FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996
----------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period ended from to
----------- -----------
Commission file number 0-28148
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THE VINCAM GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2452823
------------------------------ ----------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2850 Douglas Road, Miami FL 33134 (305) 460-2350
------------------------------------ -------------------------------
(Registrant's address) (Registrant's telephone number,
including area code)
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 No X
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of common stock Outstanding as of June 19, 1996
----------------------- ---------------------------------
$.001 par value 7,999,999
Page 1 of 22
<PAGE>
THE VINCAM GROUP, INC.
INDEX
Page
------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1995, and March 31, 1996........... 3
Consolidated Statements of Income for
the three months ended March 31, 1995
and 1996........................................ 5
Consolidated Statement of Changes in Common
Stock and Other Stockholders' Deficit for
the three months ended March 31, 1996........... 6
Consolidated Statements of Cash Flows for
the three months ended March 31, 1995
and 1996........................................ 7
Notes to Consolidated Financial Statements....... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.......................... 21
Item 6. Exhibits and Reports on Form 8-K .......... 21
SIGNATURES.......................................... 22
Page 2 of 22
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE VINCAM GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 912,272 $ 840,220 $ 840,220
Restricted cash 4,064,040 4,064,040 4,064,040
Accounts receivable, net 8,289,556 9,046,084 9,046,084
Due from affiliates 101,095 113,851 113,851
Deferred taxes 774,783 877,126 877,126
Prepaid expenses and other
current assets 378,686 608,320 608,320
------------- ------------- -------------
Total current assets 14,520,432 15,549,641 15,549,641
Property and equipment, net 2,507,025 2,776,675 2,776,675
Deferred taxes 451,529 372,267 372,267
Contract acquisition costs and
other assets 339,805 467,389 467,389
------------- ------------- -------------
$ 17,818,791 $ 19,165,972 $ 19,165,972
============= ============= =============
</TABLE>
Page 3 of 22
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31,
1995 1996 1996
------------- ------------- -------------
<S> <C> <C> <C>
Liabilities, Mandatorily
Redeemable Preferred Stock
and Stockholders' (Deficit) Equity
Current liabilities:
Accounts payable and accrued
expenses $ 1,302,665 $ 737,345 $ 737,345
Accrued salaries, wages and
payroll taxes 6,618,291 7,572,314 7,572,314
Reserve for claims 2,137,149 2,464,613 2,464,613
Income taxes payable 141,987 1,071,874 1,071,874
Current portion of long term
borrowings 1,305,362 1,306,656 1,306,656
Distribution payable 700,000 700,000 700,000
Deferred compensation 263,000 342,013 342,013
------------- ------------- -------------
Total current liabilities 12,468,454 14,194,815 14,194,815
Long term borrowings, less
current portion 1,100,972 1,072,465 1,072,465
Reserve for claims 1,010,792 1,033,350 1,033,350
Income taxes payable 1,386,323 672,818 672,818
Deferred compensation 294,300 41,200 41,200
Other liabilities 45,338 45,338 45,338
------------- ------------- -------------
Total liabilities 16,306,179 17,059,986 17,059,986
------------- ------------- -------------
Commitments and contingencies (Note 11) -- -- --
------------- ------------- -------------
Preferred stock, $.01 par value,
500,000 shares authorized, 165.376
shares mandatorily redeemable Series
A Participating Convertible Preferred
Stock issued and outstanding 6,263,610 6,263,610 --
------------- ------------- -------------
Common stock and other stockholders'
(deficit) equity:
Common stock, $.001 par value,
39,500,000 shares authorized,
4,956,066 shares issued and
outstanding 4,956 4,956 6,000
Additional paid in capital -- -- 6,262,566
Accumulated deficit (4,755,954) (4,162,580) (4,162,580)
------------- ------------- -------------
Total common stock and other
stockholders' (deficit) equity (4,750,998) (4,157,624) 2,105,986
------------- ------------- -------------
$ 17,818,791 $ 19,165,972 $ 19,165,972
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 22
<PAGE>
THE VINCAM GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Revenues $ 55,311,493 $ 79,890,444
------------- -------------
Direct costs:
Salaries, wages and employment taxes
of worksite employees 48,993,396 70,302,367
Health care and workers' compensation 2,624,078 3,733,503
State unemployment taxes and other 489,418 765,860
------------- -------------
Total direct costs 52,106,892 74,801,730
------------- -------------
Gross profit 3,204,601 5,088,714
------------- -------------
Operating expenses:
Administrative personnel 1,471,083 2,348,784
Other general and administrative 726,114 1,031,312
Sales and marketing 399,998 529,976
Provision for doubtful accounts 40,000 144,000
Depreciation and amortization 67,777 103,421
------------- -------------
Total operating expenses 2,704,972 4,157,493
------------- -------------
Operating income 499,628 931,221
Interest income (expense), net 9,050 (2,847)
------------- -------------
Income before taxes 508,678 928,374
Provision for income taxes (186,809) (335,000)
------------- -------------
Net income $ 321,869 $ 593,374
============= =============
Net income per common and common
equivalent share $ 0.05 $ 0.09
============= =============
Weighted average number of shares
outstanding used in earnings per
share calculation 6,517,616 6,462,207
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5 of 22
<PAGE>
THE VINCAM GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON
STOCK AND OTHER STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional
Common Stock paid in Accumulated
Shares Par value capital deficit Total
------------ --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,956,066 $ 4,956 -- $ (4,755,954) $ (4,750,998)
Net income -- -- -- 593,374 593,374
------------ --------- ---------- ------------- -------------
Balance at March 31, 1996 4,956,066 $ 4,956 $ -- $ (4,162,580) $ (4,157,624)
============ ========= ========== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6 of 22
<PAGE>
THE VINCAM GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 321,869 $ 593,374
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 67,777 103,421
Provision for doubtful accounts 40,000 144,000
Deferred income tax benefit -- (23,081)
Changes in assets and liabilities:
Increase in accounts receivable (739,447) (900,528)
Decrease (increase) in prepaid expenses and
other current assets 307,557 (229,634)
Increase in other assets (299,210) (140,340)
Increase (decrease) in accounts payable and
accrued expenses 446,647 (565,320)
Increase in accrued salaries, wages, and
payroll taxes 921,357 954,023
Increase in reserve for claims 463,833 350,022
Increase in income taxes payable 186,809 216,382
Decrease in deferred compensation -- (174,087)
Increase in other liabilities 25,104 --
------------- -------------
Net cash provided by (used in) operating activities 1,742,296 328,232
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (116,873) (373,071)
------------- -------------
Net cash used in investing activities (116,873) (373,071)
------------- -------------
Cash flows from financing activities:
Principal payments on borrowings (19,762) (27,213)
Recapitalization costs (445,150) --
Cash paid in connection with acquisition of stock (300,000) --
------------- -------------
Net cash used in financing activities (764,912) (27,213)
------------- -------------
Net increase (decrease) in cash and cash equivalents 860,511 (72,052)
Cash and cash equivalents, beginning of period 736,420 912,272
------------- -------------
Cash and cash equivalents, end of period $ 1,596,931 $ 840,220
============= =============
</TABLE>
Page 7 of 22
<PAGE>
Supplemental disclosure of non cash financing activities:
- --------------------------------------------------------
In January 1995, the Company issued a subordinated note payable for $1,200,000
as partial consideration for shares reacquired by the Company.
During February 1995, the Company and its stockholders entered into an
Agreement and Plan of Recapitalization whereby the Company's stockholders
exchanged a portion of their shares of common stock for approximately 166
shares of mandatorily redeemable Series A Participating Convertible Preferred
Stock valued at approximately $6,264,000.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 8 of 22
<PAGE>
THE VINCAM GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS FOR PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of The Vincam
Group, Inc. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-Q and rule 10-01 of Regulation S-X. They do not
include all information and notes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the audited consolidated financial statements and notes thereto for the
year ended December 31, 1995 included in the Company's Registration Statement
on Form S-1 (File No. 333-1594), as amended. The financial information
furnished reflects all adjustments, consisting of only normal recurring
accruals which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and of cash
flows for the periods presented. The results of operations for the periods
presented are not necessarily indicative of the results for the entire year.
The accompanying unaudited financial statements include the accounts of The
Vincam Group, Inc. and its subsidiaries (the Company). All material
intercompany balances and transactions have been eliminated.
NOTE 2 - INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET
In May 1996, the Company completed its initial public offering and received
proceeds of approximately $27,900,000, net of $2,100,000 underwriting
discounts and commissions, from the sale of 2,000,000 shares of common stock
of the Company. The Company used a portion of the proceeds to retire a
subordinated promissory note in the amount of $1,200,000 (see Note 6) and to
pay a $700,000 distribution payable related to the Company's repurchase of an
option to purchase the Company's headquarters. In addition, the Company
expects to pay approximately $700,000 in other costs in connection with the
offering. Simultaneously with the completion of the initial public offering,
the Company's mandatorily redeemable Series A Participating Convertible
Preferred Stock (Series A Preferred Stock) was converted into 1,043,933 shares
of the Company's common stock (see Note 7).
The pro forma balance sheet as of March 31, 1996 presents the pro forma
effect of the conversion of the Company's Series A Preferred Stock into
1,043,933 shares of common stock.
NOTE 3 - RESTRICTED CASH
The Company had cash deposits at December 31, 1995 and March 31, 1996 in the
amount of $4,000,000 which serve as collateral on certain standby letters of
credit issued in connection with the Company's workers' compensation insurance
plan. These cash deposits have been classified as restricted cash in the
accompanying consolidated balance sheets.
At December 31, 1995 and March 31, 1996, the Company had deposited in escrow
$64,040 as collateral to guarantee the payment of workers' compensation claims
under its prior workers' compensation insurance plan and has classified these
amounts as restricted cash in the accompanying balance sheets.
Page 9 of 22
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION> Estimated
DECEMBER 31, MARCH 31, useful lives
1995 1996 (in years)
------------ ------------ -----------
<S> <C> <C> <C>
Land $ 284,374 $ 284,374
Building 775,158 775,158 30
Building improvements 510,232 510,232 7
Furniture and fixtures 308,924 334,402 5
Office and computer equipment 1,353,926 1,703,753 3-5
Vehicles 20,249 20,249 3
------------ ------------
3,252,863 3,628,168
Less: accumulated depreciation
and amortization (745,838) (851,493)
------------ ------------
$ 2,507,025 $ 2,776,675
============ ============
</TABLE>
At December 31, 1995 and March 31, 1996, gross fixed assets included $346,690
of office and computer equipment under capital lease obligations (see Note 6).
NOTE 5 - RESERVE FOR CLAIMS
The Company's reserves for claims costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Accrued workers' compensation claims $ 2,197,374 $ 2,246,414
Accrued health care claims 654,182 696,115
Reserve for behavioral health care claims 296,385 555,434
------------ ------------
3,147,941 3,497,963
Less: workers' compensation claims
expected to be settled in more than
one year (1,010,792) (1,033,350)
------------ ------------
Reserve for claims - current $ 2,137,149 $ 2,464,613
============ ============
</TABLE>
Page 10 of 22
<PAGE>
NOTE 6 - BORROWINGS
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Subordinated note payable in quarterly
installments of $150,000 beginning in March
1998, interest due quarterly at the quoted
rate for 1 year U.S. Treasury Bills
(7% at March 31, 1996), the note became
payable within 30 days after the initial
public offering, guaranteed by the Company's
principal stockholders (see Note 2) $ 1,200,000 $ 1,200,000
Note payable to bank, original amount of
$1 million, repayable in monthly installments
of $4,167, plus interest at 8.5% per annum,
through November 1998 when a balloon
payment of $750,000 is due, secured by land
and building and the personal guarantees of
the Company's principal stockholders 895,732 879,063
Capital lease obligation for computer hardware
and software, payable in monthly installments
of $7,479 through May 2000, interest imputed
at 12.3% per annum 310,602 300,058
------------ ------------
2,406,334 2,379,121
Less: current portion (1,305,362) (1,306,656)
------------ ------------
$ 1,100,972 $ 1,072,465
============ ============
</TABLE>
The Company completed an initial public offering during May 1996 and used a
portion of the net proceeds to repay the subordinated note payable of
$1,200,000. Accordingly, this obligation has been classified as current in the
accompanying balance sheet at December 31, 1995 and March 31, 1996.
In December 1995, the Company entered into a credit agreement with a bank
which was amended on June 5, 1996 (the Credit Agreement). The Credit Agreement
provides for a revolving credit facility with a sublimit of $8,000,000 to fund
working capital advances and standby letters of credit. Working capital
advances under the revolving credit facility are limited to the lesser of
$1,000,000 or the Borrowing Base, primarily composed of current accounts
receivable from unrelated parties. Amounts outstanding under the revolving
credit facility mature June 5, 1997.
The Credit Agreement also has an acquisition loan facility with a sublimit of
$5,000,000. Draws under the acquisition loan facility are available through
June 5, 1998 and are repayable in 36 equal monthly installments commencing on
Page 11 of 22
<PAGE>
June 5, 1998. The Company is charged a commitment fee ranging from .25% to
.375% per annum, depending on certain financial ratios, on the unused portion
of the revolving credit facility and the acquisition loan facility.
The Credit Agreement is collateralized by $4,000,000 in cash deposits and
substantially all of the assets of the Company, excluding the Company's
headquarters building. The Credit Agreement contains customary events of
default and covenants which prohibit the Company from, among other things,
incurring additional indebtedness in excess of a specified amount, paying
dividends, creating liens and engaging in certain mergers or combinations
without the prior written consent of the lender. The Credit Agreement also
contains certain financial covenants relating to debt and interest coverage,
net worth and other financial ratios.
Interest under the Credit Agreement accrues at rates based on the prime rate
(Prime) plus a margin of as much as .25% or the Eurodollar rate (as defined
in the Credit Agreement), plus a margin ranging from 1.50% to 2.00%, depending
on certain financial ratios, at the Company's option.
Under the revolving credit facility, the Company had outstanding approximately
$4,981,000 in standby letters of credit at March 31, 1996 which guarantee the
payment of claims to the Company's workers' compensation insurance carrier.
As of that date there were no amounts outstanding for working capital advances
or under the acquisition loan facility. All amounts under these facilities
were available at March 31, 1996.
NOTE 7 - MANDATORILY REDEEMABLE PREFERRED STOCK
During February 1995, the Company and its stockholders entered into an
Agreement and Plan of Recapitalization whereby the Company's stockholders
exchanged 1,043,933 shares of common stock for 165.376 shares of Series A
Preferred Stock. As a result of the Company's initial public offering in
May 1996, the Series A Preferred Stock was automatically converted into
1,043,933 shares of common stock (see Notes 2 and 12).
NOTE 8 - EARNINGS PER SHARE
Net income per common and common equivalent share has been computed based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during each of the periods presented. The Company has
considered as outstanding common stock equivalents during those periods,
631,328 net shares of common stock subject to options awarded to employees and
directors of the Company during 1995 and 1996, net of shares assumed to be
reacquired under the treasury stock method. For purposes of the calculation
of net income per share, the mandatorily redeemable preferred stock is also
considered a common stock equivalent.
Page 12 of 22
<PAGE>
NOTE 9 - INCOME TAXES
The Company records income tax expense using the liability method of
accounting for deferred income taxes. Under the liability method, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial statement and income tax bases
of the Company's assets and liabilities. An allowance is recorded when it is
more likely than not that any or all of a deferred tax asset will not be
realized. The provision for income taxes includes taxes currently payable plus
the net change during the year in deferred tax assets and liabilities recorded
by the Company.
The Company is subject to certain state taxes based on gross receipts, payroll
and before tax income within that state. Taxes based on gross receipts and
payroll are classified as salaries, wages and employment taxes of worksite
employees expenses in the accompanying consolidated statements of income,
while taxes based on income are included within the provision for income
taxes.
Subsequent to December 31, 1994, the Company requested and has obtained a
change, for income tax purposes, in the method of accounting for its workers'
compensation loss reserves. As a result, the Company recorded a deferred tax
asset relating to the reserves and an increase in income taxes payable of
approximately $1,386,000. Under the provisions of the Internal Revenue Code
(IRC), the Company can amortize over three years the payment of taxes due for
changes resulting in taxable income and can recognize currently deductions
resulting from the change in method. The Company has classified as long term
those taxes resulting from this change which it expects to pay in more
than one year.
Realization of the amounts recorded as deferred tax assets is dependent on
generating sufficient taxable income in the future to offset the deductible
temporary differences generating the deferred tax assets. Although realization
is not assured, management believes that it is more likely than not that all
of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced if estimates of future
taxable income are reduced.
NOTE 10 - EMPLOYEE BENEFIT PLANS
No deferred compensation expense was recognized during the three months ended
March 31, 1996 or during the same period in 1995.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit related to a wrongful death claim
involving a worksite employee. The plaintiff's original complaint sought
damages in excess of $10,000,000; however, such complaint was dismissed in
part and amended to seek damages in excess of $15,000. The Company is
asserting that its liability under this claim, if any, should be limited to
the State of Florida's workers' compensation limit of $100,000 involving
worksite deaths. Discovery in the proceeding has been stayed pending the
Page 13 of 22
<PAGE>
Court's determination of whether the plaintiff adequately stated a cause of
action against the Company and the client company which is a co-defendant.
While there can be no assurance that the ultimate outcome of this lawsuit will
not have a material adverse effect on the Company's financial condition or
results of operations, management believes, based on consultations with the
Company's counsel, that the ultimate outcome of this lawsuit will not have
such an effect.
The Company is a defendant in a lawsuit brought in Dade County Circuit Court
by James Byrnes in November 1995. Mr. Byrnes alleges that he was injured by an
employee of the Company assigned to work for Atlantic View Partners, Ltd.
Atlantic View Partners, Ltd., a client of the Company, owns and operates a
Days Inn hotel and is a co-defendant in the litigation, together with Atlantic
View, Inc. and Days Inn of America, Inc. The plaintiff alleges that the
employee, while he was working as a valet parking attendant, drove negligently
and severely and permanently injured the plaintiff in a motor vehicle
collision. A summary judgement motion is pending in this matter. Mr. Byrnes
has alleged damages in excess of $50,000 in his amended complaint for, among
other things, bodily injury, medical costs, pain and suffering, and lost
ability to earn income. Based on consultations with the Company's counsel,
management of the Company believes that it has meritorious defenses to the
plaintiff's claims and that if the lawsuit is adversely determined, the
Company will be entitled to indemnification from its client and/or its
liability insurance carrier. Although management believes that the
Company's ultimateliability in this matter should not be material, there
can be no assurance that the Company will prevail in the litigation, in a
related claim for indemnification, or that the liability of the Company,
if any, would not have a material adverse effect on the Company's financial
condition and results of operations.
