Equity and Performance Incentive Plan,
dated October 15, 1997.
10.26* First Amendment to the Company's Equity and Performance
Incentive Plan, dated July 21, 1998.
10.27* The Company's Amended and Restated 401(k) Plan and Trust,
dated December 2, 1996.
10.28* First Amendment to the Company's 401(k) Plan and Trust,
dated December 18, 1997.
10.29* Amendment No. 2 to the Company's 401(k) Plan and Trust,
dated May 29, 1998.
10.30* The Company's Employee Stock Purchase Plan, dated December
21, 1998.
10.31** The Restated and Amended Loan Agreement, dated January 12,
1999, between the Company and Fleet National Bank.
10.32* Lease Agreement, as amended, dated January 3, 1997, between
the Company and Place Renaissance, Ltd.
</TABLE>
II-5
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.33* R-3 National Implementation Partner Agreement, dated April
2, 1996, between the Company and SAP America, Inc.
10.34* Oracle Alliance Agreement, dated March 4, 1998, between the
Company and Oracle Corporation.
10.35* Form of Indemnification Agreement for directors and
officers.
10.36* Amendment to Amended and Restated Share Redemption and
Purchase Agreement, dated October 13, 1997, among the
Company, Karen M. Conley, Nicholas A. Canitano, Annette M.
Canitano and Joseph Minadeo.
10.37* Second Amendment to the Company's 1997 Equity and
Performance Incentive Plan, dated December 21, 1998.
10.38** Stock Purchase Agreement, dated January 12, 1999, between
the Company and Luc De Groof.
11** Statement regarding computation of per share earnings.
23.1** Consent of Jones, Day, Reavis & Pogue (included with Exhibit
5).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Langford de Kock & Co.
24 Powers of Attorney.
27** Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto appearing elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the Closing specified in the underwriting agreements, 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
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company 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 Securities 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, the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in 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,
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-6
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 3 to the Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of
Cleveland, State of Ohio, on January 13, 1999.
CONLEY, CANITANO & ASSOCIATES, INC.
By: /s/ PAUL A. FARMER*
------------------------------------
Paul A. Farmer
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the 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>
* President, Chief Operating Officer and January 13, 1999
- --------------------------------------------- Director
Kenneth L. Conley
/s/ PAUL A. FARMER Chief Financial Officer and Vice January 13, 1999
- --------------------------------------------- President (Principal Accounting and
Paul A. Farmer Financial Officer)
* Executive Vice President, Treasurer January 13, 1999
- --------------------------------------------- and Director
Karen M. Conley
* Executive Vice President, Secretary January 13, 1999
- --------------------------------------------- and Director
Annette M. Canitano
* Chief Executive Officer, Chairman of January 13, 1999
- --------------------------------------------- the Board and Director (Principal
Nicholas A. Canitano Executive Officer)
/s/ Director January 13, 1999
- ---------------------------------------------
Kenneth T. Schiciano
/s/ Director January 13, 1999
- ---------------------------------------------
A. Bruce Johnston
* Director January 13, 1999
- ---------------------------------------------
Ivan J. Winfield
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment No. 3 to the Registration Statement pursuant to the Powers of
Attorney executed by the above-named officers and directors of the Company and
which have been filed with the Securities and Exchange Commission on behalf of
such officers and directors.
By: /s/ PAUL A. FARMER
---------------------------------------------------------
Paul A. Farmer
as Attorney-in-Fact
II-7
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
1** Form of Underwriting Agreement between the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, Lehman Brothers Inc., BancBoston Robertson Stephens and McDonald Investments Inc.
3.1** Second Amended and Restated Articles of Incorporation of the Company.
3.2* Amended and Restated Code of Regulations of the Company.
5** Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being offered.
10.1* Employment Agreement, dated April 3, 1998, between the Company and Ronnie Crumpler.
10.2* Employment Agreement, dated April 3, 1998, between the Company and Gary Levey.
10.3* Form of Employment Agreement, among the Company and certain employees previously employed by
Kelly-Levey & Assoc., Inc.
10.4* Noncompetition Agreement, dated April 3, 1998, between the Company and Anthony Kelly.
10.5* Employment Agreement, dated April 23, 1998, between the Company and Paul A. Farmer.
10.6* Restricted Stock Agreement, dated May 11, 1998, between the Company and Paul A. Farmer.
10.7* Form of Warrant Agreement, between the Company and Ronnie Crumpler.
10.8* Form of Warrant Agreement, between the Company and Gary Levey.
10.9* Form of Warrant Agreement, between the Company and Anthony Kelly.
10.10* Warrant Escrow Agreement, dated April 3, 1998, among the Company and Ronnie Crumpler, Gary Levey
and Anthony Kelly.
10.11* Form of Option Agreement, among the Company and certain employees previously employed by
Kelly-Levey & Assoc., Inc.
10.12* Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan, dated April 3, 1998.
10.13* Form of Retention Incentive Bonus Plan Agreement 1998, among certain former employees, Kelly-Levey
& Assoc., Inc. and the Company.
