<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998
REGISTRATION NO. 333-48103
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL IMAGING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
5995 59-3247652
DELAWARE (Primary S.I.C. Code Number) (IRS Employer
Identification No.)
(State of Incorporation) ---------------
13902 NORTH DALE MABRY, SUITE 300
TAMPA, FLORIDA 33618
(813) 960-5508
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
THOMAS S. JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GLOBAL IMAGING SYSTEMS, INC.
13902 NORTH DALE MABRY, SUITE 300
TAMPA, FLORIDA 33618
(813) 960-5508
(Name, address, including zip code and telephone number, including area code
of agent for service)
---------------
COPIES TO:
ALAN L. DYE, ESQ. WILLIAM J. GRANT, JR. ESQ.
HOGAN & HARTSON L.L.P. WILLKIE FARR & GALLAGHER
555 THIRTEENTH STREET, N.W. 153 EAST 53RD STREET, 45TH FLOOR
WASHINGTON, DC 20004-1109 NEW YORK, NEW YORK 10022
(202) 637-5600 (212) 821-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 8,050,000 $16.00 $128,800,000.00 $37,996.00
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 1,050,000 shares that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933,
as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR ANY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED MAY , 1998
PROSPECTUS
- --------------------------------------------------------------------------------
7,000,000 Shares
GLOBAL IMAGING SYSTEMS, INC.
[LOGO, INCLUDING TEXT: "THINK GLOBALLY, ACT LOCALLY"]
Common Stock
- --------------------------------------------------------------------------------
Of the 7,000,000 shares (the "Shares") of common stock, $.01 par value per
share (the "Common Stock"), offered hereby, 6,700,000 shares are being sold by
Global Imaging Systems, Inc. ("Global" or the "Company") and 300,000 shares are
being sold by certain stockholders of the Company (the "Selling Stockholders").
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It is currently anticipated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for inclusion in The Nasdaq
Stock Market's National Market (the "Nasdaq National Market") under the symbol
"GISX."
At the request of the Company, the Underwriters have reserved up to 650,000
shares of Common Stock for sale at the initial public offering price to
directors, officers, employees, and business associates of the Company. Any
such shares which are not so purchased will be offered by the Underwriters to
the public on the same basis as the other shares offered hereby. See
"Underwriting."
SEE "RISK FACTORS" ON PAGES 7 TO 13 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price Underwriting Proceeds to
to Discounts and Proceeds to Selling
Public Commissions (1) Company (2) Stockholders
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<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
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Total (3).................. $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $2.0
million.
(3) Certain Selling Stockholders have granted the several Underwriters 30-day
over-allotment options to purchase up to 1,050,000 additional shares of
Common Stock on the same terms and conditions as set forth above. If all
such additional shares are purchased by the Underwriters, the total Price
to Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and the total
Proceeds to Selling Stockholders will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares of Common Stock to the
Underwriters is expected to be made through the facilities of the Depository
Trust Company, New York, New York on or about , 1998.
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
RAYMOND JAMES & ASSOCIATES, INC.
May , 1998
<PAGE>
GLOBAL IMAGING SYSTEMS, INC. [LOGO]
"THINK GLOBALLY, ACT LOCALLY"
[MAP OF UNITED STATES INDICATING COMPANY LOCATIONS]
CORPORATE HEADQUARTERS
CORE COMPANIES
SATELLITE COMPANIES
. Since its founding in June 1994, Global has acquired nine core companies
primarily in the Northeast, Southeast and Pacific Northwest and an
additional 15 satellite companies which have been integrated into the core
companies.
. Global intends to enter new geographic markets by acquiring additional core
companies and expanding its core markets through the acquisition of smaller
companies.
. Global's strategy is to offer the following office imaging solutions:
AUTOMATED OFFICE EQUIPMENT NETWORK INTEGRATION SERVICES
ELECTRONIC PRESENTATION SYSTEMS DOCUMENT IMAGING MANAGEMENT
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Except as otherwise indicated herein, the
information in this Prospectus assumes (i) that the Underwriters' over-
allotment options will not be exercised, (ii) the reclassification of the
Company's Class B Common Stock as Common Stock, the increase in the authorized
shares of Common Stock to 50,000,000 shares, the effecting of a 132-for-1 stock
split of the Company's outstanding Class B Common Stock, and the authorization
of 10,000,000 shares of Preferred Stock pursuant to an amendment to the
Company's Amended and Restated Certificate of Incorporation anticipated to be
filed in May 1998, and (iii) the automatic conversion into Common Stock of all
outstanding shares of Class C Common Stock upon the closing of the Offering.
Except where the context indicates otherwise, all references herein to "Global"
or the "Company" refer to the Company and its direct and indirect subsidiaries.
In connection with and upon the consummation of the Offering, each
outstanding share of Class A Common Stock, including the shares of Class A
Common Stock held by officers and directors of the Company, will be redeemed in
exchange for approximately 3.41 shares of Common Stock plus a cash payment
equal to $90 plus 8.0% per annum from the time of purchase through May 31, 1998
(the "Class A Redemption"). The Company will use approximately $35,570,000 of
the net proceeds of the Offering, and will issue 1,158,329 shares of Common
Stock, to effect the Class A Redemption. Except as otherwise indicated herein,
the information in this Prospectus assumes the Class A Redemption will be
effected. See "Risk Factors--Benefits of the Offering to Existing Stockholders"
and "Certain Transactions--The Recapitalization."
THE COMPANY
Global Imaging Systems is a consolidator in the highly fragmented office
imaging solutions industry. The Company is a rapidly growing provider of a
broad line of office imaging solutions, which includes the sale and service of
automated office equipment (copiers, facsimile machines, printers and
duplicators), electronic presentation systems, and document imaging management
systems ("DIM" systems or "document technology systems"), as well as network
integration and management services. Since its founding in June 1994, the
Company has acquired nine core companies primarily in the Northeast, Southeast,
and Pacific Northwest, and an additional 15 companies ("satellite" companies)
which have been integrated into the core companies. The Company's operating
philosophy is to "think globally, act locally." Under the Company's
decentralized management system, Global's core companies typically continue to
operate under their pre-acquisition names and with their pre-acquisition
management even after being acquired by Global, thus permitting existing client
relationships to be preserved. In many cases Global's satellite companies also
continue to operate under their pre-acquisition names and management, although
all administrative functions are conducted at the core company level. The
Company believes that its emphasis on superior customer service and the
contractual nature of its service business provide a significant source of
recurring revenue.
Global seeks to become the provider of choice for all of its customers'
office imaging needs by offering a full range of products and services and
superior customer service. While Global's clientele includes large, Fortune 500
companies, its growth has been, and is expected to continue to be, largely
driven by serving middle market businesses. The Company sells and services a
variety of office imaging solutions, including copiers, facsimile machines,
printers, duplicators, LCD projectors, smartboards, overhead projectors, video
teleconferencing equipment, optical scanning equipment, micrographics
equipment, and the design and installation of equipment related to computer
networks. In addition, the Company offers a variety of ongoing services,
including supply and service contracts, network management contracts, technical
support and training.
3
<PAGE>
The Company's strategic objective is to continue to grow profitably in both
existing markets and new markets through internal growth and by acquiring
additional office imaging solutions companies. Global intends to enter new
geographic markets by acquiring additional core companies and expanding its
core markets through the acquisition of satellite companies, which are
typically in close proximity to core companies. Global's strategy for
stimulating internal growth is to expand its product and service offerings,
take advantage of cross-selling opportunities, and market aggressively to
existing and new customers.
The Company is currently organized into nine core companies with operations
in 46 locations in 15 states, plus the District of Columbia. Global targets for
acquisition as core companies businesses that are leading competitors in the
markets they serve. The Company's goal is to acquire core and satellite
companies throughout the United States and Canada.
The market for sales and service of office imaging solutions is highly
fragmented. Of an estimated 3,700 dealer and distributor outlets in the United
States primarily engaged in the sale of automated office equipment and related
service, parts, and supplies, approximately 3,100 dealer outlets are
unaffiliated, according to Industry Analysts, Inc. According to Dataquest, the
black and white copier and related service and supplies market generated sales
of approximately $20.5 billion in the U.S. in 1996, and is expected to grow to
an estimated $26.4 billion in sales in 2001, while the color copier and related
service and supplies market generated sales of approximately $1.3 billion in
the U.S. in 1996, and is expected to grow to an estimated $4.4 billion in sales
in 2001. The network consulting and integration services market generated sales
in the U.S. of approximately $5.8 billion in 1996 and is expected to grow to
approximately $12.4 billion in sales by 2001, according to International Data
Corporation. The network management services market (as a discrete segment)
generated sales of approximately $1.5 billion in the U.S. in 1996, and is
expected to grow to approximately $3.7 billion in sales by 2001, according to
International Data Corporation. The market for electronic presentation systems
generated sales estimated at approximately $719 million in the U.S. in 1996,
and is expected to grow to an estimated $1.5 billion in sales in 2001,
according to Pacific Media Associates. The Company believes the market for
document technology systems generated over $3.5 billion in sales in the U.S. in
1996 and may grow to over $13.2 billion in sales by 2001.
STRATEGY
The Company's goal is to become the provider of choice for all of its
customers' office imaging needs by offering a full range of products and
services and superior customer service. The Company's strategy to achieve this
goal contains the following elements:
Serve as a Single Source Provider of Office Imaging Solutions. The Company
believes that offering a full spectrum of products and services will give it a
competitive advantage and enable the Company to capitalize on its customer
relationships by cross-selling its products and services. As the technology
that drives copiers, facsimiles, printers, electronic presentation equipment
and DIM equipment continues to converge, there is a greater role for computers
and networks in the functioning of these products. Accordingly, customers are
demanding more integrated office imaging solutions. The Company intends to
expand its offerings to provide products and services in the automated office
equipment market, the electronic presentation systems market, the DIM systems
market and the network integration markets in each of its geographic markets.
Make Strategic Acquisitions. Global actively seeks to acquire core companies
in targeted geographic markets and to expand these core acquisitions through
internal growth and the acquisition of satellite companies. As part of its
acquisition strategy, Global looks for companies that are led by an experienced
management team that will continue to manage the company after it is acquired,
that have a strong regional market share, and that can grow internally and
through the acquisition of satellite companies.
A key component of the Company's growth strategy is to acquire satellite
companies in or near its core companies' markets. Core company management
frequently assists Global in identifying appropriate satellite companies to
acquire. In evaluating potential satellite acquisitions the Company considers,
among other factors, its proximity to a core company, whether the product lines
sold by the satellite are complementary with those of the core company, and the
service base that the potential satellite company has under service contract.
4
<PAGE>
Stimulate Internal Growth. The Company seeks to stimulate internal growth in
its core companies by increasing the productivity of their sales forces through
the use of performance benchmarks developed by the Company, expanding product
and service offerings, increasing the size of its core companies' sales forces
and aggressively cross-selling its products and services.
Optimize Profitability and Operating Efficiency. Global's senior management
has developed an industry management model that encompasses a comprehensive set
of performance benchmarks. These performance benchmarks, which are used as the
primary form of internal reporting from the core companies to Global, allow the
Company and local management to monitor and improve the operations of each core
company. Through the use of these benchmark criteria, Global seeks to train the
managers of its core and satellite companies to optimize their business mix and
improve performance.
Global works to reduce costs by consolidating the back-office functions of
its satellite acquisitions into the core operations, enabling its core
companies to decrease technician driving time and increase the productivity of
sales personnel and administrators. Global also reduces costs through the
standardization of financial reporting, cash and inventory management, payroll,
billing, collections, insurance and employee benefit programs, and by
negotiating advantageous relationships with equipment manufacturers, other
suppliers and lessors.
Operate with a Decentralized Management Structure. Global vests
responsibility for day-to-day operating decisions at the core company level.
The Company believes that this decentralized approach permits local management
to maintain focus and motivation and provides optimal customer support. Local
management is supported by a senior management team that focuses on the
Company's growth strategy as well as corporate planning and financial reporting
and analysis.
The Company's executive offices are located at 13902 North Dale Mabry, Suite
300, Tampa, Florida 33618, and its telephone number is (813) 960-5508. The
Company was incorporated in Delaware in June 1994.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company................ 6,700,000 shares
Common Stock Offered by the Selling Stockholders... 300,000 shares
Common Stock to be Outstanding after the Offering.. 18,283,639 shares (1)
Use of Proceeds by the Company..................... To repay existing
indebtedness and to pay
the cash portion of the
redemption price of all of
the outstanding shares of
the Company's Class A
Common Stock. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............. GISX
</TABLE>
- --------
(1) Does not include an aggregate of 1,820,000 shares reserved for grants or
purchases under the Company's 1998 Stock Option and Incentive Plan,
including 519,750 shares of Common Stock issuable upon the exercise of
options that will become outstanding upon the closing of the Offering at an
exercise price equal to the initial public offering price. See
"Management--1998 Stock Option and Incentive Plan."
RISK FACTORS
Investors should consider the risk factors involved in connection with an
investment in the Common Stock and the impact to investors from various events
that could adversely affect the Company's business. See "Risk Factors."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND PRO FORMA INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
INCEPTION MARCH 31, DECEMBER 31,
(JUNE 3, 1994) --------------------------- ------------------------------
TO MARCH 31, PRO FORMA (UNAUDITED) PRO FORMA
1995 1996 1997 1997 (1) 1996 1997 1997 (2)
-------------- ------- ------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $10,276 $36,966 $64,093 $196,843 $44,114 $110,030 $159,391
Total costs and
operating expenses..... 10,530 34,842 58,774 183,333 40,397 99,958 146,364
------- ------- ------- -------- ------- -------- --------
Income (loss) from
operations............. (254) 2,124 5,319 13,510 3,717 10,072 13,027
Net income (loss)....... $ (629) $ (192) $ 1,123 $ 1,908 $ 734 $ 2,789 $ 2,943
======= ======= ======= ======== ======= ======== ========
Net income (loss)
available to holders of
Common Stock (3)....... $ (819) $(1,215) $ (279) $ (537) $ (295) $ 1,440 $ 1,099
======= ======= ======= ======== ======= ======== ========
Earnings (loss) per
common share (basic and
diluted) (3)........... $ (0.16) $ (0.15) $ (0.03) $ (0.05) $ (0.03) $ 0.15 $ 0.11
======= ======= ======= ======== ======= ======== ========
Weighted average number
of shares (basic and
diluted) (4)........... 5,245 7,931 8,642 10,339 8,523 9,523 10,339
======= ======= ======= ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
PRO PRO FORMA
ACTUAL FORMA (5) AS ADJUSTED (6)
-------- --------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 22,205 $ 24,539 $ 24,293
Total assets............................... 155,913 164,199 163,955
Long-term debt, including current
maturities................................ 92,609 98,209 42,083
Total stockholders' equity................. 35,215 36,834 92,816
</TABLE>
- --------
(1) Gives effect to the Company's acquisitions of four companies during fiscal
1997 and the Company's acquisition of 11 companies during fiscal 1998 as if
they had been completed on April 1, 1996. See "Selected Pro Forma Financial
Data."
(2) Gives effect to the Company's acquisitions of 10 companies during the nine
months ended December 31, 1997 plus the acquisition of an additional
company completed in February 1998 as if they had occurred on April 1,
1997. See "Selected Pro Forma Financial Data."
(3) Reflects adjustments for amounts payable upon a sale of the Company or an
initial public offering to holders of Class A Common Stock equivalent to an
8.0% annual yield on the original per share amount of $90.
(4) Assumes the conversion of the outstanding shares of Class C Common Stock
into Common Stock. See also, "Selected Pro Forma Financial Data."
(5) Gives effect to the acquisition of one company completed in February 1998
as if such acquisition had been completed on December 31, 1997. See
"Selected Pro Forma Financial Data." The Company's pro forma net tangible
book value attributable to Common Stock was ($96,761,000), and its pro
forma retained deficit was ($1,007,000), at December 31, 1997. See
"Dilution."