NOTE 12 - SUBSEQUENT EVENT
In connection with the completion of the Company's initial public offering,
the Company amended and restated its Articles of Incorporation to increase
the authorized number of shares of the Company's common stock from 39,500,000
to 60,000,000, and to increase the authorized number of shares of preferred
stock from 500,000 to 20,000,000.
* * * * *
Page 14 of 22
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Notes to Consolidated
Financial Statements contained herein and Management's Discussion and Analysis
of Financial Condition and Results of Operations appearing in the Company's
Registration Statement on Form S-1, as amended. The results of operations for
an interim period are not necessarily indicative of the results for the entire
year.
OVERVIEW
Vincam, one of the largest PEOs in the industry, provides small and
medium-sized businesses with an outsourcing solution to the complexities and
costs related to employment and human resources. The Company's continuum of
integrated employment-related services consists of human resource
administration, employment regulatory compliance management, workers'
compensation coverage, health care and other employee benefits. The Company
establishes a co-employer relationship with its clients and contractually
assumes substantial employer responsibilities with respect to worksite
employees. In addition, the Company offers certain specialty managed care
services on a stand-alone basis to health and workers' compensation insurance
companies, HMOs, managed care providers and large, self-insured employers.
The Company's revenues include all amounts billed to clients for gross
salaries and wages, related employment taxes, and health care and workers'
compensation coverage of worksite employees. The Company is obligated, as a
principal, to pay the gross salaries and wages, related employment taxes and
health care and workers' compensation costs of its worksite employees whether
or not the Company's clients pay the Company on a timely basis or at all.
The Company believes that including such amounts as revenues appropriately
reflects the responsibility which the Company bears for such amounts and is
consistent with industry practice.
The Company's primary direct costs are (i) salaries, wages, the employer's
portion of social security (FICA-O), Medicare premiums (FICA-M), federal
unemployment taxes (FUTA) and the Michigan Single Business Tax, (ii) health
care and workers' compensation costs, and (iii) state unemployment taxes and
other direct costs. The Company can significantly impact its gross profit
margin by actively managing the direct costs described in clauses (ii)
and (iii).
The Company's primary operating expenses are administrative personnel
expenses, other general and administrative expenses, and sales and marketing
expenses. Administrative personnel expenses include compensation, fringe
benefits and other personnel expenses related to internal administrative
employees. Other general and administrative expenses include rent, office
supplies and expenses, legal and accounting fees, insurance and other
operating expenses. Sales and marketing expenses include compensation of sales
executives and the marketing staff, as well as marketing and advertising
expenses.
The Company's profitability is largely dependent upon its success in managing
its controllable direct costs. The Company manages its controllable direct
costs through its use of (i) its proprietary managed care system, which
includes provider networks, utilization review and case management,
Page 15 of 22
<PAGE>
(ii) educational programs designed to reduce the severity and frequency of
workplace accidents, and (iii) a variety of other techniques, including
drug-free workplace programs, involvement in hiring, disciplinary and
termination decisions, adjudication of unemployment claims, and reassignment
of laid off workers.
RESULTS OF OPERATIONS
The following table sets forth statements of operations data expressed as a
percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1996
------ ------
<S> <C> <C>
Revenues 100.0% 100.0%
Direct costs:
Salaries, wages and employment taxes
of worksite employees 88.6% 88.0%
Health care and workers' compensation 4.7% 4.7%
State unemployment taxes and other 0.9% 0.9%
------ ------
Total direct costs 94.2% 93.6%
------ ------
Gross profit 5.8% 6.4%
------ ------
Operating expenses:
Administrative personnel 2.7% 2.9%
Other general and administrative 1.4% 1.5%
Sales and marketing 0.7% 0.7%
Depreciation and amortization 0.1% 0.1%
------ ------
Total operating expenses 4.9% 5.2%
------ ------
Income before taxes 0.9% 1.2%
Provision for income taxes 0.3% 0.4%
------ ------
Net income 0.6% 0.8%
====== ======
</TABLE>
Three Months Ended March 31, 1996 compared to Three Months Ended
- -----------------------------------------------------------------
March 31, 1995
- ---------------
The Company's revenues were $79.9 million for the three months ended March 31,
1996, compared to $55.3 million for the same period in 1995, representing an
increase of $24.6 million, or 44.4%. This increase was due primarily to an
increased number of PEO clients and worksite employees. At March 31, 1996, the
number of PEO clients was 386, representing an increase of 30.7% compared to
Page 16 of 22
<PAGE>
the number of PEO clients on the same date last year. The number of worksite
employees increased 40.3% over the same period, to 12,548 at March 31, 1996
from 8,943 worksite employees at March 31, 1995. In addition, the Company
earned approximately $725,500 of revenues from its workers' compensation
managed care services during the three months ended March 31, 1996.
Such services were not offered during the comparable period of 1995.
Salaries, wages and employment taxes of worksite employees were $70.3 million
for the three months ended March 31, 1996, compared to $49.0 million for the
same period in 1995, representing an increase of $21.3 million, or 43.5%.
Salaries, wages and employment taxes of worksite employees were 88.0% of
revenues for the three months ended March 31, 1996, compared to 88.6% for the
same period in 1995. The decrease of salaries, wages and employment taxes of
worksite employees as a percentage of revenues was mainly due to incremental
revenues from the Company's workers' compensation managed care services.
Health care and workers' compensation costs were $3.7 million for the three
months ended March 31, 1996, compared to $2.6 million for the same period in
1995, representing an increase of $1.1 million, or 42.3%. This increase was
mainly due to the higher volume of salaries and wages paid during the 1996
period which was a direct function of the increase of PEO clients and worksite
employees. Health care and workers' compensation costs were 4.7% of revenues
for the three months ended March 31, 1996 and the same period in 1995.
State unemployment taxes and other direct costs were $0.8 million for the
three months ended March 31, 1996, compared to $0.5 million for the same
period in 1995, representing an increase of $0.3 million or 56.7%.
This increase was mainly due to the higher volume of salaries and wages paid
during the period which was a direct function of the increase of PEO clients
and worksite employees. State unemployment taxes and other direct costs were
0.9% of revenues for the three months ended March 31, 1996 and for the same
period in 1995.
Gross profit was $5.1 million for the three months ended March 31, 1996,
compared to $3.2 million for the same period in 1995, representing an increase
of $1.9 million, or 58.8%. Gross profit was 6.4% of revenues for the three
months ended March 31, 1996, compared to 5.8% for the same period in 1995.
This increase was mainly due to the increase in revenues resulting from an
increase of PEO clients and worksite employees, and from the increase in
revenues from the Company's workers' compensation managed care services which
carry a higher margin than the Company's PEO services.
Administrative personnel expenses were $2.3 million for the three months ended
March 31, 1996, compared to $1.5 million for the same period in 1995,
representing an increase of $0.8 million, or 59.7%. This increase was
primarily attributable to increased staffing for the Company's workers'
compensation managed care services, which were made available to external
clients for the first time in late 1995. Also, such increase in administrative
personnel expense was attributable to an increase in corporate management
personnel and other general and administrative expenses related to the growth
described above. Administrative personnel expenses were 2.9% of revenues for
the three months ended March 31, 1996, compared to 2.7% for the same period
in 1995.
Page 17 of 22
<PAGE>
Other general and administrative expenses, including the provision for
doubtful accounts, were $1.2 million for the three months ended March 31,
1996, compared to $0.8 million for the same period in 1995, representing an
increase of $0.4 million, or 53.4%. This increase in other general and
administrative expenses was primarily attributable to the growth of the
Company's business and the addition of workers' compensation managed care
services, which were made available to external clients for the first time in
late 1995. Other general and administrative expenses were 1.5% of revenues
for the three months ended March 31, 1996, compared to 1.4% for the same
period in 1995.
Sales and marketing costs were $0.5 million for the three months ended
March 31, 1996, compared to $0.4 million for the same period in 1995,
representing an increase of $0.1 million, or 32.5%, but as a percentage of
revenue remained at 0.7%. The increase reflects the addition of sales
executives and a senior vice president of sales and marketing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary short-term liquidity requirements relate to the
Company's letter of credit requirements under its workers' compensation
policies, acquisition of office and computer equipment to support its growth,
and the payment of current tax obligations. The Company had $4.1 million in
cash at March 31, 1996 which was restricted under the terms of the Company's
revolving credit facility and letters of credit thereunder (which letters of
credit secure payment of workers' compensation claims) or escrowed in
connection with the Company's workers' compensation insurance policy. The
Company has no significant long-term debt repayment requirements.
Net cash provided by operating activities was $0.3 million for the three
months ended March 31, 1996, compared to a cash provided by operating
activities of $1.7 million for the same period in 1995. This decrease of
$1.4 million was mainly due to an increase in accounts receivable and a
decrease of accounts payable and accrued expenses during the three months
ended March 31, 1996 compared to the same period in 1995. The Company's
accounts receivable and accrued salaries, wages, and payroll taxes are
subject to fluctuations depending on the proximity of the closing date of the
reporting period to that of the payroll cycle. The collateral requirements on
the Company's workers' compensation policies are an integral part of the
Company's liquidity from operating activities. Under the terms of its
revolving credit facility, the Company was able to obtain an additional
$3.0 million of letters of credit without an additional cash collateral
requirement. This contributed to a small decrease in restricted cash of
$0.2 million during the three months ended March 31, 1996, compared to an
increase of $2.3 million during the same period in 1995.
Net cash used in investing activities, consisting of purchases of property and
equipment to support the Company's growth, was $0.4 million for the three
months ended March 31, 1996, compared to $0.1 million for the same period
in 1995.
Net cash used in financing activities was $27,250 for the three months ended
March 31, 1996, compared to $0.8 million for the same period in 1995. During
Page 18 of 22
<PAGE>
February 1995, the Company and its stockholders entered into an Agreement and
Plan of Recapitalization whereby the Company's stockholders exchanged a
portion of their shares of common stock for Series A Preferred Stock,
incurring $445,150 of transaction costs. In January 1995, the Company also
acquired 249,342 shares of its common stock from a minority shareholder
through a cash payment of $300,000 and the issuance of a $1.2 million
subordinated promissory note.
After the completion of the Company's initial public offering and pursuant to
a commitment from Fleet National Bank ("Fleet Bank") the Company entered into
an Amended and Restated Credit Agreement providing for a $13.0 million
revolving line of credit of which (i) an aggregate of $8.0 million is
available for standby letters of credit and revolving credit loans for working
capital purposes (which working capital loans are limited to the lesser of
$1.0 million or the Borrowing Base, primarily composed of current accounts
receivable from unrelated parties) and (ii) $5.0 million is available to
finance acquisitions. The Company uses letters of credit primarily to secure
its obligations to reimburse its workers' compensation insurance carrier for
workers' compensation payments subject to the policy deductible. Borrowings
bear interest at rates based on Fleet Bank's Prime Rate plus a margin of as
much as .25% or its Eurodollar Rate (as defined in the Amended and Restated
Credit Agreement) plus a margin of 1.50% to 2.00%, depending on certain
financial covenants, at the Company's option. The facility is secured by
substantially all of the Company's assets other than the Company's
headquarters building. Revolving credit loans and standby letters of credit
mature June 5, 1997 and acquisition loans are repayable in 36 equal monthly
installments commencing June 5, 1998. Draws against the acquisition line of
credit can be made through June 5, 1998 and mature not later than
June 5, 2001. The credit facility contains covenants that, among other things,
limit the amount of total consolidated debt and liens, require the maintenance
of certain consolidated financial ratios, prohibit dividends and similar
payments, and restrict capital expenditures, mergers, dispositions of assets
and certain business acquisitions. The Company is required to pay an unused
facility fee ranging from .25% to .375% per annum on the facilities, depending
on certain financial ratios.
Although the Company currently has no significant capital commitments, the
Company currently anticipates approximately $1.0 million of capital
expenditures in 1996, primarily for computer and office equipment. The
Company's long-term liquidity needs are currently limited to debt service on
the Company's outstanding long-term obligations, including capital leases.
In May 1996, the Company completed its initial public offering and received
proceeds of $27.9 million, net of $2.1 million of underwriting discounts and
commissions, from the sale of 2,000,000 shares of common stock of the Company.
The Company used a portion of its proceeds to retire a subordinated promissory
note in the amount of $1.2 million (see Note 6 of Notes to Consolidated
Financial Statements) and to pay a $700,000 distribution payable related to
the Company's repurchase of an option to purchase the Company's headquarters.
In addition the Company expects to pay approximately $700,000 in other costs
in connection with the offering. Management of the Company expects to use the
remaining proceeds for working capital, general corporate purposes, and
expansion of the Company's operations including potential acquisitions.
Pending such uses, the Company has invested the net proceeds of the offering
in high-quality short-term, interest bearing investment-grade debt securities,
Page 19 of 22
<PAGE>
certificates of deposit or direct or guaranteed obligations of the United
States. The Company anticipates that the proceeds from the initial public
offering, cash flows from operations and borrowing availability under the
Amended and Restated Credit Agreement will be sufficient to satisfy the
Company's liquidity and working capital requirements for the foreseeable
future. The preceding forward looking statement is subject to a variety of
factors, including: (i) the Company's ability to draw advances under the
Amended and Restated Credit Agreement; (ii) potential increases in the
Company's costs, such as health care costs, that the Company may not be
able to reflect immediately in its service fees; (iii) the financial
condition of the Company's clients; (iv) higher than expected workers'
compensation claims under the Company's large deductible workers'
compensation insurance policies; (v) the level of acquisition opportunities
available to the Company; and (vi) additional regulatory requirements that
may be imposed on the Company.
Page 20 of 22
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the description of pending legal proceedings found in Note 11 of the
Notes to Consolidated Financial Statements under Part I, Item 1, which
description is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No.
- --------
10.1 Amended and Restated Credit Agreement, dated as of June 5, 1996
among The Vincam Group, Inc., its subsidiaries and Fleet National
Bank.
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
Page 21 of 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE VINCAM GROUP, INC.
----------------------
Registrant
Dated: June 20, 1996 BY /s/ Carlos A. Saladrigas
-----------------------------
Carlos A. Saladrigas
Chairman of the Board,
President and Chief
Executive Officer
Dated: June 20, 1996 BY /s/ Martiniano J. Perez
-----------------------------
Martiniano J. Perez
Vice President and
Controller
Page 22 of 22
<PAGE>
THE VINCAM GROUP, INC.
INDEX TO PART II, ITEM 6(A)
EXHIBITS
Exhibit
No.
- --------
10.1 Amended and Restated Credit Agreement, dated as of June 5, 1996
among The Vincam Group, Inc., its subsidiaries and Fleet National
Bank.
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
<PAGE>
[TYPE] EX-10
EXHIBIT 10.1
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of June 5, 1996
among
THE VINCAM GROUP, INC.
ITS SUBSIDIARIES
and
FLEET NATIONAL BANK
<PAGE>
TABLE OF CONTENTS
Page
------
Section 1 Definitions
1.1 Certain Definitions 1
1.2 Accounting Terms 14
1.3 Rules of Interpretation 14
Section 2 Revolving Credit Loans; Letters of Credit
2.1 Amount 15
2.2 Revolving Credit Note 15
2.3 Requests For Revolving Credit Loans 16
2.4 Letters of Credit 16
2.5 Maturity of Revolving Credit Loans 16
2.6 Termination or Reduction of Commitment 16
2.7 Company as Agent for Borrowers 17
Section 3 Acquisition Loans
3.1 Amount 17
3.2 Acquisition Loan Note 18
3.3 Requests of Acquisition Loans 18
3.4 Payments of Acquisition Loans 18
3.5 Termination or Reduction of Commitment 18
Section 4 Interest Rates; Fees; Payments
4.1 Interest Rates 19
4.2 Commitment Fee 20
4.3 Letter of Credit Fees 20
4.4 Facility Fee 20
4.5 Late Fee 20
4.6 Certain Notices 21
4.7 Minimum and Maximum Amounts 21
4.8 Computations 22
4.9 Manner and Place of Payment 22
4.10 Payments Due on Saturdays, Sundays and Holidays 22
4.11 Additional Costs 22
4.12 Limitation on Types of Loans 23
4.13 Illegality 24
4.14 Substitute Prime Rate Loans 24
4.15 Compensation. 24
4.16 Capital Adequacy 25
4.17 Optional Prepayments 26
Section 5 Security
5.1 Security Interests 26
<PAGE>
Section 6 Conditions Precedent
6.1 Conditions to all Loans and Letters of Credit 26
6.2 Conditions to Acquisition Loans 29
6.3 Condition to Revolving Credit Loans 30
6.4 Satisfaction of Conditions 30
Section 7 Representations and Warranties
7.1 Corporate Status 30
7.2 No Violation 31
7.3 Corporate Power and Authority 31
7.4 Enforceability 31
7.5 Consents or Approvals 31
7.6 Financial Statements 31
7.7 No Material Change 32
7.8 Litigation 32
7.9 Compliance with Other Instruments; Compliance
with Law 33
7.10 Subsidiaries 33
7.11 Investment Company Status; Limits on Ability
to Incur Indebtedness 33
7.12 Title to Property 33
7.13 ERISA 33
7.14 Taxes 34
7.15 Environmental Matters 34
7.16 Intellectual Property 35
7.17 Borrowing Base 35
Section 8 Affirmative Covenants
8.1 Use of Proceeds 35
8.2 Conduct of Business; Maintenance of Existence 35
8.3 Compliance with Laws 36
8.4 Insurance 36
8.5 Financial Statements, Etc 36
8.6 Notice of Default 38
8.7 Environmental Matters 38
8.8 Taxes and Other Liens 39
8.9 ERISA Information 40
8.10 Inspection 40
8.11 Certain Obligations Respecting Subsidiaries 40
8.12 Intellectual Property 41
8.13 Further Assurances 41
Section 9 Negative Covenants
9.1 Transactions with Affiliates 42
9.2 Consolidation, Merger or Acquisition 42
9.3 Disposition of Assets 43
9.4 Indebtedness 43
9.5 Guarantees 44
9.6 Liens 44
9.7 Restricted Payments 45
<PAGE>
9.8 Investments 45
9.9 Sale and Leaseback 46
9.10 ERISA 46
9.11 Fiscal Year 46
Section 10 Financial Covenants
10.1 Debt Coverage 47
10.2 Debt to Worth Ratio 47
10.3 Interest Coverage 47
10.4 Fixed Charges Coverage 47
10.5 Capital Expenditures 47
10.6 Minimum Net Worth 47
Section 11 Events of Default
11.1 Events of Default 48
11.2 Remedies Upon an Event of Default 51
Section 12. General
12.1 Amendments, Etc 51
12.2 Notices, Etc 51
12.3 No Waiver; Remedies 52
12.4 Right of Set-off 52
12.5 Expenses; Indemnification 52
12.6 Successors and Assigns 54
12.7 Severability 54
12.8 GOVERNING LAW 54
12.9 WAIVER OF JURY TRIAL 54
12.10 VENUE, CONSENT TO SERVICE OF PROCESS 55
12.11 Headings 55
12.12 Counterparts 55
EXHIBITS
A-1 - Revolving Credit Note
A-2 - Acquisition Loan Note
B - Security Agreement
C - Cash Collateral Pledge Agreement
D - Stock Pledge Agreement
E - Guaranty
F - Compliance Certificate
G - Borrowing Base Certificate
SCHEDULES
A - Disclosure Schedule
1 - Applicable Margin and Commitment Fees
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June
5, 1996 by and among THE VINCAM GROUP, INC., a Florida corporation
(the Company ), the Subsidiaries of the Company whose names
appear on the signature page hereof, all of which are Florida
corporations (together with the Company, collectively, the
Borrowers ), all having their principal place of business and
chief executive offices at 2850 Douglas Road, Coral Gables,
Florida 33134, and FLEET NATIONAL BANK (formerly known as Fleet
National Bank of Massachusetts), a national banking association,
with its principal place of business at 75 State Street, Boston,
Massachusetts 02109-1810 (the Bank ).
