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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from Not Applicable to
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Commission file number 0-17840
NEW HORIZONS WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2941704
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Campus Drive, Morganville, New Jersey 07751
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(Address of principal executive offices) (Zip Code)
Registrant"s telephone number, including area code: (732) 536-8501
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Not Applicable Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant"s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of March 26, 1999 was approximately $96,250,982, computed on the
basis of the last reported sales price per share ($19.25) of such stock on The
Nasdaq Stock Market.
The number of shares of the Registrant"s Common Stock outstanding as of March
26, 1999 was 7,540,028.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE
Part of Form 10-K Documents Incorporated
Part III (Items 10, 11, 12 and 13) by Reference
- ---------------------------------- -------------------------------
Portions of the Registrant"s
definitive Proxy Statement to
be used in connection with its
Annual Meeting of Stockholders
to be held on May 4, 1999
NEW HORIZONS WORLDWIDE, INC.
INDEX TO ANNUAL REPORT
ON FORM 10K
PART I
Item 1. Business.............................................................1
General..............................................................1
Information Technology Education and Training Market.................2
New Horizons Business Model..........................................2
Company-owned Training Centers..................................3
Franchising.....................................................4
Customers............................................................6
Sales and Marketing..................................................6
Training Authorizations..............................................6
Competition..........................................................6
Information about Forward Looking Statements.........................7
Regulations..........................................................9
Insurance............................................................9
Trademarks...........................................................9
Employees............................................................9
Item 2. Properties...........................................................9
Item 3. Legal Proceedings...................................................10
Item 4. Submission of Matters to a Vote of Security Holders.................10
PART II
Item 5. Market for Registrant"s Common Equity
and Related Shareholder Matters.....................................10
Item 6. Selected Consolidated Financial Data................................11
Item 7. Management"s Discussion and Analysis of
Financial Condition and Results of Operations.......................12
Item 7a. Quantitative and Qualitative Disclosures about Market Risk .........18
Item 8. Financial Statements and Supplementary Data.........................18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..............................18
PART III
Item 10. Directors and Executive Officers of the Registrant..................19
Item 11. Executive Compensation..............................................20
Item 12. Security Ownership of Certain Beneficial Owners
and Management......................................................20
Item 13. Certain Relationships and Related Transactions......................20
PART IV
Item 14. Exhibits and Reports on Form 8-K ...................................21
SIGNATURES....................................................................22
PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company"s actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
discussed throughout this document and under the caption "Information About
Forward Looking Statements."
New Horizons Worldwide, Inc., (the "Company" or "New Horizons") formerly Handex
Corporation, through various subsidiaries, both owns and franchises computer
training centers. System-wide revenues include revenues for all centers, both
owned and franchised. The Company sold its environmental business segment and
changed its name to New Horizons in late 1996, in order to concentrate its
resources on the technology training market. The Company"s common stock trades
on The Nasdaq Stock Market under the symbol "NEWH".
GENERAL
New Horizons' 1998 system-wide revenues of $357.5 million makes it the largest
independent provider in the fragmented PC software applications and technical
certification training industry. Through various subsidiaries, the Company both
owns and franchises computer training centers. Through these training centers
the Company offers a variety of flexible training choices including
instructor-led classes, Web-based Training (WBT), Computer-based Training (CBT)
via CD-ROM, computer labs, certification exam preparation tools, and 24-hour,
seven-day-a-week free help desk support. The goal of the training is to deliver
to the student information and skills which have immediate and practical value
in the workplace.
The New Horizons worldwide network delivered over 2.4 million student-days of
technology training in 1998, generating system-wide revenues, which include both
the results of company-owned and franchised operations, of $357.5 million, up
34% from $267.4 million in 1997. The network has over 1,080 classrooms, 1,280
instructors and 1,300 account executives.
New Horizons specializes in instructor-led training which is the industry's
dominant delivery method for information technology training. The Company has
become a leader in the industry by developing the processes for delivering
quality training for the largest technology training segments: PC software
applications and technical certification training. The network's training
centers offer a broad range of courses for several of the major software
vendors, including Microsoft, Novell, Lotus, Adobe, Aldus, Apple Computer,
Corel, Symantec, Sun Microsystems, and Unix. New Horizons has the largest
network of Microsoft Certified Technical Education Centers and Novell Authorized
Education Centers in the world. Additionally, with certification testing
becoming increasingly important, New Horizons also has established the largest
number of Authorized Prometric Testing Centers in the world. Classes can be held
at New Horizons locations or on-site at the client's facility. Curriculum can be
tailored to the client's specific needs. The Company can also provide training
and courseware for customers' proprietary software. Additionally, using its
courseware as the source material, the Company has entered into an arrangement
with a company to develop its own line of computer-based products, entitled
Masterware, which became available to franchisees for sale in the third quarter
of 1997. Additionally, the Company has a reseller agreement with a company that
has an extensive offering of computer-based training courses that will prepare
customers for certification exams.
New Horizons owns and operates 11 computer training facilities located in Santa
Ana, Burbank, Los Angeles, and Irvine, California; Chicago, Illinois; Cleveland,
Ohio; two in New York City, New York; Memphis and Nashville, Tennessee; and
Hartford, Connecticut. The Santa Ana location was acquired as part of the
original purchase of New Horizons in 1994. The remaining California locations
are part of a strategy to expand in the large southern California technology
training market, while the Chicago, Cleveland, Memphis, Nashville and Hartford
locations and the initial New York location were acquired from franchisees as
part of the Company's strategy to operate company-owned training centers in
select markets within the United States. A second New York training center
opened in the first quarter of 1997. The Company acquired the Albuquerque, New
Mexico franchise on March 1, 1999.
As of December 31, 1998, the Company's franchisees operated 117 locations in the
United States and Canada and 77 locations in 28 other countries around the
world. An additional 24 franchises have been sold and are scheduled for future
openings.
The Company was incorporated in Delaware on December 15, 1988, and its principal
executive offices are located at 500 Campus Drive, Morganville, New Jersey,
07751. The Company's principal operating offices are located at 1231 East Dyer
Road, Suite 140, Santa Ana, California 92705. The Company maintains a website at
http://www.newhorizons.com.
THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET
The rapidly growing role of information technology in business organizations and
the emergence of the Internet are creating significant and increasing demand for
information technology training. A 1998 International Data Corporation ("IDC')
study estimated that in 1997 the worldwide market for information technology
education and training was about $16.4 billion and is expected to grow at a pace
of 11.1% per year to over $28 billion in the year 2002. The study indicated that
nearly one-fifth of the top U.S. IT executives rated the lack of skilled
personnel as the most serious constraint to the growth of their businesses in
1997. A survey published in 1997 by Information Technology Association of
America (ITAA) stated that the number of unfilled positions for IT employees at
large and midsized U.S. companies is approximately 190,000.
The growing need for technology training is driven by several developments
including: (i) increased use of computers in the workplace requiring employees
to acquire and apply information technology skills; (ii) rapid and complex
technological changes in operating systems, new software development, and
technical training; (iii) continuing emphasis by industry on productivity,
increasing the number of functions being automated throughout organizations;
(iv) greater focus by organizations on core competencies with a shifting
emphasis to outsourcing of non-core activities; (v) corporate downsizing
requiring remaining personnel to develop a greater variety of skills; and (vi)
development of the Internet. In its survey, the ITAA announced that education
will be a key facet of any solution to the skills problem.
Although a significant portion of technology training is provided by in-house
training departments, IDC, in its study, identified a decided shift towards
outsourcing to external training professionals. This outsourcing is motivated by
several factors, including: (i) the lack of internal trainers experienced in the
latest software; (ii) the cost of maintaining an in-house staff of trainers; and
(iii) the cost of developing and maintaining internal courseware.
Organizations are searching out and selecting outside technology training
services that can provide the following: (i) cost effective delivery of high
quality instruction; (ii) qualified, technically expert instructors; (iii)
flexibility to deliver a consistent training product at geographically dispersed
facilities; (iv) ability to tailor the training products to specific customers'
needs; (v) definitive, current courseware; (vi) testing and certification of
technical competency; (vii) effective training methods delivering knowledge and
skills with immediate practical value in the workplace; (viii) a depth and
breadth of curriculum; and (ix) flexible and convenient scheduling of classes.
Instructor-led classroom training is the dominant delivery method for technology
training with 78.4% of the information technology education market according to
the 1998 IDC report. IDC projects that instructor-led training will continue to
maintain a significant share of the market because trainees value the
personalized attention, interfacing and problem-solving with classmates and
instructors, and the insulation classroom training provides from workplace
interruptions. While IDC projects instructor-led training will continue to be
the leading delivery method in the market through 2001, the role of
technology-based training, consisting of computer-based training, Web-based
training, and CD-ROM multimedia is gaining greater acceptance. IDC estimates
that technology-based training will have 54.9% of the information technology
education market by 2002 while instructor-led classroom training will have a
42.4% share. IDC projects that revenues generated through instructor-led
training will still grow through 2000, but at that point will start to decline.
THE NEW HORIZONS BUSINESS MODEL
New Horizons' company-owned and franchised operations both provide an
instructor-led training delivery system to customers that is executed by
certified employee instructors primarily in fully equipped classrooms in New
Horizons facilities. Approximately 17% of classes are given on-site at the
customer's location. New Horizons often supplies the computer hardware for these
on-site classes. The Company sells its services primarily to businesses and
government agencies as opposed to individuals.
Curriculum is centered on software applications (approximately 63% of the
courses) and technical certification programs (approximately 37%). Classes are
concise, generally ranging from one to five days, and are designed to be
intensive skill building experiences. The Company offers a broad array of
information technology courses covering the most popular software applications
and technical certification programs. The Company also provides customized
training for customers' proprietary software applications. The Company believes
it offers more classes more often than any other company in the industry.
In addition to certified instructors and broad curriculum, the New Horizons
business model is designed to provide its customers significant training value
by featuring: (i) guaranteed training through the Company's free six-month
repeat privileges; (ii) skills assessment on subjects and skills for both
standard or proprietary software; (iii) professional certification training;
(iv) the largest network of authorized training centers in the industry ensuring
quality and consistency; (v) free 24 hours-a-day, 7 day-a-week help desk service
for a full sixty-day period after a class has been completed; (vi) on-site
training at customer's facilities; (vii) customized courseware from a library of
over 1,200 titles in 12 languages; (viii) club memberships providing a series of
classes for one platform at one low price; (ix) flexible scheduling including
evening and weekend classes; (x) a Major Accounts Program which coordinates the
national and/or international delivery of training for clients with training
requirements in multiple locations; and (xi) its Choice Learning program which
allows customers to blend the delivery methodology between instructor-led
training and technology-based training.
The Company has historically grown through the sale of franchises, the opening
of new company-owned facilities, the buy back of franchises in certain markets,
and revenue growth for the existing training centers. Locations open more than
twelve months grew more than 28% in 1998. The Company believes a mix of
franchised and company-owned centers will enable it to combine the accelerated
expansion opportunities provided by franchising while maintaining ownership of a
significant number of training centers. The Company plans to continue to grow
through the (i) improvement of revenues and profits at both current
company-owned and franchised operating locations; (ii) the sale of additional
franchises; (iii) the selective buyback of existing franchises in the United
States which have demonstrated the ability to achieve exceptional profitability
while increasing market share, and (iv) the potential acquisition of companies
in similar or complementary businesses.
Company-owned Training Centers
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At the end of 1998 the Company owned and operated eleven training centers that
generated $52.5 million in revenue. The locations open at the beginning of 1998
were as follows:
California Illinois New York Ohio
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Santa Ana Chicago New York (2) Cleveland
Irvine
Burbank
Los Angeles
The franchise locations acquired in 1998 were as follows:
Memphis and Nashville, Tennessee Acquired April 30, 1998
Hartford, Connecticut Acquired October 30, 1998
In addition, the Company acquired the Albuquerque, New Mexico, franchise on
March 1, 1999.
The acquisitions are a result of the Company's strategy to acquire well-
performing franchises in select United States markets. The selling shareholders,
who have continued to manage the acquired training centers, will receive
additional consideration if certain performance criteria are met. The
acquisitions have been recorded using the purchase method of accounting and the
operating results have been included in the Company's financial statements from
the date of acquisition.
Franchising
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At the end of 1998 the Company supported a worldwide network of independent
franchises which provide information technology training at 194 locations in 30
countries. There are an additional 24 franchised locations which have been sold
and which are scheduled to open at various times during 1999. The franchisee is
given a non-exclusive license and franchise to participate in and use the
business model and sales system developed and refined by the Company. The
Company initially offered franchises for sale in 1991 and sold its first
franchise in 1992. The Company had 147 franchised locations operating at the end
of 1996; 175 at the end of 1997; and 194 at the end of 1998, of which 117 were
in the United States and Canada and 77 were abroad.
The offer and sale of franchises are subject to regulation by the United States
Federal Trade Commission and certain foreign countries. There also exist
numerous state laws that regulate the offer and sale of franchises and business
opportunities, as well as the ongoing relationship between franchisors and
franchisees, including the termination, transfer, and renewal of franchise
rights. The failure to comply with these laws could adversely affect the
Company's operations.
New Horizons estimates the initial investment required to acquire and start a
franchise operation, including the initial franchise fee, ranges from
approximately $250,000 to $450,000.
United States and Canada
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Franchise Fees
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A franchisee in the United States and Canada is charged an initial franchise fee
and ongoing monthly royalties, which become effective a specified period of time
after the center begins operation. The initial franchise fee is based on the
size of the territory granted as defined in the Franchise Agreement. In the
United States and Canada, the size of a territory is measured by the number of
personal computers ("PC's") in the territory. On October 1, 1998, the Company
increased the initial franchise fees for its territories. The initial franchise
fee for a start-up center for a Type 1 territory (150,000 or more PC's) is
$75,000; for a Type 2 territory (75,000 to 149,999 PC's) is $50,000; and a Type
3 territory (50,000 to 75,000 PC's) is $25,000. Entrepreneurs converting an
existing training center to a New Horizons center receive a 20% reduction in the
initial fee as a conversion allowance. Based on information furnished by IDC
concerning the number of PC's in various geographic areas, as of December 31,
1998, the Company has identified 22 Type 1 territories, 32 Type 2 territories,
and 14 Type 3 territories as the remaining territories currently available for
sale as franchises in the United States and Canada.
The initial franchise fee is payable upon execution of the Franchise Agreement
and is not refundable under any circumstances. The territory is a "limited
exclusive" territory in that New Horizons agrees not to own or franchise any
other New Horizons Computer Learning Center provided the franchisee operates in
compliance with the terms of its franchise agreement. The geographic boundaries
of a territory are typically determined by United States Postal Service zip
codes. Unless the Franchise Agreement terminates or is amended by mutual
agreement, a territory will not be altered. Franchises are expected to market
their business to customers located within the defined territory and not to
customers within territories of other New Horizons franchises or affiliates.
Franchisees generally have six months from the date of the execution of the
Franchise Agreement to open a center.
Royalties
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In addition to the initial franchise fee, franchisees pay the following fees to
New Horizons: (i) a monthly continuing royalty fee, consisting of the greater of
3% to 6% of monthly gross revenues or a minimum flat fee of $1,500 for a Type 1
territory or $1,000 for a Type 2 and Type 3 territory; (ii) a monthly marketing
and advertising fee of 1% of gross revenues; and (iii) a course materials and
proprietary computer-based training products surcharge of 9% of the gross
revenues from course materials and proprietary computer-based training products
sold to third parties. Each franchisee also pays a $50 per month maintenance fee
for customized software developed and maintained by New Horizons. The 6% royalty
fee rate was effective for franchises sold during September 1996 or later.
Franchise Agreement
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The Franchise Agreement runs for an initial term of ten years and is renewable
for additional five-year terms. The franchise is exclusive within the specific
defined territory and is subject to a number of limitations and conditions.
These limitations and conditions include, but are not limited to: (i) staffing
requirements, including a General Manager plus a minimum number of account
executives based on the territory type; (ii) a minimum number of classrooms
depending on the territory type; (iii) full-time and continuous operations; (iv)
a pre-defined minimum required curriculum; (v) computer equipment and system
requirements; (vi) signage and display material requirements; (vii) minimum
insurance requirements; and (viii) record keeping requirements. The agreement
also contains non-competition restrictions which bar: (i) competing with New
Horizons during the term of the Franchise Agreement and for one year after
termination of the franchise, within a 25 mile radius of any New Horizons
center; (ii) diverting or attempting to divert any customer or business of the
franchise business to any competitor; (iii) performing any act that is injurious
or prejudicial to the goodwill associated with the New Horizons service marks or
operating system; and (iv) soliciting any person who is at that time employed by
the franchisor or any of its affiliated corporations to leave his or her
employment. In addition, there are certain restrictions on the franchisees'
rights to transfer the franchise license. New Horizons also maintains a "right
of first refusal" if a transfer effects a change of control. The agreement also
contains default and termination remedies.
International
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Franchise fees
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Initial franchisee fees and territories for international franchises are
market/country specific. While the Company does have some unit franchises
internationally, the Company has predominantly entered into Master Franchise
Agreements providing franchisees with the right to award sub-franchises to other
parties within a particular region. The Master Franchisee pays an initial master
franchise fee that is based upon the expected number of sub-franchises to be
sold. The master franchise fee is then earned ratably over the opening of the
sub-franchises. Under the terms of these Master Franchise Agreements, the
franchisee commits to open or cause to be opened a specified number of locations
within a specified timeframe. The Master Franchisee is responsible for the
pre-opening and ongoing support of the sub-franchises. The Company shares with
the master franchisee in the proceeds of subsequent sales of individual
franchises and also receives a percentage of the royalties received by the
Master Franchisee. In 1998 the Company entered into Master Franchise Agreements
for the development of Australia, Austria, Italy and the Benelux countries. To
bolster its international field support, the Company opened regional offices in
Amsterdam and Singapore in 1998. Approximately 14.5% of the Company's
system-wide revenues were generated by international locations in 1998. In
addition to those markets currently served by its franchisees, the Company has
identified over 200 additional international markets which may support a
training center.
The initial franchise fee is payable upon execution of the Franchise Agreement
and is not refundable under any circumstances. The territory is a "limited
exclusive" territory in that New Horizons agrees not to own or franchise any
other New Horizons Computer Learning Center provided the franchisee operates in
compliance with the terms of its Franchise Agreement. Unless the Franchise
Agreement terminates or is amended by mutual agreement, a territory will not be
altered. Franchises are expected to market their business to customers located
within the defined territory and not to customers within territories of other
New Horizons franchises or affiliates. Franchisees generally have six months
from the date of the execution of the Franchise Agreement to open a center.
Royalties
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In addition to the initial franchise fee, franchisees pay the following fees to
New Horizons: (i) Unit Franchisees: a monthly continuing royalty fee, ranging
from 3% to 6% of monthly gross revenues with minimum royalties ranging from $350
to $3,000, depending on the marketplace; (ii) Master Franchisees: 40% of the
royalties received from their Subfanchisees with those royalties ranging from 3%
to 6% with the aforementioned minimums; and (iii) a course materials and
proprietary computer-based training products surcharge of 9% of the gross
revenues from course materials and proprietary computer-based training products
sold to third parties. Each franchisee also pays a $50 per month maintenance fee
for customized software developed and maintained by New Horizons. The 6% royalty
fee rate was effective for franchises sold during September 1996 or later.
Master Franchise Agreement
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A Master Franchisee receives a "Protected Area" which is typically a country or
a region encompassing multiple countries. Under the Master Franchise Agreement
the Master Franchisee shall: (i) license and service third party Unit
Subfranchises operated by persons other than the Master Franchisee; and (ii) own
and operate at least one New Horizons location under a separate Unit Franchise
Agreement. The Master Franchise Agreement runs for an initial term of ten years
and is renewable for additional ten-year terms. The Master Franchisee is
expected to: (i) grant unit franchises in a form of Unit Franchise Agreement as
prescribed by New Horizons; (ii) perform and enforce against each Unit
Subfranchise the terms of any Unit Subfranchise Agreement it enters into; (iii)
provide the initial training in the New Horizons system to each Unit
Subfranchise; and (iv) provide ongoing support, consulting and assistance to
each Unit Subfranchise after the initial training. For these obligations the
Master Franchisee retains 60% of the initial franchise fees and the ongoing
royalties received from the Unit Subfranchises.
Unit Franchise Agreement
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The Franchise Agreement runs for an initial term of ten years and is renewable
for additional five-year terms. The franchise is exclusive within the specific
defined territory, typically a city, and is subject to a number of limitations
and conditions. These limitations and conditions include, but are not limited
to: (i) staffing requirements, including a General Manager plus a minimum number
of account executives based on the territory; (ii) a minimum number of
classrooms depending on the territory; (iii) full-time and continuous
operations; (iv) a pre-defined minimum required curriculum; (v) computer
equipment and system requirements; (vi) signage and display material
requirements; (vii) minimum insurance requirements; and (viii) record keeping
requirements. The agreement also contains non-competition restrictions which
bar: (i) competing with New Horizons during the term of the Franchise Agreement;
(ii) diverting or attempting to divert any customer or business of the franchise
business to any competitor; (iii) performing any act that is injurious or
prejudicial to the goodwill associated with the New Horizons service marks or
operating system; and (iv) soliciting any person who is at that time employed by
the franchisor or any of its affiliated corporations to leave his or her
employment. In addition, there are certain restrictions on the franchisees'
rights to transfer the franchise license. New Horizons also maintains a "right
of first refusal" if a transfer effects a change of control. The agreement also
contains default and termination remedies.
Franchise Support
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In return for the initial franchise fee and the other monthly fees, the Company
provides franchisees with the following services, products, and managerial
support: (i) two weeks of initial franchise training at the Company's operating
headquarters in Santa Ana, California, and one week of field training at the
franchisee's location; (ii) franchise and sales system information contained in
the Company's Confidential Operations Manual and other training manuals; (iii)
ongoing operating support via on-site visits from Regional Franchise Support
Managers, access to troubleshooting and business planning assistance; (iv)
current applications courseware at printing cost only (over 1,200 titles in
twelve languages); (v) access to the Major Accounts Program which coordinates a
national/international referral system and delivery network of training for
major clients which have training requirements in multiple locations; (vi) site
selection assistance; (vii) periodic regional and international meetings and
conferences; and (viii) advisory councils and monthly communications.