(6) Gives effect to the Offering and the application of the estimated net
proceeds therefrom. See "Selected Pro Forma Financial Data" and "Use of
Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the Shares involves a high degree of risk. Prospective
investors should carefully consider the following risk factors, in addition to
the other information contained elsewhere in this Prospectus, in evaluating an
investment in the Common Stock offered hereby.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans or operations, business strategy, results of operations and financial
position. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks
and uncertainties and that actual results may differ materially from those
included within the forward-looking statements as a result of various factors.
Factors that could cause or contribute to such differences include, but are
not limited to, those described below, under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS; HIGHLY LEVERAGED CAPITAL
STRUCTURE. The Company's acquisitions have primarily been and are expected to
be financed through a combination of equity capital, bank indebtedness and
cash generated from operations. In connection with future acquisitions, the
Company intends to incur indebtedness, which may be substantial in relation to
its equity capital, as well as to use its Common Stock for a portion of the
consideration. The extent to which the Company will be able or willing to use
its Common Stock for this purpose will depend on its market value from time to
time and the willingness of potential acquisition candidates to accept Common
Stock as part of the consideration for the sale of their companies. To the
extent the Company does not use Common Stock to make future acquisitions, the
Company will be required to use more of its cash resources, if available, or
to obtain debt or equity financing to continue its acquisition program. There
can be no assurance that the Company will be able to obtain such financing or
that, if available, it will be available on terms the Company deems
acceptable. As a result, the Company might be unable to maintain its
acquisition strategy, which may have a material adverse effect on the business
or future prospects of the Company. Moreover, as a result of financing
acquisitions with debt, the ratio of the Company's total liabilities to net
worth may be substantial. In addition to funding future acquisitions, the
Company requires a substantial amount of funds for debt service and to meet
its working capital and capital expenditure needs, and it is possible that
funds generated by operations and borrowings under available credit
arrangements may be insufficient to fund the Company's cash requirements. In
such event, the Company might need to obtain additional debt or equity
financing. In view of the Company's potentially leveraged position, the
restrictive covenants customarily contained in credit facilities for similar
companies, and the likelihood that substantially all of the assets of the
Company would be pledged to the Company's senior lenders under such a credit
facility, the Company may not be able to obtain such additional financing or
equity on favorable terms, if at all. Because of its potentially leveraged
condition, the Company may be particularly vulnerable to adverse changes in
the financial markets or downturns in its business or in general economic
conditions. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
EXPANSION THROUGH ACQUISITIONS; RECOVERABILITY OF GOODWILL. A principal
element of the Company's strategy is to expand into additional geographic
markets and increase its product and service offerings through acquisitions.
The Company's ability to expand is dependent upon identifying, acquiring and
integrating companies that meet its acquisition criteria. Because of industry
consolidation, the Company faces strong competition in acquiring companies and
frequently competes for acquisitions with companies that have greater
resources. In many instances, the Company must obtain the consent of
manufacturers or other third parties in connection with its acquisitions. The
Company's current credit facility, for example, requires the Company to obtain
approval from its lender prior to the consummation of any acquisitions with an
individual purchase price in excess of $2 million, or an aggregate purchase
price in excess of $5 million in any fiscal year. There can be no assurance
that suitable acquisition candidates will continue to be available to the
Company, that the Company will successfully identify such candidates, that the
Company will be able to obtain any required consents or that the Company will
be able to acquire such companies at favorable prices. In addition, although
the Company
7
<PAGE>
conducts due diligence and generally requires representations, warranties and
indemnifications from the former owners of acquired companies, there can be no
assurance that such owners will have accurately represented the financial and
operating conditions of their companies or will be able to meet any
indemnification obligations that arise. Any unforeseen liabilities or
inaccuracies with respect to its acquired companies could have a material
adverse effect on the Company. In addition, the Company's acquisition strategy
places significant demands on the Company's resources, especially on the time
and attention of its senior management, and will require the Company to
identify, hire and integrate additional managers. There can be no assurance
that the Company's management and financial reporting systems, procedures and
controls will be adequate to support the Company as it continues to expand, or
that the Company will successfully identify, hire and integrate additional
managers. See "Business--Business Strategy." Finally, as a result of its
acquisitions, which are accounted for using the purchase method of accounting,
the Company has incurred and expects to continue to incur significant
amortization charges resulting from the excess of the purchase price paid over
the fair value of the net assets of the companies acquired. These current and
future goodwill amortization charges have and will continue to have a material
adverse effect on the Company's results of operations over the foreseeable
future. The Company amortizes goodwill on a straight-line basis over periods
ranging from 20 to 40 years. If the projected operating cash flows derived
from an acquired business are less than the carrying value of the goodwill
resulting from its acquisition, the Company will recognize impairment,
reducing the Company's profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
RISKS OF INTEGRATION. The successful integration of companies acquired by
the Company depends on a number of factors, including the Company's ability to
transition acquired companies to the Company's management information systems,
the ability of the Company's core acquisitions to integrate satellite
acquisitions effectively, and the Company's ability to improve profitability
at the companies it acquires. There can be no assurance that the Company will
be able to integrate acquired companies without substantial costs, delays or
other operational or financial problems, that the Company will be able to
achieve expected economies of scale or that such companies, once integrated,
will ultimately generate sufficient revenues to justify the Company's
investment.
LIMITED COMBINED OPERATING HISTORY. Although a number of the companies
acquired by the Company have been in operation for some time, the Company
itself has a limited history of operations and profitability. Consequently,
the historical and pro forma information herein may not be indicative of the
Company's financial condition and future performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business."
ENTRY INTO NEW MARKETS THROUGH ACQUISITIONS. A key element of the Company's
expansion strategy is to acquire companies in each of its core markets that
are engaged in the sale and service of electronic presentation systems and DIM
systems, and in network integration and facilities management services. These
are product and service segments in which the Company has relatively limited
or no operating experience. The Company's ability to enter these markets
successfully depends on its ability to identify, acquire and integrate
appropriate companies and to adapt to the varying conditions in each of these
markets. For example, the Company's success in the facilities management
market depends on the Company being able to operate profitably a primarily
labor-intensive business. Any acquisitions of companies in these markets that
are not good acquisition candidates, or that the Company is not ready or able
to integrate and operate profitably, could have a material adverse effect on
the Company. There can be no assurance that the Company will succeed in
identifying, acquiring, integrating and operating successful companies in
these new markets. See "Business--Business Strategy."
DEPENDENCE ON SUPPLIERS. The Company derives a majority of its revenues from
the sale of equipment and from service and supply contracts for such
equipment. Accordingly, the Company's success depends on its access to
reliable sources of equipment, parts and supplies at competitive prices. The
Company's automated office equipment dealers sell copiers primarily from Canon
Inc. ("Canon"), Konica Business Technologies, Inc. ("Konica"), Mita Copystar
America ("Mita"), Ricoh Corporation ("Ricoh"), Savin Corporation ("Savin") and
Sharp Electronics Corporation ("Sharp") and facsimile machines primarily from
Muratec America, Inc.
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<PAGE>
("Muratec"), Panasonic Communications and Systems Company Division of
Matsushita Electric Corp. of America ("Panasonic") and Savin. The Company's
network integrators sell systems primarily from Compaq Computer Corporation
("Compaq"), Hewlett-Packard Company ("Hewlett Packard"), International
Business Machines Corporation ("IBM"), Microsoft Corporation ("Microsoft"),
Novell, Inc. ("Novell") and Tektronix, Inc. ("Tektronix"). The Company's DIM
systems dealer sells equipment primarily from Westbrook Technologies, Inc.
("Westbrook Technologies") and the Company's electronic presentation systems
dealer sells systems primarily from Epson America, Inc. ("Epson"), In Focus
Systems, Inc. ("InFocus"), Intel Corporation ("Intel"), Lightware, Inc.
("Lightware"), nVIEW Corporation ("nVIEW"), Proxima Corporation ("Proxima")
and Sharp. The Company's agreements with its suppliers generally permit the
Company to sell particular products on a nonexclusive basis in particular
geographic areas, have a one-year renewable term that may not be renewed by
the supplier on 30 days notice and that may be terminated by the supplier upon
notice (i) in the event that the Company does not meet minimum purchase quotas
or certain other requirements or (ii) under certain other circumstances,
including a change in the Company's ownership. Although the consummation of
the Offering may qualify as such a change in the Company's ownership, the
Company does not anticipate that its suppliers will terminate their agreements
with the Company as a result of the Offering. There can be no assurance that
the Company's suppliers will continue to be willing to sell their products to
the Company, or that they will do so at competitive prices. For example, the
Company believes that Sharp, InFocus and Proxima plan to use only 12 to 15
distributors of electronic presentation equipment nationwide by the year 2000.
During the twelve month period ended December 31, 1997, sales of electronic
presentation equipment by Sharp, InFocus and Proxima accounted for 6.0%, 2.2%
and 2.3%, respectively, of the Company's revenues. There can be no assurance
that the Company will be chosen by these or other suppliers to distribute
their products. The Company's inability to obtain equipment, parts or supplies
from any of its suppliers could have a material adverse effect on the
Company's business. There can also be no assurance that consumer preferences
will not shift to products manufactured by competitors of the Company's
suppliers. Finally, there can be no assurance that other factors, including
reduced access to credit resulting from economic conditions in Asia, will not
impair the ability of the Company's suppliers to provide products in a timely
manner or at competitive prices. See "Business--Suppliers."
NEED TO ATTRACT AND RETAIN SKILLED EMPLOYEES. Global's success is largely
dependent on its ability to attract, motivate and retain skilled employees.
Many of the markets in which the Company operates are experiencing low levels
of unemployment. As a result, the Company faces competition in hiring and
retaining skilled employees, particularly sales personnel, systems integration
professionals and service technicians. The Company's ability to fulfill its
service contracts and enter into new ones depends on the availability of
qualified service technicians. The Company's ability to generate both sales
and service revenues depends on the efforts of its sales personnel. The
inability of the Company to attract and retain skilled employees could have a
material adverse effect on the Company. There can be no assurance that the
Company will be successful in attracting new employees or retaining its
current or future employees.
DEPENDENCE ON CHIEF EXECUTIVE OFFICER. The success of Global is
substantially dependent on the efforts and ability of Thomas S. Johnson, its
President and Chief Executive Officer. Mr. Johnson is employed under an
Executive Agreement that renews automatically each July for one-year periods
unless otherwise terminated by either party upon 30 days notice. The Company
maintains key-man life insurance on Mr. Johnson. The loss or interruption of
the services of Mr. Johnson or of other members of the Company's senior
management or the managers of its acquired companies could have a material
adverse effect upon Global's results of operations and financial condition. In
addition, there can be no assurance that the managers of current or future
acquired companies will continue to be as motivated to work for Global as they
were prior to selling their companies.
COMPETITION. The Company operates in highly competitive markets. The Company
faces competition in the automated office equipment market, the electronic
presentation systems market and the DIM systems market from large dealers like
Danka and IKON, independent dealers, and manufacturers' sales and service
divisions, including Canon, Eastman Kodak Company ("Kodak"), Konica, Minolta
Co., Ltd. ("Minolta"), Pitney Bowes, Inc. ("Pitney Bowes"), Wang Laboratories,
Inc. ("Wang") and Xerox Corporation ("Xerox") as well as office superstores
and consumer electronics chains. In the network integration services market,
the Company competes
9
<PAGE>
with large companies such as Ameridata Technologies, Inc. ("AmeriData") and GE
Capital Consulting ("GE Capital"), both of which are business units of General
Electric Company, Inacom Corp. ("Inacom") and Vanstar Corporation ("Vanstar"),
as well as a large number of smaller competitors with regional or local
operations and the in-house capabilities of its customers. Competition from
large, nationwide competitors is likely to increase (i) as the Company seeks
to attract additional customers and expand its markets geographically and with
respect to product and service offerings and (ii) as each of the automated
office equipment, electronic presentation systems, DIM systems and network
integration services markets experiences increased consolidation. In addition,
as digital and other new technology develops, the Company may find itself
competing with new distribution channels, including computer distributors and
value added resellers, for products containing new technology. Some
competitors have greater financial and personnel resources than the Company.
There can be no assurance that in the future the Company will be able to
compete favorably with all or any of its current or future competitors. The
Company also competes for acquisition candidates in the office imaging
solutions industry. See "Business--Competition."
TECHNOLOGICAL DEVELOPMENTS. The office imaging solutions industry is
undergoing an evolution in product, moving toward digital technology in a
multi-functional office environment. The Company's success will partly depend
on its ability to respond to this rapidly changing environment. There can be
no assurance that the Company will be able to anticipate which products or
technologies will gain market acceptance or that, even if the Company does
correctly anticipate market demand, the Company's suppliers will be willing or
able to supply such products to the Company at competitive prices. Further,
there can be no assurance the Company will be able to obtain any
manufacturer's authorization necessary to market any newly developed
equipment. Additionally, new products containing new technology may be sold
through other channels of distribution. While it is possible that
technological advancements, including the lowered per unit cost that often
accompanies technological improvements, may enhance unit sales, this trend may
reduce the Company's sales revenues, and reliability improvements may result
in reduced service revenues. The Company will also incur increased expenses
for the training of its sales and service personnel to familiarize them with
such new technologies. See "Business--The Industry--Consolidation--
Technological Change."
EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company
may experience significant quarter to quarter fluctuations in its results of
operations. Quarterly results of operations may fluctuate as a result of a
variety of factors including, but not limited to, the timing of the
acquisition and integration of acquired companies, the demand for the
Company's products and services, the timing and introduction of new products
and services by the Company, its suppliers, or the Company's or its suppliers'
competitors, the market acceptance of new products and services, competitive
conditions in the office imaging solutions industry and general economic
conditions. As a result, the Company believes that period to period
comparisons of its results of operations are not necessarily meaningful or
indicative of the results that the Company may achieve in any subsequent
quarter or full year. Such quarterly fluctuations may result in volatility in
the market price of the Common Stock, and it is possible that in future
quarters the Company's results of operations could be below the expectations
of the public market. Such an event could have a material adverse effect on
the market price of the Common Stock of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results of Operations."
CREDIT FACILITY PREPAYMENT FEE. The Company intends to replace its existing
credit facility by paying it off with a combination of proceeds from the
Offering and with the proceeds from a replacement credit facility it expects
to obtain after the closing of the Offering. Under the Company's agreement
with its current lender, following the Offering and the partial repayment of
the term loan outstanding under the Credit Facility as described in "Use of
Proceeds," the Company has the right to prepay the entire amount due under its
existing credit facility within sixty days of the closing of the Offering
provided that it pays a prepayment fee of $250,000. There can be no assurance
that the Company will be able to obtain a replacement credit facility within
sixty days of the closing of the Offering, or at all. If the Company fails to
prepay the entire amount due within sixty days of the closing of the Offering,
the Company will be subject to a prepayment fee of 4.0% (declining to 3.0%,
2.0% and 1.0% on August 14, 1998, 1999 and 2000, respectively) of the amounts
then outstanding under the term loan component of its credit facility in
connection with any prepayment or partial prepayment of the loan.
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<PAGE>
At March 31, 1998 approximately $97.3 million was due under the term loan. If
the Company does replace its existing credit facility, unamortized financing
fees incurred in conjunction with obtaining the facility will be written off
upon payment of the facility. The balance of such unamortized fees at March
31, 1998 was $2.9 million. The prepayment penalty and the unamortized
financing fee write-off are expected to occur during the quarter ending June
30, 1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
DEPENDENCE ON KEY MARKETS. A significant portion of the Company's revenues
and profitability are attributable to sales and service in the Northeast
market and the Southeast market, which accounted for 31% and 50% of the
Company's revenues, respectively, on a pro forma basis for the nine months
ended December 31, 1997. Accordingly, the Company's results of operations may
be significantly affected by fluctuations in the general economic and business
cycles in these markets. The Company's reliance on these markets makes it
susceptible to risks that it would not otherwise be exposed to if it operated
in a more geographically diverse market. The Company believes that it will be
susceptible to geographic concentration risks for the foreseeable future.