WHEREAS, the Borrowers are an integrated group of
corporations which provide management and financial support to
each other in order to achieve efficiencies and economies of scale
in providing professional employer services to their client
companies and, accordingly, require a single credit facility
available to all of them.
WHEREAS, the Borrowers have requested the Bank to extend
credit to the Borrowers in the form of loans and letters of credit
and the Bank is willing to extend such credit upon the terms and
subject to the conditions set forth herein.
WHEREAS, the Borrowers and the Bank entered into a Credit
Agreement dated as of December 29, 1995 (the Existing Agreement).
WHEREAS, the parties wish to amend the Existing Agreement and
to restate the Existing Agreement as so amended.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree that the
Existing Agreement is hereby amended and restated in its entirety
to read as follows:
Section 1 Definitions.
1.1 Certain Definitions. The following terms are used
herein with the meanings assigned to them below:
Accountants shall mean Price Waterhouse LLP, or another
accounting firm of national reputation or other certified public
accountants selected by the Borrowers and approved by the Bank.
Page 1
<PAGE>
Acquisition Line Termination Date shall mean the earlier of
(i) June 5, 1998, or (ii) the termination of the Acquisition Loan
Commitment.
Acquisition Loan shall have the meaning set forth in
Section 3.1.
Acquisition Loan Commitment shall have the meaning set
forth in Section 3.1.
Acquisition Loan Maturity Date shall mean the date on which
the aggregate unpaid principal balance of the Acquisition Loans
shall be due and payable in full pursuant to Section 3.4 below.
Acquisition Loan Note shall have the meaning set forth in
Section 3.2.
Affiliate shall mean, with respect to any specified Person
(the specified person ), any Person directly or indirectly
controlling, controlled by or under direct or indirect common
control with, the specified person and, without limiting the
generality of the foregoing, includes (i) any director or officer
of the specified person or any Affiliate of the specified person,
(ii) any such director's or officer's parent, spouse, child or
child's spouse (a relative ), (iii) any group acting in concert,
of one or more such directors, officers, relatives or any
combination thereof (a group ), (iv) any Person controlled by any
such director, officer, relative or group in which any such
director, officer, relative or group beneficially owns or holds 5%
or more of any class of voting securities or a 5% or greater
equity or profits interest and (v) any Person or group which
beneficially owns or holds 5% or more of any class of voting
securities or a 5% or greater equity or profits interest in the
specified person. For the purposes of this definition, the term
control when used with respect to any specified person means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such
specified person, whether through the ownership of voting
securities, by contract or otherwise.
Agreement shall mean this Credit Agreement.
Applicable Margin shall mean, in respect of any Type of
Loan, the amount for such Type of Loan determined pursuant to
Schedule 1 attached hereto.
Banking Day shall mean any day, excluding Saturday and
Sunday and excluding any other day which in the Commonwealth of
Massachusetts is a legal holiday or a day on which banking
institutions are authorized by law to close.
Page 2
<PAGE>
Borrowing Base shall mean an amount equal to 85% of
Eligible Accounts Receivable.
Borrower Group Property shall mean any real property owned,
occupied, or operated by the Borrowers or any of their
Subsidiaries.
Capital Expenditures shall mean any expenditures in respect
of fixed or capital assets made by the Borrowers or any of their
Subsidiaries, including the capitalized amount of Capital Lease
Obligations incurred during the relevant period.
Capital Lease Obligations shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) real
and/or personal property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet
of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards
Board) and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in
accordance with GAAP (including such Statement No. 13).
Cash Collateral Pledge Agreement shall have the meaning set
forth in Section 5.1.
Closing Date shall mean the first date on which the
conditions set forth in Section 6.1 have been satisfied and any
Loans are to be made or any Letters of Credit are to be issued
hereunder.
Code shall mean the Internal Revenue Code of 1986, as
amended, or any successor statute.
Collateral shall have the meaning given that term in the
Security Agreement.
Commitment shall mean the Acquisition Loan Commitment and
the Revolving Credit Commitment.
Contractual Obligation shall mean, as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such Person is
a party or by which it or any of its property is bound.
Controlled Group shall mean all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the
Borrowers, are treated as a single employer under Section 414 of
the Code.
Page 3
<PAGE>
Default shall mean any condition or event that constitutes
an Event of Default or that with the giving of notice or lapse of
time or both would, unless cured or waived, become an Event of
Default.
EBIT shall mean, for any fiscal period, an amount equal to
Net Income for such period, plus the following, to the extent
deducted in computing such Net Income: (i) Interest Expense, and
(ii) taxes.
EBITDA shall mean, for any fiscal period, an amount equal
to Net Income for such period, plus the following, to the extent
deducted in computing such Net Income: (i) Interest Expense, (ii)
taxes, (iii) depreciation, and (iv) amortization of goodwill and
other intangibles.
Eligible Account Receivable shall mean an account
receivable owing to the Borrowers which met the following
specifications at the time it came into existence and continues to
meet the same until it is collected in full:
(a) The original stated maturity of the account is
not more than 30 days after the invoice date thereof, and the
account (regardless of its stated maturity date) does not
remain unpaid more than 30 days after such invoice date;
(b) The account arose from the performance of
services by the Borrowers;
(c) The account is owned solely by the Borrowers,
and is not subject to any assignment, claim, lien, or
security interest, other than a security interest in favor of
the Bank;
(d) The account is not one as to which the account
debtor disputes liability or makes any claim with respect
thereto or as to which the Bank reasonably believes that
there may be a basis for dispute (but only to the extent of
the amount subject to such dispute or claim), or which
involves an account debtor subject to any insolvency
proceeding, or becomes insolvent, or goes out of business;
(e) The account arose in the ordinary course of the
Borrowers' business and did not arise from the performance of
services or a sale of goods to a supplier, employee or
Affiliate of the Borrowers;
(f) No notice of bankruptcy or insolvency of the account
debtor has been received by or is known to the Borrowers;
Page 4
<PAGE>
(g) The Borrowers have pledged any instrument or
chattel paper evidencing the account to the Bank pursuant to
the provisions of the Security Agreement;
(h) Not more than 50% of the aggregate accounts
receivable due to the Borrowers from the account debtor have
remained unpaid for a period of more than thirty (30) days
from the invoice date (without adequate reserves);
(i) The aggregate accounts receivable from the
account debtor (including its Subsidiaries and Affiliates) do
not exceed 25% of the total Eligible Accounts Receivable of
the Borrowers; that portion of such accounts over the 25%
level will be disqualified;
(j) The account does not represent processed but
unpaid payrolls or accrued accounts receivable;
(k) The account debtor is not a Principal or an
Affiliate, officer, employee or agent of the Borrowers;
(l) If the account debtor is the United States of
America or any agency or instrumentality thereof, the
Borrowers right to payment has been assigned to the Bank in
compliance with the Assignment of Claims Act of 1940, as
amended;
(m) The Borrowers do not owe any amounts to the account
debtor for goods sold, services rendered or otherwise
or, to the extent that any amounts are so owed, the accounts
of such account debtor in an amount equal to the amounts owed
by the Borrowers to the account debtor shall be disqualified;
(n) The Bank has not notified the Borrowers that the
Bank has determined (such determination not to be made
unreasonably) that an account or account debtor is
unsatisfactory for credit reasons (if the Bank makes such a
determination, its notification to the Borrower shall specify
the reasons therefor);
(o) The account debtor is a person or entity located
in the United States and the account arose out of services
rendered or goods delivered in the United States.
Environmental Laws shall mean all federal, state, local and
foreign laws, and all regulations, notices or demand letters issued,
promulgated or entered thereunder, relating to pollution or
protection of the environment and to occupational health and
safety, including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of
Page 5
<PAGE>
pollutants, contaminants, chemicals, or Hazardous Substances into the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants,
contaminants, chemicals or Hazardous Substances.
ERISA shall mean the Employee Retirement Income Security
Act of 1974, as amended, or any successor statutes.
Eurodollar Lending Office shall mean, initially, the Bank's
office at 75 State Street, Boston, Massachusetts 02109-1810 and,
thereafter, such other office of the Bank as shall be making or
maintaining Eurodollar Loans.
Eurodollar Loan shall mean, at any time, that principal
amount of the Loans, the interest on which is determined at such
time on the basis of rates referred to in the definition of
Eurodollar Rate .
Eurodollar Rate shall mean with respect to any Interest
Period pertaining to a Eurodollar Loan, the rate per annum
(rounded upwards, if necessary, to the nearest 1/16th of 1%) equal
to the quotient of (a) the average of the rates at which the
Bank's Eurodollar Lending Office is offered U.S. Dollar deposits
two Working Days prior to the beginning of such Interest Period in
the interbank Eurodollar market where the foreign currency and
exchange operations of such Eurodollar Lending Office are
customarily conducted at 10:00 a.m., Boston time, for delivery on
the first day of such Interest Period for the number of days
comprised therein and in an amount equal to the amount of the
Eurodollar Loan to be outstanding during such Interest Period,
divided by (b) a number equal to 1.00 minus the Reserve
Requirement for such Eurodollar Loan during such Interest Period.
Event of Default has the meaning set forth in Section 11.1.
Extension of Credit shall mean the making of any Loan or
the issuance of any Letter of Credit.
Excluded Property shall have the meaning set forth in the
Security Agreement.
Financial Statements Date shall mean December 31, 1995.
Fixed Charges shall mean, for any fiscal period, the sum of
(i) the amount of the scheduled installments of principal payable
in respect of Indebtedness of the Borrowers and their Subsidiaries
during such period, plus (ii) Interest Expense for
Page 6
<PAGE>
such period, plus (iii) the tax provision of the Borrowers and their
Subsidiaries paid or required to be paid in cash for such period,
plus (iv) Capital Expenditures made by the Borrowers and their
Subsidiaries during such period.
Funded Debt shall mean the following (without duplication)
with respect to the Borrowers and their Subsidiaries: (i) all
Indebtedness for borrowed money; (ii) all obligations evidenced by
bonds, indentures, notes and similar instruments; (iii) all
obligations with respect to Letters of Credit and other similar
instruments not fully secured by cash; (iv) all Capital Lease
Obligations; and (v) all Guaranties of any of the foregoing.
GAAP shall mean accounting principles generally accepted in
the United States applied on a consistent basis.
Governmental Approval shall mean any authorization,
consent, order, approval, license, lease, ruling, permit, tariff,
rate, certification, validation, exemption, filing or registration
by or with, or notice to, any Governmental Authority.
Governmental Authority shall mean any federal, state,
municipal or other governmental department, commission, board,
bureau, agency, court, tribunal or other instrumentality, domestic
or foreign, and any arbitrator.
Guarantee by any Person shall mean any obligation,
contingent or otherwise, of such Person directly or indirectly
guaranteeing any Indebtedness or other obligation of any other
Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise of such
Person (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation
(whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided
that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The
term Guarantee used as a verb has a corresponding meaning.
Hazardous Substances shall mean all hazardous and toxic
substances, wastes or materials, hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable
explosives, urea formaldehyde insulation, radioactive materials,
biological substances, PCBs, pesticides, herbicides and any other
kind and/or type of pollutants, or contaminates
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and/or any other similar substances or materials which, because of toxic,
flammable, explosive, corrosive, reactive, radioactive or other
properties that may be hazardous to human health or the environment,
are included under or regulated by any Environmental Laws.
Indebtedness of any Person at any date shall mean, (a) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (excluding current trade
liabilities incurred in the ordinary course of business and payable
in accordance with customary practices, but including any
class of capital stock of such Person with fixed payment obligations
or with redemption at the option of the holder), or which is
evidenced by a note, bond, debenture or similar instrument, (b)
all obligations of such Person under leases that should be treated
as capitalized leases in accordance with GAAP, (c) all obligations
of such Person in respect of acceptances issued or created for the
account of such Person, and all reimbursement obligations
(contingent or otherwise) of such Person in respect of any letters
of credit issued for the account of such Person to the extent not
secured by cash and without duplication of any underlying
Indebtedness, (d) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof, and
(e) without duplication, all Guaranties.
Intellectual Property shall have the meaning specified in
Section 7.16.
Interest Expense shall mean, for any fiscal period, the sum
(determined without duplication) of the aggregate amount of
interest required to be paid in cash during such period on
Indebtedness of the Borrowers and their Subsidiaries (on a
consolidated basis), including the interest portion of payments
under Capital Lease Obligations and any capitalized interest.
Interest Period shall mean, with respect to any Eurodollar
Loan, the period commencing on the date such Eurodollar Loan is
made or converted from a Prime Rate Loan or the last day of the
next preceding Interest Period with respect to such Eurodollar
Loan and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the Borrowers
may select as provided in Section 4.6, except that each such
Interest Period which commences on the last Working Day of a
calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month)
shall end on the last Working Day of the appropriate subsequent
calendar month.
Notwithstanding the foregoing: (i) no Interest Period may end
after the Revolver Maturity Date, in the case of Revolving
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Credit Loans, or the Acquisition Loan Maturity Date, in the case of
Acquisition Loans; (ii) each Interest Period which would otherwise
end on a day which is not a Working Day shall end on the next
succeeding Working Day (or, if such next succeeding Working Day
falls in the next succeeding calendar month, on the next preceding
Working Day); and (iii) no Interest Period shall have a duration
of less than one month and, if the Interest Period therefor would
otherwise be a shorter period, such Eurodollar Loan shall not be
available hereunder.
Investments shall mean, with respect to any Person (the
Investor ), any investment by the Investor in any other Person,
whether by means of share purchase, capital contribution, purchase
or other acquisition of a partnership or joint venture interest,
loan, time deposit, demand deposit or otherwise.
Letter of Credit shall mean any standby letter of credit
issued by the Bank for the account of the Borrowers as provided in
this Agreement.
Letter of Credit Usage shall mean, at any time, the
aggregate at such time of (a) the maximum amount then available to
be drawn under all outstanding Letters of Credit, and (b) all then
unreimbursed drawings under any Letters of Credit.
Lien shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security agreement of any
kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any lease
that should be capitalized in accordance with GAAP, and the filing
of a financing statement under the UCC or comparable law of any
jurisdiction), together with any renewal or extension thereof.
Loans shall mean the Acquisition Loans and the Revolving
Credit Loans.
Loan Documents shall mean, collectively, this Agreement,
the Notes, the Security Instruments and all other agreements and
instruments that are from time to time executed in connection with
this Agreement, as each of such agreements and instruments may be
amended, modified or supplemented from time to time.
Material Adverse Effect shall mean a material adverse
effect on (a) the business, operations, property, condition
(financial or otherwise) or prospects of the Borrowers taken as a
whole, (b) the ability of the Borrowers taken as a whole to
perform their obligations under this Agreement, the Notes or any
of the other Loan Documents or (c) the validity or enforceability
of this Agreement, the Notes or any of the other Loan Documents.
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Maximum Rate shall have the meaning set forth in Section
4.1(d).
Multiemployer Plan shall mean at any time an employee
pension benefit plan within the meaning of Section 4001(a)(3) of
ERISA to which the Borrowers or any member of the Controlled Group
is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a
member of the Controlled Group during such five year period.
Net Income or Net Loss for any period in respect of which
the amount thereof shall be determined, shall mean the aggregate
of the consolidated net income (or net loss) after taxes for such
period of the Borrowers and their Subsidiaries, determined in
accordance with GAAP.
Net Worth shall mean, at any date as of which the amount
thereof is to be determined, all assets that should, in accordance
with GAAP, be classified as assets on the consolidated balance
sheet of the Borrowers and their Subsidiaries, minus Total
Liabilities at such date; provided that in determining Net Worth
any preferred stock shall be treated as equity.
Notes shall mean the Revolving Credit Note and the
Acquisition Loan Note.
Obligations shall mean all obligations of the Borrowers to
the Bank of every kind and nature whether such obligations are now
existing or hereafter incurred or created, joint or several,
direct or indirect, absolute or contingent, due or to become due,
matured or unmatured, liquidated or unliquidated, arising by
contract, operation of law or otherwise, including, without
limitation, (a) all principal of and interest (including, without
limitation, any interest which accrued after the commencement of
any case, proceeding or other action relating to the bankruptcy,
insolvency or reorganization of any Borrower) on any advance to
the Borrowers under, or the Notes issued by the Borrowers pursuant
to, this Agreement; (b) all other amounts (including, without
limitation, any fees or expenses) payable by Borrowers under the
Loan Documents; (c) all amounts payable to the Bank in connection
with the issuance of any letter of credit by the Bank for the
account of any Borrower or any drawing thereunder, including,
without limitation, any reimbursement obligation and letter of
credit fees payable under any letter of credit application or
reimbursement agreement executed by any Borrower in connection
with any such letter of credit; and (d) any renewals, refinancings
or extensions of any of the foregoing.
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Office of the Bank shall mean the banking office of the
Bank located at 75 State Street, Boston, MA 02109-1810 or such
other location of which the Bank shall notify the Borrowers.
PBGC shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
Permitted Acquisition shall have the meaning set forth in
Section 9.2.
Permitted Liens shall have the meaning set forth in Section
9.6.