CUSTOMERS
Customers for the training provided at New Horizons company-owned and franchised
training centers are predominantly employer-sponsored individuals from a wide
range of public and private corporations, service organizations, government
agencies and municipalities. Little, if any, of the Company's revenues are
generated from Title IV entitlement programs.
No single customer accounted for more than 10% of New Horizons revenues in 1998.
The New Horizons system delivered over 2.4 million student-days of technology
training in 1998.
SALES AND MARKETING
New Horizons markets its services primarily through account executives who
utilize telesales to target and contact potential customers. The New Horizons
sales system is organized and disciplined. After undergoing a formal initial
training program, account executives are expected to generate their own database
of customers through telephone sales, make a minimum number of calls per day,
and invoice and collect a minimum amount of revenue each month. These minimums
escalate over the first eight months an account executive is selling and are
designed to move the account executive from being compensated, with a
non-recoverable draw against commission to a full commission compensation
program. Account executives' target sales areas are local and regional. Sales
opportunities which involve national and international accounts and involve
delivery of training at multiple locations are turned over to the Company's
Major Accounts Program.
In 1995 the Company established a Major Accounts Program designed to market
computer training services to large organizations which have facilities and
training needs throughout the world. This program provides New Horizons'
national and international customers with a single point of contact to the
entire New Horizons network of training and support services. During 1998 New
Horizons competed for and won national and international contracts with TRW,
Storage Technology, Robert Half, and UPS, among others.
The Company maintains a web site for marketing its products over the Internet
(http://www.newhorizons.com). The Company believes that the Internet will become
an increasingly important tool in its marketing program.
TRAINING AUTHORIZATIONS
New Horizons is authorized to provide certified training by more than 30
software publishers, including Microsoft, Novell, Apple, and Sun Microsystems.
Many of the industry's major software vendors do not offer training, but support
their products through independent training companies using a system of
standards and performance criteria. In support of these vendors, the Company has
112 Microsoft (CTEC), 93 Novell (NAEC), and 31 Lotus (LAEC) authorized centers
worldwide. The authorization agreements are typically annual in length and are
renewable at the option of the publishers. While New Horizons believes that its
relationships with software publishers are good, the loss of any one of these
agreements could have a material adverse impact on its business. Additionally,
with certification testing becoming increasingly important, New Horizons has
grown its number of Authorized Prometric Testing Centers to 117.
COMPETITION
The information technology training market is highly competitive, highly
fragmented, has low barriers to entry, and has no single competitor which
accounts for a dominant share of the market. The Company's competitors are
primarily in-house training departments and independent education and training
organizations. Computer retailers, computer resellers, and others also compete
with the Company. Periodically, some of these competitors offer instruction and
course titles similar to those offered by New Horizons at lower prices. In
addition, some of these competitors may have greater financial strength and
resources than New Horizons.
New Horizons believes that competition in the industry is based on a combination
of pricing, breadth of offering, quality of training, and flexibility and
convenience of service.
The Company recognizes that the emergence of desktop multimedia and
computer-based training, as well as distance learning and online training on the
Internet, are important and growing competitive developments in the industry.
In-house Training Departments:
- ------------------------------
In-house training departments provide companies with the highest degree of
control over the delivery and content of information technology training,
allowing for customized instruction tailored to specific needs. However,
according to IDC, the demand for outsourced training is expected to grow as more
companies switch to outside training organizations. By outsourcing, companies
can choose to spend based on real-time training needs while alleviating the
overhead costs for in-house instructors' salaries and benefits.
Independent Education and Training Organizations:
- -------------------------------------------------
Although the majority of independent training organizations are relatively small
and focus on local or regional markets, the Company competes directly on a
national level with several firms providing similar curriculum. Executrain,
Productivity Point, Global Knowledge Network, Learning Tree, and Catapult target
the same customer base and operate in some of the same markets as New Horizons.
The Company believes that the combination of its market presence, the depth and
breadth of its course offerings, its flexible customer service approach, its
centralized control of delivery to national customers, its status as the world's
largest network of Microsoft Certified Technical Education Centers and Novell
Authorized Education Centers, and its organized and disciplined sales system
distinguishes it from these competitors.
The Company also competes in certain locations with computer resellers like
Inacom and IKON, as well as computer retailers such as CompUSA.
Multimedia, Computer-Based Training, Distance Learning, and Web-based Training:
- -------------------------------------------------------------------------------
Instructor-led training has historically been the dominant delivery method for
information technology training. Multimedia, CBT, distance learning, and
Web-based training (WBT) have been small but growing delivery methods. According
to IDC, these training delivery methods are expected to grow at a faster rate
than instructor-led training through the year 2002. The Company recognizes that
its future success depends on, among other factors, the market's continued
acceptance of instructor-led training as a delivery method for information
technology training, the Company's ability to continue to market competitive
instructor-led course offerings, and the Company's ability to successfully
capitalize on the potential of multimedia, CBT, distance learning, and WBT
delivery methods. Using its courseware as the source material, the Company has
entered into an arrangement with a company to develop its own line of
computer-based products, entitled Masterware, which became available to
franchisees for sale in the third quarter of 1997. As of December 31, 1998,
there were 40 Masterware titles available for sale. IDC's 1998 research found
that IT professionals use 2.8 methods of study and preparation when preparing
for certification exams. The Company has a reseller agreement with a company
that has an extensive offering of CBT courses that will prepare customers for
certification exams.
WBT represents an emerging trend in the computer training industry and IDC
estimates that the online learning market will increase from $197 million in
1997, to $5.5 billion by 2002. The Company has entered into an agreement with a
company that will allow New Horizons customers worldwide to have access to
tutor-supported WBT computer courses seven days a week, 24 hours a day.
Information technology training can be broken into three segments: Segment 1
includes the most sophisticated levels of training for programmers and software
developers; Segment 2 includes certification for engineers (Microsoft, Novell);
and Segment 3 includes the end users of standard application software. The
Company competes in Segments 2 and 3, with an estimated 37% of revenues from
Segment 2 and 63% from Segment 3.
The Company competes with Catapult, Executrain, IKON, and Productivity Point in
Segments 2 and 3. The Company competes marginally with Learning Tree and Global
Knowledge Network in Segment 2. Currently, the Company does very little training
of programmers and software developers.
INFORMATION ABOUT FORWARD LOOKING STATEMENTS
The statements made in this Annual Report on Form 10-K that are not historical
facts are forward looking statements. Such statements are based on current
expectations but involve risks, uncertainties, and other factors which may cause
actual results to differ materially from those contemplated by such forward
looking statements. Important factors which may result in variations from
results contemplated by such forward looking statements include, but are by no
means limited to: (i) the Company's ability to respond effectively to potential
changes in the manner in which computer training is delivered, including the
increasing acceptance of technology-based training which could have more
favorable economics with respect to timing and delivery costs and the emergence
of just-in-time interactive training; (ii) the Company's ability to attract and
retain qualified instructors; (iii) the rate at which new software applications
are introduced by manufacturers and the Company's ability to keep up with new
applications and enhancements to existing applications; (iv) the level of
expenditures devoted to upgrading information systems and computer software by
customers; (v) the Company's ability to compete effectively with low cost
training providers who may not be authorized by software manufacturers; and (vi)
the Company's ability to manage the growth of its business.
The Company's strategy focuses on enhancing revenues and profits at current
locations, and also includes the possible opening of new company-owned
locations, the sale of additional franchises, the selective acquisition of
existing franchises in the United States which have demonstrated the ability to
achieve exceptional profitability while increasing market share, and the
acquisition of companies in similar or complementary businesses. The Company's
growth strategy is premised on a number of assumptions concerning trends in the
information technology training industry. These include the continuation of
growth in the market for information technology training and the trend toward
outsourcing. To the extent that the Company's assumptions with respect to any of
these matters are inaccurate, its results of operations and financial condition
could be adversely effected.
REGULATIONS
The offer and sale of franchises and business opportunities are subject to
regulation by the United States Federal Trade Commission, as well as many states
and foreign jurisdictions. There also exist numerous laws that regulate the
ongoing relationship between franchisors and franchisees, including the
termination, transfer and renewal of franchise rights. The failure to comply
with any such laws could have an adverse effect on the Company.
INSURANCE
The Company maintains liability insurance in amounts it believes to be adequate
based on the nature of its business. While the Company believes that it operates
its business safely and prudently, there can be no assurance that liabilities
incurred with respect to a particular claim will be covered by insurance or, if
covered, that the dollar amount of such liabilities will not exceed coverage
limits.
TRADEMARKS
The Company has issued trademark registrations and pending trademark
applications for the word mark "NEW HORIZONS" and for other trademarks
incorporating the words "NEW HORIZONS." The Company believes that the New
Horizons name and trademarks are important to its business. The Company has
obtained the new Community trademark which protects its name and mark throughout
Europe. The Company is not aware of any pending or threatened claims of
infringement or challenges to the Company's right to use the New Horizons name
and trademarks in its business. However, the Company has been advised that it
cannot register the word mark "NEW HORIZONS" in certain foreign countries and
that it cannot register or use any of the New Horizons trademarks in Australia.
The Company has an application filed with the Australian trademark office to
protect Skill Master as its trademark in Australia, and its franchises there are
using that name and trademark. The Company believes that neither the pending
claim nor the inability to register certain of its trademarks in certain foreign
countries will have a material adverse effect on its financial condition or
results of operations.
EMPLOYEES
As of February 28, 1999, the Company employed a total of 762 individuals in its
corporate operations and company-owned facilities. Of these employees, 247 are
instructors, 171 are account executives, and 344 are administrative and
executive personnel. New Horizons also utilizes the services of outside contract
instructors to teach some of its curriculum, primarily technical certification
programs which require instructors who are certified by Microsoft, Novell, and
Lotus.
None of New Horizons' employees is represented by a labor organization. New
Horizons considers relations with its employees and outside contract instructors
to be satisfactory.
ITEM 2. PROPERTIES
The Company's corporate headquarters occupy 1,500 square feet in a facility in
Morganville, New Jersey. The space is being sublet under a short-term agreement
with the facility's primary tenant.
The offices for the Company's franchising and company-owned training center
businesses are located in Santa Ana, California, pursuant to a lease which
expires in 2002.
As of December 31, 1998, New Horizons operated training centers at 13 other
leased facilities in California, Illinois, Ohio, Connecticut, Tennessee and New
York with leases that expire from 1999 to 2008.
The Company believes that its facilities are well maintained and are adequate to
meet current requirements and that suitable additional or substitute space will
be available as needed to accommodate any expansion of operations and for
additional offices if necessary.
On October 2, 1998, the Company purchased 8.3 acres of undeveloped land in Santa
Ana, California for approximately $5.1 million. The Company intends to construct
a building on the land that will serve as the world headquarters for its
franchising company and the main training facility for its Orange County
company-owned training center.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in several lawsuits incidental to the ordinary conduct
of its business. Under the terms of the sale of the Company's environmental
business, the Company is required to indemnify the purchaser against liabilities
arising out of pending litigation. The Company does not believe that the outcome
of any or all these claims will have a material adverse effect upon its business
or financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock is traded on The Nasdaq Stock Market under the symbol NEWH. The
following table sets forth the range of high and low bid quotations per share of
common stock from January 1, 1997 through December 31, 1998, as reported by The
Nasdaq Stock Market.
1998 HIGH LOW
- ---- ---- ---
1st Quarter (January 1 - March 31) 15 1/2 12 1/4
2nd Quarter (April 1 - June 30) 20 13 1/2
3rd Quarter (July 1 - September 30) 22 1/2 16 5/8
4th Quarter (October 1 - December 31) 23 1/8 14 1/8
1997 HIGH LOW
- ---- ---- ---
1st Quarter (January 1 - March 31) 13 7/8 9
2nd Quarter (April 1 - June 30) 12 1/4 8 1/8
3rd Quarter (July 1 - September 30) 13 3/4 10 1/4
4th Quarter (October 1 - December 31) 16 1/8 12 5/8
As of March 26, 1999, the Company's common stock was held by 197 holders of
record. The Company has never paid cash dividends on its common stock and has no
present intention to pay cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings to finance the growth of the
Company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share)
Selected Consolidated
Statements of Operations Data 1998 1997 1996 1995 1994
- ----------------------------- ---- ---- ---- ---- ----
Total revenues ................................................. $ 72,629 $ 52,633 $ 41,269 $ 23,733 $ 5,989
Cost of revenues ............................................... 32,749 26,814 20,599 13,164 3,269
Selling, general and administrative expenses ................... 31,354 23,368 19,063 11,757 2,813
-------- -------- -------- -------- --------
Operating income (loss) ........................................ 8,526 2,451 1,607 (1,188) (93)
Interest income (expense), net ................................. 1,169 832 (140) 131 43
Gain from release of certain
franchise obligations....................................... -- 2,600 -- -- --
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes ........................................ 9,695 5,883 1,467 (1,057) (50)
Provision (benefit) for income taxes ........................... 3,813 2,269 669 (440) (35)
-------- -------- -------- -------- --------
Income (loss) from continuing operations ....................... 5,882 3,614 798 (617) (15)
-------- -------- -------- -------- --------
Income (loss) from discontinued operations ..................... -- 349 (130) 424 2,346
Loss on disposal of discontinued operations .................... -- -- (7,303) -- --
-------- -------- -------- -------- --------
Income (loss) from discontinued operations ..................... -- 349 (7,433) 424 2,346
-------- -------- -------- -------- --------
Net income (loss) .............................................. $ 5,882 $ 3,963 $ (6,635) $ (193) $ 2,331
======== ======== ======== ======== ========
Basic Earnings Per Share
- ------------------------
Income (loss) per share from continuing operations ............. $ 0.80 $ 0.51 $ 0.12 $ (0.09) $ --
Income (loss) per share from discontinued operations ........... -- 0.05 (1.08) 0.06 0.34
-------- -------- -------- -------- --------
Net income (loss) per share .................................... $ 0.80 $ 0.56 $ (0.96) $ (0.03) $ 0.34
======== ======== ======== ======== ========
Diluted Earnings Per Share
- --------------------------
Income (loss) per share from continuing operations ............. $ 0.77 $ 0.50 $ 0.12 $ (0.09) $ --
Income (loss) per share from discontinued operations ........... -- 0.05 (1.08) 0.06 0.34
-------- -------- -------- -------- --------
Net income (loss) per share .................................... $ 0.77 $ 0.55 $ (0.96) $ (0.03) $ 0.34
======== ======== ======== ======== ========
December 31, December 31, December 28, December 30, December 31,
Selected Consolidated Balance Sheet Data 1998 1997 1996 1995 1994
- ---------------------------------------- ------------ ------------ ----------- ------------ -----------
Working capital ............................... $20,951 $27,030 $23,066 $28,898 $30,802
Total assets .................................. 86,746 66,571 60,472 56,477 53,651
Long term obligations
less current portion ..................... 267 1,516 2,330 650 464
Total stockholders' equity .................... 61,569 49,056 43,757 49,428 49,637
(1) Certain reclassifications were made in 1997 to conform with the presentation in 1998.
(2) The Company acquired certain assets of New Horizons Computer Learning Center of Santa Ana, Inc. and all the issued and
outstanding shares of stock of New Horizons Computer Learning Centers, Inc. on August 15, 1994 and, accordingly, the 1994
results reflect a partial year.
(3) As of December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(EPS), ("SFAS No. 128"). SFAS No. 128 requires the Company to report Basic EPS, as defined therein, which assumes no dilution
from outstanding options, and Diluted EPS, as defined therein, which assumes dilution from the outstanding options. Earnings
per share amounts for all periods presented have been restated to conform to the requirements of SFAS No. 128.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollars in thousands, except per share data)
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes and "SELECTED CONSOLIDATED FINANCIAL
DATA" included elsewhere in this report.
GENERAL
The Company operates computer training centers in the United States and
franchises computer training centers in the United States and abroad. Prior to
1997 the Company also operated an environmental remediation business. As a
result of the completion of the sale of Handex Environmental, Inc. to ECB, Inc.
in December 1996, the results of operations for the Company's environmental
business segment have been classified as discontinued operations for all periods
presented in the accompanying consolidated financial statements. The Company
operates in two business segments: one operates wholly-owned computer training
centers and the other supplies systems of instruction, sales, and management
concepts concerning computer training to independent franchisees.
Corporate revenues are defined as revenues from company-owned training centers,
initial franchise fees, royalties, and other revenues from franchise operations.
System-wide revenues are defined as total revenues from all centers, both
company-owned and franchised. System-wide revenues are used to gauge the growth
rate of the entire New Horizons training network.
Revenues from company-owned training centers operated by New Horizons consist
primarily of training fees and fees derived from the sale of courseware
material. Cost of revenues consists primarily of instructor costs, rent,
utilities, classroom equipment, courseware costs, and computer hardware,
software and peripheral expenses. Included in selling, general and
administrative expenses are personnel costs associated with technical and
facilities support, scheduling, training, accounting and finance, and sales.
Revenues from franchising consist primarily of initial franchise fees paid by
franchisees for the purchase of specific franchise territories and franchise
rights, training royalty and advertising fees based on a percentage of gross
training revenues realized by the franchisees, percentage royalty fees received
on the sale of courseware, and revenue earned from the Major Accounts Program.
Cost of revenues consists primarily of costs associated with franchise support
personnel who provide system guidelines and advice on daily operating issues
including sales, marketing, instructor training, and general business problems.
Included in selling, general and administrative expenses are technical support,
courseware development, accounting and finance support, Major Account Program
support, advertising expenses, and franchise sales expenses.
RESULTS OF OPERATIONS 1998 VERSUS 1997 -- CONTINUING OPERATIONS
Revenues
- --------
Revenues for 1998 increased $19,996 to $72,629 or 38.0% over the $52,633
realized in 1997. Revenues include revenues from company-owned locations and
initial franchise fees and royalties from franchise operations. The increase in
revenues was attributable to significant growth in royalties, revenue increases
at the Santa Ana and Cleveland company-owned locations, and the acquisition of
the Memphis and Nashville, Tennessee and the Hartford, Connecticut franchises.
Revenues at company-owned centers increased 35.8% to $52,545 from $38,692 in
1997. The increase was primarily attributable to a 16.3% increase at the centers
owned at January 1, 1998 and the acquisition of the Memphis, Nashville, and
Hartford franchises.
In the Company's franchising segment, royalty fees for 1998 were $16,189, up
36.2% over the 1997 total of $11,887. The increase was principally due to a
30.3% revenue increase at locations open more than one year and the addition of
22 franchise locations during the year, less three franchises purchased by the
Company and operated as company-owned locations. Franchise fees for 1998 were
$1,704, up 35.8% from the 1997 total of $1,255. At the end of 1998, there were
194 franchise locations in operation, up 10.9% over the 175 in operation at the
end of 1997. One hundred seventeen franchise locations operate in the U.S. and
Canada while 77 operate in 28 other countries around the world. Other
franchising revenues for 1998 increased $1,392, up 174% from the 1997 total of
$799. The increase was due mainly to higher revenues from the Major Accounts
Program.
System-wide revenues, which are defined as revenues from all centers, both
company-owned and franchised, increased to $357,503 at the end of 1998, up 33.7%
from $267,377 in 1997.
Cost of Revenues
- ----------------
Cost of revenues increased $5,935 or 22.1% for 1998 compared to 1997. As a
percentage of revenues, cost of revenues decreased to 45.1% for 1998 from 50.9%
for 1997. Cost of revenues includes direct training costs, such as instructor
payroll and benefits, facilities rent, cost of computer equipment, courseware
consumption costs, and other training delivery costs.
The increase in cost of revenues in absolute dollars was due to the acquisition
of Memphis, Nashville, and Hartford franchises and the increased training costs
at the Santa Ana and Cleveland locations resulting from the growth in revenues.
The decrease as a percentage of revenue resulted from the control of the costs
to deliver training.
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses increased $7,986 or 34.2% for 1998
compared to 1997. As a percentage of revenues, selling, general and
administrative expenses declined to 43.2% for 1998 from 44.4% for 1997. The
increase in absolute dollars for selling, general and administrative expenses
was due primarily to growth in spending in the areas of sales and marketing,
national advertising, expansion of the Major Accounts Program, and franchise
support for international operations. The decrease in selling, general and
administrative expense as a percentage of revenues was principally due to the
significant growth in revenues and control of the addition of non-revenue
producing employees.
Operating Income
- ----------------
Operating income for 1998 increased $6,075 to $8,526 or 248% from $2,451 in
1997. As a percentage of revenues, operating income was 11.7% compared to 4.7%
in 1997. The increase in operating income for 1998 in absolute dollars and as a
percentage of revenues was due principally to the growth in company-owned and
franchising revenues and the reduction in all expenses as a percentage of
revenues.
Investment Income (Expense)
- ---------------------------
Investment income for 1998 increased $123 or 9.5% to $1,424 compared with $1,301
in 1997. As a percentage of revenues, investment income decreased to 2.0% for
1998 from 2.5% for 1997. The Company earned $938 in tax-free income, up from
$835 in 1997. The increase in investment income in 1998, in absolute dollars,
was due mainly to the substantial increase in short term investment funds
resulting from the 1996 sale of the environmental business and the cash received
from the release of certain franchise obligations in 1997. The decrease in
investment income as a percentage of revenue was due to the growth in revenues.
Interest expense decreased $214 to $255 for 1998 or 45.6% compared to $469 in
1997. As a percentage of revenues, interest expense was 0.4% in 1998 and 0.9% in
1997. The decrease in interest expense in absolute dollars was due mainly to a
reduction in debt.
Income Taxes
- ------------
The provision for income taxes as a percentage of income before income taxes was
39.3% for 1998 compared to 38.6% for 1997. The increase in the effective tax
rate was due principally to increased foreign taxes and the smaller percentage
of the tax-free investment income to total income before taxes.