YEAR 2000 SOFTWARE ISSUE. The Company uses a number of computer software
programs and operating systems in its operations, including applications used
in sales and marketing, billing, inventory management and other administrative
functions. To the extent that the software applications used in such functions
and communications are unable to recognize the year 2000, the Company may
incur expenses in connection with the need to remediate such software and also
the risk and potential expense of any disruptions that may be caused by the
software's impaired functioning as the year 2000 approaches. The Company
believes that the manufacturers of the software applications it uses most
frequently, including its systems software and its word-processing and
spreadsheet software, are in the process of preparing or have already
completed Year 2000 remediations for their products. There can be no
assurance, however, that such remediation efforts have been or will be
successful. In addition, the Company communicates electronically with a number
of its customers and suppliers with respect to a variety of functions,
including ordering, billing and payroll. Any failure of the software of the
Company's suppliers or customers to address the Year 2000 issue could impair
the Company's ability to perform such functions. The Company is analyzing the
potential impact of the Year 2000 issue on the Company's software and on the
Company's interactions with its suppliers and customers. There can be no
assurance that the remediation costs and potential disruptions to the
Company's operations would not have a material adverse effect on the Company's
business, financial condition or results of operations.
RISK OF NON-PROPRIETARY CHARACTER OF GLOBAL'S INDUSTRY MANAGEMENT MODEL. The
industry management model developed by Global has been described in various
public forums, including industry seminars and publications, and has been made
available to a number of companies, including former consulting clients of
Global's President. Although the Company believes the application of the
industry management model requires a high degree of experience and skill,
there can be no assurance that other office imaging solutions companies will
not be able to replicate the Company's industry management model or implement
it more effectively than the Company or at a lower cost.
CONTROL BY OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS. Upon completion
of this Offering, the Company's executive officers and directors and their
affiliates will beneficially own 51.0% of the Company's Common Stock, and
Golder, Thoma, Cressey, Rauner Inc. ("GTCR"), through its affiliation with
Golder, Thoma, Cressey, Rauner Fund IV Limited Partnership ("GTCR IV"), will
beneficially own 37.4% of the Company's Common Stock. Accordingly, the
Company's executive officers and directors and their affiliates, particularly
GTCR, will be able to influence the election of directors and corporate
actions requiring stockholder approval. Such concentration of ownership could
limit the price that certain investors might be willing to pay in the future
for shares of Common Stock, and could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. See "Principal and Selling
Stockholders" and "Certain Transactions."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS. The Selling Stockholders
and other current stockholders will significantly benefit from this Offering.
Certain of the existing stockholders will be entitled to
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<PAGE>
receive proceeds in an aggregate amount of approximately $35,570,000 from the
Offering as a result of the redemption of shares of Class A Common Stock they
hold and will realize significant gains. GTCR and Jackson National Life
Insurance Company ("JNL"), both of whom hold in excess of five percent of the
Company's stock, as well as Thomas Johnson, the Company's President and Chief
Executive Officer and a director of the Company and L. Neal Berney, also a
director of the Company, will receive approximately $23,191,000, $3,833,000,
$572,000 and $225,000, respectively, in partial payment for the redemption of
the shares of Class A Common Stock held by them. See "Certain Transactions--
The Recapitalization." In addition, the Selling Stockholders will receive an
estimated $4,185,000 ($18,832,500 if the Underwriters' over-allotment options
are exercised in full) in net proceeds from the Offering, based on an assumed
initial public offering price of $15.00 per share. See "Use of Proceeds,"
"Certain Transactions" and "Principal and Selling Stockholders." It is
anticipated that the Offering will create a public market for the Company's
Common Stock, thus allowing existing stockholders to sell stock in the public
market from time to time pursuant to Rule 144, other exemptions from
registration or pursuant to subsequently filed registrations statements,
subject to lock-up agreements entered into in connection with the Offering.
See "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS. The Company's
Certificate of Incorporation and Bylaws, as well as Delaware corporate law,
contain certain provisions that could have the effect of delaying, deferring
or preventing a change in control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Common Stock. Certain of such provisions allow the Company to
issue without stockholder approval preferred stock having rights senior to
those of the Common Stock. Other provisions impose various procedural and
other requirements that could make it difficult for stockholders to effect
certain corporate actions. See "Description of Capital Stock--Delaware Law and
Certain Charter, Bylaw and Other Provisions" and "Description of Capital
Stock--Preferred Stock."
DILUTION. Purchasers of the Common Stock offered hereby will experience an
immediate and substantial dilution in the pro forma net tangible book value of
their Common Stock from the initial public offering price of $15.29 per share
(based on an assumed initial public offering price of $15.00 per share). After
completion of the Offering, the Company will have a negative net tangible book
value. In addition, no assurance can be given that the Company's stockholders
will not in the future suffer significant dilution. Global intends to make a
substantial number of future acquisitions. If these potential acquisitions are
consummated, some or all of the purchase price may be paid with Common Stock
or other equity securities of the Company. In the event that additional equity
is issued in connection with acquisitions, the Company's stockholders may
suffer dilution. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of substantial
amounts of Common Stock in the public market following this Offering could
adversely affect the prevailing market price of the Common Stock and the
Company's ability to raise capital in the future. Upon completion of this
Offering, the Company will have a total of 18,283,639 shares of Common Stock
outstanding, of which the 7,000,000 shares offered hereby (8,050,000 shares if
the Underwriters' over-allotment options are exercised in full) will be freely
tradeable without restriction under the Securities Act, by persons other than
"affiliates" of the Company, as defined under the Securities Act. The
remaining 11,283,639 shares of Common Stock outstanding (10,233,639 shares of
Common Stock if the Underwriters' over-allotment options are exercised in
full) are "restricted securities" as that term is defined by Rule 144
promulgated under the Securities Act (the "Restricted Shares"). Of the
Restricted Shares, approximately 10,648,226 shares will become eligible for
sale 90 days after completion of the Offering, subject in some cases to
certain volume restrictions and other conditions imposed under Rule 144. The
remaining approximately 635,413 shares will be eligible for sale upon the
expiration of their respective holding periods as set forth in Rule 144. The
Company, its executive officers and directors, the Selling Stockholders and
certain other stockholders have agreed that, subject to certain exceptions,
they will not, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or any other securities convertible
into, or exercisable or exchangeable for, shares of Common Stock or other
similar securities of the Company for a period of 180 days from the date of
this
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<PAGE>
Prospectus. 11,270,847 of the Restricted Shares (10,220,847 if the
Underwriters' over-allotment options are exercised in full) are subject to
such lock-up agreements. After such 180-day period, this restriction will
expire and shares permitted to be sold under Rule 144 would be eligible for
sale, provided that the Company shall have been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, for at least
90 days and the relevant holding period under Rule 144 shall have expired.
Prudential Securities Incorporated may, in its sole discretion, at any time
and without prior notice, release all or any portion of the shares of Common
Stock subject to such agreements.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 1,820,000 shares of Common
Stock issuable under its 1998 Stock Option and Incentive Plan (the "Stock
Plan"). Of the 1,820,000 shares issuable under the Stock Plan, no shares were
subject to outstanding options as of February 28, 1998, and no shares will be
issuable pursuant to any options granted under the Stock Plan prior to 180
days following the date of this Prospectus. See "Management--1998 Stock Option
and Incentive Stock Plan" and "Shares Eligible for Future Sale."
The holders of approximately 11,283,639 shares of Common Stock (10,233,639
shares of Common Stock if the Underwriters' over-allotment options are
exercised in full) are entitled to certain registration rights with respect to
such shares. If such holders, by exercising their registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price of the Company's Common
Stock. See "Description of Capital Stock--Registration Rights" and "Shares
Eligible for Future Sale." In addition, if the Company is required, pursuant
to piggy-back registration rights, to include shares held by such persons in a
registration statement which the Company files to raise additional capital,
the inclusion of such shares could have an adverse effect on the Company's
ability to raise needed capital. The registration rights require the Company
to refrain from filing most types of registration statements within 90 days
after registering its stockholders shares. This restriction could also have an
adverse effect on the Company's ability to raise needed capital.
NO DIVIDENDS. The Company has not declared or paid cash dividends on its
Common Stock and does not expect to do so in the foreseeable future. Moreover,
the Company is restricted under the terms of its credit facility from
declaring or paying dividends to its stockholders. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY. Prior to this
Offering there has been no public market for the Common Stock, and there can
be no assurance an active public market for the Common Stock will develop or,
if developed, be sustained. The initial public offering price will be
determined through negotiations among the Company, the Selling Stockholders
and the Representatives of the Underwriters based on several factors that may
not be indicative of future market prices. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The trading price of the Common Stock and the price at which the
Company may sell securities in the future may be subject to wide fluctuations
in response to fluctuations in competitors' stock prices, general trends in
the office imaging industry, changes in earnings estimates by analysts,
fluctuations in quarterly results of operations, general market conditions,
the Company's liquidity or ability to raise additional funds, and other
factors or events. In addition, the stock market has experienced extreme
fluctuations in price and volume. This volatility has significantly affected
the market prices of securities for reasons frequently unrelated to or
disproportionate to the operating performance of the specific companies. These
market fluctuations as well as general fluctuations in the stock markets may
adversely affect the market price of the Common Stock.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$91,465,000 assuming an initial public offering price of $15.00 per share (the
mid-point of the range set forth on the cover of this Prospectus) and after
deducting underwriting discounts and commissions and estimated Offering
expenses payable by the Company.
The Company intends to use approximately $55,895,000 of the estimated net
proceeds for the repayment of amounts due to Jackson National Life Insurance
Company pursuant to the Company's credit facility (the "Credit Facility") and
$35,570,000 of the estimated net proceeds for the cash portion of the
redemption price of all of the outstanding shares of the Company's Class A
Common Stock. The amounts borrowed under the Credit Facility, which bear
interest at 3.25% over LIBOR and are payable in installments over the life of
the Credit Facility (which becomes due and payable on August 14, 2004), were
used to fund the purchase price of businesses acquired by the Company. The
Company has entered into a Commitment Letter with First Union National Bank
("First Union") pursuant to which the Company expects it will obtain a $175
million revolving credit facility (the "Replacement Facility") after the
closing of the Offering which will bear interest at rates ranging from 0.625%
to 1.5% over LIBOR or, at the Company's option, ranging from 0.0% to 0.5% over
a base rate related to prime rate. The Company plans to borrow approximately
$41,400,000 under the Replacement Facility to pay off the balance of the
Credit Facility. See "Risk Factors--Need for Substantial Additional Funds;
Highly Leveraged Capital Structure" and "--Credit Facility Prepayment Fee."
No portion of the net proceeds will be used to pay for future acquisitions
by the Company. Pending their use as described in this Prospectus, the net
proceeds of the Offering will be invested in short-term, interest-bearing,
investment-grade securities or guaranteed obligations of the United States
government. The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Stockholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate declaring or paying cash dividends in the
foreseeable future. It is the present policy of the Company's Board of
Directors to retain earnings, if any, to finance the development of the
Company's business. Moreover, the Company is restricted under the terms of its
credit facility from declaring or paying dividends to its stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997: (i) on an actual basis as adjusted for a 132-for-1 stock
split of the Company's Common Stock, the reclassification of the Company's
Class B Common Stock as "Common Stock", increases in the authorized number of
shares of Common Stock and the authorized number of shares of Class C Common
Stock and the authorization of 10,000,000 shares of Preferred Stock expected
to occur in April 1998; (ii) on a pro forma basis to give effect to the
Company's acquisition of one company after December 31, 1997 and the sale and
issuance of 129,599 shares of Common Stock and 7,020 shares of Class A Common
Stock in January 1998 in connection with such acquisition for a per share
purchase price of $0.13 and $90.00, respectively; and (iii) on a pro forma as
adjusted basis to give effect to the sale by the Company of the 6,700,000
shares offered hereby at an assumed initial public offering price of $15.00
per share (the mid-point of the range set forth on the cover of this
Prospectus) and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds," the issuance of an aggregate of 86,276
shares of Common Stock at a purchase price of $0.07 per share pursuant to pre-
existing contractual obligations, the redemption of all of the outstanding
shares of Class A Common Stock including the payment of the cumulative unpaid
yield on the Class A Common Stock upon the completion of the Offering in
exchange for aggregate payments of approximately $35,570,000 and the issuance
of 1,158,329 shares of Common Stock and the conversion of all of the
outstanding shares of Class C Common Stock upon the completion of the Offering
into an equal number of shares of Common Stock. This table is qualified in its
entirety by, and should be read in conjunction with, the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturities... $ 92,609 $ 98,209 $ 42,083
Stockholders' equity:
Common Stock, $.01 par value: 50,000,000
shares authorized; 9,314,839 shares issued
and outstanding, actual; 9,444,438 shares
issued and outstanding, pro forma;
18,283,639 shares issued and outstanding,
pro forma as adjusted (1)................... 93 94 183
Preferred Stock, $.01 par value: 10,000,000
shares authorized; no shares issued and
outstanding, actual, pro forma, and as
adjusted.................................... -- -- --
Class A Common Stock, $.01 par value:
10,000,000 shares authorized; 332,925.071
shares issued and outstanding, actual;
339,945.071 shares issued and outstanding,
pro forma; no shares issued and outstanding,
pro forma as adjusted....................... 3 3 --
Class C Common Stock, $.01 par value: 905,000
shares authorized; 894,596 shares issued and
outstanding, actual; 894,596 shares issued
and outstanding, pro forma; no shares issued
and outstanding, pro forma as adjusted...... 9 9 --
Additional paid-in capital................... 32,291 33,910 94,843
Retained earnings (deficit) (2).............. 3,091 3,091 (1,937)
Stockholder receivables...................... (273) (273) (273)
-------- -------- --------
Total stockholders' equity................. 35,214 36,834 92,816
-------- -------- --------
Total capitalization..................... $127,823 $135,043 $134,899
======== ======== ========
</TABLE>
- --------
(1) Excludes 519,750 shares of Common Stock issuable upon the exercise of
options that will become outstanding upon the closing of the Offering at
an exercise price equal to the initial public offering price.
(2) Retained earnings (deficit) has been reduced on a pro forma as adjusted
basis to reflect the payment of the cumulative unpaid yield on the Class A
Common Stock redeemed in connection with the Offering.