Person shall mean and include any individual, firm,
corporation, trust or other unincorporated organization or association
or other enterprise or any government or political
subdivision, agency, department or instrumentality thereof.
Plan means any employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (a)
maintained by the Borrowers or any member of the Controlled Group
for employees of the Borrowers or any member of the Controlled
Group or (b) maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one
employer makes contributions and to which the Borrowers or any
member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five
plan years made contributions.
Post-Default Rate shall mean (i) with respect to any
Eurodollar Loan, the rate of interest per annum equal to 3% above
the interest rate otherwise applicable to such Eurodollar Loan at
the applicable time, (ii) with respect to any Prime Rate Loan, the
rate of interest per annum equal to 3% above the interest rate
otherwise applicable to such Prime Rate Loan, and (iii) with
respect to any other amount payable by the Borrowers under this
Agreement which is not paid when due, the rate of interest per
annum equal to 4% above the Prime Rate at the applicable time.
Prime Rate shall mean the per annum rate of interest from
time to time announced and made effective by the Bank as its Prime
Rate (which rate may or may not be the lowest rate available from
the Bank at any given time).
Prime Rate Loan means at any time the principal amount of
the Loans which bears interest at the Prime Rate.
Principals shall mean Carlos A. Saladrigas and Jose M.
Sanchez.
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Regulation D means Regulation D of the Board of Governors
of the Federal Reserve System as the same may be amended or
supplemented from time to time.
Regulatory Change means any change on or after the date of
this Agreement in United States federal, state or foreign laws or
regulations, including Regulation D, or the adoption or making on
or after such date of any interpretations, directives or requests
applying to a class of lenders including the Bank of or under any
United States federal or state, or any foreign, laws or
regulations (whether or not having the force of law) by any court
or governmental or monetary authority charged with the
interpretation or administration thereof (other than changes which
affect taxes measured by or imposed on the overall net income of
the Bank or of its Eurodollar Lending Office by the jurisdiction
in which the Bank has its principal office or Eurodollar Lending
Office).
Reserve Requirement shall mean, for any Eurodollar Loans
for any Interest Period therefor, the average maximum rate at
which reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest
Period under Regulation D by the Bank against Eurocurrency
liabilities (as such term is used in Regulation D).
Responsible Officer shall mean the President, the Vice
Chairman or the Vice President/Controller of the Company.
Restricted Payment shall mean, with respect to the
Borrowers or any Subsidiary thereof, (a) any dividend or other
distribution on any shares of capital stock of the Borrowers or
such Subsidiary (except dividends payable solely to the Borrowers
or any Subsidiary), and (b) any payment on account of the
purchase, redemption, retirement or acquisition of (i) any shares
of the capital stock of any Borrower or a Subsidiary thereof or
(ii) any option, warrant, convertible security or other right to
acquire shares of the capital stock of the Borrowers or a
Subsidiary thereof, other than, in either case, payments made
solely to the Borrowers or such Subsidiary.
Revolver Maturity Date shall mean June 5, 1997.
Revolving Credit Commitment shall have the meaning
specified in Section 2.1.
Revolving Credit Loans shall have the meaning set forth in
Section 2.1.
Revolving Credit Note shall have the meaning set forth in
Section 2.2.
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Revolving Loan Sublimit shall have the meaning set forth in
Section 2.1.
SEC means the Securities and Exchange Commission.
Security Agreement shall have the meaning set forth in Section 5.1.
Security Instruments shall mean, collectively, the Security
Agreement, the Cash Collateral Pledge Agreement, the Stock Pledge
Agreements and each other instrument or agreement that purports to
secure the Obligations of the Borrowers to the Bank.
Stated Rate shall have the meaning set forth in Section
4.1(d).
Stock Pledge Agreements shall have the meaning set forth in
Section 5.1.
Subordinated Debt shall mean Indebtedness of the Borrowers
that is subordinated to the Indebtedness of the Borrowers owing to
the Bank either (a) pursuant to a subordination agreement in form
and substance satisfactory to the Bank between the Bank and the
holder(s) of such Indebtedness, or (b) pursuant to the terms
thereof, where the Bank has confirmed in writing that such terms
are satisfactory to it.
Subsidiary shall mean, with respect to any Person, any
corporation or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the
board of directors or other Persons performing similar functions
are at the time directly or indirectly owned by such Person.
Tangible Net Worth shall mean, at any date as of which the
amount thereof is to be determined, an amount equal to Net Worth,
minus (i) the sum of any amounts attributable to the book value,
net of applicable reserves, of all intangible assets of the
Borrowers and their Subsidiaries, including, without limitation,
goodwill, trademarks, copyrights, patents and any similar rights,
and unamortized debt discount and expense, and (ii) intercompany
accounts with Subsidiaries and Affiliates (including receivables
due from Subsidiaries and Affiliates).
Total Liabilities shall mean, at any time, the consolidated
liabilities of the Borrowers and their Subsidiaries at such time
and (without duplication) any Guaranties of the Borrowers,
determined in accordance with GAAP; provided that in any event
Total Liabilities shall not include (i) any preferred stock, and
(ii) the amount of Letter of Credit Usage to the
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extent it does not exceed the Borrowers reserve for workers
compensation claims.
Type shall mean a Prime Rate Loan or a Eurodollar Loan.
UCC shall have the meaning given such term in the Security
Agreement.
Unfunded Liabilities means, with respect to any Plan, at
any time, the amount (if any) by which (a) the present value of
all benefits under such Plan exceeds (b) the fair market value of
all Plan assets allocable to such benefits, all determined as of
the then most recent valuation date for such Plan, but only to the
extent that such excess represents a potential liability of the
Borrowers or any member of the Controlled Group to the PBGC or
such Plan under Title IV of ERISA.
Wholly-owned Subsidiary shall mean, as to any Person, a
Subsidiary of such Person all of whose outstanding shares of
capital stock (except directors qualifying shares) are owned
directly or indirectly by such Person.
Working Day shall mean any day on which dealings in foreign
currencies and exchange between banks may be carried on in the
place where the Eurodollar Lending Office is located and in
Boston, Massachusetts.
1.2 Accounting Terms. Unless
otherwise specified herein, all accounting terms used herein shall
be interpreted, all determinations with respect to accounting
matters hereunder shall be made, and all financial statements and
certificates and reports as to financial matters required to be
delivered hereunder shall be prepared, in accordance with GAAP;
provided that if any change in GAAP in itself materially affects
the calculation of any financial covenant in this Agreement, the
Borrowers may by notice to the Bank, or the Bank may by notice to
the Borrowers, require that such covenant thereafter be calculated
in accordance with GAAP as in effect, and applied by the
Borrowers, immediately before such change in GAAP occurs. If such
notice is given, the compliance certificates delivered pursuant to
Section 8.5(c) after such change occurs shall be accompanied by
reconciliations of the difference between the calculation set
forth therein and a calculation made in accordance with GAAP as in
effect from time to time after such change occurs.
1.3 Rules of Interpretation.
(a) A reference to any document or agreement shall
include such document or agreement as amended, modified or
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supplemented and in effect from time to time in accordance with
its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural
includes the singular.
(c) A reference to any Person includes its permitted
successors and permitted assigns.
(d) The words include , includes and including
are not limiting.
(e) The words herein , hereof , hereunder and
words of like import shall refer to this Agreement as a whole and
not to any particular section or subdivision of this Agreement.
(f) All terms not specifically defined herein or by
GAAP, which terms are defined in the Uniform Commercial Code as in
effect in the Commonwealth of Massachusetts, shall have the
meanings assigned to them in such Code.
Section 2 Revolving Credit Loans; Letters of
Credit.
2.1 Amount. Upon the terms and subject
to conditions set forth herein, and in reliance upon the
representations, warranties and covenants of the Borrowers herein,
the Bank agrees to make loans (each a Revolving Credit Loan and
collectively the Revolving Credit Loans ) to the Borrowers and to
issue Letters of Credit for the account of the Borrowers at the
Borrowers request from time to time from and after the Closing
Date and prior to the Revolver Maturity Date in an aggregate
principal amount not to exceed at any one time outstanding the sum
of $8,000,000 (the Revolving Credit Commitment ), as the same may
be reduced or terminated pursuant to the provisions hereof,
provided that the sum of all outstanding Revolving Credit Loans
and Letter of Credit Usage shall not at any time exceed the
Revolving Credit Commitment, and provided, further that the
aggregate principal amount of outstanding Revolving Credit Loans
shall not at any time exceed the lesser of (i) $1,000,000 (the
Revolving Loan Sublimit ), or (ii) the Borrowing Base. Within the
foregoing limits and subject to the terms and conditions hereof,
the Borrowers may request Letters of Credit and may borrow, repay
and reborrow Revolving Credit Loans at any time or from time to
time until the Revolver Maturity Date or the earlier termination
of the Revolving Credit Commitment.
2.2 Revolving Credit Note. The Revolving Credit Loans shall be
evidenced by the amended and restated note of the Borrowers in the form
attached hereto as Exhibit A-1, dated the date hereof (the Revolving
Credit Note ) and shall be payable with interest in accordance
with Section 4 below.
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2.3 Requests For Revolving Credit Loans. Whenever a Borrower
desires to obtain a Revolving Credit Loan or to convert an outstanding
Revolving Credit Loan from one Type to another, it shall notify
the Bank in accordance with the provisions of Section 4.6 below.
Subject to the terms and conditions hereof, the Bank will make the
proceeds of such Revolving Credit Loan available to the Borrowers
by wiring the funds to such account as the Borrowers shall
specify.
2.4 Letters of Credit. The
Borrowers may use the Revolving Credit Commitment for Letters of
Credit to be issued by the Bank, provided that in each case (a)
the requesting Borrower executes and delivers a letter of credit
application and reimbursement agreement reasonably satisfactory to
the Bank and complies with any conditions to the issuance of such
Letter of Credit (including payment of any applicable fees); (b)
the Bank has approved the form of such Letter of Credit; (c) the
requested Letter of Credit is for a purpose permitted by Section
8.1 hereof; (d) such Letter of Credit bears an expiration date not
later than one year from its date of issuance and not later than
the Revolver Maturity Date; (e) the conditions set forth in
Section 6.1 shall have been satisfied as of the date of the
issuance of the Letter of Credit; and (f) both before the issuance
of the requested Letter of Credit and after giving effect to the
issuance thereof the sum of all outstanding Revolving Credit Loans
and Letter of Credit Usage shall not exceed the Revolving Credit
Commitment.
2.5 Maturity of Revolving Credit Loans. All Revolving Credit
Loans shall mature and the total unpaid principal amount thereunder shall be
due and payable on the Revolver Maturity Date, at which time all
amounts advanced under this Section 2 shall be immediately due and
payable.
2.6 Termination or Reduction of Commitment.
(a) The Revolving Credit Commitment shall
automatically terminate at 5:00 p.m. Boston time on the Revolver
Maturity Date. The Borrowers, upon notice to the Bank in
accordance with Section 4.6 and the repayment in full of the
outstanding principal balance of the Revolving Credit Loans (and
accrued interest thereon) and the payment in full of any expenses
or other fees owed by the Borrowers to the Bank under or pursuant
to this Agreement, may elect to terminate the Revolving Credit
Commitment permanently. If any Letters of Credit would remain
outstanding after the effective date of any such termination, in
addition to the satisfaction of all other applicable terms and
conditions of this Agreement, the Borrowers shall either deposit
with and pledge to the Bank cash in an amount equal to 105% of the
Letter of Credit Usage at the effective date of such termination,
or (ii) arrange for the termination of such Letters
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of Credit and the return thereof to the Bank. No such termination may be
reinstated.
(b) The Borrowers may also, upon notice to the Bank in
accordance with Section 4.6, reduce the Revolving Credit
Commitment in integral multiples of $500,000, provided that if
after giving effect to such reduction the outstanding Revolving
Credit Loans would exceed the lesser of the Revolving Loans
Sublimit and the Borrowing Base, the Borrowers shall, on the next
Banking Day, prepay such excess principal amount together with
accrued interest thereon at the applicable interest rate. If, as
a result of any such reduction and after giving effect to any
prepayment required by the preceding sentence, the Letter of
Credit usage or the Total Revolving Credit Extensions would exceed
the Revolving Credit Commitment, the Borrowers shall, as a
condition precedent to any such reduction, deposit with and pledge
to the Bank cash in an amount equal to 105% of such excess. No
such reduction may be reinstated.
2.7 Company as Agent for Borrowers. Each Borrower
(other than the Company) hereby appoints the Company as its agent with
respect to the receiving and giving of any notices, requests, instructions,
reports, schedules, revisions, financial statements or any other
written or oral communications hereunder. The Company shall keep
complete, correct and accurate records of all Loans and the
application of proceeds thereof, all Letters of Credit and all
payments in respect of Loans and other amounts due hereunder. The
Company shall determine the allocation of proceeds of Loans among
the Borrowers, subject to the terms and conditions hereof. The
Bank is hereby entitled to rely on any communications given or
transmitted by the Company as if such communication were given or
transmitted by each and every Borrower; provided, however, that
any communication given or transmitted by any Borrower other than
the Company shall be binding with respect to such Borrower. Any
communication given or transmitted by the Bank to the Company
shall be deemed given and transmitted to each and every Borrower.
Section 3. Acquisition Loans.
3.1 Amount. Upon the terms and subject
to conditions set forth herein, and in reliance upon the
representations, warranties and covenants of the Borrowers herein,
the Bank agrees to make loans (each an Acquisition Loan and
collectively the Acquisition Loans ) to the Borrowers at the
Borrowers request from time to time from and after the Closing
Date and prior to the Acquisition Line Termination Date in an
aggregate principal amount not to exceed at any one time
outstanding the sum of $5,000,000 (the Acquisition Loan
Commitment ), as the same may be reduced or terminated pursuant to
the provisions hereof, provided, that the aggregate principal
amount of outstanding
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Acquisition Loans shall not at any time
exceed the Acquisition Loan Commitment. Within the foregoing
limits and subject to the terms and conditions hereof, the
Borrowers may borrow, repay and reborrow Acquisition Loans at any
time or from time to time until the Acquisition Line Termination
Date or the earlier termination of the Acquisition Loan
Commitment.
3.2 Acquisition Loan Note. The Acquisition Loans shall be
evidenced by the amended and restated note of the Borrowers in the form
attached hereto as Exhibit A-2, dated the date hereof (the Acquisition
Loan Note) and shall be payable with interest in accordance with Section 4
below.
3.3 Requests of Acquisition Loans. Whenever a Borrower desires
to obtain an Acquisition Loan, it shall notify the Bank in accordance with
the provisions of Section 4.6 below. Subject to the terms and conditions
hereof, the Bank will make the proceeds of such Acquisition Loan
available to the Borrowers by wiring the funds to such account as the
Borrowers shall specify.
3.4 Payments of Acquisition Loans. If on the Acquisition Line
Termination Date no Default shall have occurred and be continuing and
all of the conditions set forth in Section 6 shall have been satisfied, the
aggregate unpaid principal balance of the Acquisition Loans shall
be payable in thirty-six (36) equal monthly installments, payable
on the first day of each month commencing with the month following
the month in which the Acquisition Line Termination Date occurs.
If on the Acquisition Line Termination Date any Default shall have
occurred and be continuing or any condition set forth in Section 6
shall not have been satisfied, then notwithstanding any other
provision of the Loan Documents, the Borrower shall pay in full on
such date the unpaid principal balance of the Acquisition Loans,
together with all unpaid interest thereon and all fees and other
amounts due with respect thereto.
3.5 Termination or Reduction of Commitment. The Borrowers, upon
notice to the Bank in accordance with Section 4.6 and the
repayment in full of the outstanding principal balance of the
Acquisition Loans (and accrued interest thereon) and the payment
in full of any expenses or other fees owed by the Borrowers to the
Bank under or pursuant to this Agreement, may elect to terminate
the Acquisition Loan Commitment permanently. The Borrowers may
also, upon notice to the Bank in accordance with Section 4.6,
reduce the Acquisition Loan Commitment in integral multiples of
$500,000 provided that if after giving effect to such reduction
the outstanding Acquisition Loans would exceed the Acquisition
Loan Commitment, the Borrowers shall, on the next Banking Day,
repay such excess principal amount together
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with accrued interest thereon at the applicable interest rate. No such
reduction or termination may be reinstated.
Section 4 Interest Rates; Fees; Payments.
4.1 Interest Rates.
(a) The Borrowers agree to pay interest on the unpaid
principal amount of each Loan for each day from and including the
date such Loan is made to but excluding the date the principal of
such Loan is paid in full at the following rates per annum:
(i) for Loans which are Prime Rate Loans, at a rate
per annum equal to the Prime Rate plus the
Applicable Margin; and
(ii) for Loans which are Eurodollar Loans, at a rate
per annum equal to the Eurodollar Rate plus the
Applicable Margin.
(b) Notwithstanding the foregoing, if an Event of
Default shall occur, then at the option of the Bank, the unpaid
balance of Loans shall bear interest at a rate per annum equal to
the Post-Default Rate, until such Event of Default is cured or
waived, and any other amount payable hereunder which is not paid
in full when due shall bear interest at a rate per annum equal to
the Prime Rate plus 4% until such Event of Default is cured or
waived.
(c) Accrued interest on each Prime Rate Loan shall be
payable monthly in arrears on the first day of each month, accrued
interest on Eurodollar Loans shall be payable on the last day of
each Interest Period and, if any such Interest Period is longer
than three months, at intervals of three months after the first
day thereof, and interest on all Loans shall be payable in any
event upon the payment, prepayment or conversion thereof, but only
on the principal so paid or prepaid or converted; provided that
interest payable pursuant to Section 4.1(b) during the pendency of
an Event of Default shall be payable from time to time on demand
of the Bank. Promptly after the determination of any interest
rate provided for herein or any change therein, the Bank shall
notify the Borrowers thereof.