Net Income
- ----------
Net income from continuing operations for 1998 was $5,882, an increase of $2,268
or 62.8% as compared to $3,614 for 1997.
RESULTS OF OPERATIONS 1997 VERSUS 1996 -- CONTINUING OPERATIONS
Revenues
- --------
Revenues for 1997 increased $11,364 to $52,633 or 27.5% over the $41,269
realized in 1996. Revenues include revenues from company-owned locations and
initial franchise fees and royalties from franchise operations. The increase in
revenues was attributable to significant growth in royalties and from growth in
revenues at company-owned locations.
Revenues at company-owned centers increased 23.1% to $38,692 from $31,425 in
1996. The increase was primarily attributable to the addition of a new training
center in New York City, the full year's operation of the Los Angeles training
center, and the addition of classrooms in the Santa Ana training facility.
In the Company's franchising segment, royalty and other fees for 1997 were
$12,686, up 48.0% over the 1996 total of $8,574. The increase was principally
due to a 39.4% revenue increase at locations open more than one year and the
addition of 28 franchise locations during the year. Franchise fees for 1997 were
$1,255, down 1.3% from the 1996 total of $1,271. At the end of 1997 there were
175 franchise locations in operation, up 19.0% over the 147 in operation at the
end of 1996. One hundred fourteen locations operate in the U.S. and Canada while
61 operate in 21 other countries around the world.
System-wide revenues, which are defined as revenues from all centers, both
company-owned and franchised, increased to $267,377 at the end of 1997, up 39.2%
from $192,134 in 1996.
Cost of Revenues
- ----------------
Cost of revenues increased $6,214 or 30.2% for 1997 compared to 1996. As a
percentage of revenues, cost of revenues increased to 50.9% for 1997 from 49.9%
for 1996. Cost of revenues includes direct training costs, such as instructor
payroll and benefits, facilities rent, cost of computer equipment, courseware
consumption, and other training delivery costs.
The increase in cost of revenues in absolute dollars and as a percentage of
revenues was due to higher training, facilities, and depreciation expenses
associated with the addition of a new center in New York City, the expansion of
the center in Santa Ana, and the full year's operation of the new company-owned
training center in Los Angeles.
Selling, General and Administrative
- -----------------------------------
Selling, general and administrative expenses increased $4,305 or 22.6% for 1997
compared to 1996. As a percentage of revenues, selling, general and
administrative expenses declined to 44.4% for 1997 from 46.2% for 1996. The
increase in absolute dollars for selling, general and administrative expenses
was due primarily to growth in spending in the areas of sales and marketing,
national advertising, expansion of the Major Accounts Program, franchise support
for domestic and international operations, and expenses associated with the new
center in Los Angeles and expansion in New York City. The decrease in selling,
general and administrative expense as a percentage of revenues was principally
due to the significant growth in revenues and control of the addition of
non-revenue producing employees.
Operating Income
- ----------------
Operating income for 1997 increased $844 to $2,451 or 52.5% from $1,607 in 1996.
As a percentage of revenues, operating income was 4.7% compared to 3.9% in 1996.
The increase in operating income for 1997 in absolute dollars and as a
percentage of revenues was due principally to the growth in company-owned and
franchising revenues and the reduction in selling, general and administrative
expenses, as a percentage of revenues.
Investment Income, Net
- ----------------------
Investment income for 1997 increased $1,090 or 517% to $1,301 compared with $211
in 1996. As a percentage of revenues, investment income increased to 2.5% for
1997 from 0.5% for 1996. The Company earned $835 in tax-free income, up from
$211 in 1996. The increase in investment income in 1997, both in absolute
dollars and as a percentage of revenues, was due mainly to the substantial
increase in short term investment funds resulting from the sale of the
environmental business and the cash received from the release of certain
franchise obligations discussed below.
Interest expense increased $118 to $469 for 1997 or 33.6% compared to $351 in
1996. As a percentage of revenues, interest expense was 0.9% for both 1997 and
1996. The rise in interest expense in absolute dollars was due mainly to
purchases of equipment under capital lease arrangements in 1996 and bank
financing in 1997.
Gain from Release of Certain Franchise Obligations
- --------------------------------------------------
On February 28, 1997, the Company received cash consideration of $2,600 in
return for releasing the franchise obligations of an owner of four New Horizons
training centers in the state of New York. The Company is aggressively
attempting to re-franchise the territories that became available as a result of
this transaction. As of December 31, 1997, one of the territories has been
resold.
Income Taxes
- ------------
The provision for income taxes as a percentage of income before income taxes was
38.6% for 1997 compared to 45.6% for 1996. The decrease in the effective tax
rate was due principally to higher tax-free interest income resulting from the
investment of excess cash, primarily in tax-free municipal bond funds.
Net Income
- ----------
Net income from continuing operations for 1997 was $3,614, an increase of $2,816
or 353% as compared to $798 for 1996.
DISCONTINUED OPERATIONS
Sale of Environmental Business Unit and Change of Corporate Name
- ----------------------------------------------------------------
On December 27, 1996, Handex Corporation completed the sale of its environmental
business segment to ECB, Inc. ("ECB"), a Florida corporation, and simultaneously
changed its name from Handex Corporation to New Horizons Worldwide, Inc. (the
"Company" or "New Horizons"). This name change was effected so as to more
closely identify with its continuing educational training business which
conducts business under the name New Horizons Computer Learning Centers. Both
the transaction and the name change were authorized by stockholders at a special
meeting of the stockholders held on December 20, 1996.
Description of the Transaction
- ------------------------------
The Company sold all of the issued and outstanding shares of capital stock of
Handex Environmental, Inc., a wholly-owned subsidiary of the Company, to ECB,
Inc. Handex Environmental, Inc. was a holding company for several subsidiaries
("Environmental Subsidiaries") which conducted the Company's environmental
remediation services.
Under the sale agreement, ECB acquired the stock of the Company's environmental
subsidiaries with a net asset value of $10,300 for $4,600 in cash, and other
consideration, including a promissory note and preferred stock in the amount of
$3,700 and $2,000, respectively. Assets of the discontinued segment in excess of
$10,300, consisting principally of accounts receivable, were retained by the
Company. The Company incurred a loss on the disposal of the segment of $7,303,
consisting primarily of valuation reserves on the promissory note and the
preferred stock in the amount of $2,960, and $1,600, respectively, a goodwill
write-off of approximately $1,800, and transaction costs of approximately $966.
There is no expected tax benefit from this loss.
Consideration Received by the Company; Use of Proceeds
- ------------------------------------------------------
The Company received aggregate consideration in the face amount of approximately
$21,954. The consideration received by the Company from ECB consisted of: (i)
$4,600 in cash; (ii) a promissory note in the original principal amount of
$3,700 (subject to adjustment in certain events) due on April 30, 2002 and
bearing interest at the rate of 6% per annum; (iii) 2,000 shares of Series A
Preferred Stock, stated value $1,000 per share of ECB; (iv) a six-year warrant
to acquire 300,000 common shares of ECB at a price of $1.32 per share ("Warrant
A"); (v) a six-year warrant to acquire 85,000 common shares of ECB at a price of
$1.60 per share ("Warrant B") (Warrant A and Warrant B are collectively referred
to herein as the "Warrants"); and (vi) one-third of the redemption value of a
small interest in a joint venture, when paid or available to be paid to ECB. In
addition, immediately prior to the closing, the Company received a dividend of
cash, accounts receivable, and other assets owned by the environmental
subsidiaries having a book value of $11,654 at December 27, 1996.
The face amount of the non-cash consideration received by the Company (excluding
the Warrants) was $5,700. However, because ECB was a newly organized entity with
no history of prior operations and because of the significant amount of
indebtedness that ECB incurred in connection with the transaction, the Company
established a valuation reserve with respect to the non-cash consideration in
the amount of $4,560. In addition, neither the Warrants nor the interest in the
joint venture were given any value in determining the loss on the disposal of
the environmental business or for balance sheet presentation purposes.
For a more detailed description of the transaction, see the Company's Proxy
Statement dated December 3, 1996 and the appendices thereto and information
incorporated by reference therein.
Results of Discontinued Operations 1998 versus 1997, and 1997 versus 1996
- -------------------------------------------------------------------------
For the years ended December 31, 1998 and December 31, 1997, the Company's
involvement in the discontinued operations of Handex Environmental, Inc.
consisted primarily of collecting accounts receivable and liquidating other
assets received as part of the aforementioned dividend and resolving certain
legal matters pertinent to the wind-down of the environmental business.
In December 1997 the Company received $2,000 from ECB, Inc. in redemption of the
2,000 shares of Series A Preferred Stock which had a stated value of $1,000 per
share. In 1996 the Company had established a valuation reserve of $1,600 against
the face amount of the Preferred Stock which it reversed upon the receipt of the
redemption proceeds. Upon further analysis of the remaining assets and
liabilities of the environmental business, the Company recorded an additional
provision of $1,251 to reflect the expected realization value of those assets
and liabilities. As a result of the redemption of the Series A Preferred Stock,
ECB, Inc. was also able to redeem at no cost the six-year warrant to acquire
300,000 common shares of ECB at a price of $1.32 per share and the six-year
warrant to acquire 85,000 common shares of ECB at a price of $1.60 per share.
The Company, in 1996, ascribed no value to the warrants, so the redemption in
1997 had no effect on its financial results.
As a result of the sale of the environmental business in 1996, the Company
incurred a third quarter non-cash, after tax charge of $7,303, or $1.06 per
share. This charge, representing a loss on the disposal of discontinued
operations, consisted primarily of the write-off of goodwill which approximated
$1,800, transaction costs which approximated $966, and valuation reserves that
totaled about $4,560. An operating loss from discontinued operations of $130, or
$0.02 per share, combined with the loss on disposal resulted in a full year 1996
loss from discontinued operations of $7,433, or $1.08 per share.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company's current ratio was 1.9 to 1, working
capital was $20,951, and its cash, cash equivalents and short-term investments
totaled $22,694. Working capital as of December 31, 1998, reflected a decrease
of $6,079 from $27,030 as of December 31, 1997. The decrease was due principally
to the use of cash to purchase undeveloped land in Santa Ana, California and the
purchase of the Memphis and Nashville, Tennessee franchises. This decrease was
partially offset by increased cash from operations.
As part of the sale transaction of the environmental business in 1996, the
Company retained over $9,300 in net accounts receivable. By the end of 1998
substantially all of these receivables had been collected by the Company.
The Company currently maintains a credit facility with a commercial bank
providing availability of $3,750 at a variable interest rate equal to 1.0% under
the bank's prime rate (7.75% at December 31, 1998). As of December 31, 1998,
there was no amount outstanding under this facility. On October 30, 1998, as
part of the acquisition of the Hartford franchise, the Company issued a
promissory note for $3,000 due January 1999. The note is secured by an
irrevocable standby letter of credit issued by the Company's commercial bank.
The issuance of the standby letter of credit reduced the availability under the
credit facility to $750. The note was paid in full in January 1999.
The nature of the information technology and training industry requires
substantial cash commitments for the purchase of computer equipment, software,
and training facilities. During 1998 New Horizons spent approximately $8,444 on
capital items. Capital expenditures for 1999 are expected to total approximately
$8,600.
Management believes that its current working capital position, cash flows from
operations, along with its credit facility, will be adequate to support its
current and anticipated capital and operating expenditures and its strategies to
grow its computer education and training business.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 must be implemented by the Company
for the year ended December 31, 2000. The effects of SFAS No. 133 on the
Company's financial statements are not expected to be significant.
YEAR 2000
The issues raised by the inability of computers, software, and other equipment
utilizing microprocessors to recognize and properly process data fields
containing a 2-digit year are commonly referred to as Year 2000 ("Y2K") issues.
A company-wide Y2K compliance program has been implemented to determine Y2K
issues and develop strategies to assure compliance. The compliance program has
four major areas of concentration: internal information technology systems,
non-information technology systems, systems and processes utilized by
franchisees, and compliance issues related to major suppliers. A Y2K project
team has been established and is directing the activity regarding the issues
confronted in each area, monitoring progress of the effort, and reporting
findings to management. As the Y2K compliance program proceeds, contingency
plans will be prepared, updated, and implemented as necessary to address the
risks identified.
With respect to internal information technology systems, among the most critical
systems to the ongoing operations of both the company-owned and franchised
training centers are those systems which provide customer contact and student
registration information. The systems currently used by the company-owned
centers are not Y2K compliant, but the Company has prepared the necessary
upgrades. The cost of developing these upgrades has not been, and is not
expected to be, material. Certain franchised locations use the same systems as
the company-owned centers and have received these upgrades from the Company.
Other franchised locations use contact management and/or student registration
software from various vendors which, in many cases, may require updating to
become Y2K compliant. Franchisees have been and will continue to be advised to
bring their systems into compliance. However, simultaneous with these efforts,
the Company has also engaged a third party to develop a comprehensive
replacement information management system (NHMS) for use in all company-owned
and franchised locations. The Company expects to commence deployment of this
system, which is designed to be Y2K compliant, in the third quarter of 1999. In
addition to the foregoing, the Company is reviewing its other computer hardware
and software systems and upgrading or replacing them as necessary. With respect
to the Company's accounting system currently used to consolidate results from
the company-owned centers, the Company has selected a new system. The cost of
the new system is expected to be less than $450. Installation is expected to be
completed for the locations that do not have Y2K compliant accounting systems by
the second quarter of 1999. The new system will be installed in the remaining
centers by September 1999.
Regarding non-information technology systems, the project team has inventoried
the items potentially affected by Y2K issues, and is currently assessing
compliance of those systems considered to have the potential for a material
impact. Those items which appear to have the potential for such an effect that
are determined not to be in compliance will be upgraded or replaced by mid-1999.
Those costs are not expected to be material.
The project team prepared a Y2K readiness compliance outline and disseminated it
to franchisees at the end of 1998. The operation of a franchise is substantially
similar to the operation of a company-owned center, and accordingly, this report
is a by-product of the analysis the project team is performing on the
company-owned locations. As noted above, it is believed that many franchisees
have contact management and/or student registration systems which are not Y2K
compliant. Because the Company derives a significant portion of its revenue from
royalties received from its franchisees, the Company could be materially
adversely affected if the systems utilized by the franchisees are not Y2K
compliant. In order to minimize this exposure, which the Company believes is its
most reasonably likely worst case scenario, the Company intends to make NHMS
available to franchisees in 1999 and to furnish to users of older systems, of
the type used by the Company, upgrades which are expected to bring these systems
into Y2K compliance. However, there can be no assurance that franchisees will
implement NHMS or the necessary system upgrades before January 1, 2000.
As part of its Y2K compliance efforts, the Company has initiated formal
communications with suppliers providing goods or services material to the
Company's operations in order to determine the extent to which the Company's
systems and operations are vulnerable to any failure by such third parties to
remediate their Y2K problems. There can be no assurance, however, that the
systems of those suppliers will be converted in a timely fashion and will not
have an adverse effect on the Company. The lack of Y2K compliance on the part of
a customer of a company-owned or franchised center should not have a direct
adverse impact on the operations of the Company. However, to the extent the
costs associated with Y2K compliance reduces a customer's information technology
training budget, the Company could experience a reduction in revenues.
The Company believes that the cost of the Y2K compliance efforts for its
information and non-information technology systems will not be material to its
financial position or results of operations in any given year. However, due to
the inherent uncertainties surrounding Y2K issues, there can be no assurance
that Y2K failures or implications, including litigation, will not have a
material adverse effect on the Company's business, operating results, or
financial position, particularly in the event any significant third parties
cannot in a timely manner provide the Company with products, services, or
systems that meet the Y2K requirements. The conclusions and estimates in this
Y2K information include forward-looking statements and are based upon
management's current best estimates of future events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates. A
discussion of the Company's accounting policies for financial instruments and
further disclosures relating to financial instruments is included in the Notes
to Consolidated Financial Statements. The Company monitors the risks associated
with interest rates and financial instrument positions.
The Company's revenue derived from international operations is not material, and
therefore, the risk related to foreign currency exchange rates is not material.
Investment Portfolio
- --------------------
The Company has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents and investments. The Company's cash
and cash equivalents and investments consist of high-quality and highly liquid
investments including taxable money market investments, municipal bond funds,
short-term closed end funds, and tax-exempt government notes and bonds. As of
December 31, 1998, the Company's cash and cash equivalents and investments have
varying maturity dates from one month to three and one-half years with an
average yield of 5.0%.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages F-1 to F-21 contain the Financial Statements and supplementary data
specified for Item 8 of Part II of Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
New Horizons Worldwide, Inc.
We have audited the accompanying consolidated balance sheet of New Horizons
Worldwide, Inc. and subsidiaries (the Company) as of December 31, 1998 and 1997
and the related consolidated statements of operations, comprehensive income,
stockholders' 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, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of New Horizons
Worldwide, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 24, 1999
F-1
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
New Horizons Worldwide, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of New Horizons Worldwide, Inc. for the
year ended December 28, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of New Horizons Worldwide, Inc. for the year ended December 28, 1996 in
conformity with generally accepted accounting principles.