15
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of their
Common Stock from the initial public offering price. The Company's pro forma
net tangible book value at December 31, 1997 attributable to Common Stock was
$(96,761,000), or $(8.35) per share. Pro forma net tangible book value per
share represents the Company's pro forma tangible net worth attributable to
Common Stock (net tangible assets less total liabilities and equity
attributable to the Class A Common Stock) divided by the number of shares of
Common Stock outstanding, as adjusted for (i) the sale and issuance of 129,599
shares of Common Stock and 7,020 shares of Class A Common Stock in January
1998 in connection with an acquisition made by the Company for a per share
purchase price of $0.13 and $90.00, respectively, (ii) the issuance of an
aggregate of 86,276 shares of Common Stock at a purchase price of $0.07 per
share pursuant to pre-existing contractual obligations and (iii) the
redemption upon completion of the Offering of all of the outstanding shares of
Class A Common Stock of the Company for aggregate payments of approximately
$35,570,000 and the issuance of 1,158,329 shares of Common Stock. Without
taking into account any other changes in the net tangible book value after
December 31, 1997, other than to give effect to the sale of 6,700,000 shares
of Common Stock by the Company in the Offering at an assumed initial public
offering price of $15.00 per share and the application of the net Offering
proceeds as described in "Use of Proceeds," the pro forma net tangible book
value of the Company as of December 31, 1997 would have been $(5,297,000), or
$(0.29) per share. See "Management--Executive Employment Agreements" and Note
12 of Notes to Consolidated Financial Statements. This represents an immediate
increase in pro forma net tangible book value of $8.06 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$15.29 per share to purchasers of Common Stock in the Offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $15.00
Pro forma net tangible book value as of December 31,
1997.................................................... $(8.35)
Increase attributable to new investors................... 8.06
------
Pro forma net tangible book value after the Offering....... (0.29)
------
Dilution to new investors.................................. $15.29
======
</TABLE>
The following table summarizes, as of December 31, 1997, on a pro forma
basis and after giving effect to the Offering, the differences between the
existing stockholders and the new investors with respect to the number of
shares of Common Stock purchased, the total consideration paid and the average
price per share paid (based upon an assumed initial public offering price of
$15.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1) ................... 11,583,639 63.4% $ 866,592 0.9% $ 0.07
New investors (1)....... 6,700,000 36.6 100,500,000 99.1 15.00
---------- ----- ------------ -----
Total................. 18,283,639 100.0% $101,366,592 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1) Does not reflect the sale of 300,000 shares of Common Stock by the Selling
Stockholders in the Offering and does not include 519,750 shares of Common
Stock issuable upon the exercise of options that will become outstanding
upon the closing of the Offering at an exercise price equal to the initial
public offering price.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data with respect to the Company's
statement of operations for the ten months ended March 31, 1995, the fiscal
years ended March 31, 1996 and 1997, and the nine months ended December 31,
1997 and the balance sheet data as of March 31, 1996 and 1997 and as of
December 31, 1997 are derived from the Consolidated Financial Statements of
the Company which have been audited by Ernst & Young LLP, independent
certified public accountants. The selected financial data presented below for
the nine months ended December 31, 1996 are unaudited and were prepared by
management of the Company on the same basis as the audited Consolidated
Financial Statements included elsewhere herein and, in the opinion of
management of the Company, include all adjustments necessary to present fairly
the information set forth therein. The results for the nine months ended
December 31, 1997 are not necessarily indicative of the results to be expected
for the full year ending March 31, 1998 or future periods. The following data
should be read in conjunction with the Consolidated Financial Statements of
the Company and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
INCEPTION MARCH 31, DECEMBER 31,
(JUNE 3, 1994) ------------------ --------------------
TO MARCH 31, (UNAUDITED)
1995 1996 1997 1996 1997
-------------- -------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Equipment and supply
sales................. $ 6,541 $ 20,561 $ 41,200 $27,503 $ 80,515
Service and rental
revenues.............. 3,735 16,405 22,893 16,611 29,515
------- -------- -------- ------- --------
Total revenues.......... 10,276 36,966 64,093 44,114 110,030
Costs and operating
expenses:
Cost of equipment and
supply sales.......... 4,193 13,456 27,087 17,983 57,488
Service and rental
costs................. 1,885 8,303 11,467 8,274 14,493
Selling, general and
administrative
expenses.............. 4,123 11,687 18,280 12,742 25,818
Intangible asset
amortization.......... 329 1,396 1,939 1,398 2,159
------- -------- -------- ------- --------
Total costs and
operating expenses..... 10,530 34,842 58,773 40,397 99,958
------- -------- -------- ------- --------
Income (loss) from
operations............. (254) 2,124 5,320 3,717 10,072
Interest expense........ 375 2,041 3,190 2,325 4,534
------- -------- -------- ------- --------
Income (loss) before
income taxes........... (629) 83 2,130 1,392 5,538
Income taxes............ 0 275 1,007 658 2,749
------- -------- -------- ------- --------
Net income (loss)....... (629) (192) 1,123 734 2,789
Yield adjustment on
Class A Common Stock
(1).................... (190) (1,023) (1,402) (1,029) (1,349)
------- -------- -------- ------- --------
Net income (loss)
available to holders of
Common Stock........... $ (819) $ (1,215) $ (279) $ (295) $ 1,440
======= ======== ======== ======= ========
Earnings (loss) per
share (basic and
diluted)............... $ (0.16) $ (0.15) $ (0.03) $ (0.03) $ 0.15
======= ======== ======== ======= ========
Weighted average number
of shares used in the
calculation (2)....... 5,245 7,931 8,642 8,523 9,523
======= ======== ======== ======= ========
<CAPTION>
MARCH 31,
--------------------------------- DECEMBER 31,
1995 1996 1997 1997
-------------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......... $ 2,901 $ 5,038 $ 9,655 $ 22,205
Total assets............ 32,229 43,675 68,990 155,913
Long-term debt,
including current
maturities............. 22,836 21,831 36,873 92,609
Total stockholders'
equity................. 4,344 15,232 19,796 35,215
</TABLE>
- --------
(1) Reflects adjustments for amounts payable upon a sale of the Company or an
initial public offering to holders of Class A Common Stock equivalent to
an 8.0% annual yield on the original per share amount of $90.
(2) Assumes the conversion of the outstanding shares of Class C Common Stock
into Common Stock.
17
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following selected pro forma financial data are derived from the
Unaudited Pro Forma Consolidated Financial Data of the Company appearing
elsewhere in this Prospectus. The Pro Forma Statement of Operations Data for
the fiscal year ended March 31, 1997 gives effect to the Company's acquisition
of four companies during such year and 11 companies acquired during the 1998
fiscal year as if they had occurred on April 1, 1996. The Pro Forma Statement
of Operations Data for the nine months ended December 31, 1997 gives effect to
the Company's acquisition of 10 companies during such nine-month period plus
the acquisition of an additional company, completed in February 1998, as if
they had occurred on April 1, 1997. The Pro Forma Balance Sheet Data as of
December 31, 1997 gives effect to the Company's acquisition of one company
during the fourth quarter of fiscal year 1998.
The pro forma financial data should be read in conjunction with the
Unaudited Pro Forma Consolidated Financial Information of the Company and the
related notes thereto included elsewhere in this Prospectus. Management
believes the assumptions used in the Unaudited Pro Forma Consolidated
Financial Information provide a reasonable basis on which to present the pro
forma financial data. The pro forma financial data are provided for
informational purposes only and should not be construed to be indicative of
the Company's financial position or results of operations had the transactions
and events described in the notes thereto been consummated on the dates
assumed and are not intended to project the Company's financial condition or
results of operations on any future date or for any future period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1997
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment and supply sales................. $144,133 $116,852
Service and rental revenues................ 52,710 42,539
-------- --------
Total revenues.............................. 196,843 159,391
Costs and operating expenses:
Cost of equipment and supply sales......... 106,149 82,714
Service and rental costs................... 26,904 20,975
Selling, general and administrative
expenses.................................. 45,967 39,521
Intangible asset amortization.............. 4,313 3,154
-------- --------
Total costs and operating expenses.......... 183,333 146,364
-------- --------
Income from operations (1).................. 13,510 13,027
Interest expense............................ 9,798 7,075
-------- --------
Income before income taxes.................. 3,712 5,952
Income taxes................................ 1,804 3,009
-------- --------
Net income.................................. 1,908 2,943
Yield adjustment on Class A Common Stock
(2)........................................ (2,445) (1,844)
-------- --------
Net income (loss) available to holders of
Common Stock............................... $ (537) $ 1,099
======== ========
Earnings (loss) per share (basic and
diluted)................................... $ (0.05) $ 0.11
======== ========
Weighted average number of shares used in
the calculation (3)...................... 10,339 10,339
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital............................................... $ 24,539
Total assets.................................................. 164,199
Long-term debt, including current maturities.................. 98,209
Total stockholders' equity.................................... 36,834
</TABLE>
- --------
(1) The pro forma results do not reflect improved purchasing terms, reduced
administrative expenses, and increased access to capital that the Company
believes are directly attributable to its acquisition of the businesses
acquired by it. Adjusted for such increased operating efficiencies, pro
forma income from operations would have been $14.6 million for the year
ended March 31, 1997 and $13.5 million for the nine months ended December
31, 1997.
(2) Reflects adjustments for amounts payable upon a sale of the Company or an
initial public offering to holders of Class A Common Stock equivalent to
an 8.0% annual yield on the original per share amount of $90.
(3) Assumes the conversion of outstanding shares of Class C Common Stock into
Common Stock.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Pro
Forma Financial Data" and "Selected Financial Data," the Unaudited Pro Forma
Consolidated Financial Data and the related Notes thereto, the Consolidated
Financial Statements and the related Notes thereto, the audited financial
statements for certain businesses acquired by the Company and the related
Notes thereto, and the other financial information appearing elsewhere in this
Prospectus. Except for the historical information contained herein, the
discussions in this Prospectus contain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Risk Factors" as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
Global was founded in June 1994 with the goal of becoming a leading
consolidator in the highly fragmented office imaging solutions industry. The
Company is a rapidly growing provider of an array of office imaging solutions,
which encompasses the sale and service of automated office equipment (copiers,
facsimile machines, printers and duplicators), electronic presentation
equipment and DIM systems as well as network integration and management
services. Since its founding, the Company has acquired nine core companies
primarily in the Northeast, Southeast, and Pacific Northwest, and 15
additional satellite companies that have been integrated into the core
companies. The first acquisition was completed in August 1994. Management
believes that the businesses that have been acquired by the Company (the
"Acquired Businesses") and other businesses that the Company plans to acquire
will benefit from increased operating efficiencies, the support of experienced
and professional senior management, expansion of the types of office imaging
products and services offered, increased access to capital, and increased
emphasis on financial management. Therefore, the pro forma results discussed
below do not necessarily represent the results of the Company had each of the
Acquired Businesses been operated by the Company during the periods presented.
The pro forma results discussed include adjustments made to reflect: (i)
certain identifiable personnel cost savings of $1,033,589 and $290,982 for the
year ended March 31, 1997 and the nine months ended December 31, 1997,
respectively, relating to the elimination of certain service, sales and
administrative positions, net of additional expenses related to positions
added in connection with the Company's acquisitions of the Acquired
Businesses; (ii) rent expense to reflect the Company's current lease terms;
(iii) general and administrative expenses of $2,205,289 and $1,226,738 for the
year ended March 31, 1997 and the nine months ended December 31, 1997,
respectively, to reflect the current compensation levels as specified in their
respective employment agreements of former owners of the Acquired Businesses;
(iv) amortization expense to reflect financing fees, goodwill and non-compete
agreements recorded as a result of purchase accounting; (v) interest expense
resulting from increased borrowings to fund the cash portion of the purchase
price for the businesses acquired; and (vi) income tax expense that would have
resulted if the Acquired Businesses had been combined and subject to an
assumed federal statutory rate and the applicable state statutory rate for
each of the Acquired Businesses throughout the periods presented. Management
believes that these adjustments more accurately reflect the operating results
and financial position of the Acquired Businesses had they been owned by the
Company throughout the periods discussed. Management believes that the cost
efficiencies achieved are sustainable and expects they will continue. The
Company's incremental costs to assimilate Acquired Businesses are usually
incurred within several months of the acquisition date and are not
significant.
The Company derives its revenues from two sources: (i) sales of equipment
and supplies and (ii) sales of complementary services and equipment rentals.
The growth of equipment revenues and the complementary supplies, parts and
service revenues is dependent on several factors, including the demand for
equipment, the Company's reputation for providing timely and reliable service,
and general economic conditions. Revenues generated from the sale of equipment
and complementary supplies, parts and services revenues are impacted by price,
general economic conditions, service reputation, and competitors' actions in
the marketplace. Revenues
19
<PAGE>
from the sale of complementary supplies, parts and services are also affected
by equipment sales and rental volumes.
As the Company acquires businesses, the percentage of its revenues derived
from sales of equipment and supplies, as opposed to service and rentals,
fluctuates according to whether the businesses acquired are automated office
equipment dealers (which typically derive a higher percentage of revenues from
service and rentals) or are network integrators or electronic presentation
systems or DIM systems dealers (which typically derive a higher percentage of
revenues from sales of equipment and supplies). Generally, sales of equipment
and supplies have lower gross profit margins than sales of service and
rentals. The Company expects that, over time, it will increasingly become
engaged in the network integration, electronic presentation systems and DIM
systems markets and, accordingly, a larger percentage of its revenues and
gross profits will be derived from the sale of equipment and supplies.
Cost of goods sold consists primarily of the cost of new equipment, cost of
supplies and parts, labor costs to provide services, rental equipment
depreciation and other direct operating costs. The Company depreciates its
rental equipment primarily over a three-year period on a straight-line basis
with no residual value.
Gross profit as a percentage of revenues varies from period to period
depending upon numerous variables, including the mix of revenues from
equipment, supplies, service and rentals; the mix of revenues among the
markets served by the Company; and the mix of revenues of the businesses
acquired.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the actual and pro forma consolidated statements of operations of
the Company expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
INCEPTION MARCH 31, DECEMBER 31,
(JUNE 3, 1994) ------------------------ ----------------------------
TO MARCH 31, PRO FORMA (UNAUDITED) PRO FORMA
1995 1996 1997 1997 1996 1997 1997
-------------- ----- ----- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Equipment and supplies
sales.................. 63.7% 55.6% 64.3% 73.2% 62.3% 73.2% 73.3%
Service and rental
revenues............... 36.3 44.4 35.7 26.8 37.7 26.8 26.7
----- ----- ----- ----- ----- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold...... 59.2 58.9 60.2 67.6 59.5 65.4 65.1
----- ----- ----- ----- ----- ----- -----
Gross profit............ 40.8 41.1 39.8 32.4 40.5 34.6 34.9
Selling, general, and
administrative
expenses............... 40.1 31.6 28.5 23.3 28.9 23.5 24.8
Intangible asset
amortization........... 3.2 3.8 3.0 2.2 3.2 2.0 2.0
----- ----- ----- ----- ----- ----- -----
Income from operations.. (2.5) 5.7 8.3 6.9 8.4 9.1 8.1
Interest expense........ 3.6 5.5 5.0 5.0 5.2 4.1 4.4
----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... (6.1) 0.2 3.3 1.9 3.2 5.0 3.7
Income taxes............ 0.0 0.7 1.5 0.9 1.5 2.5 1.9
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (6.1)% (0.5)% 1.8% 1.0% 1.7% 2.5% 1.8%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Nine Months Ended December 31, 1997 Compared to Nine Months Ended December 31,
1996
Revenues
Total revenues increased 149% from $44.1 million for the nine months ended
December 31, 1996 to $110.0 million for the nine months ended December 31,
1997. The majority of the revenue growth was attributable to the acquisition
of businesses during 1996 and 1997. Pro forma revenues for the nine months
ended December 31, 1997 were $159.4 million.
Equipment and supplies sales increased 193% from $27.5 million, or 62.3% of
total revenues, for the nine months ended December 31, 1996 to $80.5 million,
or 73.2% of total revenues, for the nine months ended
20
<PAGE>
December 31, 1997. Equipment and supplies sales were $116.9 million, or 73.3%
of total revenues, for the pro forma nine months ended December 31, 1997. The
increase was due to the acquisition of businesses in mid-1996 and 1997 that
derive most of their revenue from the sale of network integration and
management services, electronic presentation equipment, and DIM systems. The
equipment sales component of these businesses accounts for a higher percentage
of total revenues as compared to a traditional copier-focused office equipment
company.
Service and rental revenues increased 78% from $16.6 million, or 37.7% of
total revenues, for the nine months ended December 31, 1996 to $29.5 million,
or 26.8% of total revenues, for the nine months ended December 31, 1997. Pro
forma service and rental revenues were $42.5 million, or 26.7% of total pro
forma revenues, for the nine months ended December 31, 1997, consistent with
the change in the Company's revenue mix.
Gross Profit
Total gross profit increased 113% from $17.9 million, or 40.5% of total
revenues, for the nine months ended December 31, 1996 to $38.0 million, or
34.6% of total revenues, for the nine months ended December 31, 1997. The
change in total gross profit margins from year to year is the result of the
change in the Company's revenue mix described above. Gross profit margins on
the sale of network services equipment, and electronic presentation and DIM
equipment are historically lower than the gross profit margins for copier
equipment. Excluding equipment sales, gross profit margins were stable for the
nine months ended December 31, 1996 versus the nine months ended December 31,
1997 at 53.2% and 53.0%, respectively in 1996 and 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 103% from $12.7
million, or 28.9% of revenues, for the nine months ended December 31, 1996 to
$25.8 million, or 23.5% of revenues, for the nine months ended December 31,
1997. The increase in expenses was attributable to the acquisition of
businesses during 1996 and 1997. The decline in expenses as a percentage of
revenues was primarily the result of the acquisition of profitable businesses,
the change in the composition of the Company's businesses described above,
reduced corporate overhead expenses as a percentage of total selling, general
and administrative expenses in the nine month period ended December 31, 1997,
and revenues increasing more rapidly than expenses.