(d) Notwithstanding the foregoing provisions of this
Section 4.1, if at any time the rate of interest set forth in
subparagraph (a) above (the Stated Rate ) exceeds the maximum
non-usurious interest rate permissible for the Bank to charge
commercial borrowers under applicable law (the Maximum Rate),
the rate of interest charged on the Loans by the Bank hereunder
shall be limited to the Maximum Rate. In the event the Stated
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Rate that has theretofore been subject to the preceding sentence
at any time is less than the Maximum Rate in respect of the Loans
hereunder, the principal amount of the Loans shall bear interest
at the Maximum Rate until the total amount of interest paid to the
Bank or accrued on such Loans by the Bank hereunder equals the
amount of interest which would have been paid to the Bank or
accrued on the Loans by the Bank hereunder if the Stated Rate had
at all times been in effect. In the event that upon payment in
full of all amounts payable hereunder, the total amount of
interest paid to the Bank under the terms of this Agreement is
less than the total amount of interest which would have been paid
to the Bank or accrued on the Loans if the Stated Rate had at all
times been in effect, then the Borrowers shall, to the extent
permitted by applicable law, pay to the Bank an amount equal to
the difference between (a) the lesser of (i) the amount of
interest which would have accrued on the Loans if the Maximum Rate
had at all times been in effect or (ii) the amount of interest
which would have accrued on the Loans if the Stated Rate had at
all times been in effect and (b) the amount of interest actually
paid to the Bank or accrued on the Loans under this Agreement. In
the event the Bank ever receives, collects or applies as interest
any sum in excess of the Maximum Rate, such excess amount shall be
applied to the reduction of the principal balance of the Loans or
to other amounts (other than interest) payable hereunder, and if
no such principal is then outstanding, such excess or part thereof
remaining shall be paid to the Borrowers.
4.2 Commitment Fee. The
Borrowers shall pay to the Bank quarterly in arrears on the first
day of each quarter a commitment fee on the unutilized portion of
the Commitment for the preceding quarter at a rate per annum
determined pursuant to Schedule 1 attached hereto.
4.3 Letter of Credit Fees. Upon the issuance of each Letter of
Credit, the Borrowers
shall pay to the Bank an issuance fee of $175 and a standby
commission equal to 1.00% of the total face amount of such Letter
of Credit. The Borrowers shall pay to the Bank an amendment fee
of $85 for each amendment to any Letter of Credit, and a transfer
fee of $100 for each transfer of any Letter of Credit.
4.4 Facility Fee. The Borrowers
shall pay to the Bank a one-time facility fee of $25,000. The
Bank hereby acknowledges that all of such facility fee has
previously been paid to the Bank.
4.5 Late Fee. Without limiting any
of the Bank s other rights hereunder or by law, if any Loan or any
portion thereof or any interest thereon or any other payment due
hereunder or under any other Loan Document is not paid within ten
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(10) days after the same is due (such due date to be determined
without regard to any grace periods), the Borrowers shall pay to
the Bank on demand a late fee equal to five percent (5%) of the
amount of the payment due.
4.6 Certain Notices. Notices
to the Bank of conversions and prepayments of Loans, of the
duration of Interest Periods and of termination or reduction of
Commitments shall be irrevocable and shall be effective only if
received by the Bank not later than 12:00 noon Boston time on the
number of Banking Days prior to the date of the borrowing,
conversion, prepayment, termination or reduction specified below:
Number of Banking
Days Prior Notice
Borrowings or prepayment
of Prime Rate Loans 0
Borrowings of, prepayment
of, conversion into, or
duration of Interest Periods
for Eurodollar Loans 3
Termination or reduction 2
of Commitments
Each notice of borrowing, conversion or prepayment shall specify
the amount, the Type of the Loan to be borrowed, converted or
prepaid, the date of borrowing, conversion or prepayment (which
shall be a Banking Day in the case of the prepayment of a Prime
Rate Loan, or a Working Day in the case of the conversion or
prepayment of a Eurodollar Loan) and, in the case of Eurodollar
Loans, the duration of the Interest Period therefor (subject to
the definition of Interest Period). Each such notice of duration
of an Interest Period shall specify the Loans to which such
Interest Period is to relate. In the event that the Borrowers
fail to select the duration of any Interest Period for any
Eurodollar Loan within the time period and otherwise as provided
in this Section 4.6, such Eurodollar Loan will be automatically
converted into a Prime Rate Loan on the last day of the then
current Interest Period for such Eurodollar Loan or (if
outstanding as Prime Rate Loans) will remain as, or (if not then
outstanding) will be made as Prime Rate Loans.
4.7 Minimum and Maximum Amounts. Each borrowing,
conversion and prepayment of
principal of Revolving Credit Loans shall be in an aggregate
principal amount equal to (a) in the case of Eurodollar Loans,
$250,000 or a larger multiple of $100,000, and (b) in the case of
Prime Rate Loans, $50,000 or an integral multiple thereof
(conversions or prepayments of
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Revolving Credit Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods, at the same time hereunder
shall be deemed separate conversions and prepayments for purposes of
the foregoing, one for each Type or Interest Period); provided that
any payment or prepayment in full of the Loans may be in the
aggregate outstanding principal amount thereof.
4.8 Computations. All interest
and fees shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the
last day) occurring in the period for which payable.
4.9 Manner and Place of Payment. All payments under
this Agreement shall be
made not later than 2:00 p.m. (Boston Time) on the date when due
and shall be made in immediately available funds at the Office of
the Bank or by the Borrowers check drawn on the depositary
account(s) maintained by the Borrowers with the Bank payable to
the Bank or its order. All payments shall be made without setoff,
counterclaim, withholding or reduction of any kind whatsoever.
4.10 Payments Due on Saturdays, Sundays and Holidays.
Whenever any payment to be made hereunder or under the
Notes shall be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such
extension of time shall be included in computing any interest or
fees due.
4.11 Additional Costs. (a) The Borrowers shall pay to the
Bank from time to time such
amounts as the Bank may determine to be necessary to compensate it for any
costs incurred by the Bank which the Bank determines are
attributable to its making or maintaining of any Eurodollar Loans
hereunder or its obligation to make any of such Loans hereunder,
or any reduction in any amount receivable by the Bank hereunder in
respect of any Eurodollar Loan or such obligation (such increases
in costs and reductions in amounts receivable being herein called
Additional Costs), in each case resulting from any Regulatory
Change which:
(i) changes the basis of taxation of any amounts
payable to the Bank under this Agreement or the
Notes in respect of any Eurodollar Loan; or
(ii) imposes or modifies any reserve, special deposit
or similar requirements relating to any extensions
of credit or other assets of, or any deposits with
or other liabilities of, the Bank (including any
Eurodollar Loan or any deposits referred to in the
definition of Eurodollar Rate below).
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The Bank will notify the Borrowers of any event occurring after
the date of this Agreement which will entitle the Bank to
compensation pursuant to this Section as promptly as practicable
after it obtains knowledge thereof and determines to request such
compensation. The Bank will furnish the Borrowers with a
statement, in reasonable detail, setting forth the basis and
amount of each request by the Bank for compensation under this
Section.
(b) Without limiting the effect of the foregoing
provisions of this Section, in the event that, by reason of any
Regulatory Change, the Bank either (i) incurs Additional Costs
based on or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of the Bank
which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of the Bank which
includes Eurodollar Loans or (ii) becomes subject to restrictions
on the amount of such a category of liabilities or assets which it
may hold, then, if the Bank so elects by notice to the Borrowers,
the obligation of the Bank to make Eurodollar Loans hereunder
shall be suspended until the date such Regulatory Change ceases to
be in effect.
(c) Determinations and allocations by the Bank for
purposes of this Section of the effect of any Regulatory Change on
its costs of maintaining its obligations to make Eurodollar Loans
or of making or maintaining Eurodollar Loans or on amounts
receivable by it in respect of Eurodollar Loans, and of the
additional amounts required to compensate the Bank in respect of
any Additional Costs, shall be conclusive absent manifest error,
provided that such determinations and allocations are made on a
reasonable basis.
4.12 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, with respect to any Eurodollar Loans, the
Bank determines (which determination shall be conclusive) that the
relevant rates of interest referred to in the definition of
Eurodollar Rate upon the basis of which the rates of interest for
any Eurodollar Loan are to be determined do not accurately reflect
the cost to the Bank of making or maintaining such Eurodollar
Loans for the Interest Period therefor, then the Bank shall
promptly notify the Borrowers, and so long as such condition
remains in effect, the Bank shall be under no obligation to
convert Prime Rate Loans into Eurodollar Loans and the Borrowers
shall, on the last day(s) of the then current Interest Period(s)
for the outstanding Eurodollar Loans, either prepay such
Eurodollar Loans or convert such Eurodollar Loans into Prime Rate
Loans.
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4.13 Illegality. Notwithstanding
any other provision of this Agreement to the contrary, in the
event that it becomes unlawful for the Bank or its Eurodollar
Lending Office to (a) honor its obligation to make Eurodollar
Loans hereunder, or (b) maintain Eurodollar Loans hereunder, then
the Bank shall promptly notify the Borrowers thereof (identifying
the illegality in question in reasonable detail) and the Bank's
obligation to make Eurodollar Loans hereunder shall be suspended
until such time as the Bank may again make and maintain Eurodollar
Loans.
4.14 Substitute Prime Rate Loans. If the obligation of
the Bank to make
Eurodollar Loans shall be suspended pursuant to Section 4.11, 4.12
or 4.13 hereof, all Loans which would otherwise be made by the
Bank as Eurodollar Loans shall be made instead as Prime Rate Loans
(and, if an event referred to in Section 4.11(b) has occurred and
the Bank so requests, by notice to the Borrowers, each Eurodollar
Loan of the Bank then outstanding shall be automatically converted
into a Prime Rate Loan on the date specified by the Bank in such
notice) and, to the extent that Eurodollar Loans are so made as
(or converted into) Prime Rate Loans, all payments of principal
which would otherwise be applied to such Eurodollar Loans shall be
applied instead to such Prime Rate Loans.
4.15 Compensation. If any
payment, prepayment or conversion of a Eurodollar Loan occurs on a
date other than the last day of an Interest Period for such Loan,
the Borrowers shall pay to the Bank, upon the request of the Bank,
as compensation for any loss, cost or expense incurred by the Bank
as the result of such payment, prepayment or conversion, an amount
(if a positive number) equal to:
A x (B-C) X D
------------------
360
where:
A equals the principal amount of the Eurodollar Loan so
paid, prepaid or converted (the Affected Eurodollar Loan);
B equals the Eurodollar Rate (expressed as a decimal)
applicable to the Affected Eurodollar Loan;
C equals the applicable Eurodollar Rate (expressed as a
decimal) in effect on or about the date of such payment,
prepayment or conversion, for deposits in an amount equal
approximately to the principal amount of the Affected
Eurodollar Loan with an Interest Period (the Remaining
Interest Period ) beginning on the date of such payment,
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<PAGE>
prepayment or conversion to but excluding the last day of the
existing Interest Period; and
D equals the number of days in the Remaining Interest
Period;
and any other out-of-pocket loss or expense (including any
internal processing charge customarily charged by the Bank)
suffered by the Bank in liquidating deposits prior to maturity in
amounts which correspond to the principal amount of the Affected
Eurodollar Loan; provided that the Bank shall have delivered to
the Borrowers a certificate, in reasonable detail, as to the
amount of such loss and expense along with the basis for
calculation thereof.
4.16 Capital Adequacy. If
the Bank shall determine that the applicability of any law, rule,
regulation or guideline adopted pursuant to or arising out of the
July 1988 report of the Basle Committee on Banking Regulations and
Supervisory Practices entitled International Convergence of
Capital Measurement and Capital Standards , or the adoption after
the date hereof of any other applicable law, rule, regulation or
guideline regarding capital adequacy, or any change in the
foregoing or in the enforcement, interpretation or administration
thereof by any Governmental Authority charged with the
enforcement, interpretation or administration thereof, or
compliance by the Bank or any Person controlling the Bank (a
Parent ) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such Governmental
Authority, has or would have the effect of reducing the rate of
return on capital of the Bank or its Parent as a consequence of
the Bank's obligations hereunder to a level below that which the
Bank (or its Parent) could have achieved but for such
applicability, adoption, change or compliance (taking into
consideration the policies of the Bank (or its Parent) with
respect to capital adequacy) by an amount reasonably deemed by the
Bank to be material, then from time to time, within the second
Banking Day after demand by the Bank, the Borrowers shall pay to
the Bank such additional amount or amounts as will compensate the
Bank for such reduction, and if such amount is not paid within
thirty days after such demand, then the Borrowers shall also pay
interest on each such amount from the thirtieth day after such
demand until payment in full thereof (as well after as before
judgement) at the Post-Default Rate. A statement of the Bank, in
reasonable detail, claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive absent manifest error; provided that
the determination thereof is made on a reasonable basis. In
determining such amount, the Bank may use any reasonable averaging
and attribution methods.
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4.17 Optional Prepayments. The Borrowers shall have the right to
prepay the
Loans in whole or in part and to convert Loans of one Type into
another Type, without premium or penalty, at any time and from
time to time, provided that (i) at the time of the prepayment in
full of all Extensions of Credit, the Borrowers shall pay all
interest accrued on the amount prepaid; (ii) the Borrowers shall
give the Bank notice of such prepayment as provided in Section
4.6; (iii) Eurodollar Loans may be converted into Prime Rate Loans
only on the last day of an Interest Period thereof; and (iv) the
Bank shall be paid, at the time of any prepayment of a Eurodollar
Loan that is being prepaid on other than the last day of an
Interest Period therefor, the amount provided for in Section 4.15.
Section 5 Security.
5.1 Security Interests.
(a) The Borrowers agree to grant to the Bank on the
Closing Date a security interest in, and a lien on, all right,
title and interest of the Borrowers in and to substantially all
the assets of the Borrowers (other than the Excluded Property) and
to enter into a security agreement in favor of the Bank in the
form of Exhibit B hereto (the Security Agreement ) in order to
secure payment and performance of the Borrowers Obligations to
the Bank under this Agreement, the Notes and the other Loan
Documents.
(b) In order to secure payment and performance of the
Borrowers Obligations, the Borrowers agree to enter into a cash
collateral pledge agreement in the form of Exhibit C attached
hereto (the Cash Collateral Pledge Agreement ) and to deliver and
pledge to the Bank, and to maintain in pledge so long as any
Obligations are outstanding, cash, certificates of deposit with
the Bank and marketable securities acceptable to the Bank in an
aggregate amount of $4,000,000 (the value of any marketable
securities to be determined by the Bank as provided in the Cash
Collateral Pledge Agreement).
(c) The Borrowers agree to enter into stock pledge
agreements in favor of the Bank in the form of Exhibit D attached
hereto (the Stock Pledge Agreements ) and to deliver and pledge
to the Bank all outstanding capital stock of all present and
future Subsidiaries of the Company.
Section 6 Conditions Precedent.
6.1 Conditions to all Loans and Letters of
Credit.
The Bank shall not be obligated to make any of the Loans to the
Borrowers or to issue any Letter of Credit hereunder until the
following conditions have been satisfied:
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(a) This Agreement, the Notes and the Security
Instruments. This Agreement, the borrowings hereunder, the Notes,
the Security Instruments and all transactions contemplated by this
Agreement and the Security Instruments shall have been duly
authorized by the Borrowers. The Borrowers shall have duly
executed and delivered to the Bank this Agreement, the Notes and
the Security Instruments to the Bank in form and substance
satisfactory and its counsel.
(b) No Default. On the date hereof and on the date of
making each Extension of Credit, no Default or Event of Default
shall have occurred and be continuing.
(c) Correctness of Representations. On the Closing
Date and on the date of each Extension of Credit, all
representations and warranties made by the Borrowers in Section 7
below or otherwise in writing in connection herewith shall be true
and correct with the same effect as though such representations
and warranties had been made on and as of today's date, except
that representations and warranties expressly limited to a certain
date shall be true and correct as of that date.
(d) Opinion of Counsel for the Borrowers. On the
Closing Date, the Bank shall have received the favorable opinion
of counsel to the Borrowers, in form and substance reasonably
satisfactory to the Bank and its counsel.
(e) Approvals. On the Closing Date and on the date of
each Extension of Credit, all necessary consents, approvals,
licenses, permissions, registrations or validations of any
Governmental Authority or any other Person required for the
execution, delivery, performance or carrying out of the provisions
of this Agreement, the Notes and the Security Instruments, or for
the validity or enforceability of the obligations incurred
thereunder (other than the filing of financing statements as
required under subparagraph (f) below), shall have been obtained
and shall be in full force and effect and copies thereof certified
by a duly authorized officer of the Borrowers to such effect shall
have been delivered to the Bank.
(f) Filing of Financing Statements, etc. On or before
the Closing Date, financing statements or other appropriate
documentation relating to the security interests and rights
granted pursuant to the Security Instruments, executed and
delivered by the Borrowers to the Bank, shall have been duly
recorded or filed in such manner and in such places as is required
by law (including, pursuant to the UCC) to establish, preserve,
protect, and perfect such security interests and rights; and all
taxes, fees and other charges in connection with the execution,
delivery and filing of this Agreement and such
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<PAGE>
financing statements and other appropriate documentation shall have been
duly paid.
(g) Supporting Documents. On or before the date
hereof, there shall have been delivered to the Bank the following
supporting documents:
(i) legal existence and corporate good standing
certificates with respect to each of the Borrowers
dated as of a recent date issued by the appropriate
Secretary of State or other official;
(ii) certificates dated as of a recent date with
respect to the due qualification of each of the
Borrowers to do business in each jurisdiction where
the failure to be so qualified would have a
Material Adverse Effect, issued by the Secretary of
State of each such jurisdiction;
(iii) copies of the corporate charters of each of the
Borrowers, certified by the appropriate Secretary
of State or other officials, as in effect on the
date hereof;
(iv) a certificate of the Secretary or Assistant
Secretary of each of the Borrowers certifying as to
(a) the By-Laws of the Borrowers, as in effect on
the date hereof; (b) the incumbency and signatures
of the officers of the Borrowers who have executed
any documents in connection with the transactions
contemplated by this Agreement; and (c) the
resolutions of the Boards of Directors of the
Borrowers authorizing the execution, delivery and
performance of this Agreement and the making of the
Loans hereunder, and the execution and delivery of
the Notes; and
(v) all other information and documents which the
Bank or its counsel may reasonably request in
connection with the transactions contemplated by
this Agreement.
(h) Compliance and Borrowing Base Certificates. The
Borrowers shall have furnished to the Bank a Compliance
Certificate in the form of attached Exhibit F appropriately
completed and signed by a Responsible Officer of the Borrowers,
and to the extent the Borrowers are requesting an Extension of
Credit on the date hereof, a Borrowing Base Certificate in the
form of Exhibit G hereto appropriately completed and signed by a
Responsible Officer of the Borrowers, each of which certificates
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<PAGE>
shall reflect compliance by the Borrowers with the requirements of
this Credit Agreement as of the date thereof.
(i) Litigation. No litigation, arbitration,
proceeding or investigation shall be pending or, to the knowledge
of the Borrowers or the Principals, threatened against any
Borrower or any Subsidiary of a Borrower which, in the sole
judgement of the Bank, might have a Material Adverse Effect.