KPMG LLP
Cleveland, Ohio
February 14, 1997
F-2
CONSOLIDATED BALANCE SHEETS
New Horizons Worldwide, Inc. and Subsidiaries
December 31, 1998 and December 31, 1997
(Dollars in thousands)
Assets 1998 1997
- ------ ---- ----
Current assets:
Cash and cash equivalents ..................... $ 6,873 $ 3,129
Investments ................................... 15,821 23,058
Accounts receivable, less allowance
for doubtful accounts of $927 in
1998 and $1,693 in 1997 (Note 2) ......... 16,538 11,887
Inventories ................................... 784 720
Prepaid expenses .............................. 1,039 731
Deferred income tax assets (Note 6) ........... 2,202 1,429
Other current assets .......................... 773 887
-------- --------
Total current assets ...................... 44,030 41,841
Property, plant and equipment, net (Note 4) ........ 13,818 7,848
Excess of cost over net assets of acquired
companies, net of accumulated
amortization of $1,844 in 1998 and
$1,238 in 1997 (Note 12) ...................... 25,225 13,546
Cash surrender value of life insurance ............. 863 758
Other assets (Note 7) .............................. 2,810 2,578
-------- --------
Total Assets ....................................... $ 86,746 $ 66,571
======== ========
Liabilities & Stockholders' Equity
- ----------------------------------
Current liabilities:
Notes payable and current portion of
long-term obligations (Note 3) ........... $ 3,910 $ 1,792
Accounts payable .............................. 2,391 2,489
Income taxes payable (Note 6) ................. 354 1,049
Other current liabilities (Note 8) ............ 16,424 9,481
-------- --------
Total current liabilities ................. 23,079 14,811
Long-term obligations, excluding current
portion (Note 3) .............................. 267 1,516
Deferred income tax liability (Note 6) ............. 981 563
Deferred rent (Note 11) ............................ 658 598
Other long-term liabilities ........................ 192 27
-------- --------
Total liabilities ......................... 25,177 17,515
Commitments and contingencies (Note 11) ............ -- --
-------- --------
Stockholders' equity (Note 10):
Preferred stock without par value,
2,000,000 shares authorized, no
shares issued ............................ -- --
Common stock, $.01 par value,
15,000,000 shares authorized;
issued and outstanding 7,683,825
shares in 1998 and 7,327,331
shares in 1997 ........................... 77 73
Additional paid-in capital .................... 33,220 26,646
Retained earnings ............................. 29,517 23,635
Treasury stock at cost - 185,000
shares in 1998 and 1997 .................. (1,298) (1,298)
Accumulated other comprehensive income ........ 53 --
-------- --------
Total stockholders' equity ................ 61,569 49,056
-------- --------
Total Liabilities & Stockholders' Equity ........... $ 86,746 $ 66,571
======== ========
See accompanying notes to consolidated financial statements
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1998, December 31, 1997, and December 28, 1996
(Dollars in thousands, except per share)
1998 1997 1996
---- ---- ----
Revenues
Franchising
Franchise fees ...................... $ 1,704 $ 1,255 $ 1,270
Royalties ........................... 16,189 11,887 8,340
Other ............................... 2,191 799 234
-------- -------- --------
Total franchising revenues .......... 20,084 13,941 9,844
Company-owned training centers .......... 52,545 38,692 31,425
-------- -------- --------
Total revenues ...................... 72,629 52,633 41,269
Cost of revenues ............................. 32,749 26,814 20,599
Selling, general and administrative expenses . 31,354 23,368 19,063
-------- -------- --------
Operating income ............................. 8,526 2,451 1,607
Interest income (expense), net ............... 1,169 832 (140)
Gain from release of certain franchise
obligations ............................. -- 2,600 --
-------- -------- --------
Income from continuing operations before
income taxes ............................ 9,695 5,883 1,467
Provision for income taxes (Note 6) .......... 3,813 2,269 669
-------- -------- --------
Income from continuing operations ............ 5,882 3,614 798
Discontinued operations (Note 14):
Income (loss) from discontinued
operations net of applicable income
taxes of $0 and $85 for 1997 and
1996, respectively ................. -- 349 (130)
Loss on disposal of discontinued
operations ......................... -- -- (7,303)
-------- -------- --------
Income(loss) from discontinued operations -- 349 (7,433)
-------- -------- --------
Net income (loss) ............................ $ 5,882 $ 3,963 $ (6,635)
======== ======== ========
Basic Earnings Per Share
- ------------------------
Income per share from continuing operations .. $ 0.80 $ 0.51 $ 0.12
Income (loss) per share from discontinued
operations .............................. -- 0.05 (1.08)
-------- -------- --------
Net income (loss) per share .................. $ 0.80 $ 0.56 $ (0.96)
======== ======== ========
Diluted Earnings Per Share
- --------------------------
Income per share from continuing operations .. $ 0.77 $ 0.50 $ 0.12
Income (loss) per share from discontinued
operations .............................. -- 0.05 (1.08)
-------- -------- --------
Net income (loss) per share .................. $ 0.77 $ 0.55 $ (0.96)
======== ======== ========
See accompanying notes to consolidated financial statements
F-4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1998, December 31, 1997, and December 28, 1996
(Dollars in thousands)
1998 1997 1996
---- ---- ----
Net Income (loss) ......................... $ 5,882 $ 3,963 $(6,635)
------- ------- -------
Other comprehensive income,
before tax:
Unrealized holding gains on
available for sale securities
arising during year .................. 53 -- --
Income tax liability related to
other comprehensive income ........... -- -- --
------- ------- -------
Other comprehensive income,
net of tax ........................... 53 -- --
------- ------- -------
Comprehensive income (loss) ............... $ 5,935 $ 3,963 $(6,635)
======= ======= =======
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1998, December 31, 1997, and December 28, 1996
(In thousands)
Accumulated
Additional other Stock-
Common Stock paid-in Retained Treasury comprehensive holders'
Shares Amount capital earnings stock income equity
------ ------ ------- -------- ----- ------ --------
Balance at January 1, 1996 ........................ 7,050 $ 70 $ 24,350 $ 26,306 $ (1,298) $ -- $ 49,428
Issuance of common stock from exercise
of stock options ............................. 113 1 742 -- -- -- 743
Income tax benefit from the exercise of
stock options ................................ -- -- 224 -- -- -- 224
Registration expense for warrants issued
in 1994 ...................................... -- -- (4) -- -- -- (4)
Net loss .......................................... -- -- -- (6,635) -- -- (6,635)
----- -------- -------- -------- -------- -------- --------
Balance at December 28, 1996 ...................... 7,163 71 25,312 19,671 (1,298) -- 43,756
Issuance of common stock from exercise of
stock options ................................ 164 2 1,036 -- -- -- 1,038
Income tax benefit from the exercise of
stock options ................................ -- -- 298 -- -- -- 298
Net income ........................................ -- -- -- 3,964 -- -- 3,964
----- -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 ...................... 7,327 73 26,646 23,635 (1,298) -- 49,056
Issuance of common stock from exercise of
stock options and warrants ................... 60 1 396 -- -- -- 397
Income tax benefit from the exercise of
stock options and warrants ................... -- -- 180 -- -- -- 180
Issuance of common stock for acquisitions ......... 297 3 5,451 -- -- -- 5,454
Unrealized gain on investments .................... -- -- -- -- -- 53 53
Recognize valuation of stock options and
warrants as deferred compensation ............ -- -- 547 -- -- -- 547
Net income ........................................ -- -- -- 5,882 -- -- 5,882
----- -------- -------- -------- -------- -------- --------
Balance at December 31, 1998 ...................... 7,684 $ 77 $ 33,220 $ 29,517 $ (1,298) $ 53 $ 61,569
===== ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1998, December 31, 1997, and December 28, 1996
(Dollars in thousands)
1998 1997 1996
---- ---- ----
Cash flows from operating activities
- ------------------------------------
Net income (loss) ....................................................... $ 5,882 $ 3,963 $ (6,635)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities (net of acquisitions):
Depreciation and amortization ........................................... 4,006 3,786 2,863
Deferred income taxes .................................................. (355) (839) 17
Deferred compensation .................................................. 547 -- --
Cash provided (used) from the change in:
Accounts receivable ................................................. (3,270) 5,816 (1,547)
Inventories ......................................................... 133 (114) (237)
Prepaid expenses and other current assets ........................... (192) 3,954 (430)
Other assets ....................................................... (195) (1,578) (390)
Accounts payable .................................................... (477) 187 3,460
Other current liabilities ........................................... 4,861 4 2,555
Income taxes payable ................................................ (515) 1,251 740
Deferred rent ....................................................... 60 363 29
Non-cash charges and working capital changes
from discontinued operations ..................................... -- (349) 7,768
-------- -------- --------
Net cash provided by operating activities ..................... 10,485 16,444 8,193
-------- -------- --------
Cash flows from investing activities
- ------------------------------------
Purchase of marketable securities ....................................... (21,810) (22,758) --
Redemption of marketable securities ..................................... 29,100 -- 2,475
Cash surrender value of life insurance .................................. (105) (84) --
Cash received on redemption of preferred stock .......................... -- 2,000 --
Additions to property, plant and equipment:
Continuing operations ............................................... (8,444) (4,450) (4,899)
Discontinued operations ............................................. -- -- (1,010)
Cash paid for acquired companies, net of cash acquired .................. (3,688) -- (57)
-------- -------- --------
Net cash used by investing activities ............................... (4,947) (25,292) (3,491)
-------- -------- --------
Cash flows from financing activities
- ------------------------------------
Proceeds from issuance of common stock .................................. 397 1,038 743
Proceeds from debt obligations .......................................... 181 1,264 3,384
Principal payments on debt obligations .................................. (2,372) (1,736) (1,068)
Other ................................................................... -- -- (3)
-------- -------- --------
Net cash provided (used) by financing activities .................... (1,794) 566 3,056
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................ 3,744 (8,282) 7,758
Cash and cash equivalents at beginning of year ............................... 3,129 11,411 3,653
-------- -------- --------
Cash and cash equivalents at end of year .................................... $ 6,873 $ 3,129 $ 11,411
======== ======== ========
Supplemental disclosure of cash flow information
Cash was paid for:
Interest ............................................................ $ 180 $ 323 $ 351
======== ======== ========
Income taxes ........................................................ $ 4,303 $ 1,530 $ 287
======== ======== ========
See accompanying notes to consolidated financial statement
F-7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1998, December 31, 1997, and December 28, 1996
(Dollars in thousands)
Supplemental Disclosure of Noncash Transactions
1998 1997 1996
---- ---- ----
Noncash investing and financing activities:
Income tax benefit from exercise of stock
options and warrants .................. $ 180 $ 298 $ 224
======== ======== ========
Unrealized gain on investments .......... $ 53 $ -- $ --
======== ======== ========
The Company completed three acquisitions
summarized as follows (Note 12): 1998
------------------------------------ ----
Fair value of assets acquired ........... $ 14,833
Short term debt and other obligations
incurred ................................ (3,559)
Value of stock issued ................... (5,454)
Cash paid, net of cash acquired ......... (3,688)
--------
Liabilities assumed ..................... $ 2,132
========
F-8
NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, December 31, 1997, and December 28, 1996
(Dollars in thousands, except per share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
New Horizons Worldwide, Inc. (New Horizons or the Company) owns and franchises
computer training centers. The Company's training centers provide application
software and technical certification training to a wide range of individuals and
employer-sponsored individuals from national and international public and
private corporations, service organizations and government agencies. As of
December 31, 1998, the Company and its franchisees delivered training in 11
company-owned and 194 franchised locations in 30 countries around the world.
On December 27, 1996, the Company completed a transaction to sell its
environmental business (Note 14) and simultaneously changed its name from Handex
Corporation to New Horizons Worldwide, Inc. to more closely identify with its
continuing educational training business. As a result of the transaction, the
Company's educational business is its sole business. New Horizons, the surviving
company, remains a public company, trading under the symbol "NEWH" on The Nasdaq
Stock Market.
Basis of Accounting and Principles of Consolidation
- ---------------------------------------------------
The consolidated financial statements include the accounts of New Horizons
Worldwide, Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Franchise Sales
- ---------------
The terms of a typical franchise agreement allow for the sale of individual
franchises to operators of computer learning centers for an initial fee. On
October 1, 1998, the initial fees were increased from $20, $40 or $60 to $25,
$50 or $75 depending on the estimated number of personal computers within a
given territory. Operators of existing computer training centers receive a 20%
reduction in the initial fee as a conversion allowance. Additionally,
franchisees are assessed the following fees, among other fees, as defined by the
franchise agreement:
a. Continuing Monthly Royalty
The fee amount is equal to the greater of 3% to 6% of gross revenues or
certain minimums as defined depending on the size of the territory. Amounts
commence accruing on the effective date of the franchise agreement for new
operators and in the sixth month after the effective date of the franchise
agreement for operators converting their existing computer learning center
to a New Horizons.
b. Course Material and Computer-based Training Royalty
The fee amount is equal to 9% of gross revenues from course materials and
proprietary computer-based training products sold to third parties.
c. Marketing and Advertising Fee
The fee amount is equal to 1% of gross revenues for franchisees in the
United States and Canada. Amounts commence accruing on the date the
franchise commences operation of the franchise business.
On February 28, 1997, the Company received cash consideration of $2,600 in
return for releasing the franchise obligations of an owner of four New Horizons
training centers in the state of New York. The Company is aggressively
attempting to re-franchise the territories that became available as a result of
this transaction. As of December 31, 1998, two of the territories have been
resold.
F-9
Revenue Recognition
- -------------------
Revenues for training services and franchise royalty fees are recognized as
earned. Initial franchise fees are recognized when the Company has supplied
substantially all of the services and met all of the conditions of the sale of
the franchise rights. Master franchise fees are earned ratably over the opening
of sub-franchises.
Investments
- -----------
The Company accounts for investments pursuant to Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." At December 31, 1998 and 1997, the Company's investments
have been categorized as "available for sale" and, as a result, are stated at
fair value. Accordingly, any unrealized holding gains and losses are to be
included as a component of accumulated other comprehensive income, net of tax,
until realized. Investments at December 31, 1998, consist principally of $8,551
in municipal bond funds, $4,600 in short-term closed end funds, and $2,670 in
tax-exempt government notes and bonds. The bond funds have various maturity
dates ranging from January 1999 to July 2002.
There were net unrealized gains of $53 recorded as of December 31, 1998. There
were no unrealized gains or losses as of December 31, 1997 as fair value
approximated cost.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Inventory costs are
determined using the first-in, first-out (FIFO) method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, using the straight line
method as follows:
Equipment 3 to 5 years
Furniture and fixtures 5 to 10 years
Leasehold improvements Term of lease
Income Taxes
- ------------
The Company accounts for income taxes under the asset and liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years when those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
When options granted under the Company's stock option plans are exercised, the
Company receives a tax deduction related to the difference between the market
value of its common stock at the date of exercise and the sum of the exercise
price and any compensation expense recognized for financial reporting purposes.
The tax benefit resulting from this tax deduction is reflected as a decrease in
the Company's income tax liability and an increase to additional paid-in
capital.
Intangibles and Other Long-Lived Assets
- ---------------------------------------
The excess of cost over net assets acquired is being amortized on a
straight-line basis over periods ranging from 25 to 40 years. The Company
assesses the recoverability of its long-lived assets whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
F-10
Cash and Cash Equivalents
- -------------------------
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
Concentration of Credit Risk
- ----------------------------
The Company's credit risk on trade receivables is diversified over a wide
geographic area and many customers. Ongoing customer credit evaluations are
performed with respect to the Company's trade receivables, and collateral is
generally not required to be provided by the customer.
Earnings Per Share
- ------------------
As of December 31, 1997, the Company adopted (SFAS) No. 128, "Earnings Per
Share" (EPS). SFAS No. 128 requires the Company to report Basic EPS, as defined
therein, which assumes no dilution from outstanding options, and Diluted EPS, as
defined therein, which assumes dilution from the outstanding options.
The computation of Basic EPS is based on the weighted average number of shares
outstanding during each year. The computation of Diluted EPS is based upon the
weighted average number of shares outstanding, plus the shares that would be
outstanding assuming the exercise of all outstanding options and warrants,
computed using the treasury stock method. Dilutive options and warrants are not
considered in the calculation of net loss per share.
The weighted average number of shares outstanding used in determining Basic EPS
was 7,331,767 in 1998, 7,070,831 in 1997, and 6,881,604 in 1996. The weighted
average number of shares outstanding used in determining Diluted EPS was
7,681,421 in 1998, 7,294,269 in 1997, and 6,981,894 in 1996. The difference
between the shares used for calculating Basic and Diluted EPS relates to common
stock equivalents consisting of stock options and warrants outstanding during
the respective periods.
Stock Based Compensation
- ------------------------
In 1997 the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company adopted the pro forma disclosure requirements of SFAS
No. 123, which requires presentation of the pro forma effect of the fair-value
based method on net income and net income per share in the financial statement
footnotes. (See Note 10)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncements
- -----------------------------
In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 130 and SFAS No. 131 were adopted by the Company
beginning with 1998. An additional statement that reports comprehensive income
and an expanded disclosure regarding the Company's operations on a segmented
basis are reported.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." SFAS No. 133 must be implemented by the Company for the
year ended December 31, 2000. The effects of SFAS No. 133 on the Company's
financial statements are not expected to be significant.
F-11
Reclassification
- ----------------
Certain items on the 1997 and 1996 consolidated balance sheets, statements of
operations, and cash flows have been reclassified to conform to the 1998
presentation.
2. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts includes the following:
Years ended December 31 1998 1997
----------------------- ---- ----
Balance, beginning of year $ 1,693 $ 1,611
Provisions ............... 156 670
Deductions ............... (922) (588)
------- -------
Balance, end of year ..... $ 927 $ 1,693
======= =======
3. NOTES PAYABLE AND LONG-TERM OBLIGATIONS
The Company's debt and capital lease obligations are as follows:
1998 1997
---- ----
Note payable to a former franchisee at 5% interest rate due
January 1999 ...................................................................... $ 3,000 $ --
Amounts due under capital leases with effective interest rates
ranging from 8.5% to 14.6% per annum (Note 11) ......................................... 1,013 2,350
Notes payable to bank with effective interest rates of 7.4%
and 7.6%, payable in monthly principal and interest installments
of $7 collateralized by certain assets of the Company due from
July 2000 to August 2001 .......................................................... 164 --
Notes payable to bank at 9.5% interest rate, paid February 1998 ........................ -- 901
Notes payable to bank at 9.0% interest rate, paid June 1998 ............................ -- 57
------- -------
4,177 3,308
Less: Current portion of notes payable and long-term obligations ....................... (3,910) (1,792)
------- -------
$ 267 $ 1,516
======= =======
F-12
The following is a summary of future payments required under the above
obligations:
1999 $ 3,910
2000 214
2001 50
2002 3
-----------
$ 4,177
===========
The Company has a credit facility with a commercial bank that provides
borrowings up to $3,750 bearing interest at a variable rate equal to 1.0%
under the bank's prime rate (7.75% at December 31, 1998). As of December
31, 1998, there was no amount outstanding under this facility. On October
30, 1998, as part of the acquisition of the Hartford franchise, the Company
issued a promissory note for $3,000 due January 1999. The note is secured
by an irrevocable standby letter of credit issued by the Company's
commercial bank. The issuance of the standby letter of credit reduced the
availability under the credit facility to $750.
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are summarized below:
1998 1997
---- ----
Land ..................................... $ 5,099 $ --
Leasehold improvements ................... 2,046 1,748
Equipment and software ................... 14,432 11,088
Furniture and fixtures ................... 2,984 2,366
-------- --------
24,561 15,202
Less accumulated depreciation and
amortization ........................ (10,743) (7,354)
-------- --------
$ 13,818 $ 7,848
======== ========
On October 2, 1998, the Company purchased 8.3 acres of undeveloped land in
Santa Ana, California for approximately $5.1 million. The Company intends
to construct a building on the land that will serve as the world
headquarters for its franchising company and the main training facility for
its Orange County company-owned training center.
Included in the Company's property and equipment are equipment and
leasehold improvements under capital leases amounting to $974 (1998) and
$2,257 (1997), net of accumulated depreciation of $3,863 (1998) and $2,551
(1997).
5. CHANGE IN FISCAL YEAR
Beginning in the year 1997 the Company changed its accounting period from a
52-53 week year ending on the Saturday nearest December 31 to a calendar
year.
6. INCOME TAXES
Income tax expense for the periods below differs from the amounts computed
by applying the U.S. federal income tax rate of 35% to the pretax income as
a result of the following:
F-13
1998 1997 1996
---- ---- ----
Computed "expected" tax expense ... $ 3,393 $ 2,059 $ 513
Amortization of excess of cost over
net assets acquired .......... 15 15 15
State and local tax expense, net of
federal income tax effect .... 578 345 89
Foreign income tax ................ -- 201 129
Interest income from tax-free
investments .................. (319) (284) (72)
Other ............................. 146 (67) (5)
------- ------- -------
Income tax expense ................ $ 3,813 $ 2,269 $ 669
======= ======= =======
Effective rates ................... 39.3% 38.6% 45.6%
======= ======= =======
Income tax expense consists of:
Federal
Current .................... $ 2,843 $ 1,755 $ 389
Deferred ................... (355) (313) 17
State and local .............. 952 523 135
Foreign ...................... 373 304 128
------- ------- -------
$ 3,813 $ 2,269 $ 669
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998
and 1997, are presented below:
1998 1997
---- ----
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts .... $ 509 $ 392
Reserve for uninsured losses and litigation 308 688
Accrued expenses ........................... 1,013 425
Property, plant and equipment, principally
due to differences in depreciation .... 221 183
Foreign Tax Credit carryforward ............ 262 --
Deferred revenue ........................... 197 --
------- -------
2,510 1,688
------- -------
Deferred tax liabilities:
Excess of cost over net assets of acquired
company .............................. 1,224 736
Loss on joint venture ...................... (22) 10
Other ...................................... 87 76
------- -------
1,289 822
------- -------
Net deferred income taxes ....................... $ 1,221 $ 866
======= =======
F-14
7. OTHER ASSETS
a. Notes Receivable from Officer
Included in other assets are notes receivable from an officer of the
Company in the aggregate amount of $625 which bear interest at a
weighted average rate of 7.3%. The notes receivable are demand notes
collateralized by the proceeds from certain life insurance policies.
The Company does not intend to demand repayment of these notes during
fiscal 1999.
b. Non-cash Proceeds of Sale of Environmental Business
Other assets also includes a $3,700 note receivable from ECB, Inc.
bearing an interest rate of 6% with a valuation reserve of $2,960.
Terms of the note receivable provided for interest in 1997 to be
accrued and added to the principal balance. Effective March 31, 1998,
interest is paid quarterly in arrears. Annual principal payments are
scheduled to commence in April 1999 with the minimum principal
payments being $250, $500, and $750, for 1999, 2000, and 2001,
respectively, with the balance due April 30, 2002.
Other assets consist of:
1998 1997
---- ----
Notes receivable from ECB Inc. ..... $ 3,931 $ 3,934
Valuation reserve for ECB, Inc. .... (2,960) (2,960)
Notes receivable from officer ...... 625 625
Other .............................. 1,214 979
------- -------
$ 2,810 $ 2,578
======= =======
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of:
1998 1997
---- ----
Deferred revenues ................................ $ 5,084 $ 2,490
Accounts payable to franchisees .................. 3,497 1,960
Salaries, wages and commissions payable ......... 2,813 1,103
Unexpended advertising fund ...................... 737 986
Accrued expenses in connection with the
disposition of the environmental segment .... 1,078 1,744
Accrued operating expenses and other liabilities . 3,215 1,198
------- -------
$16,424 $ 9,481
======= =======
9. EMPLOYEE SAVINGS PLAN
The Company established a 401(k) Profit Sharing Trust and Plan in which
employees not currently covered by a collective bargaining agreement are
eligible to participate. None of the Company's employees is currently
covered by a collective bargaining agreement. The plan was established in
1995 and through December 31, 1998, was non-contributory. Effective January
1, 1999, the Board of Directors elected to match 25% of the employees'
contributions.
10. STOCK OPTION PLAN
The Company maintains a Key Employees Stock Option Plan and an Omnibus
Equity Plan which provide for the issuance of non-qualified options,
incentive stock options, and stock appreciation rights. These plans
currently provide for the granting of options to purchase up to 2,200,000
shares of common stock. Incentive stock options are exercisable for up to
ten years, at an option price of not less than the fair market value on the
date the option is granted or at a price of not less than 110% of the fair
market price in the case of an option granted to an individual who, at the
time of grant, owns more than 10% of the Company's common stock.
Non-qualified stock options may be issued at such exercise price and on
such other terms and conditions as the Compensation Committee of the Board
of Directors may determine. Optionees may also be granted stock
appreciation rights under which they may, in lieu of exercising an option,
elect to receive cash or common stock, or a combination thereof, equal to
the excess of the fair market value of the common stock over the option
price. All options were granted at fair market value at dates of grant.
F-15
In January 1998 the Company granted to certain officers of the Company
options to purchase up to a maximum of 41,500 shares of the Company's
common stock. The options have an exercise price of $12.78 per share, which
was the fair market value of a share of common stock on the date of grant.
The number of options was dependent on the officers meeting certain
performance criteria. As of December 31, 1998, the officers had been
granted options to purchase 39,553 shares of common stock. For the year
ended December 31, 1998, the Company recorded, under the provision of
Accounting Principles Board Opinion 25, $410 in compensation expense
associated with the options.
The stock option plans for directors who are not employees of the Company
provide for the issuance of up to 375,000 shares of common stock and may be
issued at such price per share and on such other terms and conditions as
the Compensation Committee may determine. All options were granted at fair
market value at dates of grant.