Intangible Asset Amortization
For the nine months ended December 31, 1996 and the nine months ended
December 31, 1997, asset amortization was $1.4 million and $2.2 million,
respectively. Asset amortization includes the amortization of goodwill and
non-compete agreements from acquisitions.
Income From Operations
Income from operations increased 171% from $3.7 million, or 8.4% of total
revenues, for the nine months ended December 31, 1996 to $10.1 million, or
9.1% of total revenues, for the nine months ended December 31, 1997. Pro forma
operating income was $13.0 million, or 8.1% of pro forma revenues, for the
nine months ended December 31, 1997.
Interest Expense
Interest expense increased 95%, from $2.3 million for the nine months ended
December 31, 1996 to $4.5 million for the nine months ended December 31, 1997.
The increase was primarily due to increased borrowings under the Credit
Facility. The proceeds from the additional borrowings were used to fund the
cash portion of the cost of businesses acquired in 1996 and 1997. Interest
expense includes the amortization of financing fees incurred in connection
with the senior debt facility.
21
<PAGE>
Income Taxes
The provision for income taxes was $658,000 for the nine months ended
December 31, 1996 and $2.7 million for the nine months ended December 31,
1997. The increase in income taxes was primarily due to increased pre-tax
income resulting from the inclusion of the Acquired Businesses. The effective
income tax rate increased from 47.3% for the nine months ended December 31,
1996 to 49.6% for the nine months ended December 31, 1997.
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996
Revenues
Total revenues increased 73% from $37.0 million for the fiscal year ended
March 31, 1996 to $64.1 million for the fiscal year ended March 31, 1997. The
majority of the revenue growth was attributable to the acquisition of
businesses during 1996 and 1997, with the remainder coming from internal
growth. Pro forma revenues were $196.8 million, for the fiscal year ended
March 31, 1997.
Equipment and supplies sales increased 100% from $20.6 million, or 55.6% of
total revenues, for the fiscal year ended March 31, 1996 to $41.2 million, or
64.3% of total revenues, for the fiscal year ended March 31, 1997. Equipment
and supplies sales were $144.1 million, or 73.2% of total revenues, for the
pro forma year ended March 31, 1997. The equipment component of sales of the
businesses acquired in 1996 and 1997 was a larger portion of total revenues
than for the Company's existing businesses.
Service and rental revenues increased 40%, from $16.4 million, or 44.4% of
total revenues for the fiscal year ended March 31, 1996 to $22.9 million, or
35.7% of total revenues, for the fiscal year ended March 31, 1997. Pro forma
service and rental revenues were $52.7 million, or 26.8% of total pro forma
revenues, for the fiscal year ended March 31, 1997, consistent with the change
in the revenue mix described above.
Gross Profit
Total gross profit increased 68% from $15.2 million, or 41.1% of total
revenues, for the fiscal year ended March 31, 1996 to $25.5 million, or 39.8%
of total revenues, for the fiscal year ended March 31, 1997. The change in
total gross profit margins from year to year was due to the change in the
revenue mix as described in the Revenues section above. Combined service and
rental gross profit margins were 49.4% for the fiscal year ended March 31,
1996 and 49.9% for the fiscal year ended March 31, 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 56% from $11.7
million, or 31.6% of revenues, for the fiscal year ended March 31, 1996 to
$18.3 million, or 28.5% of revenues, for the fiscal year ended March 31, 1997.
The increase in expenses was primarily due to the acquisition of businesses in
1996 and 1997. The decline in expenses as a percentage of revenues was the
result of the acquisition of profitable businesses, the change in the
composition of the Company's businesses, and revenues increasing more rapidly
than expenses.
Intangible Asset Amortization
For the fiscal years ended March 31, 1996 and 1997, asset amortization was
$1.4 million and $1.9 million, respectively. Asset amortization includes the
amortization of goodwill and non-compete agreements from acquisitions.
Income From Operations
Income from operations increased 150% from $2.1 million, or 5.7% of total
revenues, for the fiscal year ended March 31, 1996 to $5.3 million, or 8.3% of
total revenues, for the fiscal year ended March 31, 1997. Pro forma operating
income was $13.5 million, or 6.9% of revenues, for the fiscal year ended March
31, 1997.
22
<PAGE>
Interest Expense
Interest expense increased 56%, from $2.0 million for the fiscal year ended
March 31, 1996 to $3.2 million for the fiscal year ended March 31, 1997. The
increase was primarily due to the increase in the Company's borrowings. The
proceeds from the additional borrowings were used to fund the cost of the
businesses acquired in 1996 and 1997. Interest expense includes the
amortization of financing fees incurred in connection with the senior debt
facility.
Income Taxes
The provision for income taxes was $275,000 for the fiscal year ended March
31, 1996 and $1.0 million for the fiscal year ended March 31, 1997. The
increase in income taxes was primarily due to increased pre-tax income
resulting from the inclusion of businesses acquired during 1996 and 1997. The
effective income tax rate decreased from 332.8% for the fiscal year ended
March 31, 1996 to 47.3% for the fiscal year ended March 31, 1997. The
effective income tax rate for 1996 was higher than the federal statutory rate
of 34.0% plus state and local taxes, primarily due to non-deductible goodwill
amortization relating to the businesses acquired during the fiscal years ended
March 31, 1995 and March 31, 1996. See Note 8 of Notes to Consolidated
Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected consolidated financial information for
each of the Company's last five fiscal quarters. The information has been
derived from unaudited consolidated financial statements that in the opinion
of management reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such quarterly information.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supply
sales................. $12,588 $13,697 $15,182 $30,543 $34,790
Service and rental rev-
enues................. 5,957 6,282 6,730 10,860 11,925
------- ------- ------- ------- -------
Total revenues.......... 18,545 19,979 21,912 41,403 46,715
Costs and operating ex-
penses:
Cost of equipment and
supply sales.......... 8,436 9,105 10,273 22,363 24,851
Service and rental
costs................. 2,996 3,193 3,304 5,216 5,973
Selling, general and
administration
expenses.............. 5,013 5,544 5,502 9,460 10,856
Intangible asset amor-
tization.............. 526 536 563 753 843
------- ------- ------- ------- -------
Total costs and operat-
ing expenses........... 16,971 18,378 19,642 37,792 42,523
------- ------- ------- ------- -------
Income from operations.. 1,574 1,601 2,270 3,611 4,192
Interest expense........ 780 863 938 1,616 1,980
------- ------- ------- ------- -------
Income before income
taxes.................. 794 738 1,332 1,995 2,212
Income taxes............ 376 349 661 990 1,099
------- ------- ------- ------- -------
Net income.............. 418 389 671 1,005 1,113
Yield adjustment on
Class A Common Stock
(1).................... (376) (373) (382) (434) (533)
------- ------- ------- ------- -------
Net income available to
holders of Common
Stock.................. $ 42 $ 16 $ 289 $ 571 $ 580
======= ======= ======= ======= =======
Earnings per share (ba-
sic and diluted)....... $ 0.00 $ 0.00 $ 0.03 $ 0.06 $ 0.06
======= ======= ======= ======= =======
Weighted average number
of shares used in
calculation (2)........ 8,934 9,005 9,229 9,462 9,873
======= ======= ======= ======= =======
</TABLE>
- --------
(1) Reflects adjustments for amounts payable upon a sale of the Company or an
initial public offering to holders of Class A Common Stock equivalent to
an 8.0% annual yield on the original per share amount of $90.
(2) Assumes conversion of the outstanding shares of Class C Common Stock into
Common Stock.
23
<PAGE>
The following table sets forth selected consolidated financial information
as a percentage of total revenues for each of the Company's last five fiscal
quarters.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1997 1997
------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supply
sales................. 67.9% 68.6% 69.3% 73.8% 74.5%
Service and rental rev-
enues................. 32.1 31.4 30.7 26.2 25.5
----- ----- ----- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0 100.0
Costs and operating ex-
penses:
Cost of equipment and
supply sales.......... 45.5 45.6 46.9 54.0 53.2
Service and rental
costs................. 16.2 16.0 15.1 12.6 12.8
Selling, general and
administration
expenses.............. 27.0 27.7 25.1 22.9 23.2
Intangible asset amor-
tization.............. 2.8 2.7 2.5 1.8 1.8
----- ----- ----- ----- -----
Total costs and
operating expenses..... 91.5 92.0 89.6 91.3 91.0
----- ----- ----- ----- -----
Income from operations.. 8.5 8.0 10.4 8.7 9.0
Interest expense........ 4.2 4.3 4.3 3.9 4.2
----- ----- ----- ----- -----
Income before income
taxes.................. 4.3 3.7 6.1 4.8 4.8
Income taxes............ 2.0 1.7 3.0 2.4 2.4
----- ----- ----- ----- -----
Net income ............. 2.3% 2.0% 3.1% 2.4% 2.4%
===== ===== ===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through internal cash
flow, sales of stock and bank financing, including the Company's financing
facilities described below. These sources of funds have been used to fund the
Company's growth both internally and through acquisitions. The Company is
pursuing an acquisition strategy and therefore expects to acquire more
businesses.
The Company's Credit Facility consists of a $6.0 million revolving line of
credit and a term facility under which it may borrow up to $114.0 million for
acquisitions and for working capital purposes. At March 31, 1998, $97.3
million was outstanding under the Credit Facility, all of which was
outstanding under the term facility. The revolving line of credit and the term
loan bear interest at 3.00% and 3.25% over LIBOR, respectively. Principal
under the Credit Facility is repayable in installments over the life of the
Credit Facility. All remaining principal under the Credit Facility is due and
payable on August 14, 2004. The agreement governing the Credit Facility (the
"Credit Agreement") requires the Company to pledge substantially all of its
assets, including the capital stock of the Company's subsidiaries, to JNL. The
Credit Agreement requires strict compliance with numerous covenants that
restrict, among other things, amendments to the Company's Certificate of
Incorporation or Bylaws, dividend payments, sales of stock or assets or the
incurrence of additional debt by the Company or its Subsidiaries.
The Company intends to replace the Credit Facility by paying it off with a
combination of the net proceeds of the Offering and with proceeds from a
replacement credit facility it expects to obtain after the closing of the
Offering. Under the terms of a commitment letter the Company has entered into
with First Union (the "Commitment Letter"), First Union has committed to
provide or arrange a $175 million revolving credit facility to the Company
(the "Replacement Facility"). The Replacement Facility will bear interest at
rates ranging from 0.625% to 1.5% over LIBOR or, at the Company's option,
ranging from 0.0% to 0.5% over a base rate related to prime rate, and will
vary according to the Company's ratio of its total funded debt to earnings
before interest, taxes, depreciation and amortization. Amounts borrowed under
the Replacement Facility may be repaid and reborrowed over the life of the
Replacement Facility, with a final maturity date of five years after the
closing of the Replacement Facility. The terms of the Replacement Facility
will require strict compliance with numerous affirmative, negative and
financial covenants similar to those found in the Credit Agreement with JNL.
Pursuant to the Commitment Letter, amounts borrowed under the Replacement
Facility may be used to refinance amounts owed to JNL, and to fund working
capital and general corporate purposes, including acquisitions, subject to
prior lender approval in the case of acquisitions with a cash purchase price
of over $15 million or an aggregate price (cash, stock or other consideration)
of over $40 million.
24
<PAGE>
Under the Company's agreement with JNL, following the Offering and the
partial repayment of the term loans outstanding under the Credit Facility as
described in "Use of Proceeds," the Company has the right to prepay the entire
amount due under the Credit Facility within 60 days of the closing of the
Offering provided that it pays a prepayment fee of $250,000. If the Company
fails to prepay the entire amount due within 60 days of the closing of the
Offering, the Company will be subject to a prepayment fee of 4.0% (declining
to 3.0%, 2.0% and 1.0% on August 14, 1998, 1999 and 2000, respectively) of the
amounts due under the term loan component of the Credit Facility. There can be
no assurance that the Company will be able to obtain the Replacement Facility
or another replacement credit facility within 60 days, or at all or that, if
obtained, such credit facility will be upon terms favorable to the Company. If
the Company does replace the Credit Facility, unamortized financing fees
incurred in conjunction with obtaining the Credit Facility will be written off
upon payment of amounts due thereunder. The balance of such unamortized
financing fees was $2.9 million at March 31, 1998.
Under the terms of one of its purchase agreements, the Company may be
required to make payments of up to $3.0 million over the next four years to
certain former owners of the Acquired Business based on the profitability of
the Acquired Business during such time period.
For the fiscal year ended March 31, 1997 the net cash provided by operations
was $4.3 million and for the nine months ended December 31, 1997 the net cash
provided by operations was $2.1 million. For the year ended March 31, 1997 and
for the nine months ended December 31, 1997 the Company's net cash used in
investing activities was $19.0 million and $64.9 million, respectively,
primarily for the purchase of Acquired Businesses. For the year ended March
31, 1997 and the nine months ended December 31, 1997, the Company's net cash
provided by financing activities was $15.2 million and $65.7 million,
respectively. Net cash provided by financing activities consists of equity
capital provided by GTCR, JNL, and certain members of management of the
Company and Acquired Businesses, and net borrowings under the Credit Facility.
The Company believes that the Credit Facility, together with the cash on
hand after giving effect to the Offering and funds generated by the Company's
operations, will provide the Company with sufficient liquidity and capital
resources to pursue its business strategy at least through March 1999,
including the funding of working capital, acquisitions, capital expenditures
and other needs. Management believes that inflation has not had a material
effect on the Company.
YEAR 2000 SOFTWARE ISSUE
The Company uses a number of computer software programs and operating
systems in its operations, including applications used in sales and marketing,
billing, inventory management and other administrative functions. To the
extent that the software applications used in such functions and
communications are unable to recognize the year 2000, the Company may incur
expenses in connection with the need to remediate such software and also may
incur the risk and potential expense of disruptions that may be caused by the
software's impaired functioning as the year 2000 approaches. The Company
believes that the manufacturers of the software applications it uses most
frequently, including its systems software and its word processing and
spreadsheet software, are in the process of preparing or have already
completed Year 2000 remediations for their products. The Company believes that
with the remediations to existing software and conversions to new software,
the Year 2000 issue will not pose significant operational problems for its
computer systems.
In addition, the Company communicates electronically with a number of its
suppliers and customers with respect to a variety of functions, including
ordering, billing and payroll. Any failure of the software of the Company's
suppliers or customers to address the Year 2000 issue could impair the
Company's ability to perform such functions. The Company is analyzing the
potential impact of the Year 2000 issue on the Company's interactions with its
suppliers and customers.
25
<PAGE>
BUSINESS
Global Imaging Systems is a consolidator in the highly fragmented office
imaging solutions industry. The Company is a rapidly growing provider of a
broad line of office imaging solutions, which includes the sale and service of
automated office equipment (copiers, facsimile machines, printers and
duplicators), electronic presentation systems, and document imaging management
systems ("DIM" systems or "document technology systems"), as well as network
integration and management services. Since its founding in June 1994, the
Company has acquired nine core companies primarily in the Northeast,
Southeast, and Pacific Northwest, and an additional 15 companies ("satellite"
companies) which have been integrated into the core companies. The Company's
operating philosophy is to "think globally, act locally." Under the Company's
decentralized management system, Global's core companies typically continue to
operate under their pre-acquisition names and with their pre-acquisition
management even after being acquired by Global, thus permitting existing
client relationships to be preserved. In many cases Global's satellite
companies also continue to operate under their pre-acquisition names and
management, although all administrative functions are conducted at the core
company level. The Company believes that its emphasis on superior customer
service and the contractual nature of its service business provide a
significant source of recurring revenue.