(j) Legal Matters. All documents and legal matters
incident to the transactions contemplated by this Agreement shall
be reasonably satisfactory to Sullivan & Worcester LLP, special
counsel for the Bank.
(k) IPO Proceeds. The Company shall have received
at least $15,000,000 in net proceeds from its initial public
offering.
6.2 Conditions to Acquisition Loans. In addition to
the conditions set forth in
Section 6.1 above, the Bank shall not be obligated to make any
Acquisition Loan until the following conditions have been
satisfied:
(a) The Company to be Acquired. Each company, business
or Person to be acquired with the proceeds of an Acquisition Loan
shall be engaged in a line of business similar to the then current
businesses of the Borrowers and shall have demonstrated positive
cash flow for the preceding twelve months;
(b) Compliance. The Borrowers shall have demonstrated,
to the reasonable satisfaction of the Bank, that on a pro-forma
basis and after giving effect to the proposed acquisition the
Borrowers will be in compliance with the financial covenants set
forth in Section 10 hereof;
(c) No Default. Immediately before the making of the
requested Acquisition Loan and after giving effect thereto and to
the proposed acquisition, no Default or Event of Default shall
have occurred and be continuing;
(d) Consents. All necessary consents, approvals,
licenses, permissions, registrations or validations of any
Governmental Authority or any other Person required for the
consummation of the proposed acquisition shall have been obtained
and shall be in full force and effect;
(e) Bank Approval. The Bank shall have approved any
individual proposed acquisition where (i) the acquisition price
exceeds $2,000,000, and (ii) all proposed acquisitions after the
aggregate consideration for all acquisitions has exceeded
$2,500,000 in any calendar year, such approval not to be
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<PAGE>
unreasonably withheld or delayed beyond thirty (30) days after
receipt by the Bank of all documents and information referred to
in Section 6.2(g) below;
(f) Adherence to Credit Agreement. Each new
Subsidiary of a Borrower formed to make such acquisition and each
Person to be acquired which becomes a Subsidiary of a Borrower
shall agree to become a party to this Agreement as a Borrower
hereunder, shall agree to assume all Obligations and shall have
executed such instruments in connection therewith as the Bank and
its counsel shall reasonably request;
(g) Supporting Documents. The Bank and its counsel
shall have received copies of the acquisition agreement and such
other documents and information relating to the proposed
acquisition as the Bank or its counsel may reasonably request.
Upon request of the Borrowers, the Bank will enter into a
confidentiality agreement regarding such documents and
information, provided such confidentiality agreement is in form
and substance reasonably satisfactory to the Bank.
6.3 Condition to Revolving Credit Loans. In addition to the
conditions set forth in Section 6.1 above, the Bank shall not be
obligated to make any Revolving Credit Loan until the Borrower
shall have furnished to the Bank accounts receivable agings and
other collateral reports in form and substance reasonably
satisfactory to the Bank.
6.4 Satisfaction of Conditions. Each request by the Borrowers
for any Extension of
Credit hereunder shall constitute a representation and warranty by
the Borrowers to the Bank that all of the conditions specified in
this Section 6 have been complied with as of the time of any such
Extension of Credit.
Section 7 Representations and Warranties.
In order to induce the Bank to enter into this Agreement and
to make the contemplated Extensions of Credit, the Borrowers
hereby represent and warrant as follows (except to the extent
qualified by supplemental disclosure set forth on Schedule A
hereto) and the following representations and warranties (to the
extent so qualified, if any) shall survive the execution and
delivery of this Agreement and the Notes:
7.1 Corporate Status. Each
of the Borrowers is a duly organized and validly existing
corporation in good standing under the laws of its jurisdiction of
incorporation as set forth on Schedule A hereto and is duly
qualified or licensed as a foreign corporation in good standing in
each jurisdiction in which the failure to do so would have a
Material Adverse Effect.
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7.2 No Violation. Neither the
execution, delivery or performance of this Agreement or any other
Loan Document, nor consummation of the contemplated transactions
will contravene any law, statute, rule or regulation to which the
Borrowers are subject or any judgment, decree, franchise, order or
permit applicable to the Borrowers, or will conflict or be
inconsistent with or will result in any breach of, or constitute a
default under, or result in or require the creation or imposition
of any Lien (other than the liens created by the Security
Instruments) upon any of the property or assets of the Borrowers
pursuant to, any Contractual Obligation of the Borrowers, or
violate any provision of the corporate charters or by-laws of the
Borrowers.
7.3 Corporate Power and Authority. The execution, delivery
and performance of
this Agreement and the other Loan Documents are within the
corporate powers of the Borrowers and have been duly authorized by
all necessary corporate action.
7.4 Enforceability. This
Agreement and each other Loan Document constitutes valid and
binding obligations of the Borrowers enforceable against the
Borrowers in accordance with its terms, except as be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights
generally and subject to general principles of equity, whether
applied in a court of equity or at law.
7.5 Consents or Approvals. No order, permission, consent,
approval, license,
authorization, registration or validation of, or filing with, or
exemption by, any Governmental Authority or any other Person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or any other
Loan Document by the Borrowers, or the taking of any action
contemplated hereby or thereby, except for the filing of UCC-1
financing statements in the appropriate UCC filing offices listed
on the Perfection Certificate (as defined in the Security
Agreement).
7.6 Financial Statements.
(a) The Company has furnished the Bank with complete and correct
copies of the audited consolidated balance sheet of the Company
and its Subsidiaries as of the December 31, 1995, and the related
audited consolidated statements of income and of cash flows for
the fiscal year of the Company and its Subsidiaries ended on such
date, examined by the Accountants. Such financial statements
(including the related schedules and notes) fairly present the
consolidated financial condition of the Company and its
Subsidiaries as of December 31, 1995, and the consolidated results
of their operations and their consolidated cash flows for the
fiscal year then ended.
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(b) Neither the Borrowers nor any of their Subsidiaries
have any material liabilities, contingent or otherwise, including
liabilities for taxes or any unusual forward or longterm commit
ments or any Guarantee, which are not disclosed by or included in
the above-referenced financial statements or the accompanying
notes and there are no unrealized or anticipated losses from any
unfavorable commitments of the Borrowers or any of their
Subsidiaries which may have a Material Adverse Effect. During the
period from the Financial Statements Date to the date hereof: (i)
there has been no sale, transfer or other disposition by the
Borrowers or any of their Subsidiaries of any material part of
their business or property and no purchase or other acquisition of
any business or property (including any capital stock of any
Person) material in relation to the consolidated financial
condition of the Borrowers and their Subsidiaries at the Financial
Statements Date; and (ii) neither the Borrowers nor any of their
Subsidiaries have made a Restricted Payment, or agreed or com
mitted to make a Restricted Payment.
(c) The Borrowers have and, after giving effect to
the Loans to be made on the Closing Date, will have, assets (both
tangible and intangible having a fair saleable value in excess of
the amount required to pay the probable liability on their then
existing debts (whether matured or unmatured, liquidated or
unliquidated, fixed or contingent); the Borrowers have and will
have access to adequate capital for the conduct of their business
and the discharge of their debts incurred in connection therewith
as such debts mature; the Borrowers were not insolvent immediately
prior to the making of the Loans on the Closing Date and
immediately after giving effect thereto, the Borrowers will not be
insolvent.
(d) All the above-referenced financial statements
(including the related schedules and notes) have been prepared in
accordance with GAAP applied consistently throughout the periods
involved (except as approved by the Accountants and disclosed
therein and, in the case of interim financial statements, subject
to normal year-end adjustments and the absence of footnotes and
schedules).
7.7 No Material Change.
Since the Financial Statements Date there has been no development
or event, or to the best knowledge of the Borrowers, any
prospective development or event, which has had or could
reasonably be anticipated to have a Material Adverse Effect.
7.8 Litigation. There are no
actions, suits or proceedings pending or threatened against or
affecting the Borrowers or any of their Subsidiaries which in any
one case or in the aggregate, if determined adversely to the
interests of
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such party, could reasonably be anticipated to have a
Material Adverse Effect.
7.9 Compliance with Other Instruments; Compliance with
Law. Neither the Borrowers nor any of their Subsidiaries are
(after taking into account applicable cure periods) in default
under any Contractual Obligation (including any Contractual
Obligation relating to any Indebtedness of the Borrowers) where
such default could reasonably be anticipated to have a Material
Adverse Effect. Neither the Borrowers nor any of their
Subsidiaries are in default and or in violation of any applicable
statute, rule, writ, injunction, decree, order or regulation of
any Governmental Authority having jurisdiction over the Borrowers
or their Subsidiaries which default or violation could reasonably
be anticipated to have a Material Adverse Effect.
7.10 Subsidiaries. The
Borrowers do not have any Subsidiaries except as set forth on
attached Schedule A.
7.11 Investment Company Status; Limits on Ability to
Incur Indebtedness. None of the Borrowers is an
investment company or a company controlled by an investment
company within the meaning of the Investment Company Act of 1940,
as amended. None of the Borrowers is subject to regulation under
any Federal or State statute or regulation which limits its
ability to incur Indebtedness.
7.12 Title to Property.
The Borrowers have good and marketable title to all of their
properties and assets, including the properties and assets
reflected in the consolidated balance sheet of the Borrowers as of
the Financial Statements Date, except such as have been disposed
of since that date in the ordinary course of business, and none of
such properties or assets is subject to any Lien except for (a)
Permitted Liens, or (b) a defect in title or other claim other
than defects and claims that, in the aggregate, would have no
Material Adverse Effect. The Borrowers enjoy peaceful and
undisturbed possession under all leases necessary in any material
respect for the operation of their properties and assets and no
material default exists under such leases (after taking into
account applicable cure periods under said leases). All such
leases are valid and subsisting and are in full force and effect.
7.13 ERISA. The Borrowers and each
member of the Controlled Group have fulfilled their obligations
under the minimum funding standards of ERISA and the Code with
respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and the
Code, and have not incurred any liability to the PBGC or a Plan
under Title IV of ERISA (other than to make contributions or
premium payments in the ordinary course).
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7.14 Taxes. All tax returns of the
Borrowers and their Subsidiaries required to be filed have been
timely filed, all material taxes, fees and other governmental
charges (other than those being contested in good faith by
appropriate proceedings diligently conducted and with respect to
which adequate reserves have been established and, in the case of
ad valorem taxes or betterment assessments, no proceedings to
foreclose any lien with respect thereto have been commenced and,
in all other cases, no notice of lien has been filed or other
action taken to perfect or enforce such lien) shown thereon which
are payable have been paid. The charges and reserves on the books
of the Borrowers and their Subsidiaries for all income and other
taxes are adequate, and the Borrowers know of no additional
assessment or any basis therefor. The Federal income tax returns
of the Borrowers and their Subsidiaries have not been audited
within the last three years, all prior audits have been closed,
and there are no unpaid assessments, penalties or other charges
arising from such prior audits.
7.15 Environmental Matters. (a) The Borrowers and all of
their Subsidiaries have
obtained all Governmental Approvals that are required for the
operation of their business under any Environmental Law, except
where the failure to so obtain a Governmental Approval would not
have a Material Adverse Effect.
(b) The Borrowers and all of their Subsidiaries are in
compliance with all terms and conditions of all required
Governmental Approvals and are also in compliance with all terms
and conditions of all applicable Environmental Laws, noncompliance
with which would have a Material Adverse Effect.
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation,
investigation, proceeding, notice or demand letter pending or, to
the best knowledge of the Borrowers threatened against the
Borrowers or any of their Subsidiaries relating in any way to the
Environmental Laws, and there is no Lien of any private entity or
Governmental Authority against any property of the Borrowers or
any Subsidiary thereof relating in any way to the Environmental
Laws.
(d) There has been no claim, complaint, notice, or
request for information received by the Borrowers with respect to
any site listed on the National Priority List promulgated pursuant
to the Comprehensive Environmental Response, Compensation, and
Liability Act ( CERCLA ) 42 USC sec. 9601 et seq. or any state list
of sites requiring investigation or cleanup with respect to
contamination by Hazardous Substances.
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(e) To the best of the Borrowers knowledge, there has
been no release or threat of release of any Hazardous Substance at
any Borrower Group Property which would likely result in liability
being imposed upon the Borrowers or any Subsidiary thereof, which
liability would have a Material Adverse Effect.
7.16 Intellectual Property. The Borrowers own or license
such copyrights, patents,
trademarks and similar rights ( Intellectual Property ) as are
necessary for the conduct of their respective businesses as now
conducted, without any known conflict with the rights of others
which would have a Material Adverse Effect. Following the
occurrence and during the continuance of an Event of Default, the
Borrowers shall, upon the request of the Bank, make reasonably
diligent efforts to prepare and deliver to the Bank a reasonably
detailed listing of all such Intellectual Property, provided that
nothing herein shall require the registration of any such
Intellectual Property.
7.17 Borrowing Base. After
giving effect to any Extensions of Credit to be made as of the
date hereof under this Agreement, (a) the aggregate amount of all
outstanding Revolving Credit Loans under this Agreement does not
exceed the lesser of (i) the Revolving Loan Sublimit and (ii) the
Borrowing Base on the date hereof, and (b) the sum of all
outstanding Revolving Credit Loans and Letter of Credit Usage do
not exceed the Revolving Credit Commitment.
Section 8 Affirmative Covenants.
The Borrowers covenant and agree that for so long as this
Agreement is in effect and until the Notes, together with all
interest thereon and all other Obligations of the Borrowers to the
Bank are paid or satisfied in full:
8.1 Use of Proceeds. The
Borrowers shall use (i) the proceeds of Revolving Credit Loans for
the working capital purposes of the Borrowers, (ii) the Letters of
Credit for the benefit of the Borrowers workers compensation
insurance carriers, and (iii) the proceeds of Acquisition Loans
for acquisitions of Persons or businesses engaged in a line of
business similar to the then current businesses of the Borrowers.
Without limiting the foregoing, no part of such proceeds will be
used for the purpose of purchasing or carrying any margin
security as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System.
8.2 Conduct of Business; Maintenance of
Existence.
Each of the Borrowers will, and will cause of each of its
Subsidiaries to, continue to engage in the business in which they
are engaged and maintain its existence and comply with all
applicable statutes, rules and regulations and remain duly
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qualified as a foreign corporation, licensed and in good standing
in each jurisdiction where such qualification or licensing is
required by the nature of its business, the character and location
of its property, business, or the ownership or leasing of its
property, except where such noncompliance or failure to so qualify
would not have a Material Adverse Effect, and each of the
Borrowers will maintain its properties in good operating condition,
and continue to conduct its business as presently conducted.
8.3 Compliance with Laws. The Borrowers will, and will
cause each of their Subsidiaries to, comply in all material
respects with all applicable laws, ordinances, rules, regulations
and requirements of Governmental Authorities, except where the
necessity of compliance therewith is being contested in good faith
by appropriate proceedings.
8.4 Insurance. Each of the
Borrowers will maintain insurance with financially sound and
reputable insurance companies in such amounts and against such
risks as is usually carried by owners of similar businesses and
properties in the same general areas in which such Borrowers and
its Subsidiaries operate, provided that in any event the Borrowers
and their Subsidiaries shall maintain or cause to be maintained
(a) insurance against casualty, loss or damage covering all
property and improvements of the Borrowers and their Subsidiaries
in amounts and in respect of perils usually carried by owners of
similar businesses and properties in the same general areas in
which Borrowers and their Subsidiaries operate; (b) comprehensive
general liability insurance against claims for bodily injury,
death or property damage; and (c) workers' compensation insurance
to the extent required by applicable law. In the case of policies
referenced in clauses (a) (except for property insurance on the
Excluded Property) and (b) above, all such insurance shall (i)
name the Borrowers and the Bank as loss payees and additional
insureds as their interests may appear; (ii) provide that no
termination, cancellation or material reduction in the amount or
material modification to the extent of coverage shall be effective
until at least 30 days after receipt by the Bank of notice
thereof; and (iii) be reasonably satisfactory in all other
respects to the Bank.
8.5 Financial Statements, Etc. The Borrowers will furnish
to the Bank:
(a) within forty-five (45) days after the end of each
fiscal quarter of the Borrowers (other than the fourth quarter),
the unaudited consolidated and consolidating balance sheet and
income statement and statement of cash flows of the Borrowers and
their Subsidiaries as at and for the three-month period ended on
the last day of such fiscal quarter, accompanied by a certificate
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of a Responsible Officer of the Borrowers to the effect that such
financial statements fairly present the consolidated financial
condition of the Borrowers and their Subsidiaries as of the end of
such fiscal quarter, and the consolidated results of their
operations and their consolidated cash flows for such fiscal
quarter, in each case in accordance with GAAP (except for the
absence of footnotes) consistently applied (subject to normal
year-end audit adjustments);
(b) within one hundred twenty (120) days after the last
day of each fiscal year of the Borrowers, the audited consolidated
balance sheet and income statement and statement of cash flows of
the Borrowers and their Subsidiaries as at and for the fiscal year
then ended, certified by the Accountants (the substance of such
report to be reasonably satisfactory to the Bank), together with
an actuarial review detailing the calculations of workers
compensation reserves for claims and a certificate of a
Responsible Officer of the Borrowers to the effect that such
financial statements fairly present the consolidated financial
condition of the Borrowers and their Subsidiaries as of the end of
such fiscal year and the consolidated results of their operations
for such fiscal year, in each case in accordance with GAAP. Said
financial statements shall indicate all guarantees or unusual
forward or long-term commitments made by the Borrowers or any
Subsidiaries thereof. Such audited financial statements for each
fiscal year shall be accompanied by unaudited consolidated and
consolidating financial statements of the type described above.
(c) at the time of the delivery of the quarterly and
yearly financial statements required by Sections 8.5(a) and (b)
above, a Compliance Certificate signed by a Responsible Officer of
the Borrowers in the form attached to this Agreement as Exhibit F,
appropriately completed;
(d) within fifteen (15) days after the end of each
fiscal month of the Borrowers, (i) a list of the accounts receiv
able aging for the Borrowers as of the end of such month in such
form as the Bank may prescribe, all in reasonable detail and (ii)
a Borrowing Base Certificate signed by a Responsible Officer of
the Borrowers in the form attached to this Agreement as Exhibit G
appropriately completed;
(e) copies of any management letter provided by the
Accountants to the Borrowers;
(f) promptly upon becoming aware of any litigation or
other proceeding against the Borrowers or any of their
Subsidiaries that could reasonably be expected to have a Material
Adverse Effect, notice thereof;
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(g) within thirty (30) days prior to the commencement
of each fiscal year of the Borrowers, a copy of the consolidated
operating budget, including, without limitation, projections of
the anticipated cash flow of the Borrowers and their Subsidiaries
for such fiscal year and a statement of the assumptions on which
such budget was prepared;
(h) promptly following the request of the Bank, such
further information concerning the business, affairs and financial
condition or operations of the Borrowers and their Subsidiaries as
the Bank may reasonably request;
(i) promptly upon the mailing thereof to the
shareholders of the Borrowers generally, copies of all financial
statements, reports, proxy statements and other materials; and
(j) promptly upon the filing thereof by the Borrower
with the SEC (and in any event within ten (10) days of such
filing), copies of any registration statements and reports on
Forms 10-K, 10-Q and 8-K (or their equivalents if such forms no
longer exist).