Changes in shares under option for 1998, 1997 and 1996 are summarized as
follows:
1998 1997 1996
------------------------- ------------------------ -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding, beginning of year ...... 672,250 $ 9.08 619,641 $ 7.70 738,489 $ 7.53
Granted ......................... 250,053 15.36 200,000 14.52 -- --
Exercised ....................... (35,000) 6.50 (134,441) 7.84 (113,448) 6.55
Canceled ........................ (5,000) 12.78 (12,950) 8.86 (5,400) 7.53
------- ------- -------
Outstanding, end of year ............ 882,303 10.94 672,250 9.08 619,641 7.70
======= ======= =======
Options exercisable, end of year .... 535,250 $ 9.15 414,250 $ 7.13 454,651 $ 7.66
======= ======= =======
Weighted average fair value of
options granted during the year .... $ 7.89 $ 7.71 $ --
========= ========= =======
Outstanding stock options at December 31, 1998 consist of the following:
Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted
Range of Average Weighted Weighted
Exercise Remaining Average Average
Prices Shares Life Price Shares Price
(Years)
----------------- ------- --------- -------- ------- -------
$ 6.00 - $ 8.81 475,000 5.0 $ 7.79 431,000 $ 7.77
11.06 - 13.38 239,803 4.5 12.87 29,250 12.92
15.56 - 19.75 167,500 4.6 17.12 75,000 15.63
------- -------
$ 6.00 - $ 19.75 882,303 4.8 $ 10.94 535,250 $ 9.15
======= =======
The fair value of each option grant was estimated as of the grant date
using the Black-Scholes option-pricing model assuming a risk-free interest
rate of 6.5%, volatility of 55%, and zero dividend yield for 1998, and a
risk-free interest rate of 5.5%, volatility of 43% and zero dividend yield
for 1997, with expected lives of six years for both periods. The Company
applies Accounting Principles Board Opinion 25 and related interpretations
in accounting for its plans. If compensation expense was determined based
on the fair value method under the provisions of SFAS No. 123, the
Company's net income and net income per share would have been reduced to
the pro forma amounts indicated below:
F-16
1998 1997
---- ----
Net income ................... As reported $ 5,882 $ 3,963
Pro forma 5,581 3,827
Basic earnings per share ..... As reported $ 0.80 $ 0.56
Pro forma 0.76 0.54
Diluted earnings per share ... As reported $ 0.77 $ 0.55
Pro forma 0.73 0.53
SFAS No. 123 had no impact on the financial statements for the year ended
December 28, 1996.
As of December 31, 1998, there were 1,014,058 shares of common stock under
the Stock Option Plans that were available for future grant.
On December 31, 1997, the Company granted warrants to purchase up to 35,000
shares of its common stock at a price of $12.50 per share to a consultant
to the Company. The Company will record compensation expense of
approximately $275 ratably over the two year vesting period of the
warrants, of which $137 was recorded for the year ended December 31, 1998.
11. COMMITMENTS AND CONTINGENCIES
Leases
------
The Company leases its offices, training facilities, and certain equipment
under operating and capitalized lease obligations. Operating leases expire
on various dates through 2008. The Company recognizes rent expense on a
straight line basis and records deferred rent based on the difference
between cash paid and straight line expense. Rent expense was $3,331,
$2,741, and $1,761 for 1998, 1997, and 1996, respectively.
Under the terms of the leases, future minimum commitments at December 31,
1998 are as follows:
Year ending December 31 Capital Leases Operating Leases
----------------------- -------------- ----------------
1999 $ 908 $ 2,745
2000 145 2,875
2001 34 2,917
2002 2 2,564
2003 -- 1,964
2004 & after -- 4,963
--------------- ----------------
$ 1,089 $ 18,028
================
Less: Amount representing interest (76)
---------------
$ 1,013
===============
Litigation
----------
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
F-17
12. ACQUISITIONS
(a) Memphis and Nashville, Tennessee franchises
On April 30,1998, the Company purchased the assets of its franchises
in Memphis and Nashville, Tennessee for total consideration of $3,787
in cash, net of cash acquired, and 248,252 shares of the Company's
common stock. Based upon the closing price of the New Horizons stock
as of April 30, 1998 ($18.00 per share) the acquisition is valued at
approximately $8.3 million. The selling shareholders will receive
additional consideration, in cash and stock, if certain performance
targets are achieved. The acquisition has been recorded using the
purchase method of accounting and the operating results have been
included in the Company's financial statements from the date of
acquisition. The acquisition resulted in goodwill of $8,236 which is
being amortized over 25 years.
(b) Hartford, Connecticut franchise
On October 30, 1998, the Company purchased the assets of its franchise
in Hartford, Connecticut for 48,242 shares of the Company's common
stock, the Company's $3,000 promissory note bearing interest at 5%
(Note 3) and cash acquired of $99, net of cash paid. Based upon the
closing price of the New Horizons stock as of October 30, 1998 ($18.50
per share) the acquisition is valued at approximately $4.5 million.
The selling shareholders will receive additional consideration, in
cash and stock, if certain performance targets are achieved. The
acquisition has been recorded using the purchase method of accounting
and the operating results have been included in the Company's
financial statements from the date of acquisition. The acquisition
resulted in goodwill of $4,045 which is being amortized over 25 years.
If the results from the acquired locations had been included in the results
of the operations for the full years of 1998 and 1997 the Company's pro
forma revenue, net income and earnings per share from continuing operations
would have been as follows:
1998 1997
---- ----
Revenue $ 79,682 $ 64,653
Net income $ 6,327 $ 4,601
Basic earnings per share $ 0.83 $ 0.62
Diluted earnings per share $ 0.79 $ 0.61
F-18
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for continuing operations for 1998 and
1997 is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Year ended December 31, 1998
----------------------------
Revenues ..................... $14,685 $17,810 $19,659 $20,475
Operating income ............. 1,073 2,267 2,827 2,359
Net income ................... 811 1,637 1,869 1,565
Basic earnings per share ..... 0.11 0.22 0.25 0.21
Diluted earnings per share ... 0.11 0.21 0.24 0.20
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Year ended December 31, 1997
----------------------------
Revenues ..................... $11,969 $13,062 $13,786 $13,816
Operating income ............. 72 463 949 967
Gain from release of certain
franchise obligations .... 2,600 -- -- --
Net income ................... 1,732 454 747 1,030
Basic earnings per share ..... 0.25 0.06 0.11 0.15
Diluted earnings per share ... 0.24 0.06 0.10 0.14
14. DISCONTINUED OPERATIONS
On November 4, 1996, the Company signed a definitive agreement to sell its
environmental business. The sale was authorized at a special meeting of
stockholders held on December 20, 1996, and was consummated on December 27,
1996. Under the agreement, the Company sold the stock of its environmental
segment which had a net asset value of $10,300 for $4,600 in cash and other
consideration, including a promissory note and preferred stock in the
amount of $3,700 and $2,000, respectively. In addition, immediately prior
to the closing, the Company received a dividend of cash, accounts
receivable and other assets owned by the environmental subsidiaries having
a book value of $11,654 at December 27, 1996. The Company incurred a loss
of $7,303 on the disposal of the segment, consisting primarily of valuation
reserves on the promissory note and preferred stock of $2,960 and $1,600,
respectively, goodwill write-off of $1,800, and transaction costs of
approximately $966. There is no expected tax benefit from this loss.
The net assets and results of operations of Handex Environmental, Inc. have
been reflected as discontinued operations in the accompanying consolidated
financial statements.
1998 1997 1996
---- ---- ----
Net operating revenues ............ $ -- $ -- $ 44,281
========= ======== ========
Income (loss) before income taxes . $ -- $ 349 $ (7,348)
Income taxes ...................... -- -- 85
--------- -------- --------
Net income (loss) ................. $ -- $ 349 $ (7,433)
========= ======== ========
F-19
In December 1997 the Company received $2,000 from ECB, Inc. in redemption
of the 2,000 shares of Series A Preferred Stock which had a stated value of
$1,000 per share. In 1996 the Company had established a valuation reserve
of $1,600 against the face amount of the Preferred Stock which it reversed
upon the receipt of the redemption proceeds. Upon further analysis of the
remaining assets and liabilities of the environmental business, the Company
recorded an additional provision of $1,251 to reflect the expected
realization value of those assets and liabilities. As a result of the
redemption of the Series A Preferred Stock, ECB, Inc. was also able to
redeem, at no cost, the six-year warrant to acquire 300,000 common shares
of ECB at a price of $1.32 per share and the six-year warrant to acquire
85,000 common shares of ECB at a price of $1.60 per share. The Company, in
1996, ascribed no value to the warrants so the redemption in 1997 had no
effect on its financial results.
15. SUBSEQUENT EVENT
On March 1, 1999, the Company purchased the assets of its franchise in
Albuquerque, New Mexico. The consideration paid included $2,762 in cash,
net of cash acquired, and 38,953 shares of the Company's common stock.
Based upon the closing price of the New Horizons stock as of March 1, 1999
($21.13 per share) the acquisition is valued at approximately $4 million.
The selling shareholders will receive additional consideration, in cash and
stock, if certain performance targets are achieved.
16. SEGMENT REPORTING
The Company operates in two business segments -- company-owned training
centers and franchising operations. The company-owned training centers
segment operates wholly-owned computer training centers in the United
States and derives its revenues from the operating revenues of those
centers. The franchising segment franchises computer training centers
domestically and internationally and supplies systems of instruction and
sales and management concepts concerning computer training to independent
franchisees. The franchising segment revenues are from the initial
franchise fees and royalties from the franchise operations and other
revenue such as from the Major Accounts Program. The two segments are
managed separately because of the differences in the source of revenues and
the services offered. Information on the Company's segments is as follows:
F-20
Company-owned Executive Discontinued
Centers Franchising Office Operations Consolidated
------------- ----------- --------- ------------ ------------
For the year ended December 31, 1998
- ------------------------------------
Revenues from external customers .................... $ 52,545 $ 20,084 $ -- $ -- $ 72,629
Investment income ................................... 49 101 1,274 -- 1,424
Interest expense .................................... 229 26 -- -- 255
Depreciation and amortization expense ............... 3,442 545 19 -- 4,006
Income tax expense (benefit) ........................ 1,740 2,670 (597) -- 3,813
Net income (loss) from continuing operations ........ 2,595 3,383 (96) -- 5,582
Net deferred tax asset .............................. 249 972 -- -- 1,221
Total assets ........................................ 45,194 21,631 19,921 -- 86,746
Additions to property, plant and equipment .......... 2,470 5,974 -- -- 8,444
For the year ended December 31, 1997
- ------------------------------------
Revenues from external customers .................... $ 38,692 $ 13,941 $ -- $ -- $ 52,633
Gain from release of certain franchise obligations .. -- 2,600 -- -- 2,600
Investment income ................................... 19 130 1,152 -- 1,301
Interest expense .................................... 421 48 -- -- 469
Depreciation and amortization expense ............... 3,377 409 -- -- 3,786
Income tax expense (benefit) ........................ 169 2,392 (292) -- 2,269
Net income from continuing operations ............... 272 3,122 220 -- 3,614
Income from discontinued operations, net of
applicable income taxes ........................ -- -- -- 349 349
Net deferred tax asset .............................. 655 211 -- -- 866
Total assets ........................................ 26,821 13,437 26,313 -- 66,571
Additions to property, plant and equipment .......... 2,536 1,914 -- -- 4,450
For the year ended December 28, 1996
- ------------------------------------
Revenues from external customers .................... $ 31,425 $ 9,844 $ -- $ -- $ 41,269
Investment income ................................... -- -- 212 -- 212
Interest expense .................................... 317 35 -- -- 352
Depreciation and amortization expense ............... 2,620 243 -- -- 2,863
Income tax expense (benefit) ........................ 181 844 (356) -- 669
Net income (loss) from continuing operations ........ 336 979 (517) -- 798
Loss from discontinued operations, net of
applicable income taxes ........................ -- -- -- (7,433) (7,433)
Net deferred tax asset .............................. (53) 80 -- -- 27
Total assets ........................................ 25,555 7,766 27,151 -- 60,472
Additions to property, plant and equipment .......... 3,853 1,046 -- -- 4,899
F-21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information required by this Item 10 as to the Directors of the Company is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 4, 1999, since such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year pursuant to Regulation
14A.
EXECUTIVE OFFICERS OF THE REGISTRANT*
The following is a list of the executive officers of the Company. The executive
officers are elected each year and serve at the pleasure of the Board of
Directors.
NAME AGE POSITION
---- --- --------
Curtis Lee Smith, Jr. 71 Chairman of the Board and Chief
Executive Officer
Thomas J. Bresnan 46 President and Chief Operating Officer
Stuart O. Smith 66 Vice Chairman of the Board and
Secretary
Robert S. McMillan 47 Vice President, Treasurer and Chief
Financial Officer
Charles G. Kinch 45 President and Chief Operating Officer
- New Horizons Computer Learning
Centers, Inc.
Kenneth M. Hagerstrom 40 President - Company-owned Center
Division
* The description of executive officers called for in this Item is included
pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K.
Set forth below is a brief description of the background of those executive
officers of the Company who are not Directors of the Company. Information with
respect to the background of those executive officers who are also Directors of
the Company is incorporated herein by reference as set forth under the caption
"Election of Directors" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 4, 1999.
19
CHARLES G. KINCH was named President and Chief Operating Officer of New Horizons
Computer Learning Centers, Inc., a subsidiary of the Company, in May 1995.
Before then, from 1992 to 1995, he was President of Paragon Retailers Systems,
Boca Raton, Florida. From 1989 to 1992, he was Vice President for Marketing and
Operations, Tandem Source Company, Tandem Computers, Cupertino, California. From
1983 to 1989, he was with ComputerLand Corporation, Hayward California,
beginning as Vice President of Products, and then being promoted to General
Manager of ComputerLand Operated Stores, Inc., and President of ComputerLand
Franchise Holding Corp., both based in Hayward, California.
ROBERT S. MCMILLAN was named Vice President, Treasurer and Chief Financial
Officer of the Company in August 1997. He served as Chief Financial Officer of
New Horizons Computer Learning Centers, Inc. beginning in 1995 and became a
Senior Vice President in January 1997. From 1992 to 1995, Mr. McMillan was Chief
Financial Officer of ZNYX Corporation, Fremont California. From 1990 to 1992, he
was Chairman, Chief Executive Officer and Chief Financial Officer of Omnivar, in
Burbank, California.
KENNETH HAGERSTROM was named President of the Company-owned Center Division of
New Horizons in November 1997. From June 1997 until November 1997 Mr. Hagerstrom
was the Director of Field Support for New Horizons Computer Learning Centers,
Inc. From October 1995 to June 1997 he was General Manager of the Company-owned
center in New York, NY. He originally joined New Horizons network in 1994 at the
Boston, MA franchise as an Account Executive and was promoted in 1995 to Sales
Manager. Before then, from 1982 to 1994, Mr. Hagerstrom was President of KMS
Enterprises of Boston, MA.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to the
information set forth under the caption "Compensation of Directors and Executive
Officers" in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 4, 1999, since such Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to the
information set forth under the caption "Share Ownership of Principal Holders
and Management" in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 4, 1999, since such Proxy Statement
will be filed with the Securities and Exchange Commission not later than 120
days after the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 4, 1999, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
20
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following Consolidated Financial Statements of the Registrant and
its subsidiaries are included in Part II, Item 8:
Page
----
Reports of Independent Auditors ......................... F-1 to F-2
Consolidated Balance Sheets ............................. F-3
Consolidated Statements of Operations ................... F-4
Consolidated Statements of Comprehensive Income ......... F-5
Consolidated Statements of Stockholders' Equity ......... F-6
Consolidated Statements of Cash Flows ................... F-7 to F-8
Notes to Consolidated Financial Statements .............. F-9 to F-21
(a) (2) All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(a) (3) Exhibits
Reference is made to the Exhibit Index at sequential page 23 hereof.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized at Morganville, New Jersey
this 30th day of March, 1999.
NEW HORIZONS WORLDWIDE, INC.
By: /s/Curtis Lee Smith, Jr.
Curtis Lee Smith, Jr., Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/Curtis Lee Smith, Jr. Chairman, and )
Curtis Lee Smith, Jr. Chief Executive Officer )
(Principal Executive Officer) )
)
)
/s/Robert S. McMillan Vice President, Treasurer and )
Robert S. McMillan Chief Financial Officer )
(Principal Financial and )
Accounting Officer) )
)
)
/s/Stuart O. Smith Director )
Stuart O. Smith )
)
) March 31, 1999
/s/Thomas J. Bresnan Director )
Thomas J. Bresnan )
)
)
/s/David A. Goldfinger Director )
David A. Goldfinger )
)
)
/s/Richard L. Osborne Director )
Richard L. Osborne )
)
)
/s/Scott R. Wilson Director )
Scott R. Wilson )
)
)
/s/William H. Heller Director )
William H. Heller )
)
)
22
Reports on Form 8-K
- -------------------
During the quarter ended December 31, 1998, the Company filed a Current Report
on Form 8-K dated October 30, 1998, to report the Company's acquisition, through
its indirect wholly-owned subsidiary, New Horizons Computer Learning Center of
Hartford Inc., a Delaware corporation, of substantially all of the assets used
in the computer training business conducted by Daniels Enterprises, L.L.C., a
Connecticut limited liability company.
EXHIBIT INDEX
Exhibit Exhibit
Number Description
- ------ -----------
3.1 Amended Certificate of Incorporation of the Registrant (1)
3.2 By-laws of the Registrant (1)
3.3 Amendment to Certificate of Incorporation of the Registrant (5)
4.1 Specimen Certificate for Share of Common Stock, $.01 par value, of the
Registrant *
4.2 Secured Straight Line of Credit, guaranteed by the Registrant (8)
10.1** Omnibus Equity Plan of the Registrant (2)
10.2** Key Employees Stock Option Plan of the Registrant (1)
10.3** Amendment No. 1 to the Key Employees Stock Option Plan of the
Registrant *
10.4** Stock Option Agreement dated August 6, 1992, between the Registrant and
Thomas J. Bresnan *
10.5** Stock Option Agreement dated January 22, 1998, between Registrant and
Charles G. Kinch (7)
10.6** Stock Option Agreement dated January 22, 1998, between the Registrant
and Kenneth Hagerstrom (7)
10.7** Stock Option Agreement dated January 22, 1998, between the Registrant
and Robert S. McMillan (7)
10.8** Outside Directors Stock Option Plan of the Registrant (1)
10.9** Amendment No. 1 to the Outside Directors Stock Option Plan of the
Registrant *
10.10** 1997 Outside Directors Elective Stock Option Plan of the Registrant (2)
10.11** Form of Option Agreement executed by recipients of options under 1997
Outside Directors Elective Stock Option Plan (2)
10.12** Stock Option Agreement dated September 19, 1996, between the Registrant
and David A. Goldfinger (2)
23
10.13** Stock Option Agreement dated September 19, 1996, between the Registrant
and William Heller (2)
10.14** Stock Option Agreement dated September 19, 1996, between the Registrant
and Richard L. Osborne (2)
10.15** Stock Option Agreement dated September 19, 1996, between the Registrant
and Scott R. Wilson (2)
10.16 Form of Indemnity Agreement with Directors and Officers of the
Registrant *
10.17** New Horizons Education Corporation 401(k) Profit Sharing Trust and Plan
(3)
10.18** Amendment No. 1 New Horizons Education Corporation 401(k) Profit
Sharing Trust and Plan (5)
10.19** Amendment No. 2 New Horizons Education Corporation 401(k) Profit
Sharing Trust and Plan (5)
10.20** Amendment No. 3 New Horizons Education Corporation 401(k) Profit
Sharing Trust and Plan (5)
10.21** Amendment No. 4 New Horizons Education Corporation 401(k) Profit
Sharing Trust and Plan (8)
10.22** New Horizons Worldwide 401(k) Profit Sharing Trust and Plan *
10.23 Warrants for the purchase of 35,000 shares of Common Stock, $.01 par
value per share, of the Registrant issued to The Nassau Group, Inc. -
December 31, 1997 (6)
10.24 Stock Purchase Agreement dated November 4, 1996, between the Registrant
and ECB, Inc. and certain exhibits thereto (4)
21.1 Subsidiaries of the Registrant*
27.0 Financial Data Schedule*
(1) Incorporated herein by reference to the appropriate exhibits to the
Registrant's Registration Statement on Form S-1 (File No. 33-28798).
(2) Incorporated herein by reference to the appropriate Exhibits to the
Registrant's Registration Statement on Form S-8 (Reg. No. 333-56585
(3) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 30,
1995.
(4) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended September
28, 1996.
(5) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1996.
(6) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997.
(7) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the year ended March 31,
1998.
(8) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the year ended June 30,
1998.
* Filed herewith
** Compensatory plan or arrangement
24
Exhibit 4.1
SHARES
NUMBER New Horizons SHARES
2225 --------------- SPECIMEN
Worldwide, Inc.
Incorporated under the laws of the State of Delaware
THIS CERTIFICATE NEW HORIZONS WORLDWIDE, INC.
IS TRANSFERABLE
EITHER IN CHICAGO, IL
OR IN NEW YORK, NY CUSIP 645526 10 4
THIS CERTIFIES THAT SPECIMEN IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
$0.01 EACH OF THE COMMON STOCK OF
NEW HORIZONS WORLDWIDE, INC.
Transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
Witness the seal of the Corporation and the signatures of its duly
authorized officers.
DATED
NEW HORIZONS WORLDWIDE, INC.
CORPORATE
/s/ Stuart O. Smith SEAL /s/ Curtis Lee Smith
Secretary DELAWARE Chairman
SEE REVERSE FOR CERTAIN DEFINITIONS
COUNTERSIGNED AND REGISTERED
HARRIS TRUST AND SAVINGS BANK
BY TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - __________Custodian________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _______________________________
in common (State)
COM PROP - as community property UNIF TRF MIN ACT - __________Custodian (until age ____)
(Cust)
____________under Uniform Transfers
(Minor)
to Minors Act _____________________
Additional abbreviations may also be used though not in the above list.
-----------------
FOR VALUE RECEIVED, ______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASIGNEE
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPE NAME AND ADDRESS OF ASIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________attorney-in fact to transfer the said
stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated __________________________
________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature Guaranteed
________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
Exhibit 10.3
AMENDMENT NO. 1
TO
HANDEX ENVIRONMENTAL RECOVERY, INC.
KEY EMPLOYEES STOCK OPTION PLAN
This Amendment No. 1 to the Handex Environmental Recovery, Inc. Key
Employees Stock Option Plan (the "Plan") is adopted February 12, 1993.
Capitalized terms not otherwise defined herein shall have the meanings given
them in Plan.
W I T N E S S E T H:
WHEREAS, the number of shares of Common Stock for which options may be
granted under the Plan is 607,500, of which only 15,950 remain for further grant
by the Committee.