Global seeks to become the provider of choice for all of its customers'
office imaging needs by offering a full range of products and services and
superior customer service. While Global's clientele includes large, Fortune
500 companies, its growth has been, and is expected to continue to be, largely
driven by serving middle market businesses. The Company sells and services a
variety of office imaging solutions, including copiers, facsimile machines,
printers, duplicators, LCD projectors, smartboards, overhead projectors, video
teleconferencing equipment, optical scanning equipment, micrographics
equipment, and the design and installation of equipment related to computer
networks. In addition, the Company offers a variety of ongoing services,
including supply and service contracts, network management contracts,
technical support and training.
The Company's strategic objective is to continue to grow profitably in both
existing markets and new markets through internal growth and by acquiring
additional office imaging solutions companies. Global intends to enter new
geographic markets by acquiring additional core companies and expanding its
core markets through the acquisition of satellite companies, which are
typically in close proximity to core companies. Global's strategy for
stimulating internal growth is to expand its product and service offerings,
take advantage of cross-selling opportunities, and market aggressively to
existing and new customers.
The Company is currently organized into nine core companies with operations
in 46 locations in 15 states, plus the District of Columbia. Global targets
for acquisition as core companies businesses that are leading competitors in
the markets they serve. The Company's goal is to acquire core and satellite
companies throughout the United States and Canada.
26
<PAGE>
Certain information regarding the nine current core companies, including pro
forma revenues for the nine months ended December 31, 1997, is summarized
below:
<TABLE>
<CAPTION>
Effective Date
Acquired/
Revenues No. of Date of
Core Company Regional Focus (in thousands) Satellites Incorporation
<S> <C> <C> <C> <C>
Felco Office Systems, Texas $ 6,841 1 July 1994/
Inc. Mar. 1985
Conway Office Products, Upper New England, $32,552 4 Jan. 1995/
Inc. Upstate New York, Apr. 1976
Eastern Massachusetts
Berney, Inc. Alabama, Mississippi, $10,093 3 Feb. 1995/
Florida Panhandle June 1964
Amcom Office Systems Western $ 9,798 2 Feb. 1996/
Pennsylvania Jan. 1978
Copy Service & Supply, North Carolina, $ 4,285 0 July 1996/
Inc. South Carolina Jan. 1984
Southern Business Georgia, Florida, $18,183 1 Nov. 1996/
Communications, Inc. Tennessee, Mar. 1981
Washington D.C.,
Maryland, Virginia
Electronic Systems, Inc. Virginia, $47,552 1 July 1997/
Washington D.C. Aug. 1980
Quality Business Pacific Northwest $13,709 2 Sept. 1997/
Systems, Inc. Feb. 1986
Connecticut Business Western Massachusetts, $16,378 1 Jan. 1998/
Systems, Inc. Connecticut, Lower June 1988
New York, Rhode Island
</TABLE>
THE INDUSTRY
The market for sales and service of office imaging solutions is highly
fragmented. Of an estimated 3,700 dealer and distributor outlets in the United
States primarily engaged in the sale of automated office equipment and related
service, parts, and supplies, approximately 3,100 dealer outlets are
unaffiliated, according to Industry Analysts, Inc. According to Dataquest, the
black and white copier and related service and supplies market generated sales
of approximately $20.5 billion in the U.S. in 1996, and is expected to grow to
an estimated $26.4 billion in sales in 2001, while the color copier and
related service and supplies market generated sales of approximately $1.3
billion in the U.S. in 1996, and is expected to grow to an estimated $4.4
billion in sales in 2001. The network consulting and integration services
market generated sales in the U.S. of approximately $5.8 billion in 1996 and
is expected to grow to approximately $12.4 billion by 2001, according to
International Data Corporation. The network services market (as a discrete
segment) generated sales of approximately $1.5 billion in the U.S. in 1996,
and is expected to grow to approximately $3.7 billion in sales by 2001,
according to International Data Corporation. The market for electronic
presentation systems generated sales estimated at approximately $719 million
in the U.S. in 1996, and is expected to grow to an estimated $1.5 billion in
sales in 2001, according to Pacific Media Associates. The Company believes the
market for document technology systems generated over $3.5 billion in sales in
the U.S. in 1996, and may grow to over $13.2 billion in sales by 2001.
27
<PAGE>
CONSOLIDATION
Consolidation of independent distributors and service providers is occurring
throughout the office imaging solutions industry. This consolidation has been
driven by a number of factors, including the following:
Technological Change. The technology of office imaging solutions is changing
rapidly. Digital technology, which allows an image to be scanned
electronically and transmitted through networks of personal computers, has in
recent years been incorporated into copiers, electronic presentation equipment
and DIM technology. As a result, the role for computers and networks in office
imaging solutions has been dramatically expanded and the functions of copiers,
facsimile machines, and printers have been converging. The introduction of
digital technology has led to computer networks becoming an integral part of
office imaging solutions, as digital technology allows images to be captured,
transmitted, reproduced and stored over wide geographic areas. This has led to
increasing demand by larger companies for more centralized network integration
services over a broader geographic area. The rapid pace of technological
change, including the change from analog to digital technologies, and the
resulting expansion of product offerings and increase in product support costs
have outpaced the technical, managerial and financial resources of many
smaller distributors and service providers, causing them to seek larger
partners. Further, the blurring of the distinction among office imaging
technologies and the increased role for computers has made it important for
dealers without network integration expertise to partner with companies that
have such expertise.
Dealer Consolidation by Suppliers. The cost of new product development and
fierce competition among equipment manufacturers have resulted in their
seeking efficiencies by consolidating their dealer networks. Increasingly,
manufacturers are seeking to concentrate their business with a smaller number
of dealers that possess leading service capabilities and wide geographic
coverage.
Distribution Channel Changes. In the market for automated office equipment,
consolidation is also resulting from changes in distribution channels. Office
superstores and consumer electronics chains have entered the market for lower-
end office products, offering these products at prices that are forcing
smaller dealers out of the market. Smaller dealers also face difficulty
competing in the market for mid-range copiers, because they are not well
equipped to provide the sophisticated support services required by businesses
that purchase these products. Typically, office superstores and consumer
electronics chains also do not offer the support services required by
purchasers of mid-range copiers.
OFFICE IMAGING PRODUCTS AND SERVICES
The automated office equipment market is generally regarded by participants
as consisting of six black and white copier segments (both digital and analog)
categorized by price and number of pages per minute, a color copier segment, a
duplicator segment, a facsimile equipment segment, a printer segment and a
multi-function equipment segment.
The electronic presentation systems market consists of the sale and service
of LCD projectors and panels, smartboards, overhead projectors and video
conferencing equipment. As in the automated office equipment market, products
in this market increasingly utilize digital technology, and customers for
these products are designating a single buyer to address their needs in both
markets. This market is characterized by strong competition among
manufacturers, with new products being introduced frequently. As a result,
some manufacturers are offering their most popular new products only to those
dealers who agree to limit their product offerings to that one manufacturer.
The five largest suppliers of LCD projectors, Epson, InFocus, Proxima, Sanyo
and Sharp, accounted for over 60% of the market in 1997, according to Pacific
Media Associates.
Like automated office equipment and electronic presentation systems, DIM
systems also involve digital technology and are ultimately used by the same
end-users as other types of office imaging equipment. This market consists of
optical disk storage equipment, write once read many ("WORM") disks and CD-ROM
optical storage products, as well as micrographic equipment (microfilm and
microfiche). These products are used
28
<PAGE>
to capture and store large volumes of visual data. Key customers for these
products include banks, educational institutions, government institutions,
libraries and insurance companies.
With the rise of digital copier technology, the customer's need for office
imaging equipment is becoming increasingly linked to its need for network
integration services. Network integrators provide outsourced management and
support to organizations' computer network infrastructures. As organizations
seek to take advantage of productivity-enhancing computer network technology,
they face a complex and costly set of issues relating to the design,
selection, implementation and management of their computer networks. Among
other challenges, organizations must select from an expanding number of
product options with shortening life cycles; integrate diverse and often
incompatible hardware and software environments; and deal with a shortage of
qualified information technology service personnel. As a result, many smaller
businesses seek to outsource installation, upgrade and support, and large
organizations seek to outsource network improvement functions and the
evaluation of new products.
BUSINESS STRATEGY
Management believes the Company is well positioned to benefit from industry
trends and continued consolidation in the office imaging solutions industry.
The Company's goal is to become the provider of choice for all of its
customers' office imaging needs by offering a full range of products and
services and superior customer service. The Company's strategy to achieve this
goal contains the following elements:
Serve as a Single Source Provider of Office Imaging Solutions. The Company
believes that offering a full spectrum of products and services will give it a
competitive advantage and enable the Company to capitalize on its customer
relationships by cross-selling its products and services. As the technology
that drives copiers, facsimiles, printers, electronic presentation equipment
and DIM equipment continues to converge, there is a greater role for computers
and networks in the functioning of these products. Accordingly, customers are
demanding more integrated office imaging solutions. The Company intends to
expand its offerings to provide products and services in the automated office
equipment market, the electronic presentation systems market, the DIM systems
market and the network integration markets in each of its geographic markets.
Additionally, management believes that the Company has the opportunity to
leverage its infrastructure, customer base, and expertise by offering
outsourced facilities management services to its customers.
Make Strategic Acquisitions. Global actively seeks to acquire core companies
in targeted geographic markets and to expand these core acquisitions through
internal growth and the acquisition of satellite companies. As part of its
acquisition strategy, Global looks for companies that are led by an
experienced management team that will continue to manage the company after it
is acquired, that have a strong regional market share, and that can grow
internally and through the acquisition of satellite companies. Global's senior
management team has substantial experience in making acquisitions. See
"Management." Since its founding in June 1994, the Company has acquired nine
core companies primarily in the Northeast, Southeast, and Pacific Northwest,
and an additional 15 satellite companies which have been integrated into the
core companies. The Company's goal is to acquire core and satellite companies
throughout the United States and Canada.
A key component of the Company's growth strategy is to acquire satellite
companies in or near its core companies' markets. Core company management
frequently assists Global in identifying appropriate satellite companies to
acquire. In evaluating potential satellite acquisitions the Company considers,
among other factors, its proximity to a core company, whether the product
lines sold by the satellite are complementary with those of the core company,
its management and employee base and the service base that the potential
satellite company has under service contract.
Stimulate Internal Growth. The Company seeks to stimulate internal growth in
its core companies by increasing the productivity of their sales forces
through the use of performance benchmarks developed by the Company, expanding
product and service offerings, increasing the size of its core companies'
sales forces and aggressively cross-selling its products and services.
29
<PAGE>
Optimize Profitability and Operating Efficiency. Global's senior management
has developed an industry management model that encompasses a comprehensive set
of performance benchmarks. These performance benchmarks, which are used as the
primary form of internal reporting from the core companies to Global, allow the
Company and local management to monitor and improve the operations of each core
company. Through the use of these benchmark criteria, Global seeks to train the
managers of its core and satellite companies to optimize their business mix and
improve performance.
Global works to reduce costs by consolidating the back-office functions of
its satellite acquisitions into the core operations and by increasing the
productivity of sales and service personnel and administrators. Global also
reduces costs through the standardization of financial reporting, cash and
inventory management, payroll, billing, collections, insurance and employee
benefit programs, and by negotiating advantageous relationships with equipment
manufacturers, other suppliers and lessors.
Operate with a Decentralized Management Structure. Global believes that the
experienced local management teams of its core companies possess a valuable
understanding of their respective markets and existing customer relationships.
Accordingly, Global follows a decentralized management approach, vesting
responsibility for day-to-day operating decisions at the core company level.
Under Global's decentralized structure, core companies and, in some cases,
satellite companies retain their local name and management after acquisition.
The Company believes that this decentralized approach permits local management
to maintain focus and motivation and provides optimal customer support. Local
management is supported by a senior management team that focuses on the
Company's growth strategy as well as corporate planning and financial reporting
and analysis.
PRODUCT AND SERVICE OFFERINGS
Global currently sells office imaging products and services in four markets:
the automated office equipment market, the electronic presentation systems
market, the DIM systems market and the network integration services market.
In each of these markets, the Company provides a number of office imaging
solutions, including the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AUTOMATED NETWORK INTEGRATION ELECTRONIC PRESENTATION
OFFICE EQUIPMENT SERVICES SYSTEMS DIM SYSTEMS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Black and white copiers . Network design and . LCD projectors and . Microfiche and
(digital and analog) installation, and related panels microfilm equipment
. Color copiers (digital) software and hardware . Smartboards . CD-ROM optical
. Duplicators . Technical support . Video conferencing storage products
(digital and analog) contracts equipment . Write once read many
. Facsimile machines . Network . Overhead projectors ("WORM") disks and
. Printers (including color) maintenance contracts . Color printers related equipment
. Multi-function equipment . Training . Audio visual
. Related supply and service . Internet Services equipment . Related supplies
contracts . Related supplies
. Related service . Related service
contracts contracts
. Point-of-sale training . Related training
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
For the nine months ended December 31, 1997, pro forma revenues from the
automated office equipment market, the network integration services market,
the electronic presentation systems market and the DIM systems market
represented approximately 61%, 28%, 9% and 2%, respectively, of the Company's
pro forma revenues.
A substantial amount of the Company's revenues are derived from its service
activities, and the Company seeks to take advantage of the "after market"
opportunities presented by its sales of office imaging equipment. The
Company's copier service and supply contracts, for example, provide the
Company with a predictable source of revenue that is based on the number of
copies made by its customers. In the network integration market, the Company's
focus is on entering into contracts involving the provision of ongoing
maintenance and technical support, which generate a recurring revenue stream.
The Company believes that a commitment to effective and responsive service
is key to its success in obtaining repeat business from customers and in
developing market recognition that is essential for growth. Over 85% of the
Company's copier sales, on a pro forma basis and measured by revenue
generated, are accompanied by service and supply contracts, which typically
provide that the Company be paid for service on a per-copy basis and continue
for either a one year term or, in some cases, are month to month contracts. As
part of its commitment to providing quality service, the Company strives to
provide its automated office equipment customers with two to four hour
response time to service calls during business hours, and offers a 24 hour
technical assistance "hotline" to its network integration customers. In
addition, the Company's service technicians are generally manufacturer- or
vendor-certified to service the equipment sold by the Company.
CUSTOMERS, SALES AND MARKETING
The Company believes that its customers decide to purchase products and
services from Global based on a variety of factors, the most important of
which are the strength of their relationship with the Company, the quality of
service provided, and price.
Global's growth has been largely driven by serving middle market businesses.
In addition, Global also serves a number of large, Fortune 500 companies, as
well as educational institutions, government entities and other non-profit
groups. The Company estimates that it currently has over 50,000 customers that
have purchased equipment or services in the past twelve months, on a pro forma
basis. During the nine months ended December 31, 1997 on a pro forma basis,
none of the Company's customers accounted for more than 2% of the Company's
total revenues and the Company's top five customers collectively accounted for
less than 6% of the Company's total revenues.
Global believes that the experienced local management teams of its core
companies possess valuable understanding of their respective markets and
existing customer relationships upon which they may capitalize. At the local
level, the core companies make marketing decisions, including decisions
regarding their product offering mix, promotional programs, advertising, and
selecting trade shows to attend. Global's nine core companies and their
respective satellites employ approximately 410 persons in sales and marketing.
All of the Company's sales personnel are compensated at least partly on a
commission basis, with the structure of compensation and commissions
established by the Company's local management within the confines of the
Company's industry management model. The Company generates sales from within
its existing customer base by tracking the expiration of leases, seeking
opportunities to engage in cross-selling, and giving incentives to service
personnel to create sales leads. Each of the core companies also operates a
telemarketing program to generate sales leads in addition to door-to-door
marketing.