10.14* Retention Incentive Bonus Plan Escrow Agreement, dated April 3, 1998, among the Company and
Kelly-Levey & Assoc., Inc, Burke & Company, P.L.L. (as representative of the shareholders),
Anthony Kelly, Gary Levey, Ronnie Crumpler, Trevor Montgomery, Rob Petersen and Don Kirby.
10.15* Earnout Agreement, dated April 3, 1998, among the Company, Kelly-Levey & Assoc., Inc., Anthony
Kelly, Gary Levey and Ronnie Crumpler.
10.16* Earnout Escrow Agreement as amended, dated April 3, 1998, among the Company, Kelly-Levey & Assoc.,
Burke & Company, P.L.L. (as representative of the shareholders), Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.17* 1997 Stock Purchase and Shareholders Agreement, dated October 15, 1997, among the Company, Annette
M. Canitano, Nicholas A. Canitano, Karen M. Conley, Kenneth L. Conley, NAC Enterprises, Inc., CKCK
Enterprises, Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M. Conley Charitable
Remainder Trust, TA/Advent VIII L.P., Advent Atlantic and Pacific III L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce Johnston, McDonald & Company Securities, Inc.,
McD Venture Capital Fund, L.P. and GHK Investments, L.L.C.
10.18* Form of the Company's Incentive Stock Option Agreement.
10.19* Amended and Restated Share Redemption and Purchase Agreement, dated July 1, 1997, among the
Company, Karen M. Conley, Nicholas A. Canitano, Annette Canitano and Joseph Minadeo.
</TABLE>
<PAGE> 106
EXHIBIT INDEX -- CONTINUED
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
10.20* Agreement, dated October 15, 1997, among the Company, Annette M. Canitano, Nicholas A. Canitano,
Karen M. Conley, Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L.
Conley Charitable Remainder Trust, Karen M. Conley Charitable Remainder Trust, TA/Advent VIII,
L.P., Advent Atlantic and Pacific L.P., TA Venture Investors Limited Partnership, Kenneth T.
Schiciano, A. Bruce Johnston, McDonald & Company Securities, Inc., McD Venture Capital Fund, L.P.,
GHK Investments, L.L.C. and Joseph Minadeo.
10.21* Stock Redemption Agreement, dated October 15, 1997, between the Company and NAC Enterprises, Inc.
10.22* Stock Redemption Agreement, dated October 15, 1997, between the Company and CKCK Enterprises, Inc.
10.23* Stock Redemption Agreement, dated October 15, 1997, between the Company and Kenneth L. Conley
Charitable Remainder Trust.
10.24* Stock Redemption Agreement, dated October 15, 1997, between the Company and Karen M. Conley
Charitable Remainder Trust.
10.25* The Company's 1997 Equity and Performance Incentive Plan, dated October 15, 1997.
10.26* First Amendment to the Company's Equity and Performance Incentive Plan, dated July 21, 1998.
10.27* The Company's Amended and Restated 401(k) Plan and Trust, dated December 2, 1996.
10.28* First Amendment to the Company's 401(k) Plan and Trust, dated December 18, 1997.
10.29* Amendment No. 2 to the Company's 401(k) Plan and Trust, dated May 29, 1998.
10.30* The Company's Employee Stock Purchase Plan, dated December 21, 1998.
10.31* The Restated and Amended Loan Agreement, dated January 12, 1999, between the Company and Fleet
National Bank.
10.32* Lease Agreement, as amended, dated January 3, 1997, between the Company and Place Renaissance,
Ltd.
10.33* R-3 National Implementation Partner Agreement, dated April 2, 1996, between the Company and SAP
America, Inc.
10.34* Oracle Alliance Agreement, dated March 4, 1998, between the Company and Oracle Corporation.
10.35* Form of Indemnification Agreement for directors and officers.
10.36* Amendment to Amended and Restated Share Redemption and Purchase Agreement, dated October 13, 1997,
among the Company, Karen M. Conley, Nicholas A. Canitano, Annette M. Canitano and Joseph Minadeo.
10.37* Second Amendment to the Company's 1997 Equity and Performance Incentive Plan, dated December 21,
1998.
10.38** Stock Purchase Agreement, dated January 12, 1999, between the Company and Luc De Groof.
11** Statement regarding computation of per share earnings.
23.1** Consent of Jones, Day, Reavis & Pogue (included with Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Langford de Kock & Co.
24* Powers of Attorney.
27** Financial Data Schedule.
</TABLE>
<PAGE> 107
EXHIBIT INDEX -- CONTINUED
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
59909) of our reports dated January 12, 1999 and June 8, 1998, on our audits of
the financial statements and financial statement schedules of Conley, Canitano &
Assoc., Inc. and Kelly-Levey & Associates, Inc. respectively. We also consent
to the references to the firm under the captions "Experts" and "Selected
Financial Data."
PricewaterhouseCoopers LLP
January 12, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333- 59909) of our reports dated January 11, 1999 on our audits of the financial
statements and financial statement schedules of Bureau van Dijk Computer
Services, Inc. We also consent to the references to the firm under the captions
"Experts" and "Selected Financial Data."
Langford de Kock & Co.
January 13, 1999