8.6 Notice of Default. As
soon as practicable, and in any event, within three (3) Banking
Days of becoming aware of the existence of any condition or event
which constitutes a Default, the Borrowers will provide the Bank
with written notice specifying the nature and period of existence
thereof and what action the Borrowers is taking or proposes to
take with respect thereto.
8.7 Environmental Matters.
(a) The Borrowers and each of their Subsidiaries shall
comply with all terms and conditions of all applicable
Governmental Approvals and all applicable Environmental Laws,
except where failure to comply would not have a Material Adverse
Effect.
(b) The Borrowers shall promptly notify the Bank should
the Borrowers become aware of:
(i) any spill, release, or threat of release of any
Hazardous Substance at or from any Borrower Group Property or
by any Person for whose conduct the Borrowers or any
Subsidiary thereof are responsible, to the extent the
Borrowers are required by Environmental Laws to report such
to any Governmental Authority;
(ii) any action or notice with respect to a civil,
criminal or administrative action, suit, demand, claim, hearing,
notice of violation, investigation, proceeding,
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notice or demand letter pending or threatened against the Borrowers
or any Subsidiary thereof relating in any way to the
Environmental Laws, or any Lien of any Governmental Authority
or any other Person against any Borrower Group Property
relating in any way to the Environmental Laws;
(iii) any claim made or threatened by any Person
against the Borrowers or any of their Subsidiaries or any
property of the Borrowers or any of their Subsidiaries
thereof relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous
Substance pertaining to such property or the business or
operations of the Borrowers or such Subsidiary; and
(iv) any occurrence or condition on any real property
adjoining any Borrower Group Property known to the officers
or supervisory personnel of the Borrowers or any of their
Subsidiaries or other employees having responsibility for the
compliance by the Borrowers or any Subsidiary thereof with
Environmental Laws, without any independent investigation,
which does cause, or could cause, such Borrower Group
Property, or any part thereof, to contain Hazardous
Substances in violation of any Environmental Laws, or which
does cause, or could cause, such Borrower Group Property to
be subject to any restrictions on the ownership, occupancy,
transferability or use thereof by the Borrowers or any of
their Subsidiaries.
(c) The Borrowers will, and will cause each of their
Subsidiaries to, at their own cost and expense, and within such
period as may be required by applicable law or regulation,
initiate all remedial actions and thereafter diligently prosecute
such action as shall be required by law for the cleanup of such
Borrower Group Property, including all removal, containment and
remedial actions in accordance with all applicable Environmental
Laws and shall further pay or cause to be paid, at no expense to
the Bank, all cleanup, administrative, and enforcement costs of
applicable Government Authorities which may be asserted against
such Borrower Group Property.
8.8 Taxes and Other Liens. Each of the Borrowers will,
and will cause each of its
Subsidiaries to, pay when due all taxes, assessments, governmental
charges or levies, or claims for labor, supplies, rent and other
obligations made against it which, if unpaid, might become a Lien
against such Borrower or such Subsidiary or on its property,
except liabilities being contested in good faith and by proper
proceedings, as to which adequate reserves are maintained on the
books of such Borrower or its Subsidiaries, in accordance with
GAAP.
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8.9 ERISA Information. If and
when the Borrowers or any member of the Controlled Group (a) gives
or is required to give notice to the PBGC of any reportable event
(as defined in Section 4043 of ERISA) with respect to any Plan
which might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such
reportable event, (b) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or (c) receives
notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer the Plan, the
Borrowers shall in each such instance promptly furnish to the Bank
a copy of any such notice.
8.10 Inspection. The Borrowers
will permit a representative of the Bank (including any field
examiner or auditor retained by the Bank) to inspect and make copies
of the Borrowers books and records, and to discuss their affairs,
finances and accounts with their officers and accountants,
at such reasonable times and places and as often as the Bank may
reasonably request.
8.11 Certain Obligations Respecting
Subsidiaries. (a) The Borrowers will, and will cause each of
their Subsidiaries to, take such action from time to time as shall
be necessary to ensure that the Borrowers at all times own
(subject only to the Lien of the Security Instruments) all of the
issued and outstanding shares of each class of stock of each of
their Subsidiaries. Without limiting the generality of the
foregoing, the Borrowers shall not, and shall not permit any of
their Subsidiaries to, sell, transfer or otherwise dispose of any
shares of stock in any Subsidiary owned by them, or permit any
Subsidiary of the Borrowers to issue any shares of stock of any
class whatsoever to any Person (other than to a Borrower or to
another Wholly-Owned Subsidiary). In the event that any such
additional shares of stock shall be issued by any Subsidiary of a
Borrower, such Borrower agrees forthwith to deliver to the Bank
pursuant to the Security Instruments the certificates evidencing
such shares of stock, accompanied by undated stock powers executed
in blank and shall take such other action as the Bank shall
request to perfect the security interest created therein pursuant
to the Security Instruments.
(b) Immediately following the creation of any Subsidiary of
a Borrower following the Closing Date, or the acquisition of any
Person by a Borrower or any Subsidiary thereof pursuant to which
such Person becomes a direct or indirect Subsidiary of a Borrower,
such Borrower (i) shall cause such Subsidiary to become a party to
this Agreement and the other Loan Documents as a Borrower and to
execute and deliver such instruments and other documents, in form
and substance satisfactory to the Bank, as the Bank shall
reasonably require in order to effectuate such
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joinder, (ii) shall forthwith deliver to the Bank pursuant to the Security
Instruments the certificates evidencing all of the issued and outstanding
shares of stock of such Subsidiary, accompanied by undated stock
powers executed in blank and take such other action as the Bank
shall request to perfect the security interest created therein
pursuant to the Security Instruments, (iii) shall provide, or
cause such Subsidiary to provide, Liens upon all of its assets to
secure the Obligations of the Borrowers and such Subsidiaries
hereunder pursuant to Security Instruments in form and substance
satisfactory to the Bank, and (iv) notify the Bank in writing of
the creation or acquisition of such Subsidiary. The Borrowers
shall, and shall cause the appropriate Subsidiaries of the
Borrowers to, promptly (x) execute and deliver to the Bank such
number of copies as the Bank may specify of documents creating
such Liens, (y) do all other things which may be necessary or
which the Bank may reasonably request in order to confer upon and
confirm to the Bank the benefits of such security, and (z) deliver
such legal opinions, certificates, evidences of corporate action
or other documents as the Bank may reasonably request, all in form
and substance reasonably satisfactory to the Bank, relating to the
satisfaction of the Borrowers obligations under this Section.
8.12 Intellectual Property.
The Company will promptly inform the Bank of all
applications filed by the Company or any Subsidiary thereof for
trademarks, patents and copyrights and of all trademarks, patents
and copyrights granted on or after the date of this Agreement,
and, upon the request of the Bank, will promptly execute and
deliver, or cause such Subsidiary to execute and deliver, such
forms of conditional assignment, mortgage, pledge and similar
documents as the Bank may reasonably require so as to ensure that
the security interests granted pursuant to the Security
Instruments extend to and are perfected in respect of such
additional trademarks, patents and copyrights.
8.13 Further Assurances.
The Borrowers will, and will cause each of their Subsidiaries to,
execute and deliver to the Bank any writings and do all things
necessary, effectual or reasonably requested by the Bank to carry
into effect the provisions and intent of this Agreement or any
other Loan Document.
Section 9 Negative Covenants.
The Borrowers covenant and agree that for so long as this
Agreement is in effect and until the Notes, together with all
interest thereon and all other Obligations of the Borrowers to the
Bank are paid or satisfied in full, without the prior written
consent of the Bank:
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9.1 Transactions with Affiliates. Except as permitted by
Section 9.8 hereof or as
set forth on Schedule A and except for transactions solely between
or among Borrowers, the Borrowers will not, and will not permit
any of their Subsidiaries to, directly or indirectly, pay any
funds to or for the account of, make any Investment in, lease,
sell, transfer or otherwise dispose of any assets, tangible or
intangible, or engage in any transaction in connection with any
joint enterprise or other joint arrangement with, any Affiliate of
the Borrowers, unless such transaction is not prohibited by this
Agreement, is for reasonable business or tax purposes, is in the
ordinary course of the Borrowers' or such Subsidiary's business,
and is upon fair and reasonable terms no less favorable to the
Borrowers or such Subsidiary as those that could be obtained in a
comparable arm's length transaction with a Person not an Affiliate.
9.2 Consolidation, Merger or Acquisition. Neither the
Borrowers nor
any of their Subsidiaries shall merge or consolidate with or into
any other Person, or make any acquisition of the business or
assets of any other Person except: (i) any Subsidiary of the
Borrower may merge into a Borrower or any wholly-owned Subsidiary
of a Borrower; (ii) Capital Expenditures to the extent permitted
by Section 10.5; (iii) Investments to the extent permitted by
Section 9.8 hereof; (iv) the purchase of office supplies and other
consumable assets acquired in the ordinary course of business; and
(v) Permitted Acquisitions. For purposes hereof a Permitted
Acquisition is an acquisition which satisfies the following
requirements: (a) if it involves a merger or consolidation, at the
completion of such merger or consolidation the surviving party
shall be a Borrower or a Subsidiary of a Borrower; (b) at the time
of such acquisition and after giving effect thereto no Event of
Default shall have occurred and be continuing; and (c) the
conditions set forth in Section 6.2 hereof shall have been
satisfied with respect to the proposed acquisition, except that
(x) in the case of a proposed acquisition in which (i) the total
consideration to be paid by the Borrowers does not exceed
$2,000,000, (ii) the consideration consists solely of Common Stock
of the Company and/or cash and/or Subordinated Debt and is not
made with the proceeds of any Acquisition Loan, and (iii) the
aggregate consideration paid by the Borrowers in all such
acquisitions does not exceed $6,000,000 in any year, then
notwithstanding the provisions of Section 6.2(e), the Bank shall
be deemed to have approved such proposed acquisition unless the
Bank shall have objected by notice in writing to the Company
within seven (7) Business Days after the receipt by the Bank of
all documents and information referred to in Section 6.2(g), and
(y) in the case of a proposed acquisition in which (i) the total
consideration to be paid does not exceed $5,000,000, (ii) the
consideration consists solely of capital stock of the Company or a
Subsidiary of the Company, and (iii) the aggregate consideration paid by the
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Company and its Subsidiaries in all such acquisitions
does not exceed $10,000,000 in any year, the provisions of Section
6.2(e) shall not apply to such proposed acquisition.
9.3 Disposition of Assets. The Borrowers shall not convey, sell,
lease, transfer or
otherwise dispose of any of their property, business or assets
(including, without limitation, accounts receivable and leasehold
assets), whether now owned or hereafter acquired, except for (i)
obsolete or worn out property disposed of in the ordinary course
of business (with standard discounts); (ii) the sale of inventory
in the ordinary course of business and (iii) other assets
(excluding accounts receivable which may not be disposed of),
provided that the aggregate fair value of all assets disposed of
pursuant to this clause (iii) in any year shall not exceed five
percent (5%) of the consolidated total assets of the Borrowers as
of the end of any such year.
9.4 Indebtedness. Neither the
Borrowers nor any of their Subsidiaries shall create, incur,
assume or suffer to exist any Indebtedness, except:
(a) Indebtedness payable to the Bank;
(b) existing Indebtedness, including Subordinated Debt,
if any, listed on Schedule A hereto;
(c) Capital Lease Obligations in an aggregate amount
not to exceed $150,000 at any one time outstanding; provided
that after giving effect to the incurrence of any such
Capital Lease Obligations and to the receipt and application
of the proceeds thereof, no Default or Event of Default shall
have occurred and be continuing;
(d) Subordinated Debt incurred by the Borrowers after
the date hereof; provided that, giving effect to the incurrence
of such Subordinated Debt and to the receipt and application of
the proceeds thereof, no Default shall have occurred and be continuing;
(e) mortgage Indebtedness on the Excluded Property not
to exceed $500,000 in principal amount at any one time
outstanding in addition to the currently existing mortgage
Indebtedness on such Excluded Property as described on
Schedule A hereto;
(f) reimbursement obligations owing to the Borrowers
workers compensation insurance carriers; and
(g) purchase money Indebtedness for the purchase price
of equipment and capital assets incurred in the ordinary
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course of business, to the extent such purchases are
permitted under Section 10.5, provided that such Indebtedness
does not exceed $500,000 in principal amount in the aggregate
at any time outstanding.
9.5 Guarantees. Neither the
Borrowers or any of their Subsidiaries shall create, incur or
suffer to exist any obligations in respect of Guarantees except
for:
(a) existing Guarantees, if any, listed on Schedule A
hereto;
(b) Guarantees entered into after the date hereof in
connection with Capital Lease Obligations and Indebtedness
permitted under Section 9.4.
9.6 Liens. Neither the Borrowers nor
any of their Subsidiaries shall create, incur, assume or suffer to
exist any Lien on any of its properties or assets, except the
following (collectively, Permitted Liens):
(a) Liens for taxes, fees, assessments and other
governmental charges not delinquent or being contested in
good faith and by proper proceedings, as to which adequate
reserves are maintained on the books of the Borrowers in
accordance with GAAP;
(b) carriers', warehousemen's, mechanics',
materialmen's or similar liens imposed by law incurred in the
ordinary course of business in respect of obligations not
overdue, or being contested in good faith and by proper
proceedings and as to which adequate reserves with respect
thereto are maintained on the books of the Borrowers in
accordance with GAAP;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other types of
social security legislation;
(d) security deposits made to secure the performance
of leases, licenses and statutory obligations incurred in the
ordinary course of business;
(e) Liens in favor of the Bank;
(f) existing Liens, if any, listed on Schedule A
hereto; provided that no such Lien is spread to cover any
additional property after the date hereof, and that the
principal amount of the Indebtedness secured thereby is not
increased, except to the extent permitted by Section 9.4(e)
hereof; and
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(g) Liens securing Indebtedness for the purchase price
of property to the extent permitted by Section 9.4(g),
provided that (i) each such Lien is given solely to secure
the purchase price of such property, does not extend to any
other property and is given at the time of acquisition of
such property, and (ii) the Indebtedness secured thereby does
not exceed the lesser of the cost of such property or its
fair market value at the time of acquisition.
9.7 Restricted Payments.
Neither the Borrowers or any of their Subsidiaries shall declare
or make any Restricted Payment.
9.8 Investments. Neither the
Borrowers or any of their Subsidiaries shall make, maintain or
acquire any Investment in any Person other than:
(a) marketable obligations issued or guaranteed by the
United States of America having a maturity of one year or
less from the date of purchase;
(b) certificates of deposit, eurodollar time deposits,
commercial paper or any other obligations of the Bank or of
any other bank or trust company organized or licensed to
conduct a banking business under the laws of the United
States or any State thereof and which has (or which is a
Subsidiary of a bank holding company which has) publicly
traded debt securities rated A or higher by Standard & Poor's
Corporation or A-2 or higher by Moody's Investors Service,
Inc.);
(c) commercial paper with maturities of not more than 90
days having the highest rating then given by Moody's Investors
Services, Inc. or Standard & Poor's Corporation;
(d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described
in subparagraph (a)) above entered into with the Bank or any
of the banks referred to in subparagraph (b) above;
(e) shares in money market mutual funds substantially
all the assets of which are comprised of securities and other
obligations of the types described in subparagraphs (a)
through (d) above;
(f) (i) depository accounts at the Bank; and (ii)
depository accounts maintained at other banks;
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(g) stock or obligations issued to the Borrowers or any
Subsidiary thereof in settlement of claims against others by
reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of the
Borrowers or such Subsidiary;
(h) currently existing Investments set forth on Schedule
A; and
(i) Investments by a Borrower (x) in another Borrower
for the purpose of financing the conduct of the business of
such other Borrower, or (y) in a newly formed or acquired
Subsidiary in connection with a Permitted Acquisition.
9.9 Sale and Leaseback.
Neither the Borrowers nor any of their Subsidiaries
shall enter into any arrangement, directly or indirectly, whereby
it shall sell or transfer any property owned by them in order to
lease such property or lease other property that the Borrowers or
any such Subsidiary intends to use for substantially the same
purpose as the property being sold or transferred.
9.10 ERISA. The Borrowers will not
permit any pension plan maintained by the Borrowers or by any
member of a controlled group (ERISA sec.210(c) or ERISA sec.210(d)) of
which any Borrower is a member to: (a) engage in any prohibited
transaction (ERISA sec.2003(c)); (b) fail to report to the Bank a
reportable event (ERISA sec.4043) within 30 days after its
occurrence or as to any reportable event as to which the 30-day
notice period requirement of Section sec.4043(b) of Title IV of ERISA
has been waived by the PBGC, within 30 days of such time as the
Borrowers is requested to notify the PBGC of such reportable
event; (c) incur any accumulated funding deficiency (ERISA
sec.302); (d) terminate its existence at any time in a manner which
could result in the imposition of a Lien on the property of the
Borrowers or any Subsidiary thereof; or (e) fail to report to the
Bank any complete withdrawal or partial withdrawal by the
Borrowers or an affiliate from a multiemployer plan (ERISA
sec. 4203, 4205, and 4001, respectively). The quoted terms are
defined in the respective sections of ERISA cited above.
9.11 Fiscal Year. The Borrowers
and their Subsidiaries shall not change their fiscal year without
the prior written consent of the Bank.
Page 46
<PAGE>
Section 10 Financial Covenants.
The Borrowers covenant and agree that so long as this
Agreement is in effect and until the Notes, together with all
interest thereon and all other Obligations of the Borrowers to the
Bank are paid or satisfied in full:
10.1 Debt Coverage. The
Borrowers will not permit the ratio of Funded Debt to EBITDA to
exceed 2.5 to 1.0 during any four consecutive fiscal quarters, as
determined at the end of each fiscal quarter for the four quarters
then ended.