WHEREAS, the Company desires to increase the number of shares of Common
Stock for which options may be granted under the Plan;
NOW, THEREFORE, the Plan is amended by deleting the first sentence of
Section 6 of the Plan and substituting the following therefore:
"Subject to the provisions of Section 9 concerning payment for stock
appreciation rights in shares of Common Stock, and subject to the
provisions of the next succeeding paragraph of this Section 6, the
aggregate number of shares of Common Stock for which options may be granted
under the Plan shall be One Million Two Hundred Thousand (1,200,000) shares
of Common Stock."
This Amendment No. 1 to the Plan shall be effective as of the date hereof,
subject to approval by holders of a majority of the outstanding shares of Common
Stock of the Company. In the event this Amendment No. 1 is not so approved on or
before December 31, 1993, all options granted under the Plan in excess of those
permitted without giving effect hereto shall be null and void.
IN WITNESS WHEREOF, Handex Environmental Recovery, Inc., by its duly
authorized officer, has executed this Amendment No. 1, as of the date first
above written.
HANDEX ENVIRONMENTAL RECOVERY, INC.
BY_________________________________
ITS________________________________
091\18746CAB.60A
Exhibit 10.5
STOCK OPTION AGREEMENT
THIS AGREEMENT, entered into as of the 6th day of August, 1992, by and
between Handex Environmental Recovery, Inc., Delaware corporation (the
"Company"), and Thomas J. Bresnan (the "Optionee").
WITNESSETH:
WHEREAS, the Board of Directors of the Company has appointed a Compensation
Committee (the "Committee") to serve as the Committee to administer the Handex
Environmental Recovery, Inc. Key Employees Stock Option Plan (the "Plan"); and
WHEREAS the Committee has determined that the Optionee, as a Key Employee
(as such term is defined in the Plan), should be granted a stock option under
the Plan upon the terms and conditions set forth in this Agreement, and for the
number of shares of the $.01 par value common stock of the Company set forth
hereinbelow (the "Shares");
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
Definitions. The following terms shall have the meanings set forth below
whenever used in this instrument:
(a) The word "Affiliate" shall mean any corporation which is, within the
meaning of Section-1563(a) of the Code, a member of a controlled group of
corporations which includes the Company.
(b) The word "Agreement" shall mean this instrument.
(c) The word "Board" shall mean the Board of Directors of the Company.
(d) The word "Code" shall mean the United States Internal Revenue Code
(Title-26 of the United States Code).
(e) The word "Committee" shall mean the Compensation Committee appointed by the
Board.
(f) The word "Company" shall mean Handex Environmental Recovery, Inc., a
Delaware corporation and any successor thereto which shall maintain the
Plan.
(g) The word "Disability" shall mean the Optionee's inability, due to a mental
or physical condition, to perform services for the Company substantially
consistent with past practice, as determined by the Committee pursuant to
written certification of such condition from a physician acceptable to the
Committee.
(h) The word "Employee" shall mean any person who is an employee of either the
Company or any Subsidiary.
(i) The words "Incentive Stock Option" shall mean any Option which qualifies as
an Incentive Stock Option under terms of Section-422A of the Code.
(j) The word "Option" shall mean the right and option of the Optionee to
purchase Shares pursuant to the terms of this Agreement.
(k) The words "Option Price" shall mean the price at which Shares may be
acquired upon the exercise of any option.
(l) The word "Optionee" shall mean the person to whom an Option has been
granted pursuant to this Agreement.
(m) The words "Personal Representative" shall mean, following the Optionee's
death, the person who shall have acquired, by Will or by the laws of
descent and distribution, the right to exercise any option.
(n) The word "Plan" shall mean the Handex Environmental Recovery, Inc. Key
Employees Stock Option Plan, as it was originally adopted and as it may
later be amended.
(o) The words "Reporting Company" shall mean any entity with a class of equity
securities which is registered under Section-12 of the Securities Exchange
Act of-1934, as amended.
(p) The word "Shares" shall mean shares of the $.01 par value common stock of
the Company.
(q) The word "Subsidiary" shall mean any corporation at least 50% of the common
stock of which is owned directly or indirectly by the Company.
Grant of Option. Effective as of the date of this Agreement, the Company grants
to the Optionee, upon the terms and conditions set forth hereinafter, the right
and option to purchase all or any lesser whole number of an aggregate of one
hundred thirty thousand (130,000) Shares at an Option Price of $7.875 per Share.
All of such Shares are subject to a nonqualified stock option and none of such
Shares are subject to an Incentive Stock Option.
Term of Option. Except as otherwise provided herein, the term of the option
shall be for a period of ten (10) years from the date hereof, and the Option
shall expire at the close of regular business hours at the Company's principal
office at 500-Campus Drive, Morganville, New Jersey--07751, on the last day of
the term of the option, or, if earlier, on the applicable expiration date
provided for in Sections-5, 6 and 7 hereof.
Exercise Dates. Except as otherwise provided herein, the Optionee shall be
entitled to exercise the Option with respect to the number of Shares indicated
below on or after the date indicated opposite such number below:
Initial and Additional Number of
Shares with Respect to which the Total Shares with Respect to which Date Beginning on Which Option May be
Option May be Exercised the Option May be Exercised Exercised
- -------------------------------- ---------------------------------- -------------------------------------
65,000 65,000 August-6, 1992
13,000 78,000 August-6, 1993
13,000 91,000 August-6, 1994
13,000 104,000 August-6, 1995
13,000 117,000 August-6, 1996
13,000 130,000 August-6, 1997
Except as provided in Sections-5 and 6 hereof, the Option may not be exercised
at any time unless the Optionee shall be an Employee at such time.
Termination of Employment, Etc. So long as the Optionee shall continue to be an
Employee, the Option shall not be affected by (a) any temporary leave of absence
approved in writing by the Company or a Subsidiary and described in
Section-1.421-7(h) of the Federal Income Tax Regulations or any lawful successor
regulations thereto, or (b) any change of duties or position (including transfer
to or from a Subsidiary). If the Optionee ceases to be an Employee for any
reason other than death or Disability, the option may be exercised only to the
extent of the purchase rights, if any, which, pursuant to Section-4 hereof,
existed as of the date the Optionee ceases to be an Employee and which have not
theretofore been exercised; provided, however, that the Committee may in its
absolute discretion determine (but shall not be under any obligation to
determine) that such purchase rights shall be deemed to include additional
Shares which are subject to the option. Upon an Optionee's ceasing to be an
Employee, such purchase rights shall in any event terminate upon the earlier of
either (a) three (3) months (one (1) year if the Optionee ceased to be an
Employee because of death or Disability) after the date the Optionee ceased to
be an Employee, or (b) the last day of the term of the Option. Notwithstanding
the preceding provisions of this Section-5, unless the Committee shall otherwise
determine, upon (a) the Optionee's ceasing to be an Employee by reason of an
involuntary termination of such status for good cause, as determined by the
Committee, or (b) the Optionee's voluntary termination with the intention of
rendering services to a competitor of the Company or any of its Subsidiaries or
otherwise entering into competition with the Company or any of its Subsidiaries,
directly or indirectly, or (c) the commission by the Optionee of a material
broach of his obligations under any agreement with the Company or any of its
Subsidiaries, the Optionee's right to purchase Shares pursuant to the exercise
of the Option shall terminate. Nothing in this Agreement shall confer upon any
Optionee any right to continue in the employ of the Company or a Subsidiary, or
to serve as a member, of the Board of Directors of the Company or a Subsidiary,
or to interfere with or limit either the right of the Company or Subsidiary to
terminate his employment at any time or the right of the shareholders of the
Company to remove him as a member of the Board of Directors of the Company or a
Subsidiary with or without cause.
Optionee's Death or Disability. If, while the Optionee is an Employee, or within
three (3) months of the Optionee's having ceased to be an Employee (other than
under circumstances which resulted in the termination of the Optionee's right to
purchase Shares pursuant to the exercise of the Option), the Optionee dies or
becomes Disabled, the Optionee or the Optionee's Personal Representative may
immediately, exercise the Option with respect to all of the shares subject to
the Option regardless of whether the Optionee had the right under Section-4
hereof to exercise the option at the time of his death or Disability. The Option
shall in any event terminate upon the earlier of either (a) the first annual
anniversary of the date the Optionee ceased to be an Employee; or (b) the last
day of the term of the option.
Change of Control, Dissolution, Liquidation and Certain Mergers. Notwithstanding
the provisions of Section-4 hereof, upon the occurrence of a "change of control"
(as defined herein), or immediately prior to a dissolution or liquidation of the
Company (but only if the distributee of substantially all of the Company's
assets upon the liquidation of the Company was not, immediately prior to the
liquidation, an Affiliate) or a merger or consolidation in which the Company is
not the surviving corporation (but only if the corporation which is the
surviving corporation in such merger or consolidation was not, immediately prior
to the merger or consolidation, an Affiliate), the Optionee shall have the
immediate and non-forfeitable right to exercise the Option with respect to all
Shares covered by the Option, and any such exercise shall be irrevocable. The
Optionee shall be entitled to exercise the Option as provided in the immediately
preceding sentence regardless of whether the other corporation which is the
surviving corporation in a merger or consolidation shall adopt and maintain the
Plan. In the event the Option becomes exercisable pursuant to this Section-7,
the Company shall notify the Optionee of his right to exercise the Option. The
term "change of control" shall mean the acquisition (other than from the
Company) by any person, entity or "group" (within the meaning of
Section-13(d)(3) or 14(d)(2) of the Securities Exchange Act of-1934 (the
"Exchange Act")) but excluding for this purpose the Company or any Subsidiary or
any employee benefit plan of the Company or any Subsidiary which acquires
beneficial ownership (within the meaning of Rule-13d-3 promulgated under the
Exchange Act) of voting securities of the Company of 50% or more (35% or more if
the Company is a Reporting Company) of either the then outstanding Shares or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of Directors. Upon either the
dissolution or liquidation of the Company (but only if the distributee of
substantially all of the Company's assets upon the liquidation of the Company
was not, immediately prior to the liquidation, an Affiliate) or upon the
occurrence of a merger or consolidation in which the Company is not the
surviving corporation (but only if the corporation which is the surviving
corporation in such merger or consolidation was not, immediately prior to the
merger or consolidation, an Affiliate) and immediately following which the
surviving corporation fails to maintain the Plan, the Option shall terminate
unless the surviving corporation assumes the option.
Adjustment of Number of Shares, Etc. In the event that subsequent to the date of
this Agreement, the outstanding Shares are, as a result of a stock split, stock
dividend, combination or exchange of shares, exchange for other securities,
reclassification, reorganization, redesignation, merger, consolidation,
recapitalization, spin-off, split-off or split-up or other such change
(including, without limitation, any transaction described in Section-425(a) of
the Code), or a special dividend or other distribution to the Company's
shareholders, increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company,
then (i) there shall automatically be substituted for each Share subject to the
option the number and kind of shares of stock or other securities into which
each outstanding Share shall be exchanged, (ii) the option price per Share or
unit of securities shall be increased or decreased proportionately so that the
aggregate purchase price for the securities subject to the Option shall remain
the same as immediately prior to such event, and (iii) the Committee shall make
such other adjustments to the securities subject to the option as may be
appropriate, equitable and in compliance with the provisions of Section-425(a)
of the Code to the extent applicable and any such adjustment shall be final,
binding and conclusive as to the Optionee. Any such adjustment shall provide for
the elimination of fractional shares if the Committee shall so direct. Exercise
of Option. The Option may be exercised by delivering to the Chief Financial
Officer of the Company at its principal office, 500-Campus Drive, Morganville,
New Jersey--07751, a completed Notice of Exercise of Option (obtainable from the
Chief Financial Officer of the Company) setting forth the number of Shares with
respect to which the Option is being exercised. Such Notice shall be accompanied
by payment in full for the Shares, unless other arrangements satisfactory to the
Company for prompt payment of such amount are made. Payments shall be made by
such type of check or other means of funds transfer as is acceptable to the
Company in the amount of the aggregate purchase price for such Shares or, with
the consent of the Committee, payment may be made in whole or in part in Shares
having a fair market value on the date the Option is exercised equal to that
portion of the purchase price for which payment in cash is not made; provided,
however, that payment in Shares held by the Optionee less than one (1) year may
be made only with the consent of the Committee.
Issuance of Share Certificates. Subject to the last sentence of this Section 10,
upon receipt by the Company prior to expiration of the Option of a duly
completed Notice of Exercise of Option to either exercise the option accompanied
by full payment for the Shares being purchased pursuant to such Notice (and,
with respect to any Option exercised pursuant to Section-11 hereof by someone
other than the Optionee, accompanied in addition by proof satisfactory to the
Committee of the right of such person to exercise the Option), the Company shall
cause to be made or otherwise delivered to the Optionee, within thirty (30) days
of such receipt, a certificate for the number of Shares so purchased. The
Optionee shall not have any of the rights of a shareholder with respect to the
Shares which are subject to the Option unless and until a certificate
representing such Shares is issued to the Optionee. The Company shall not be
required to issue any certificates for Shares it on the exercise of the Option
prior to (i) obtaining any approval from any governmental agency which the
Committee shall, in its sole discretion, determine to be necessary or advisable,
and/or (ii) the admission of such Shares to listing on any national securities
exchange on which the Shares may be listed, and/or (iii) completion of any
registration or other qualification of the Shares under any state or federal law
or ruling or regulations of any governmental body which the Committee shall, in
its sole discretion, determine to be necessary or advisable, or the
determination by the Committee, in its sole discretion, that any registration or
other qualification of the Shares is not necessary or advisable. Successors in
Interest, Etc. This Agreement shall be binding upon and inure to the benefit of
any successor of the Company and the heirs, estate, and Personal Representative
of the Optionee. The Option shall not be transferable other than by Will or the
laws of descent and distribution, and the option may be exercised during the
lifetime of the Optionee only by the Optionee provided that a guardian or other
legal representative who has been duly appointed for such Optionee may exercise
the option on behalf of the Optionee. A deceased Optionee's Personal
Representative shall act in the place and stead of the deceased Optionee with
respect to exercising an option or taking any other action pursuant to this
Agreement.
Provisions of Plan Control. This Agreement is subject to all of the terms,
conditions, and provisions of the Plan and to such rules, regulations, and
interpretations relating to the Plan as may be adopted by the Committee and as
may be in effect from time to time. A copy of the Plan is attached hereto as
Exhibit "All and is incorporated herein by reference. In the event and to the
extent that this Agreement conflicts or is inconsistent with the terms,
conditions, and provisions of the Plan, the Plan shall control, and this
Agreement shall be deemed to be modified accordingly.
No Liability Upon Distribution of Shares. The liability of the Company under
this Agreement and any distribution of Shares made hereunder is limited to the
obligations set forth herein with respect to such distribution and no term or
provision of this Agreement shall be construed to impose any liability on the
Company or the Committee in favor of any person with respect to any loss, cost
or expense which the person may incur in connection with or arising out of any
transaction in connection with this Agreement. Withholding. The Optionee agrees
that the Company may make appropriate provision for tax withholding with respect
to the transactions contemplated by this Agreement.
Captions. The captions and section numbers appearing in this Agreement are
inserted only as a matter of convenience. They do not define, limit, construe or
describe the scope or intent of the provisions of this Agreement.
Number. The use of the singular or plural herein shall not be restrictive as to
number and shall be interpreted in all cases as the context shall require.
Gender. The use of the feminine, masculine or neuter pronoun shall not be
restrictive as to gender and shall be interpreted in all cases as the context
may require.
Investment Representation. Optionee hereby represents and warrants that any
Shares which he may acquire by virtue of the exercise of the Option shall be
acquired for investment purposes only and not with a view to distribution or
resale; provided, however, that this restriction shall become inoperative in the
event the Shares which are subject to the Option shall be registered under the
Federal Securities Act of-1933, as amended, or in the event there is presented
to the Company evidence satisfactory to the Company to the effect that the offer
or sale of the Shares which were acquired upon exercise of the Option may
lawfully be made without registration under the Federal Securities Act of-1933,
as amended.
Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware and any applicable federal law.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer, and the Optionee has hereunto set his
hand, all as of the day and year first above written.
THOMAS J. BRESNAN /s/
Thomas J. Bresnan, ("Optionee")
HANDEX ENVIRONMENTAL RECOVERY, INC.
("Company")
By: CURTIS L. SMITH, JR. /s/
Curtis L. Smith, Jr.
Chairman of the Board
Exhibit 10.10
AMENDMENT NO. 1
TO
HANDEX ENVIRONMENTAL RECOVERY, INC.
OUTSIDE DIRECTORS STOCK OPTION PLAN
This Amendment No. 1 to the Handex Environmental Recovery, Inc. Outside
Directors Stock Option Plan (the "Plan") is adopted February 12, 1993.
Capitalized terms not otherwise defined herein shall have the meanings given
them in Plan.
W I T N E S S E T H:
WHEREAS, the number of shares of Common Stock for which options may be
granted under the Plan is 37,500, of which only 8,750 remain for further grant
by the Committee.
WHEREAS, the Company desires to increase the number of shares of Common
Stock for which options may be granted under the Plan;
NOW, THEREFORE, the Plan is amended by deleting the first sentence of
Section 6 of the Plan and substituting the following therefore:
"Subject to the provisions of Section 9 concerning payment for stock
appreciation rights in shares of Common Stock, and subject to the
provisions of the next succeeding paragraph of this Section 6, the
aggregate number of shares of Common Stock for which options may be granted
under the Plan shall be Seventy-Five Thousand (75,000) shares of Common
Stock."
This Amendment No. 1 to the Plan shall be effective as of the date hereof,
subject to approval by holders of a majority of the outstanding shares of Common
Stock of the Company. In the event this Amendment No. 1 is not so approved on or
before December 31, 1993, all options granted under the Plan in excess of those
permitted without giving effect hereto shall be null and void.
IN WITNESS WHEREOF, Handex Environmental Recovery, Inc., by its duly
authorized officer, has executed this Amendment No. 1, as of the date first
above written.
HANDEX ENVIRONMENTAL RECOVERY, INC.
BY_________________________________
ITS________________________________
Exhibit 10.18
NEW HORIZONS WORLDWIDE, INC.
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into effective as of _________________,
by and between NEW HORIZONS WORLDWIDE, INC., a Delaware corporation (the
"Corporation"), and _______________ ("Indemnitee"), a Director or Officer of the
Corporation.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available; and
WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance has been severely
limited; and
WHEREAS, it is now the express policy of the Corporation to indemnify its
Directors and Officers so as to provide them with the maximum possible
protection permitted by law; and
WHEREAS, in addition, because the statutory indemnification provisions of
the Delaware General Corporation Law expressly provide that they are
non-exclusive, it is the policy of the Corporation to indemnify Directors and
Officers of the Corporation who have entered into settlements of derivative
suits provided they have not breached the applicable statutory standard of
conduct; and
WHEREAS, Indemnitee does not regard the protection available under the
Corporation's By-Laws and insurance, if any, as totally adequate in the present
circumstances, and considers it necessary and desirable to his service as a
Director or Officer to have maximum protection, and the Corporation desires
Indemnitee to serve in such capacity; and
WHEREAS, the Delaware General Corporation Law and the Corporation's By-Laws
provides that indemnification of the Directors and Officers of the Corporation
may be authorized by agreement, and thereby contemplates that contracts of this
nature may be entered into between the Corporation and Indemnitee with respect
to indemnification of Indemnitee as a Director or Officer of the Corporation.
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
adequacy of which is hereby acknowledged, the Corporation and Indemnitee do
hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a
Director and/or Officer of the Corporation for so long as he is duly
elected or appointed or until such time as he tenders his resignation in
writing or is otherwise terminated or properly removed from office.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending, or
completed action, suit or proceeding, whether brought by or in the
right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature, in which Indemnitee
may be or may have been involved as a party or otherwise, by reason of
the fact that Indemnitee is or was a Director or Officer of the
Corporation, by reason of any action taken by him or of any inaction
on his part while acting as such a Director or Officer, or by reason
of the fact that he is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or
agent of the Corporation or of another corporation, partnership, joint
venture, trust or other enterprise; in each case whether or not he is
acting or serving in any such capacity at the time any liability or
expense is incurred for which indemnification or reimbursement can be
provided under this Agreement.
(b) The term "Expenses" shall include, without limitation, expenses of
investigations, judicial or administrative proceedings or appeals,
attorneys' fees and disbursements and any expenses of establishing a
right to indemnification under Paragraph-8 of this Agreement, but
shall not include the amount of judgments, fines or penalties against
or settlements paid by Indemnitee.
(c) References to "other enterprise" shall include, without limitation,
employee benefit plans; references to "fines" shall include, without
limitation, any excise tax assessed with respect to any employee
benefit plan; references to "serving at the request of the
Corporation" shall include, without limitation, any service as a
Director or Officer of the Corporation which imposes duties on, or
involves services by, such Director or Officer with respect to an
employee benefit plan, its participants or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be
in the best interests of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in
this Agreement.
3. Indemnity in Third-Party Proceedings. The Corporation shall indemnify
Indemnitee in accordance with the provisions of this Paragraph-3 if
Indemnitee is a party to or threatened to be made a party to or otherwise
involved in any Proceeding (other than a Proceeding by or in the right of
the Corporation to procure a judgment in its favor) by reason of the fact
that Indemnitee is or was a Director or Officer of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against all Expenses, judgments,
settlements, fines and penalties, actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of such Proceeding,
but only if Indemnitee acted 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, in the case of a criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful. The termination of any such
Proceeding by judgment, order of court, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not, of itself, create a
presumption that Indemnitee 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 proceeding, that such person
had reasonable cause to believe that his conduct was unlawful.
4. Indemnity for Expenses in Proceedings By Or In the Right of the
Corporation. The Corporation shall indemnify Indemnitee in accordance with
the provisions of this Paragraph-4 if Indemnitee is a party to or
threatened to be made a party to or otherwise involved in any Proceeding by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that Indemnitee is or was a Director or Officer of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
all Expenses actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of such Proceeding, but only if he acted in
good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, except that no
indemnification for Expenses shall be made under this Paragraph-4 in
respect of any claim, issue or matter as to which Indemnitee shall have
been adjudged to be liable to the Corporation, unless and only to the
extent that any court in which such Proceeding was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper.