TRAINING
The Company's sales and service employees are provided extensive, ongoing
training. Each core company has its own technical trainer and training is
scheduled on a regular basis. Core company technical trainers are typically
certified by the Company's suppliers, which authorizes the Company's service
technicians to act as
31
<PAGE>
factory certified technicians. The Company also provides formalized product
and general sales training to its sales and marketing personnel.
SUPPLIERS
The Company's automated office equipment dealers represent a number of
suppliers, including Konica, Canon, Hewlett Packard, Mita, Muratec, Panasonic,
Ricoh, Riso, Inc., Savin and Sharp. The electronic presentation equipment sold
by the Company includes overhead projectors by Apollo International of
Delaware, Inc. and Minnesota Mining & Manufacturing Company ("3M") and LCD
projectors by Sharp, nView, Proxima, In Focus, Epson and Lightware, as well as
Smartboards by Smart Technologies, Inc. In the DIM systems market, the Company
sells microfilm and microfiche recording and viewing equipment by Canon, and
optical data storage equipment by Canon, Compaq, and Westbrook Technologies.
The Company's network integrators sell personal and laptop computers
manufactured by IBM, Dell Computer Corporation, Compaq, AST Research, Inc.,
NEC America, Inc. and Toshiba America, Inc., and networking software by
Microsoft, Novell, Banyan Systems Incorporated and Raptor Systems, Inc. One of
these suppliers, Konica, accounted for 18% of the Company's purchases of
equipment in the nine month period ended December 31, 1997, on a pro forma
basis (and 21% of such purchases historically). No other supplier represented
in excess of 10% of such purchases, on a pro forma basis (or 11% of such
purchases, historically).
The Company's agreements with its suppliers generally permit the Company to
sell particular products on a nonexclusive basis in particular geographic
areas, have a one-year renewable term that may be not be renewed by the
supplier on 30 days notice and that may be terminated by the supplier upon
notice (i) in the event that the Company does not meet minimum purchase
quotas, or certain other requirements or (ii) under certain other
circumstances, including a change in the Company's ownership. Although the
consummation of the Offering may qualify as such a change in the Company's
ownership, the Company does not anticipate that its suppliers will terminate
their agreements with the Company as a result of the Offering.
LEASING AND RENTALS
A majority of the copiers sold by the Company are financed by third-party
leasing companies. Under its "Preferred Vendor Leasing Program," the Company
has contracted with three nationwide equipment lease vendors, General Electric
Capital Corporation, Copelco Capital, Inc., and Tokai Financial Services,
Inc., granting these vendors preferential rights to provide the Company's
customers leasing services in exchange for their agreement to offer the
Company better leasing rates and terms than are generally available through
individual copier dealers, control over the lease residuals, and a
standardized leasing application for use with all of these preferred vendors.
Control over the lease residuals gives the Company the option to purchase the
leased equipment, under already negotiated terms, at the end of the lease
term. This flexibility allows the Company to sell the equipment to its
customer at the end of the lease term, or to include arrangements for such a
sale in connection with the original purchase of the equipment. Currently,
only the Company's automated office equipment dealers have widely offered
third party leasing arrangements to their customers, but the Company plans to
increase the use of third party leases in the electronic presentation and DIM
systems markets where, the Company believes, high equipment costs make leasing
a promising financing alternative for many customers.
In some cases, the Company's automated office equipment dealers also rent
equipment. Rental arrangements provide the Company with a steady, monthly
revenue stream and, like the Company's leasing arrangements, give the Company
control over disposition of the equipment at the end of the rental term.
COMPETITION
The Company faces competition in the automated office equipment market, the
electronic presentation systems market and the DIM systems market from large
dealers like IKON and Danka, independent dealers, and manufacturers' sales and
service divisions, including Canon, Kodak, Konica, Minolta, Pitney Bowes, Wang
and Xerox, as well as office superstores and consumer electronics chains. As
digital and other new technology develops, the Company may find itself
competing with new distributions channels, including computer distributors and
value added resellers, for products containing new technology. Principal areas
of competition in these markets include price and product capabilities;
quality and speed of post-sales service support; availability of equipment,
parts and supplies; speed of delivery; financing terms and availability of
financing, leasing, or rental programs.
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<PAGE>
In the network integration services market, the Company competes with large
companies such as GE Capital, AmeriData, Inacom and Vanstar, as well as a
large number of smaller competitors with regional or local operations and the
in-house capabilities of its customers. Principal areas of competition in this
market include reputation, quality and speed of support, and price.
The Company also faces competition in acquiring core and satellite companies
from consolidators such as IKON, Danka, and a number of other independent
dealers that have been active in consolidating in its markets in recent years.
See "Business--The Industry."
EMPLOYEES
The Company has approximately 1,140 employees, most of whom are employed
through the Company's core companies. Of these, approximately 410 are engaged
in sales and marketing, 500 in service, and 220 in operations and
administration. Thirteen employees are employed at Global's corporate
headquarters in Tampa, Florida. None of the Company's employees is covered by
collective bargaining agreements. Management believes that the Company has
good relations with its employees.
GOVERNMENT AND ENVIRONMENTAL REGULATION
The Company is subject to regulation under various federal, state and local
laws relating to employee safety and health and environmental protection. The
Company is not aware of any material non-compliance with any such law.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceeding or
investigation that is expected by management to have a material adverse effect
on the Company.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Carl D. Thoma............ 49 Chairman of the Board of Directors
Thomas S. Johnson........ 52 Director, President and Chief Executive Officer
Bruce D. Gorchow......... 40 Director
William C. Kessinger..... 32 Director
L. Neal Berney........... 45 Director
Raymond Schilling........ 43 Vice President, Chief Financial Officer, Secretary
and Treasurer
Michael Mueller.......... 46 Vice President, Chief Operating Officer
Alfred N. Vieira......... 50 Vice President of Service
</TABLE>
CARL D. THOMA has served as a director of the Company since its founding in
June 1994. Mr. Thoma founded and has been a Principal and General Partner with
GTCR in Chicago, Illinois, since 1980 and has been the Managing Partner of
GTCR since 1993. Mr. Thoma is also a director of ITI Marketing Services,
National Equipment Services, Inc., Paging Network, Inc., Outsource Partners,
Inc. and Capitol Office Solutions, Inc.
THOMAS S. JOHNSON has served as a director and as President and Chief
Executive Officer of the Company since its founding in June 1994. From 1991 to
1994, Mr. Johnson was an office imaging industry consultant. From 1989 to
1990, Mr. Johnson served as Chief Operating Officer for Danka. From 1975 to
1989, Mr. Johnson worked at IKON (formerly known as Alco Standard Corporation)
in various staff and operating roles. When he left there in 1989, he was Vice
President--Operations of the Office Products group and was responsible for
acquisitions and turning around under-performing operations. Mr. Johnson has
been involved in numerous acquisitions of office equipment dealers during his
career and has over 22 years of experience in acquiring and integrating
businesses. Mr. Johnson graduated with a B.S. degree from the University of
Florida in 1972, and received his MBA from Harvard Business School in 1976.
Mr. Johnson is also a director of Capitol Office Solutions, Inc.
BRUCE D. GORCHOW has served as a director of the Company since October 1996.
Since 1991, Mr. Gorchow has served as Executive Vice President and head of the
Private Finance Group of PPM America, Inc. Prior to joining PPM America, Inc.,
Mr. Gorchow was a Vice President at Equitable Capital Management, Inc. Mr.
Gorchow received his B.A. in Economics from Haverford College in 1980 and
received his MBA in Finance from the Wharton School of the University of
Pennsylvania in 1982. Mr. Gorchow is also a director of Leiner Health
Products, Inc., Tomah Products, Inc., Burke Industries, Inc., Elgar
Electronics, Inc. and Capitol Office Solutions, Inc.
WILLIAM C. KESSINGER has served as a director of the Company since December
1995. Mr. Kessinger joined GTCR in May 1995 and became a Principal in
September 1997. Prior thereto, Mr. Kessinger was a Principal with The
Parthenon Group from July 1994 to May 1995. From August 1992 to June 1994, Mr.
Kessinger attended Harvard Business School, where he received his MBA. Prior
to that time, Mr. Kessinger served as an Associate with Prudential Asset
Management Asia from August 1988 to June 1992. Mr. Kessinger is also a
director of AnswerThink Consulting Group, Inc., Capitol Office Solutions,
Inc., Excaliber, Inc., National Equipment Services, Inc. and Users, Inc.
L. NEAL BERNEY has served as a director of the Company since October 1996.
Since 1980, Mr. Berney has served as President of Berney, Inc., which was
acquired by the Company in February 1995. Mr. Berney has been active in the
office products industry for over 27 years.
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<PAGE>
RAYMOND SCHILLING has served as Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since its inception in June 1994. From
1988 to 1994, Mr. Schilling was Vice President--Finance of the
California/Nevada region of McCaw Communications and responsible for all of
its finance and administrative functions. From 1980 to 1988, Mr. Schilling
worked with Mr. Johnson at IKON in various accounting and financial reporting
functions, including as controller of Alco Office Products, where his
responsibilities included acquisitions and evaluation, integration,
development and installation of financial systems. From 1986 to 1988, Mr.
Schilling also was Vice President of Finance and Administration of San Sierra
Business Systems (an Alco Office Products dealer). From 1976 to 1980, Mr.
Schilling was employed by Price Waterhouse as a CPA. In total, Mr. Schilling
has over 16 years of experience in acquiring and integrating businesses. Mr.
Schilling graduated with a B.A. in Economics and Accounting from Muhlenberg
College in 1976.
MICHAEL MUELLER has served as a Vice President and Chief Operating Officer
of the Company since January 1 1995. From 1986 to December 1994, Mr. Mueller
was employed as Vice President by Global Services Inc., a copier and office
product sales and service company in Houston, Texas, and served as its Chief
Financial Officer from 1988 to 1994. Mr. Mueller obtained his B.B.A. from the
University of Houston in 1974.
ALFRED N. VIEIRA has served as a Vice President of Service of the Company
since March 1997. From May 1996 to March 1997, Mr. Vieira served as Vice
President and General Manager of Felco Office Systems, Inc.'s four branch
locations in South Texas. From 1979 to May 1996, Mr. Vieira was employed by
Global Services Inc., and served as its Vice President of Operations from May
1988 to May 1996. Mr. Vieira studied electrical engineering at City University
of New York.
BOARD COMPOSITION
The Board currently is composed of five directors. After the Offering, the
Board expects to increase the size of the Board to seven directors and to
appoint two additional directors who are not employees of the Company or any
of its affiliates. In accordance with the terms of the Company's Amended and
Restated Certificate of Incorporation to be filed and effective upon the
closing of the Offering, the terms of office of the Board of Directors will be
divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 1999, Class II, whose term will expire
at the annual meeting of stockholders to be held in 2000, and Class III, whose
term will expire at the annual meeting of stockholders in 2001. The current
Class I director is Neal Berney; the Class II directors are Bruce Gorchow and
William Kessinger; and the Class III directors are Thomas Johnson and Carl
Thoma. At each annual meeting of stockholders, the successors to the directors
whose terms will then expire will be elected to serve from the time of
election and qualification until election and qualification of their
successors at the third annual meeting following election. In addition, the
Company's Amended and Restated Certificate of Incorporation provides that the
authorized number of directors may be changed only by resolution of the Board
of Directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the directors.
Directors of the Company may be removed without cause only upon the
affirmative vote of the holders of 75% of the outstanding Common Stock, or for
cause only upon the affirmative vote of the holders of a majority of the
outstanding Common Stock.
Pursuant to the terms of a Stockholders Agreement among GTCR, the Company,
and the Company's stockholders, the Company's stockholders agreed to vote
their shares in favor of the election to the Board of the Company's Chief
Executive Officer, three designees of GTCR and one designee of JNL. These
provisions of the Stockholders Agreement will terminate upon the consummation
of the Offering. Messrs. Thoma, Kessinger and Berney are currently serving as
the director designees of GTCR, and Mr. Gorchow is the director designee of
JNL. See "Certain Transactions." In addition, the Company has a policy of
nominating for election to the Board, for rotating terms, one of the
presidents of its core companies. Mr. Berney, who is the president of Berney,
Inc., is currently serving as a director pursuant to this policy.
All officers serve at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers of the
Company.
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<PAGE>
COMMITTEES OF THE BOARD
The Board of Directors has established a Compensation Committee, which is
responsible for determining compensation for the Company's executive officers
and administering the Stock Plan. Carl Thoma, William Kessinger and Bruce
Gorchow, all of whom are non-employee directors, are the members of the
Compensation Committee. The Company has also established an Audit Committee,
which is responsible for making recommendations concerning the engagement of
independent public accountants, reviewing the plans and results of such
engagement with the independent public accountants, reviewing the independence
of the independent public accountants, considering the range of audit and non-
audit fees and reviewing the adequacy of the Company's internal accounting
controls. Carl Thoma, William Kessinger and Bruce Gorchow are the members of
the Audit Committee.
COMPENSATION OF DIRECTORS
All directors of the Company are entitled to reimbursement for certain
expenses in connection with their attendance at Board and committee meetings.
Non-employee directors other than Carl Thoma, William Kessinger, and Bruce
Gorchow will also receive a $1,500 fee for each meeting of the Board attended
by such directors. In addition, employee and non-employee directors are
eligible to receive awards under the Stock Plan. Options to purchase 20,250
shares and 250 shares of the Company's Common Stock have been approved for
issuance to Neal Berney and Thomas Johnson, respectively, upon the closing of
the Offering, at an exercise price per share equal to the initial public
offering price set forth on the cover of this Prospectus. No options have been
approved for issuance to any other director of the Company. Currently, the
Company anticipates that non-employee directors of the Company, other than
Carl Thoma, William Kessinger, and Bruce Gorchow, will receive an option to
purchase 10,000 shares of Common Stock upon their initial election to the
Board, and an option to purchase 2,000 shares of Common Stock for each of the
following years during which he or she serves as a director. Each such option
is expected to be exercisable for a purchase price equal to the market value
of the underlying stock on the date of grant, to have a term of ten years and
to vest in five equal annual installments beginning on the first anniversary
of the date of grant. See "Management--Stock Option and Incentive Plan."
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
paid to or earned by the Company's Chief Executive Officer and all other
executive officers of the Company whose salary and bonus for services rendered
in all capacities to the Company during the year ended March 31, 1998 exceeded
$100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION ($)(1)
- --------------------------- ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Thomas S. Johnson
President and Chief
Executive Officer....... 1998 $225,000 $105,000 $4,125
1997 210,120 51,000 1,831
Raymond Schilling
Vice President, Chief
Financial Officer,
Secretary and
Treasurer............... 1998 118,962 45,320 1,168
1997 113,550 30,250 336
Michael Mueller
Vice President, Chief
Operating Officer....... 1998 118,962 45,320 3,505
1997 113,300 48,250 1,332
Alfred N. Vieira
Vice President of
Service................. 1998 105,000 33,333 1,050
</TABLE>
- --------
(1) Consists of matching contributions to the Company's Savings Plan.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company and GTCR IV have entered into executive employment agreements
with each of Mr. Johnson, Mr. Schilling, Mr. Mueller and Mr. Vieira (the
"Executive Agreements"). Under their respective Executive
36
<PAGE>
Agreements, Mr. Johnson, Mr. Schilling, Mr. Mueller and Mr. Vieira (the
"Executives") receive annual base salaries currently set at $250,000,
$135,000, $135,000 and $115,000, respectively, subject to periodic increases
at the discretion of the Board and are eligible for an annual bonus of up to
50% of their annual base salary upon the attainment of certain defined
objectives. Pursuant to their Executive Agreements, Mr. Johnson, Mr. Schilling
and Mr. Mueller were guaranteed certain one-time bonuses in connection with
the Company's first year of operation. Each of the Executives is entitled to
all other benefits approved by the Board and made available to the Company's
senior management. Mr. Johnson is also entitled to receive reimbursement of up
to $12,000 annually for certain perquisites. Mr. Johnson's employment under
his Executive Agreement renews automatically for one-year periods unless
otherwise terminated by either party upon 30 days notice. Mr. Schilling, Mr.