10.2 Debt to Worth Ratio.
The Borrowers will not permit the ratio of Total Liabilities to
Tangible Net Worth to exceed 2.5 to 1.0 at any time; provided that
in computing the foregoing ratio, accounts receivable and accounts
payable representing accrued payrolls shall be disregarded.
10.3 Interest Coverage.
The Borrowers will not permit the ratio of EBIT to Interest
Expense to be less than 3.0 to 1.0 during any four consecutive
fiscal quarters, as determined at the end of each fiscal quarter
for the four quarters then ended.
10.4 Fixed Charges Coverage.
The Borrowers will not permit the ratio of EBITDA to
Fixed Charges during any four consecutive fiscal quarters, as
determined at the end of each fiscal quarter for the four quarters
then ended, to be less than (i) 1.35 to 1.00 through December 31,
1997, and (ii) 1.50 to 1.00 thereafter; provided, however, that
for and during the fiscal year ending December 31, 1996, at any
date of determination the amount of Capital Expenditures to be
included in Fixed Charges shall be the annualized year-to-date
amount of Capital Expenditures through such date of determination.
10.5 Capital Expenditures. The Borrowers and
their Subsidiaries shall not
make aggregate Capital Expenditures (i) in excess of $1,000,000
during the fiscal year ended December 31, 1996, (ii) in excess of
$1,250,000 during the fiscal year ended December 31, 1997, and
(iii) in excess of $1,500,000 during any fiscal year thereafter.
10.6 Minimum Net Worth. The Borrowers shall at all
times maintain consolidated Net Worth.10.6 Minimum Net Worth.
The Borrowers shall at all times maintain consolidated Net Worth;
of not less than (i) the consolidated Net Worth of the Borrowers
immediately following the consummation of the initial public
offering by the Company of shares of its capital stock, minus (ii)
$1,000,000, plus (iii) seventy-five percent (75%) of cumulative
consolidated Net Income
Page 47
<PAGE>
for the period (taken as a single period)
from the date of the consummation of such initial public offering
through the end of the month preceding the date of determination
of such consolidated Net Income, provided, that for purposes of
this clause (iii) only positive consolidated Net Income shall be
included and any net losses shall be disregarded, plus (iv)
seventy-five percent (75%) of the net proceeds of any public
offering by the Company (other than its initial public offering)
of shares of capital stock of the Company.
Section 11 Events of Default.
11.1. Events of Default.
The occurrence of any of the following events shall be an Event
of Default hereunder:
(a) The Borrowers shall default (i) in the due and
punctual payment of principal of any Loan; or (ii) in the
payment of interest on any Loan or in the payment of any
other amount due under any Loan Document and such Default
shall continue for more than five (5) Business Days after
such payment was due; or
(b) Any representation, warranty or statement made
herein or any other Loan Document, or in any certificate or
statement furnished pursuant to or in connection herewith or
therewith, shall prove to be incorrect, misleading or
incomplete in any material respect on the date as of which
made or deemed made; or
(c) The Borrowers shall default in the performance or
observance of any term, covenant or agreement on its part to
be performed or observed pursuant to Sections 8.6, 8.10, 9
and 10 hereof; or
(d) The Borrowers shall default in the performance or
observance of any term, covenant or agreement on its part to
be performed or observed pursuant to any of the provisions of
this Agreement or any other Loan Document (other than those
referred to in paragraphs (a) through (c) above) and such
default shall continue unremedied for a period of thirty (30)
days after the occurrence of such Default; or
(e) Any obligation of the Borrowers or any of their
Subsidiaries in respect of any Indebtedness (other than the
Notes) or any Guarantee (which in the case of the
Subsidiaries only, involves an aggregate amount in excess of
$100,000) shall be declared to be or shall become due and
payable prior to the stated maturity thereof, or such
Page 48
<PAGE>
Indebtedness or Guarantee shall not be paid as and when the
same becomes due and payable, or there shall occur and be
continuing any default under any instrument, agreement or
evidence of indebtedness relating to any such Indebtedness
the effect of which is to permit the holder or holders of
such instrument, agreement or evidence of indebtedness, or a
trustee, agent or other representative on behalf of such
holder or holders, to cause such Indebtedness to become due
prior to its stated maturity; or
(f) The Borrowers or any of their Subsidiaries thereof
shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy
Code, or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without
the application or consent of the Borrowers or any of their
Subsidiaries in any court of competent jurisdiction, seeking
(i) its liquidation, reorganization, dissolution or winding-
up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or
the like of the Borrowers or any of their Subsidiaries or of
all or any substantial part of its assets, or (iii) similar
relief in respect of the Borrowers or any of their
Subsidiaries under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect, for a period of 60 days;
or an order for relief against the Borrowers or any of their
Subsidiaries shall be entered in an involuntary case under
the Bankruptcy Code; or
(h) A judgment or judgments for the payment of money in
excess of $50,000 (net of insurance proceeds) in the aggregate
shall be rendered against the Borrowers or any of
their Subsidiaries and any such judgment or judgments shall
Page 49
<PAGE>
not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof; or
(i) The Borrowers or any member of the Controlled Group
shall fail to pay when due an amount or amounts aggregating
in excess of $50,000 which it is obligated to pay to the PBGC
or to a Plan under Title IV of ERISA; or a notice of intent
to terminate a Plan or Plans having aggregate Unfunded
Liabilities in excess of $50,000 shall be filed under Title
IV of ERISA by the Borrowers or any member of the Controlled
Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any such Plan or Plans or a
proceeding shall be instituted by a fiduciary of any such
Plan or Plans against the Borrowers or any member of the
Controlled Group to enforce Sections 515 or 4219(c)(5) of
ERISA; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any
such Plan or Plans must be terminated; or there shall occur a
complete or partial withdrawal form, or a default, within the
meaning of Section 4219(c)(5) of ERISA, with respect to, one
or more Multiemployer Plans which could cause the Borrowers
or one or more members of the Controlled Group to incur a
current payment obligation in excess of $100,000; or
(j) The Borrowers or any Subsidiary thereof shall
default in the performance or observance of any term,
covenant or agreement on their part to be performed or
observed pursuant to any of the provisions of any agreement
with the Bank or any instrument delivered in favor of the
Bank (other than, in either case, a Loan Document), and such
default shall continue unremedied beyond the grace period (in
any) provided for therein; or
(k) Any Security Instrument shall cease for any reason
to be in full force and effect or shall cease to be effective
to grant a perfected security interest in the collateral
described in such Security Instrument with the priority
stated to be granted thereby; or
(l) Either Principal shall cease, for any reason
(including, without limitation, resignation, removal or
death), to be an executive officer and director of the
Company unless a successor reasonably acceptable to the Bank
replaces such Principal within thirty days after he shall
have ceased to serve; or
Page 50
<PAGE>
(m) The Principals (together with their immediate
families) collectively cease, for any reason (other than as a
result of dilution caused by any public offering of capital
stock of the Company), to retain and have the unfettered
ability at all times to exercise voting control over at least
thirty percent (30%) of the outstanding shares of voting
stock of the Company.
11.2 Remedies Upon an Event of Default.
If any Event of Default shall
have occurred and be continuing, the Bank may by notice (a)
declare the Commitments terminated (whereupon the Commitments
shall be terminated) and/or (b) declare the principal amount then
outstanding of, and the accrued interest on, the Loans and
commitment fees and all other amounts payable hereunder and under
the Notes to be forthwith due and payable, whereupon such amounts
shall be and become immediately due and payable, without further
notice (including, without limitation, notice of intent to
accelerate), presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by the
Borrowers; provided that in the case of the occurrence of an Event
of Default with respect to the Borrowers referred to in clauses
(f) and (g) of Section 11.1, the Commitments shall be
automatically terminated and the principal amount then outstanding
of and the accrued interest on the Loans and commitment fees and
all other amounts payable hereunder and under the Notes shall be
and become automatically and immediately due and payable, without
notice (including, without limitation, notice of intent to
accelerate), presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by the
Borrowers.
Section 12. General.
12.1 Amendments, Etc. No
amendment or waiver of any provision of this Agreement, the Notes
or any other Loan Document, nor consent to any departure by the
Borrowers therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Bank and then such
waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
12.2 Notices, Etc. All notices and other
communications provided for hereunder shall be in writing and shall
be delivered by hand, by a nationally recognized commercial overnight
delivery service, by first class mail or by telecopy, delivered,
addressed or transmitted, if to the Borrowers, at its c/o the
Company at its address set forth at the beginning of this
Agreement, Attention: Carlos A. Saladrigas, Telecopy No. (305)
Page 51
<PAGE>
460-2596 and if to the Bank, at its address at
75 State Street, Boston, MA 02109-1810, Telecopy No. (617) 346-1634,
Attention: Ginger C. Stolzenthaler, Vice President; or, as
to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such
notices and communications shall be deemed effective, (a) in the
case of hand deliveries, when delivered; (b) in the case of an
overnight delivery service, on the next Banking Day after being
placed in the possession of such delivery service, with delivery
charges prepaid; (c) in the case of mail, three days after deposit
in the postal system, first class postage prepaid; and (d) in the
case of telecopy notices, when electronic indication of receipt is
received, except that notices to the Bank pursuant to the
provisions of Section 4.6 shall not be effective until received by
the Bank.
12.3 No Waiver; Remedies.
No failure on the part of the Bank to exercise, and no delay in
exercising, any right hereunder or under the Notes shall operate
as a waiver thereof; nor shall any single or partial exercise of
any right hereunder or under the Notes preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
12.4 Right of Set-off. (a) Upon the occurrence and
during the continuance of any Event of
Default, the Bank is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at
any time owing by the Bank to or for the credit or the account of
the Borrowers against any and all of the obligations of the
Borrowers now or hereafter existing under this Agreement and the
Notes, irrespective of whether or not the Bank shall have made any
demand hereunder and although such obligations may be contingent
or unmatured.
(b) The Bank agrees promptly to notify the Borrowers
after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off
and application. The rights of the Bank under this Section 12.4
are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Bank may have.
12.5 Expenses; Indemnification. (a) The Borrowers shall
pay on demand (i) the
reasonable fees and disbursements of counsel to the Bank in
connection with the preparation of this Agreement and the
preparation or review of each agreement,
Page 52
<PAGE>
opinion, certificate and
other document referred to in or delivered pursuant hereto; (ii)
all out-of-pocket costs and expenses of the Bank in connection
with the administration of this Agreement and the other Loan
Documents, and any waiver or amendment of any provision hereof or
thereof, including without limitation, the reasonable fees and
disbursements of counsel for the Bank, and of any field examiner
or auditor retained by the Bank as contemplated in Section 8.10,
provided that in the absence of a Default, the Borrowers shall not
be required to pay the cost of more than one audit per year by the
Bank; and (iii) if any Default occurs, all reasonable costs and
expenses incurred by the Bank, including the reasonable fees and
disbursements of counsel to the Bank, and of any appraisers,
environmental engineers or consultants, or investment banking
firms retained by the Bank in connection with such Event of
Default or collection, bankruptcy, insolvency and other enforcement
proceedings related thereto. The Borrowers agree to pay,
indemnify and hold the Bank harmless from, any and all recording
and filing fees, and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise or other taxes,
if any, which may be payable or determined to be payable in connection
with the execution and delivery of or the consummation or
administration of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent
under or in respect of, this Agreement or the other Loan
Documents, or any documents delivered pursuant hereto or thereto.
(b) The Borrowers agree to indemnify the Bank and its
officers and directors and hold the Bank and its officers and
directors harmless from and against any and all liabilities,
losses, damages, reasonable costs and expenses of any kind
(including, without limitation, the reasonable fees and
disbursements of counsel for the Bank in connection with any
investigative, administrative or judicial proceeding initiated by
a third party, whether or not the Bank shall be designated a party
thereto) which may be incurred by the Bank, relating to or arising
out of this Agreement or any other Loan Document, or the existence
of any Hazardous Substance on, in, or under any Borrower Group
Property, or any violation of any applicable Environmental Laws
for which the Borrowers or any Subsidiary thereof has any li
ability or which occurs upon any Borrower Group Property, or the
imposition of any Lien under any Environmental Laws, provided that
the Bank shall not have the right to be indemnified hereunder for
its own bad faith, gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
Page 53
<PAGE>
(c) The agreements in this Section 12.5 shall survive
the repayment of the Notes, and all other amounts payable under
this Agreement and the other Loan Documents.
12.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the
benefit of the parties hereto and their respective successors and
assigns except that the Borrowers may not assign their rights or
obligations hereunder or under the Notes without the prior written
consent of the Bank. The Bank may assign a portion (not to exceed
49%) of its rights and obligations under this Agreement and the
Notes to any other Person. The Bank may sell participations in
all or any part of the Loans to another bank or other entity, in
which event the participant shall not have any rights under this
Agreement (except as provided in the next succeeding sentence
hereof). The Borrowers agree that each participant shall be
entitled to the benefits of Sections 4.9 through 4.14 with respect
to its participation; provided that no participant shall be
entitled to receive any greater amount pursuant to such Sections
than the Bank would have been entitled to receive in respect of
the amount of the participation transferred by it to such
participant had no such transfer occurred. The Bank may furnish
any information concerning the Borrowers and their Subsidiaries in
the possession of the Bank from time to time to assignees and
participants (including prospective assignees and participants).
12.7 Severability. Any
provision of this Agreement which is prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition, unenforceability
or non-authorization without invalidating the remaining provisions
hereof or affecting the validity, enforceability or legality of
such provision in any other jurisdiction.
12.8 GOVERNING LAW. THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REGARD TO
CONFLICTS OF LAWS RULES).
12.9 WAIVER OF JURY TRIAL. THE BANK AND THE BORROWERS
AGREE THAT NONE OF THEM NOR
ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON,
OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY
OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN
WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE BANK AND THE
Page 54
<PAGE>
BORROWERS, AND THESE PROVISIONS
SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE
BORROWERS HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
12.10 VENUE, CONSENT TO SERVICE OF PROCESS.
THE BORROWERS ACCEPT FOR
THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF
MASSACHUSETTS IN ANY ACTION, SUIT OR PROCEEDING OF ANY KIND
AGAINST THEM WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT,
THE NOTES, ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IRREVOCABLY AGREE TO BE BOUND BY
ANY FINAL JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION,
SUIT OR PROCEEDING IN WHICH THEY SHALL HAVE BEEN SERVED WITH
PROCESS IN THE MANNER HEREINAFTER PROVIDED, SUBJECT TO EXERCISE
AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE EXTENT THAT THEY
MAY LAWFULLY DO SO, WAIVE AND AGREE NOT TO ASSERT, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT OR
PROCEEDING ANY CLAIMS THAT THEY ARE NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THEIR PROPERTY IS EXEMPT OR
IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE
THEREOF IS IMPROPER, AND AGREE THAT PROCESS MAY BE SERVED UPON
THEM IN ANY SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED
BY CHAPTER 223A OF THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF
THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR RULE 4 OF THE
FEDERAL RULES OF CIVIL PROCEDURE.
12.11 Headings. Section headings
in this Agreement are included herein for convenience of reference
only and shall not constitute a part of this Agreement for any
other purpose.
12.12 Counterparts. This Agreement
may be signed in one or more counterparts each of which shall
constitute an original and all of which taken together shall
constitute one and the same instrument.
12.13 Confidentiality. The Bank will keep confidential
all Confidential Information (as defined below) and will not,
without the Company s consent, disclose the same to any person
other than to directors, officers, employees, agents or other
representatives (including attorneys, accountants and financial
advisers) of the Bank or any Affiliate of the Bank and other than
to any governmental agency or authority in accordance with
applicable laws, rules or regulations. As used herein, the term
Confidential Information shall mean only information
Page 55
<PAGE>
prepared by a Borrower and furnished to the Bank or obtained by the Bank
hereunder and which (i) is not ascertainable or obtained from
public or published information or (ii) is not known or does not
become known to the public (other than through a breach by the
Bank of this Section).
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first above
written.
THE VINCAM GROUP, INC.
By:
---------------------------
Martiniano J. Perez
Vice President, Controller,
Treasurer and Secretary
VINCAM HUMAN RESOURCES, INC.
VINCAM HUMAN RESOURCES, INC. I
VINCAM HUMAN RESOURCES, INC. II
VINCAM HUMAN RESOURCES, INC. III
VINCAM HUMAN RESOURCES, INC. IV
VINCAM HUMAN RESOURCES, INC. V
VINCAM HUMAN RESOURCES, INC. VI
VINCAM HUMAN RESOURCES, INC. XII
VINCAM HUMAN RESOURCES OF MICHIGAN, INC.
VINCAM OCCUPATIONAL HEALTH SYSTEMS, INC.
PERSONNEL RESOURCES, INC.
VINCAM INSURANCE SERVICES, INC.
VINCAM PRACTICE MANAGEMENT, INC.
AMERICAN PEDIATRIC SYSTEMS, INC.
PSYCH/CARE, INC.
By:
---------------------------
Martiniano J. Perez
Treasurer and Secretary
FLEET NATIONAL BANK
By:
---------------------------
Ginger C. Stolzenthaler
Vice President
MIA9510/74646-1
Page 56
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
THE VINCAM GROUP, INC.
CALCULATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Net income $ 321,869 $ 593,374
========== ==========
Weighted average number of common shares
outstanding during the period 5,484,029 4,596,066
Assumed exercise of stock options, net of
treasury shares acquired 462,208 462,208
Issuance of mandatorily redeemable preferred
stock deemed a common stock equivalent 571,379 1,043,933
---------- ----------
Weighted average number of shares used in
earnings per share calculation 6,517,616 6,462,207
========== ==========
Net income per common and common
equivalent share $ .05 $ .09
========== ==========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE VINCAM GROUP, INC. FOR THE THREE
MONTHS ENDED MARCH 31, 1996 INCLUDED IN FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,904,260
<SECURITIES> 0
<RECEIVABLES> 9,374,675
<ALLOWANCES> 328,591
<INVENTORY> 0
<CURRENT-ASSETS> 15,549,641
<PP&E> 3,628,168
<DEPRECIATION> 851,493
<TOTAL-ASSETS> 19,165,972
<CURRENT-LIABILITIES> 14,194,815
<BONDS> 0
6,263,610
0
<COMMON> 4,956
<OTHER-SE> (4,162,580)
<TOTAL-LIABILITY-AND-EQUITY> 19,165,972
<SALES> 79,890,444
<TOTAL-REVENUES> 79,890,444
<CGS> 0
<TOTAL-COSTS> 74,801,730
<OTHER-EXPENSES> 4,157,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,847
<INCOME-PRETAX> 928,374
<INCOME-TAX> 335,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 593,374
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