5. Indemnity for Amounts Paid in Settlement in Proceedings By Or In the Right
of the Corporation. The Corporation shall indemnify Indemnitee in
accordance with the provisions of this Paragraph-5 if Indemnitee is a party
to or threatened to be made a party to any Proceeding by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact
that Indemnitee is or was a Director or Officer of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against all amounts actually and
reasonably paid in settlement by Indemnitee in connection with any such
Proceeding, but only if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation.
6. Indemnification of Expenses of Successful Party. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in
defense of any claim, issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
7. Advances of Expenses. Any Expenses incurred by or on behalf of Indemnitee
pursuant to Paragraphs-3 or-4 in any Proceeding shall be paid by the
Corporation in advance upon the written request of Indemnitee if Indemnitee
shall undertake to (a) repay such amount to the extent that it is
ultimately determined that Indemnitee is not entitled to indemnification
hereunder, and (b) reasonably cooperate with the Corporation concerning the
action, suit or proceeding giving rise to the Expenses.
8. Right of Indemnitee to Indemnification Upon Application; Procedure Upon
Application. Any indemnification under Paragraphs-3, 4, 5 and 6 shall be
made no later than thirty (30) days after receipt by the Corporation of the
written request of Indemnitee therefor, unless a determination is made
within said thirty (30) day period by (a) the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to
such Proceeding, or (b) independent legal counsel, agreed to by the
Corporation, in a written opinion (which counsel shall be appointed if such
a quorum is not obtainable), that the Indemnitee has not met the relevant
standards for indemnification set forth in Paragraphs-3, 4, 5 or 6. The
right to indemnification or advances as provided by this Agreement shall be
enforceable by Indemnitee in any court of competent jurisdiction. There
shall exist in such action a rebuttable presumption that Indemnitee has met
the applicable standard(s) of conduct and is therefore entitled to
indemnification pursuant to this Agreement, and the burden of proving that
the relevant standards have not been met by Indemnitee shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or independent legal counsel) prior to the commencement of such
action to have made a determination that indemnification is proper in the
circumstances because Indemnitee has met the applicable standard of
conduct, nor an actual determination by the Corporation (including its
Board of Directors or independent legal counsel) that Indemnitee has not
met such applicable standard of conduct, shall (a) constitute a defense to
the action, (b) create a presumption that Indemnitee has not met the
applicable standard of conduct, or (c) otherwise alter the presumption in
favor of Indemnitee referred to in the preceding sentence. Indemnitee's
Expenses reasonably incurred in connection with successfully establishing
his right to indemnification, in whole or in part, in any such action shall
also be indemnified by the Corporation.
9. Allowance for Compliance with SEC Requirements. Indemnitee acknowledges
that the Securities and Exchange Commission ("SEC") has expressed the
opinion that indemnification of directors and officers from liabilities
under the Securities Act of 1933 ("Act") is against public policy as
expressed in the Act and, is therefore, unenforceable. Indemnitee hereby
agrees that it will not be a breach of this Agreement for the Corporation
to undertake with the Commission in connection with the registration for
sale of any stock or other securities of the Corporation from time to time
that, in the event a claim for indemnification against such liabilities
(other than the payment by the Corporation of expenses incurred or paid by
a Director or Officer of the Corporation in the successful defense of any
action, suit or proceeding) is asserted in connection with such stock or
other securities being registered, the Corporation will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of competent jurisdiction the question of
whether or not such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue. Indemnitee further agrees that such submission to a court of
competent jurisdiction shall not be a breach of this Agreement.
10. Indemnification Hereunder Not Exclusive. The indemnification provided by
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Certificate of Incorporation or the
By-Laws of the Corporation, any agreement, any vote of stockholders or
disinterested Directors, the General Corporation Law of the State of
Delaware, or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office.
The indemnification under this Agreement shall continue as to Indemnitee
even though he may have ceased to be a Director or Officer so long as
Indemnitee shall be subject to any proceedings, by reason of the fact that
Indemnitee was a director, officer, employee, or agent of the Corporation
or serving in any capacity described in paragraph-5, and shall inure to the
benefit of the heirs, executors and personal representatives of Indemnitee.
11. Partial Indemnification. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Corporation for some claims,
issues or matters, but not as to other claims, issues or matters, or for
some or a portion of the Expenses, judgments, fines or penalties actually
and reasonably incurred by him or amounts actually and reasonably paid in
settlement by him in the investigation, defense, appeal or settlement of
any Proceeding, but not for the total amount thereof, the Corporation shall
nevertheless indemnify Indemnitee for the portion of such claims, issues or
matters or Expenses, judgments, fines, penalties or amounts paid in
settlement to which Indemnitee is entitled.
12. Reimbursement to Corporation by Indemnitee; Limitation on Amounts Paid by
Corporation. To the extent Indemnitee has been indemnified by the
Corporation hereunder and later receives payments from any insurance
maintained by the Company covering the same Expenses, judgments, fines,
penalties or amounts paid in settlement so indemnified by the Corporation
hereunder, Indemnitee shall immediately reimburse the Corporation hereunder
for all such amounts received from the insurer. Notwithstanding anything
contained herein to the contrary, Indemnitee shall not be entitled to
recover amounts under this Agreement which, when added to the amount of
indemnification payments made to, or on behalf of, Indemnitee, under the
Certificate of Incorporation or By-Laws of the Corporation, in the
aggregate exceed the Expenses, judgments, fines, penalties and amounts paid
in settlement actually and reasonably incurred by Indemnitee ("Excess
Amounts"). To the extent the Corporation has paid Excess Amounts to
Indemnitee, Indemnitee shall be obligated to immediately reimburse the
Corporation for such Excess Amounts.
13. Continuation of Rights and Obligations. All rights and obligations of the
Corporation and Indemnitee hereunder shall continue in full force and
effect despite the subsequent amendment or modification of the
Corporation's Certificate of Incorporation or By-Laws, as such are in
effect on the date hereof, and such rights and obligations shall not be
affected by any such amendment or modification, any resolution of Directors
or stockholders of the Corporation, or by any other corporate action which
conflicts with or purports to amend, modify, limit or eliminate any of the
rights or obligations of the Corporation and/or Indemnitee hereunder.
14. Amendment and Modification. This Agreement may only be amended, modified or
supplemented by the written agreement of the Corporation and Indemnitee.
15. Assignment. This Agreement shall not be assigned by the Corporation or
Indemnitee without the prior written consent of the other party thereto,
except that the Corporation may freely assign its rights and obligations
under this Agreement to any subsidiary for whom Indemnitee is serving as a
director, officer, partner, trustee, employee or agent thereof; provided,
however, that no permitted assignment shall release the assignor from its
obligations hereunder. Subject to the foregoing, this Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, successors and
assigns, including, without limitation, any successor to the Corporation by
way of merger, consolidation, other forms of reorganization and/or sale or
disposition of all or substantially all of the capital stock of the
Corporation.
16. Saving Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee as to Expenses,
judgments, fines, penalties and amounts paid in settlement with respect to
any Proceeding to the full extent permitted by any applicable portion of
this Agreement that shall not have been invalidated or by any other
applicable law.
17. Counterparts. This Agreement may be executed in two or more fully or
partially executed counterparts each of which shall be deemed an original
binding the signer thereof against the other signing parties, but all
counterparts together shall constitute one and the same instrument.
Executed signature pages may be removed from counterpart agreements and
attached to one or more fully executed copies of this Agreement.
18. Notice. Indemnitee shall, as a condition precedent to his right to be
indemnified under this Agreement, give to the Corporation notice in writing
as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to the Corporation
shall be directed to the Corporation at its headquarters located at 500
Campus Drive, Morganville, New Jersey--07751, Attention: Chairman (or such
other address as the Corporation shall designate in writing to Indemnitee).
Notice shall be deemed received three days after the date postmarked if
sent by prepaid mail, properly addressed.
19. Applicable Law. All matters with respect to this Agreement, including,
without limitation, matters of validity, construction, effect and
performance shall be governed by the internal laws of the State of Delaware
applicable to contracts made and to be performed therein between the
residents thereof (regardless of the laws that might otherwise be
applicable under principles of conflicts of law).
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed and signed effective as of the day and year first above written.
NEW HORIZONS WORLDWIDE, INC.
By_______________________________
Its:_______________________________
_______________________________
SRW0228.DOC;1
Exhibit 10.24
MERRILL LYNCH
SPECIAL
PROTOTYPE DEFINED
CONTRIBUTION PLAN
ADOPTION AGREEMENT
401(k) PLAN
EMPLOYEE THRIFT PLAN
PROFIT-SHARING PLAN
Letter Serial Number: D359287b
National Office Letter Date: 6/29/93
This Prototype Plan and Adoption Agreement are important legal instruments with
legal and tax implications for which the Sponsor, Merrill Lynch, Pierce, Fenner
& Smith, Incorporated, does not assume responsibility. The Employer is urged to
consult with its own attorney with regard to the adoption of this Plan and its
suitability to its circumstances.
[GRAPHIC OMITTED]
Addendum to the New Horizons Worldwide, Inc. 401 (k)
Profit Sharing Trust and Plan pursuant to Section 11.1.2 of the Plan
IRC Section 411(d)(6) Protected Benefits Attachment to the New Horizons
Worldwide, Inc. 401 (k) Profit Sharing Trust and Plan
Pursuant to Section 11.1.2 of the Base Plan Document #03, Thomas J. Bresnan,
Gary T. Gann and John T. St. James, former Participants of the Handex
Environmental, Inc., 401 (k) Profit Sharing Trust and Plan (the "Handex Plan"),
shall be deemed to retain the right to elect a lump sum distribution, fifty
percent (50%) annuity, one hundred percent (100%) annuity, life annuity or
nearly equal installment payments as an optional form of benefit with respect to
his Handex Plan cash option account and his Handex Plan employer contribution
account, if applicable. Such distribution options shall be subject to the
qualified joint and survivor rules described in Article VI of the Base Plan
Document #03.
Adoption of Plan
The Employer named below hereby establishes or restates a profit-sharing plan
that includes a X 401 (k), X profit-sharing and/or ___ thrift plan feature (the
"Plan") by adopting the Merrill Lynch Special Prototype Defined Contribution
Plan and Trust as modified by the terms and provisions of this Adoption
Agreement.
Employer and Plan Information
Employer Name:* New Horizons Worldwide, Inc.
Business Address: 1231 East Dyer Road, Suite 110
Santa Ana, CA 92705
Telephone Number: (714) 432-7600
Employer Taxpayer ID Number: 22-2941704
Employer Taxable Year ends on: December 31st
Plan Name: New Horizons Worldwide 401(k) Profit Sharing Trust and Plan
Plan Number: 001
401(k) Profit Sharing Thrift
------ -------------- ------
Effective Date of Adoption
or Restatement: 1/1/99 1/1/99
Original Effective Date: 1/1/95 1/1/95
If this Plan is a continuation or an amendment of a prior plan, an optional
forms of benefits provided in the prior plan must be provided under this
Plan to any Participant who had an account balance, whether or not vested,
in the prior plan.
* If there are any Participating Affiliates in this Plan, list below the
proper name of each Participating Affiliate.
New Horizons Education Corporation; New Horizons Computer Learning
Centers, Inc.; New Horizons Computer Learning Center of Santa Ana,
Inc.; New Horizons Computer Learning Centers of Chicago, Inc.; New
Horizons Computer Learning Center of Metropolitan New York, Inc.; New
Horizons Computer Learning Center of Cleveland, LTD; New Horizons
Computer Learning Center of Memphis, Inc.; New Horizons Computer
Learning Center of Nashville, Inc.; New Horizons Computer Learning
Center of Hartford, Inc.
2
ARTICLE I. Definitions
A. "Compensation
(1)With respect to each Participant, except as provided below, Compensation
shall mean the (select all those applicable for each column):
401(k) and/ Profit
or Thrift Sharing
--------- -------
(a) amount reported in the "Wages Tips and Other
Compensation" Box on Form W-2 for the
applicable period selected in Item 5 below.
(b) compensation for Code Section 415 safe-harbor
purposes (as defined in Section 3.9.1 (H)(i)
of basic plan document #03)for the applicable
period selected in Item 5 below.
X X (c) amount reported pursuant to Code Section
3401 (a) for the applicable period selected
in Item 5 below.
X X (d) all amounts received (under options (a) (b)
or (c) above) for personal services rendered
to the Employer but excluding (select one):
overtime
X bonuses
commissions
amounts in excess of $ ____
other (specify) _____.
(2) Treatment of Elective Contributions (select one):
X (a) For purposes of contributions, Compensation shall include
Elective Deferrals and amounts excludable from the gross
income of the Employee under Code Section 125, Code Section
402(e)(3), Code Section 402(h) or Code Section 403(b)
("elective contributions").
(b) For purposes of contributions, Compensation shall not
include "elective contributions."
(3) CODA Compensation (select one):
X (a) For purposes of the ADP and ACP Tests, Compensation shall
include "elective contributions."
(b) For purposes of the ADP and ACP Tests, Compensation shall
not include "elective contributions."
3
(4) With respect to Contributions to an Employer Contributions Account,
Compensation shall include all Compensation (select one):
(a) during the Plan Year in which the Participant enters the
Plan.
X (b) after the Participant's Entry Date.
(5) The applicable period for determining Compensation shall be (select
one):
(a) the Plan Year
(b) the Limitation Year.
(c) the consecutive 12-month period ending on ___.
B. "Disability"
(1) Definition
Disability shall mean a condition which results in the Participant's
(select one):
(a) inability to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months.
X (b) total and permanent inability to meet the requirements of the
Participant's customary employment which can be expected to last
for a continuous period of not less than 12 months.
(c) qualification for Social Security disability benefits.
(d) qualification for benefits under the Employer's long-term
disability plan.
(2) Contributions Due to Disability (select one):
X (a) No contributions to an Employer Contributions Account will be
made on behalf of a Participant due to his or her Disability.
(b) Contributions to an Employer Contributions Account will be made
on behalf of a Participant due to his or her Disability provided
that: the Employer elected option (a) or (c) above as the
definition of Disability, contributions are not made on behalf of
a Highly Compensated Employee, the contribution is based on the
Compensation each such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of
Compensation paid immediately before his or her Disability, and
contributions made on behalf of such Participant will be
nonforfeitable when made.
4
C. "Early Retirement" is (select one):
X (1) not permitted.
(2) permitted if a Participant terminates Employment before Normal
Retirement Age and has (select one):
(a) attained age___.
(b) attained age ___ and completed ___ Years of Service.
(c) attained age ___ and completed ___ Years of Service as
a Participant.
D. "Eligible Employees" (select one):
(1) All Employees are eligible to participate in the Plan.
X (2) The following Employees are not eligible to participate in the
Plan (select all those applicable):
X (a) Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer or a
Participating Affiliate and the Employee representatives
(not including any organization more than half of whose
members are Employees who are owners, officers, or
executives of the Employer or Participating Affiliate) in
the negotiation of which retirement benefits were the
subject of good faith bargaining, unless the bargaining
agreement provides for participation in the Plan.
X (b) non-resident aliens who received no earned income from
the Employer or a Participating Affiliate which constitutes
income from sources within the United States. (c) Employees
of an Affiliate
X (d) Employees employed in or by the following specified
division, plant, location, job category or other
identifiable individual or group of Employees: Temporary
Employees, which is defined as an individual who, by
agreement with the Employer, is Employed by the Employer on
a temporary basis for six months or less and who is not
offered regular, full4ime employment with the Employer at
the end of such temporary period of employment; Contract
Employees, which is defined as an individual who is employed
by the Employer in accordance with an oral or written
employment, consulting or other arrangement, the terms and
conditions of which preclude the employee's participation in
the Plan.
5
E. "Entry Date" Entry Date shall mean (select as applicable):
401(k) Profit
and/or Sharing
Thrift
1) If the initial Plan Year is less than twelve months,
the day of ___ and ___thereafter:
(2) the first day of the Plan Year following the date the
Employee meets the eligibility requirements. If the
Employer elects this option (2) establishing only one
Entry Date, the eligibility "age and service"
requirements elected in Article 11 must be no more than
age 20-1/2 and 6 months of service.
(3) the first day of the month following the date the
Employee meets the eligibility requirements.
(4) the first day of the Plan Year and the first day of the
seventh month of the Plan Year following the date the
Employee meets the eligibility requirements.
X X (5) the first day of the Plan Year, the first day of the
fourth month of the Plan Year, the first day of the
seventh month of the Plan Year, and the first day of
the tenth month of the Plan Year following the date the
Employee meets the eligibility requirements.
(6) other: provided that the Entry Date or Dates selected
are no later than any of the options above.
F. "Hours of Service"
Hours of Service for the purpose of determining a Participant's Period of
Severance and Year of Service shall be determined on the basis of the method
specified below:
(1) Eligibility Service: For purposes of determining whether a Participant has
satisfied the eligibility requirements, the following method shall be used
(select one):
401(k) Profit
and/or Sharing
Thrift
X X (a) elapsed time method
(b) hourly records method
6
(2) Vesting Service: A Participant's nonforfeitable interest shall be
determined on the basis of the method specified below (select one):
(a) elapsed time method
X (b) hourly records method
(c) If this item (c) is checked, the Plan only provides for
contributions that are always 100% vested and this item (2) will
not apply.
(3) Hourly Records: For the purpose of determining Hours of Service under the
hourly record method (select one):
X (a) only actual hours for which an Employee is paid or entitled to
payment shall be counted.
(b) an Employee shall be credited with 45 Hours of Service if such
Employee would be credited with
at least 1 Hour of Service during the week.
G. "Integration Level"
X (1) This Plan is not integrated with Social Security.
(2) This Plan is integrated with Social Security. The Integration
Level shall be (select one):
(a) the Taxable Wage Base.
(b) $____ (a dollar amount less than the Taxable Wage
Base).
(c) ____% of the Taxable Wage Base (not to exceed 100%).
(d) the greater of $10,000 or 20% of the Taxable Wage Base.
H. "Limitation Compensation"
For purposes of Code Section 415, Limitation Compensation shall be compensation
as determined for purposes of (select one):
(1) Code Section 415 Safe-Harbor as defined in Section 3.9.1 (H)(i)
of basic plan document #03.
X (2) the "Wages, Tips and Other Compensation" Box on Form W-2.
(3) Code Section 3401 (a) Federal Income Tax Withholding.
I. "Limitation Year"
For purposes of Code Section 415, the Limitation Year shall be (select one):
(1) the Plan Year.
(2) the twelve consecutive month period ending on the ___ day of the
month of ___.
7
J. "Net Profits" are (select one):
X (1) not necessary for any contribution.
(2) necessary for (select all those applicable):
(a) Profit-Sharing Contributions.
(b) Matching 401 (k) Contributions
(c) Matching Thrift Contributions.
K. "Normal Retirement Age"
Normal Retirement Age shall be (select one):
X (1) attainment of age 65 (not more than 65) by the Participant.
(2) attainment of age_ (not more than 65) by the Participant or the
anniversary (not more than the 5th) of the first day of the Plan
Year in which the Eligible Employee became a Participant,
whichever is later.
(3) attainment of age _ (not more than 65) by the Participant or the
anniversary (not more than the 5th) of the first day on which the
Eligible Employee performed an Hour of Service, whichever is
later.
L. "Participant Directed Assets" are:
401(k) and/ Profit
or Thrift Sharing
X X (1) permitted.
(2) not permitted.
M. "Plan Year"
The Plan Year shall end on the 31st day of December.
N. "Predecessor Service"
Predecessor service will be credited (select one):
(1) only as required by the Plan.
X (2) to include, in addition to the Plan requirements and subject to
the limitations set forth below, service with the following
predecessor employer(s) determined as if such predecessors were
the Employer: New Horizons Computer Learning Center of Nashville,
Inc.; New Horizons Computer Learning Center of Memphis, Inc.; New
Horizons Learning Center of Hartford, Inc.; Handex Corporation.
8
Service with such predecessor employer applies [select either or both (a) and/or
(b); (c) is only available in addition to (a) and/or (b)]:
X (a) for purposes of eligibility to participate;
X (b) for purposes of vesting;
(c) except for the following service:
0. "Valuation Date"
Valuation Date shall mean (select one for each column, as applicable):
401(k) and/ Profit
or Thrift Sharing
(1) the last business day of each month.
(2) the last business day of each quarter within the
Plan Year.
(3) the last business day of each semi-annual period
within the Plan Year.
(4) the last business day of the Plan Year
X X (5) other: daily basis.
ARTICLE II Participation
Participation Requirements
- --------------------------
An Eligible Employee must meet the following requirements to become a
Participant (select one or more for each column, as applicable):
401(k) and/ Profit
or Thrift Sharing
(1) Performance of one Hour of Service.
(2) Attainment of age _(maximum 20 1/2) and completion
of _ (not more than 1/2) Years of Service. If this
item is selected, no Hours of Service shall be
counted.
X X (3) Attainment of age 21 (maximum 21) and completion
of 1/2 Year(s) of Service. If more than one Year
of Service is selected, the immediate 100% vesting
schedule must be selected in Article VII of this
Adoption Agreement.
9
401(k) and/ Profit
or Thrift Sharing
(4) Attainment of age ____ (maximum 21) and completion
of ___Year(s) of Service. If more than one Year of
Service is selected, the immediate 100% vesting
schedule must be selected in Article VII of this
Adoption Agreement.
(5) Each Employee who is an Eligible Employee on _____
will be deemed to have satisfied the participation
requirements on the effective date without regard
to such Eligible Employee's actual age and/or
service.
ARTICLE 111. 401(k) Contributions and Account Allocation
A. Elective Deferrals
If selected below, a Participant's Elective Deferrals will be (select all
applicable):
X (1) a dollar amount or a percentage of Compensation, as specified by
the Participant on his or her 401 (k) Election form, which may
not exceed 15% of his or her Compensation.
(2) with respect to bonuses, such dollar amount or percentage as
specified by the Participant on his or her 401 (k) Election form
with respect to such bonus.
B. Matching 401 (k) Contributions
If selected below, the Employer may make Matching 401 (k) Contributions for each
Plan Year (select one):
X (1) Discretionary Formula:
Discretionary Matching 401 (k) Contribution equal to such a
dollar amount or percentage of Elective Deferrals, as determined
by the Employer, which shall be allocated (select one):
(a) based on the ratio of each Participant's Elective Deferral
for the Plan Year to the total Elective Deferrals of all
Participants for the Plan Year. If inserted, Matching 401(k)
Contributions shall be subject to a maximum amount of $
___for each Participant or ___% of each Participant's
Compensation.
10
X (b) in an amount not to exceed 100% of each Participant's first
6% of Compensation contributed as Elective Deferrals for the
Plan Year. If any Matching 401 (k) Contribution remains, it
is allocated to each such Participant in an amount not to
exceed ___% of the next ___% of each Participant's
Compensation contributed as Elective Deferrals for the Plan
Year.
Any remaining Matching 401 (k) Contribution shall be allocated to each
such Participant in the ratio that such Participant's Elective
Deferral for the Plan Year bears to the total Elective Deferrals of
all such Participants for the Plan Year. If inserted, Matching 401(k)
Contributions shall be subject to a maximum amount of $ ___ for each
Participant or ___% of each Participant's Compensation.
(2) Non-discretionary Formula:
A non-discretionary Matching 401 (k) Contribution for each Plan
Year equal to (select one):
(a) __% of each Participant's Compensation contributed as
Elective Deferrals. If inserted, Matching 401(k)
Contributions shall be subject to a maximum amount of $ ___
for each Participant or ___ % of each Participant's
Compensation.
(b) ___% of the first___% of the Participant's Compensation
contributed as Elective Deferrals and ___% of the next ___%
of the Participant's Compensation contributed as Elective
Deferrals. If inserted, Matching 401(k) Contributions shall
be subject to a maximum amount of $ ___for each Participant
or ___% of each Participant's Compensation.
C. Participants Eligible for Matching 401 (k) Contribution Allocation
The following Participants shall be eligible for an allocation to their Matching
401 (k) Contributions Account (select all those applicable):
X (1) Any Participant who makes Elective Deferrals.
(2) Any Participant who satisfies those requirements elected by the
Employer for an allocation to his or her Employer Contributions
Account as provided in Article IV Section C.
(3) Solely with respect to a Plan in which Matching 401 (k)
Contributions are made quarterly (or on any other regular
interval that is more frequent than annually) any Participant
whose 401 (k) Election is in effect throughout such entire
quarter (or other interval). ___ (quarterly, monthly or
semi-annual)
11
D. Qualified Matching Contributions
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions, on behalf of (select one):
X (a) all Participants who make Elective Deferrals in that Plan
Year.
(b) only those Participants who are Non-highly Compensated
Employees and who make Elective Deferrals
for that Plan Year.
(2) Qualified Matching Contributions will be contributed and allocated to
each Participant in an amount equal to (select one):
(a) ___% of the Participant's Compensation contributed as
Elective Deferrals. If inserted, Qualified Matching
Contributions shall not exceed % of the Participant's
Compensation.
X (b) Such an amount, determined by the Employer, which is needed
to meet the ACP Test.
(3) In its discretion, the Employer may elect to designate all or any part
of Matching 401 (k) Contributions as Qualified Matching Contributions
that are taken into account as Elective Deferrals -- included in the
ADP Test and excluded from the ACP Test -on behalf of (select one):
(a) all Participants who make Elective Deferrals for that Plan
Year.
X (b) Only Participants who are Non-highly Compensated Employees
who make Elective Deferrals for that Plan Year.
E. Qualified Nonelective Contributions
If selected below, the Employer may make Qualified Nonelective Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Nonelective
Contributions on behalf of (select one):
(a) all Eligible Participants.
X (b) only Eligible Participants who are Non-highly Compensated
Employees.
12
(2) Qualified Nonelective Contributions will be contributed and allocated
to each Eligible Participant in an amount equal to (select one):
(a) ___% (no more than 15%) of the Compensation of each Eligible
Participant eligible to share in the allocation.
X (b) Such an amount determined by the Employer, which is needed
to meet either the ADP Test or ACP Test.
(3) At the discretion of the Employer, as needed and taken into account as
Elective Deferrals included in the ADP Test on behalf of (select one):
(a) all Eligible Participants.
(b) only those Eligible Participants who are Non-highly
Compensated Employees.
F. Elective Deferrals used in ACP Test (select one):
(1) At the discretion of the Employer, Elective Deferrals may be used to
satisfy the ACP Test.
(2) Elective Deferrals may not be used to satisfy the ACP Test.
G. Making and Modifying a 401 (k) Election
An Eligible Employee shall be entitled to increase, decrease or resume his or
her Elective Deferral percentage with the following frequency during the Plan
Year (select one):
(1) annually.
(2) semi-annually.
(3) quarterly
X (4) monthly
(5) other (specify): _____.
Any such increase, decrease or resumption shall be effective as of the
first payroll period coincident with or next following the first day of
each period set forth above. A Participant may completely discontinue
making Elective Deferrals at any time effective for the payroll period
after written notice is provided to the Administrator.
13
ARTICLE IV. Profit-Sharing Contributions and Account Allocation
A. Profit-Sharing Contributions
If selected below, the following contributions for each Plan Year will be made:
Contributions to Employer Contributions Accounts (select one):
X (a) Such an amount, if any, as determined by the Employer.
(b) ___% of each Participant's Compensation.
B. Allocation of Contributions to Employer Contributions Accounts (select
one):
X (1) Non-Integrated Allocation
The Employer Contributions Account of each Participant eligible
to share in the allocation for a Plan Year shall be credited with
a portion of the contribution, plus any forfeitures if
forfeitures are reallocated to Participants, equal to the ratio
that the Participant's Compensation for the Plan Year bears to
the Compensation for that Plan Year of all Participants entitled
to share in the contribution.
(2) Integrated Allocation
Contributions to Employer Contributions Accounts with respect to
a Plan Year, plus any forfeitures if forfeitures are reallocated
to Participants, shall be allocated to the Employer Contributions
Account of each eligible Participant as follows:
(a) First, in the ratio that each such eligible Participant's
Compensation for the Plan Year bears to the Compensation for
that Plan Year of all eligible Participants but not in
excess of 3% of each Participant's Compensation.
(b) Second, any remaining contributions and forfeitures will be
allocated in the ratio that each eligible Participant's
Compensation for the Plan Year in excess of the Integration
Level bears to all such Participants' excess Compensation
for the Plan Year but not in excess of 3%.
14
(c) Third, any remaining contributions and forfeitures will be
allocated in the ratio that the sum of each Participant's
Compensation and Compensation in excess of the Integration
Level bears to the sum of all Participants' Compensation and
Compensation in excess of the Integration Level, but not in
excess of the Maximum Profit-Sharing Disparity Rate (defined
below).
(d) Fourth, any remaining contributions or forfeitures will be
allocated in the ratio that each Participant's Compensation
for that year bears to all Participants' Compensation for
that year.
The Maximum Profit-Sharing Disparity Rate is equal to the lesser
of:
(a) 2.7% or
(b) The applicable percentage determined in accordance with the
following table:
If the Integration Level is
(as a % of the Taxable Wage
Base ("TWB") The applicable percentage is:
--------------------------- ----------------------------
20% (or $10,000 if greater)
or less of the TWB 2.7%
More than 20% (but not less
than $10,001 but not more than
80% of the TWB 1.3%
More than 80% but not less than
100% of the TWB 2.4%
100% of the TW13 2.7%
15
C. Participants Eligible for Employer Contribution Allocation
The following Participants shall be eligible for an allocation to their Employer
Contributions Account (select all those applicable): (1) Any Participant who was
employed during the Plan Year.
(2) in the case of a Plan using the hourly record method for
determining Vesting Service, any Participant who was credited
with a Year of Service during the Plan Year.
(3) Any Participant who was employed on the last day of the Plan
Year.
(4) Any Participant who was on a leave of absence on the last day of
the Plan Year.
X (5) Any Participant who during the Plan Year died or became Disabled
while an Employee or terminated employment after attaining Normal
Retirement Age.
(6) Any Participant who was credited with at least 501 Hours of
Service whether or not employed on the last day of the Plan Year.
X (7) Any Participant who was credited with at least 1,000 Hours of
Service and was employed on the last day of the Plan Year.
ARTICLE V. Thrift Contributions
A. Employee Thrift Contributions
If selected below, Employee Thrift Contributions, which are required for
Matching Thrift Contributions, may be made by a Participant in an amount equal
to (select one):
(1) A dollar amount or a percentage of the Participant's Compensation
which may not be less than ___% nor may not exceed___% of his or
her Compensation.
(2) An amount not less than ___% of and not more than ___% of each
Participant's Compensation.
16
B. Making and Modifying an Employee Thrift Contribution Election
A Participant shall be entitled to increase, decrease or resume his or her
Employee Thrift Contribution percentage with the following frequency during the
Plan Year (select one):
(1) annually
(2) semi-annually
(3) quarterly
(4) monthly
(5) other(specify): _____.
Any such increase, decrease or resumption shall be effective as of the first
payroll period coincident with or next following the first day of each period
set forth above. A Participant may completely discontinue making Employee Thrift
Contributions at any time effective for the payroll period after written notice
is provided to the Administrator.
C. Thrift Matching Contributions
If selected below, the Employer will make Matching Thrift Contributions for each
Plan Year (select one):
(1) Discretionary Formula:
A discretionary Matching Thrift Contribution equal to such a dollar amount
or percentage as determined by the Employer, which shall be allocated
(select one):
(a) based on the ratio of each Participant's Employee Thrift
Contribution for the Plan Year to the total Employee Thrift
Contributions of all Participants for the Plan Year. If inserted,
Matching Thrift Contributions shall be subject to a maximum
amount of $ ___for each Participant or ___% of each Participant's
Compensation.
(b) in an amount not to exceed ___% of each Participant's first ___%
of Compensation contributed as Employee Thrift Contributions for
the Plan Year. If any Matching Thrift Contribution remains, it is
allocated to each such Participant in an amount not to exceed
___% of the next ___% of each Participant's Compensation
contributed as Employee Thrift Contributions for the Plan Year.
Any remaining Matching Thrift Contribution shall be allocated to each such
Participant in the ratio that such Participant's Employee Thrift
Contributions for the Plan Year bears to the total Employee Thrift
Contributions of all such Participants for the Plan Year. If inserted,
Matching Thrift Contributions shall be subject to a maximum amount of $ for
each Participant or ___% of each Participant's Compensation.
17
(2) Nondiscretionary Formula:
A nondiscretionary Matching Thrift Contribution for each Plan Year equal to
(select one):
(a) _% of each Participant's Compensation contributed as Employee
Thrift Contributions. If inserted, Matching Thrift Contributions
shall be subject to a maximum amount of $ ___for each Participant
or ___% of each Participant's Compensation.
(b) _% of the first ___% of the Participant's Compensation
contributed as Employee Thrift Contributions and ___% of the next
___% of the Participant's Compensation contributed as Employee
Thrift Contributions. If inserted, Matching Thrift Contributions
shall be subject to a maximum amount of $ ___for each Participant
or % of each Participant's Compensation.
D. Qualified Matching Contributions
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
(a) all Participants who make Employee Thrift Contributions.
(b) only those Participants who are Non-highly Compensated
Employees and who make Employee Thrift Contributions.
(2) Qualified Matching Contributions will be contributed and allocated to
each Participant in an amount equal to:
(a) __% of the Participant's Employee Thrift Contributions. If
inserted, Qualified Matching Contributions shall not exceed ___%
of the Participant's Compensation.
(b) such an amount, determined by the Employer, which is needed to
meet the ACP Test.
ARTICLE VI. Participant Contributions
Participant Voluntary Nondeductible Contributions
- -------------------------------------------------
Participant Voluntary Nondeductible Contributions are (select one):
X (a) permitted
(b) not permitted.
18
ARTICLE VIII. Vesting
A. Employer Contribution Accounts
(1) A Participant shall have a vested percentage in his or her Profit-Sharing
Contributions, Matching 401 (k) Contributions and/or Matching Thrift
Contributions, if applicable, in accordance with the following schedule
(Select one):
Matching 401(k)
and/or Matching
Thrift Profit-Sharing
Contributions Contributions
(a) 100% vesting immediately upon
participation.
(b) 100% after ___(not more than 5) years of
Vesting Service.
X X (c) Graded vesting schedule:
20% 20% after 1 year of Vesting Service;
40% 40% after 2 years of Vesting Service;
60% 60% (not less than 20%) after 3 years of
Vesting Service;
80% 80% (not less than 40%) after 4 years of
Vesting Service;
100% 100% (not less than 60%) after 5 years of
Vesting Service;
100% 100% (not less than 80%) after 6 years of
Vesting Service;
100% after 7 years of Vesting Service.
19
(2) Top Heavy Plan
Matching 401(k)
and/or Matching
Thrift Profit-Sharing
Contributions Contributions
Vesting Schedule (Select one):
(a) 100% vesting immediately upon
participation.
(b) 100% after (not more than 3) years of
Vesting Service.
X X (c) Graded vesting schedule:
20% 20% after 1 year of Vesting Service;
40% 40% (not less than 20%) after 2 years of
Vesting Service
60% 60% (not less than 40%) after 3 years of
Vesting Service
80% 80% (not less than 60%) after 4 years of
Vesting Service
100% 100% (not less than 80%) after 5 years of
Vesting Service
100% after 6 years of Vesting Service.
Top Heavy Ratio:
(a) If the adopting Employer maintains or has ever maintained a qualified
defined benefit plan, for purposes of establishing present value to
compute the top-heavy ratio, any benefit shall be discounted only for
mortality and interest based on the following:
Interest Rate: 8 %
Mortality Table: UP'84
(b) For purposes of computing the top-heavy ratio, the valuation date
shall be the last business day of each Plan Year.
20
B. Allocation of Forfeitures
Forfeitures shall be (select one from each applicable column):
Matching 401(k)
and/or Matching
Thrift Profit-Sharing
Contributions Contributions
X X (1) used to reduce Employer contributions for
succeeding Plan Year.
(2) allocated in the succeeding Plan Year in
the ratio which the Compensation of each
Participant for the Plan Year bears to
the total Compensation of all Participants
entitled to share in the Contributions. If
the Plan is integrated with Social
Security,forfeitures shall be allocated in
accordance with the formula elected by the
Employer.
C. Vesting Service
For purposes of determining Years of Service for Vesting Service [select (1) or
(2) and/or (3)]:
X (1) All Years of Service shall be included.
(2) Years of Service before the Participant attained age 18 shall be
excluded.
(3) Service with the Employer prior to the effective date of the Plan
shall be excluded.
ARTICLE VIII. Deferral of Benefit Distributions,
In-Service Withdrawals and Loans
A. Deferral of Benefit Distributions
401(k) and/ Profit
or Thrift Sharing
If this item is checked, a Participant's vested benefit
in his or her Employer Accounts shall be payable as
soon as practicable after the earlier of: (1) the date
the Participant terminates Employment due to Disability
or (2) the end of the Plan Year in which a terminated
Participant attains Early Retirement Age, if applicable
or Normal Retirement Age.
21
B. In-Service Distributions
X (1) In-service distributions may be made from any of the
Participant's vested Accounts, at any time upon or after the
occurrence of the following events (select all applicable):
X (a) a Participant's attainment of age 59-1/2.
X (b) due to hardships as defined in Section 5.9 of the Plan.
(2) In-service distributions are not permitted.
C. Loans are:
401 (k) and/ Profit
or Thrift Sharing
X X (1) permitted.
(2) not permitted.
ARTICLE IX. Group Trust
If this item is checked, the Employer elects to establish a Group Trust
consisting of such Plan assets as shall from time to time be transferred to the
Trustee pursuant to Article X of the Plan. The Trust Fund shall be a Group Trust
consisting of assets of this Plan plus assets of the following plans of the
Employer or of an Affiliate: _____.
ARTICLE X. Miscellaneous
A. Identification of Sponsor
The address and telephone number of the Sponsors authorized representative is
800 Scudders Mill Road, Plainsboro, New Jersey 08536; (609) 282-2272. This
authorized representative can answer inquiries regarding the adoption of the
Plan, the intended meaning of any Plan provisions, and the effect of the opinion
letter.
The Sponsor will inform the adopting Employer of any amendments made to the Plan
or the discontinuance or abandonment of the Plan.
22
B. Plan Registration
1. Initial Registration
This Plan must be registered with the Sponsor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, in order to be considered a Prototype
Plan by the Sponsor. Registration is required so that the Sponsor is
able to provide the Administrator with documents, forms and
announcements relating to the administration of the Plan and with Plan
amendments and other documents, all of which relate to administering
the Plan in accordance with applicable law and maintaining compliance
of the Plan with the law.
The Employer must complete and sign the Adoption Agreement. Upon
receipt of the Adoption Agreement, the Plan will be registered as a
Prototype Plan of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
The Adoption Agreement will be countersigned by an authorized
representative and a copy of the countersigned Adoption Agreement will
be returned to the Employer.
2. Registration Renewal
Annual registration renewal is required in order for the Employer to
continue to receive any and all necessary updating documents. There is
an annual registration renewal fee in the amount set forth with the
initial registration material. The adopting Employer authorizes
Merrill Lynch, Pierce, Fenner & Smith Incorporated, to debit the
account established for the Plan for payment of agreed upon annual
fee; provided, however, if the assets of an account are invested
solely in Participant-Directed Assets, a notice for this annual fee
will be sent to the Employer annually. The Sponsor reserves the right
to change this fee from time to time and will provide written notice
in advance of any change.
C. Prototype Replacement Plan
This Adoption Agreement is a replacement prototype plan for the (1) Merrill
Lynch Special Prototype Defined Contribution Plan and Trust - 401 (k) Plan
#03-004 and (2) Merrill Lynch Asset Management, Inc., Special Prototype Defined
Contribution Plan and Trust - 401 (k) Plan Adoption Agreement #03-004.
D. Reliance
The adopting Employer may not rely on the opinion letter issued by the National
Office of the Internal Revenue Service as evidence that this Plan is qualified
under Code Section 401. In order to obtain reliance, the Employer must apply to
the appropriate Key District Director of the Internal Revenue Service for a
determination letter with respect to the Plan.
23
EMPLOYER'S SIGNATURE
Name of Employer: New Horizons Worldwide, Inc.
----------------------------------------------------
By:
----------------------------------------------------
Authorized Signature
Print Name Robert S. McMillan
----------------------------------------------------
Title Vice President, Treasurer, CFO
----------------------------------------------------
Dated: December 30, 1998
----------------------------------------------------
TO BE COMPLETED BY MERRILL LYNCH:
Sponsor Acceptance:
Subject to the terms and conditions of the Prototype Plan and this Adoption
Agreement, this Adoption Agreement is accepted by Merrill Lynch, Pierce, Fenner
& Smith Incorporated as the Prototype Sponsor.
Authorized Signature:________________________________________
24
TRUSTEE(S) SIGNATURE
This Trustee Acceptance is to be completed only if the Employer appoints one or
more Trustees and does not appoint a Merrill Lynch Trust Company as Trustee.
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment as Trustee under the Plan. If the Employer has elected a Group Trust
in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s)
of the Group Trust.
AS TRUSTEE:
------------------------------- ----------------------------------------------
(Signature) (print or Type name)
------------------------------- ----------------------------------------------
(Signature) (print or Type name)
------------------------------- ----------------------------------------------
(Signature) (print or Type name)
------------------------------- ----------------------------------------------
(Signature) (print or Type name)
------------------------------- ----------------------------------------------
(Signature) (print or Type name)
Dated: , 19__
25
THE MERRILL LYNCH TRUST COMPANIES AS TRUSTEE
This Trustee Acceptance and designation of Investment Committee are to be
completed only when a Merrill Lynch Trust Company is appointed as Trustee.
To be completed by the Employer:
Designation Of Investment Committee
The Investment Committee for the Plan is (print or type names):
Name: Robert S. McMillan
Name: Thomas J. Bresnan
Name:
Name:
Name:
Name:
To be completed by Merrill Lynch Trust Company:
Acceptance By Trustee:
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment as Trustee under the Plan. If the Employer has elected a Group Trust
in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s)
of the Group Trust.
SEAL
MERRILL LYNCH TRUST COMPANY[_______]
By:
Dated: _1/13____1999
26
THE MERRILL LYNCH TRUST COMPANIES AS ONE OF THE TRUSTEES
This Trustee Acceptance is to be completed only if, in addition to a Merrill
Lynch Trust Companies as Trustee, the Employer appoints an additional Trustee of
a second trust fund.
The undersigned hereby accept all of the terms, conditions, and obligations of
appointment as Trustee under the Plan. If the Employer has elected a Group Trust
in this Adoption Agreement, the undersigned Trustee(s) shall be the Trustee(s)
of the Group Trust.
as TRUSTEE
(Signature) (print or type name)
Dated: _______,19__I
SEAL MERRILL LYNCH TRUST COMPANY [_________]
Dated: _____, 19__
By:
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type names):
Name:
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Name:
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Name:
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Name:
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27
Exhibit 21.1
New Horizons Worldwide, Inc.
Subsidiaries:
New Horizons Education Corporation
New Horizons Computer Learning Centers, Inc.
New Horizons Computer Learning Centers APAC, L.L.C.
New Horizons Computer Learning Centers EMEA, L.L.C.
New Horizons Computer Learning Center of Chicago, Inc.
New Horizons Computer Learning Center of Metropolitan New York, Inc.
New Horizons Computer Learning Center of Santa Ana, Inc.
New Horizons Computer Learning Center of Cleveland, Ltd., L.L.C.
New Horizons Computer Learning Center of Memphis, Inc.
New Horizons Computer Learning Center of Nashville, Inc.
New Horizons Computer Learning Center of Hartford, Inc.
New Horizons Computer Learning Center of Albuquerque, Inc.
Nova Vista, L.L.C.
Exhibit 27.0