Mueller, and Mr. Vieira's employment under their respective Executive
Agreements shall continue at the pleasure of the Board or until the
Executive's resignation, removal, death or disability. In the event of a
termination by the Company without cause, or a termination by Mr. Johnson for
good reason, including as a result of a change in control of the Company, Mr.
Johnson is entitled to receive severance pay equal to his current base salary
for a period of one year and all fringe benefits to which he otherwise would
be entitled for approximately one year. Mr. Schilling, Mr. Mueller, and Mr.
Vieira are each entitled to a pro rata share of their annual bonus in the
event of a termination by the Company without cause or a voluntary termination
by such Executive. The Executive Agreements contain confidentiality covenants
and a covenant not to compete with the Company for a period of one year
following termination of employment.
Under their respective Executive Agreements, Mr. Johnson, Mr. Schilling, Mr.
Mueller and Mr. Vieira received the right to purchase, and purchased, 647,059,
215,685, 172,548 and 172,548 shares, respectively, of Common Stock at a price
of $0.07 per share. Under his Executive Agreement, Mr. Johnson also received
the right to purchase, at a price of $0.07 per share, certain shares of Common
Stock that were reserved for issuance to senior management in June 1994 and
that remain unissued as of the time of the Company's initial public offering.
Mr. Johnson has purchased 9,026 shares of the Company's Common Stock pursuant
to such right, subject to the Company's right to repurchase such shares in the
event the Offering is not consummated. The Executive Agreements provide the
Company with the right to repurchase shares of Common Stock purchased by an
Executive thereunder under certain circumstances relating to the termination
of his employment. The purchase price payable by the Company upon exercise of
its right of repurchase would be equal to the Executive's purchase price or
the fair market value of the shares, depending upon the length of the
Executive's service with the Company prior to termination of employment.
Following the Offering, the Company's right of repurchase under each Executive
Agreement will terminate as to a number of shares equal to 20% of the shares
purchased thereunder, multiplied by the number of years that have expired
since the date of the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in February 1998, all
determinations with respect to executive officer compensation were made by the
Board of Directors, including Mr. Johnson, the Company's Chief Executive
Officer, and Mr. Berney, who is an officer of the Company's subsidiary,
Berney, Inc. Each of the Company's directors has purchased securities of the
Company individually or through an affiliated entity. See "Certain
Transactions" and "Principal and Selling Stockholders."
SAVINGS PLAN
The Company maintains a savings plan (the "Savings Plan") that is intended
to be a qualified retirement plan under the Internal Revenue Code. Generally,
all employees of the Company who are at least 21 years of age are eligible to
participate in the Savings Plan upon the completion of 12 consecutive months
of employment with the Company. Participants may make salary deferral
contributions to the Savings Plan, subject to limitations imposed by the
Internal Revenue Code. Participants' contributions may be invested in any of
several investment alternatives including, after the Offering, a fund that
will invest solely in shares of the Company's Common Stock. The Savings Plan
allows the Company to make discretionary matching contributions to each
participant's account. Employer contributions are subject to a graduated
vesting schedule based upon length of service with the Company.
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<PAGE>
1998 STOCK OPTION AND INCENTIVE PLAN
The Company has adopted the 1998 Stock Option and Incentive Plan (the "Stock
Plan"), which authorizes the issuance of up to 1,820,000 shares of the
Company's Common Stock pursuant to stock options, restricted stock or
restricted stock units granted to directors, officers and employees of and
consultants and advisors to the Company. No more than 600,000 shares may be
issued under the Stock Plan as restricted stock or as restricted stock units,
and the maximum number of options that may be granted, and the maximum number
of shares of restricted stock or shares represented by restricted stock units
that may be awarded, under the Stock Plan to any eligible employee or
consultant during any calendar year is 400,000.
The Stock Plan is administered by the Compensation Committee of the Board of
Directors. Subject to limitations set forth in the Stock Plan, the Committee
determines to whom options, restricted stock and restricted stock units are
granted, the term, exercise price (which may not be less than the fair market
value of underlying shares on the date of grant), and vesting schedules of
options, the rate at which options may be exercised, and the conditions to
vesting of awards of restricted stock and restricted stock units. The maximum
term of options granted under the Stock Plan is ten years and the exercise
price may be payable in cash or, if permitted by the applicable option
agreement, in Common Stock or a combination of cash and Common Stock or by
cashless exercise using a broker acceptable to the Company.
As of the date of this Prospectus, options to purchase 519,750 shares of the
Company's Common Stock had been approved for issuance to certain employees of
the Company upon the closing of the Offering, at an exercise price per share
equal to the initial public offering price set forth on the cover of this
Prospectus, including options to purchase 250 shares, 10,250 shares, 10,250
shares and 5,250 shares of Common Stock, respectively, approved for issuance
to Messrs. Johnson, Schilling, Mueller and Vieira. All of these options are
subject to vesting requirements based on continued employment (typically 20%
per year of employment). No shares subject to these options have vested or
will vest prior to 180 days following the date of this Prospectus. No other
options or other awards were outstanding or are expected to be granted under
the Stock Plan prior to the closing of the Offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company's Amended
and Restated Certificate of Incorporation to be filed and effective upon the
closing of the Offering (the "Charter") provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock or (iv) for any
transaction from which the director derives an improper personal benefit. As a
result of this provision, the Company and its stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Additionally, the Charter and the Company's amended and restated bylaws to
be effective upon the closing of the Offering (the "Bylaws") provide for
indemnification of the Company's directors and officers to the fullest extent
permitted by law. The Company has entered into indemnification agreements with
its directors and certain officers and key employees which may, in certain
cases, be broader than the specific indemnification provisions of applicable
law. The indemnification agreements may require the Company, among other
things, to indemnify such directors, officers and key employees against
certain liabilities that may arise by reason of their status or service as
directors, officers and employees, to advance the expenses incurred by such
parties as a result of any threatened claims or proceedings brought against
them as to which they could be indemnified, and to cover such persons under
the Company's directors' and officers' liability insurance policies to the
maximum extent that insurance coverage is maintained.
There is no pending litigation or proceeding involving any director, officer
or employee of the Company as to which indemnification is being sought, nor is
the Company aware of any pending or threatened litigation that may result in
claims for indemnification by any such person.
38
<PAGE>
CERTAIN TRANSACTIONS
THE RECAPITALIZATION
In connection with and upon the consummation of the Offering, each
outstanding share of Class A Common Stock, including the shares of Class A
Common Stock held by each of the officers and directors of the Company, will
be redeemed in exchange for approximately 3.41 shares of Common Stock plus the
right to receive a cash payment equal to $90.00 plus 8% per annum from the
time of purchase through May 31, 1998, provided that the Offering closes prior
to June 30, 1998. The redemption price, in cash and Common Stock, for the
shares of Class A Common Stock is based on the terms of the Company's Amended
and Restated Certificate of Incorporation, as amended, and a Stockholders
Agreement among the Company and its stockholders, and will be set forth in the
Amended and Restated Certificate of Incorporation the Company expects to file
in May 1998. The Company will use approximately $35,570,000 of the net
proceeds of the Offering to redeem all of the shares of Class A Common Stock.
In connection with the redemption, GTCR IV, an affiliate of GTCR and a holder
of a majority of the Company's outstanding stock prior to the Offering, will
receive approximately $23,191,000 and 738,294 shares of Common Stock upon
consummation of the Offering. Carl Thoma and William Kessinger, directors of
the Company, are both principals of GTCR, and Mr. Thoma is a general partner
of GTCR. JNL, which is affiliated with Bruce Gorchow, a director of the
Company, will receive approximately $3,833,000 and 130,233 shares of Common
Stock, in addition to any amounts they may receive as Selling Stockholders.
Messrs. Thoma, Kessinger and Gorchow do not hold any shares of Class A Common
Stock directly, and will not directly receive any of the cash or Common Stock
paid and issued to redeem the Class A Common Stock. Thomas Johnson, Global's
President, Chief Executive Officer and a director of the Company, Neal Berney,
a director of the Company, and Raymond Schilling, Michael Mueller, and Alfred
Vieira, executive officers of the Company, will receive approximately
$572,000, $225,000, $12,000, $23,000 and $12,000, respectively, and 18,457,
6,620, 369, 695, and 369 shares, respectively, in connection with the
redemption of shares of Class A Common Stock held by them upon consummation of
the Offering, in addition to any amounts they may receive as Selling
Stockholders. See "Use of Proceeds" and "Principal and Selling Stockholders."
FOUNDING AGREEMENTS
The Company was founded in June 1994 by Thomas Johnson and GTCR IV. In
connection with the formation of the Company, Mr. Johnson, Raymond Schilling,
GTCR IV and the Company entered into various agreements relating to the
management and ownership of the Company. These agreements include an Equity
Purchase Agreement, a Registration Agreement, a Stockholders Agreement, and a
Consulting Agreement (collectively, and as amended to date, the "Founding
Agreements"). A number of the Founding Agreements were amended subsequent to
June 1994 to, among other things, add additional stockholders as parties
thereto and to reflect the transactions described below. Substantially all of
the provisions of the Founding Agreements, with the exception of the
Registration Agreement, will terminate upon completion of the Offering. In
connection with the Company's formation, the Company and GTCR also entered
into Executive Agreements with Mr. Johnson and Mr. Schilling and,
subsequently, with Michael Mueller and Alfred Vieira. See "Management--
Executive Employment Agreements."
Pursuant to the provisions of the Equity Purchase Agreement among the
Company, GTCR IV, Mr. Johnson, and certain additional purchasers named therein
dated as of June 9, 1994, as amended on August 14, 1996 (the "Equity Purchase
Agreement"), the Company sold 6,312,766 shares of Common Stock to GTCR IV
and 157,819 shares of Common Stock to Mr. Johnson at a per share purchase
price of $0.08. In addition, GTCR IV and Mr. Johnson agreed to purchase, upon
the Company's meeting certain criteria, and subsequently purchased,
216,666.674 and 5,416.697 shares (the "New Shares") of the Company's Class A
Common Stock ("Class A Shares"), respectively, at a per share purchase price
of $90.00. Mr. Johnson paid for his purchases with the proceeds of a loan from
GTCR.
The Company and its stockholders have entered into a stockholders agreement,
dated as of June 9, 1994, as amended (the "Stockholders Agreement") which, as
amended, (i) provides for the designation of three directors of the Company by
GTCR IV, one director by JNL and for the remainder of the Board to consist of
the Company's chief executive officer; (ii) imposes certain restrictions on
the transfer of shares of the Company; (iii) requires the stockholders to take
all necessary or desirable actions in connection with an initial public
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<PAGE>
offering of the Company approved by GTCR, including approving any amendment to
the Company's certificate of incorporation to provide for conversion of shares
of Class A Common Stock into Common Stock in the event that not all shares of
Class A Common Stock will be redeemed for cash, or any other recapitalization
advised by the underwriters and consistent with the terms of the Company's
certificate of incorporation; (iv) requires the Company to offer to sell
shares to the stockholders under certain circumstances upon authorization of
an issuance or sale of additional shares, and (v) grants certain stockholders
certain participation rights in connection with a sale of shares by other
stockholders. The terms of the Stockholders Agreement will terminate prior to
the closing of the Offering.
The Company and its stockholders entered into a registration agreement,
dated as of June 9, 1994, as amended (the "Registration Agreement") pursuant
to which the stockholders have the right in certain circumstances, subject to
certain conditions, to require the Company to register their shares of the
Company's Common Stock for resale under the Securities Act. Under the
Registration Agreement, except in limited circumstances, the Company is
obligated to pay all expenses in connection with such registration. See
"Description of Capital Stock--Registration Rights."
Global and GTCR entered into a consulting agreement dated as of June 9, 1994
(the "Consulting Agreement"), pursuant to which GTCR provides financial and
management consulting services to the Company. Under the Consulting Agreement,
GTCR receives an annual management fee of $200,000 (plus reimbursement of
reasonable out-of-pocket expenses and interest on accrued but unpaid fees) and
a placement fee of 1% of the amount of debt or equity capital raised by
Global, excluding the net proceeds of the Offering, for GTCR's assistance in
obtaining such capital. In fiscal years 1995, 1996, 1997 and 1998, the Company
paid GTCR management fees of $130,000, $200,000, $200,000 and $200,000, and
placement fees of $75,000, $390,000, $0 and $0, respectively. The Consulting
Agreement terminates pursuant to its terms upon the closing of the Offering.
LINE OF CREDIT TRANSACTIONS
In August 1996, the Company and its subsidiaries entered into a secured
credit agreement (as amended in November 1997, the "Credit Agreement") with
JNL and its affiliate PPM America, Inc. ("PPM America"), pursuant to which the
Company has a $6.0 million revolving credit facility and a term credit
facility under which it may borrow up to $114.0 million (the "Credit
Facility"). The term and revolving loans bear interest at 3.25% and 3.00% over
LIBOR, respectively. Principal under the term loan component of the Credit
Facility is repayable in installments over the life of the Credit Facility,
with the final payment due and payable on August 14, 2004. The Company has
pledged substantially all of its assets, including the capital stock of
Global's subsidiaries, to JNL pursuant to the Credit Agreement. The Credit
Agreement requires strict compliance with certain covenants which restrict,
among other things, dividend payments, sales of stock or assets or the
incurrence of additional debt. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In connection with the Company's obtaining the Credit Facility in August
1996, JNL received a financing fee of $1.6 million. GTCR agreed to waive its
1.0% placement fee on the August 1996 debt capital raised by the Company,
because the majority of the work to obtain the financing was performed by
another party, which charged a 1.0% placement fee.
In November 1997 the Credit Agreement was amended to increase the amount of
funds available under the Credit Facility to $120.0 million. In connection
with the amendment, the Company paid JNL a financing fee of $800,000. The
Company believes that the terms of the November 1997 Credit Agreement
amendment and placement fee were on terms no less favorable to it than it
could have obtained from unaffiliated third parties.
In connection with the Credit Facility, Global and JNL entered into an
Investor Purchase Agreement, dated as of August 14, 1996, pursuant to which
the Company sold to JNL 27,083.33 shares of Class A Common Stock at a per
share price of $90.00, and 633,933 shares of Class C Common Stock at a per
share price of $0.10. As a result of its purchase, JNL became a holder of more
than 5% of the Company's outstanding stock. In November
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<PAGE>
1997, in connection with the amendment of the Credit Facility, the Company
sold JNL an additional 11,136.268 shares of Class A Common Stock at a per
share price of $90.00, and an additional 260,663 shares of Class C Common
Stock at a per share price of $0.10. Shares of Class C Common Stock, which are
non-voting, will convert into shares of Common Stock upon the closing of the
Offering at a rate of one share of Common Stock for each share of Class C
Common Stock. JNL, Global, GTCR IV and certain other stockholders of the
Company also entered into amendments to the Company's Equity Purchase
Agreement, Stockholders Agreement and Registration Agreement which, as amended
(i) added JNL as a party thereto; (ii) granted the Company certain rights to
redeem shares of Common Stock held by Mr. Johnson and GTCR IV in the event
that Mr. Johnson and GTCR IV failed to purchase their New Shares pursuant to
the Equity Purchase Agreement; (iii) granted JNL certain rights to require the
Company to register under the Securities Act shares of Common Stock held by
JNL; (iv) granted JNL the right to designate one director of the Company and
one observer with rights to attend all meetings of the Company's Board of
Directors; (v) required the Company to amend its certificate of incorporation
to provide for conversion of Class A Common Stock into Common Stock at a
discount to market rates under certain circumstances; and (vi) granted JNL
preemptive rights to purchase additional shares of Class A Common Stock and
Class C Common Stock under certain circumstances. Of these rights, only JNL's
rights to require the registration of shares held by it under the Securities
Act will continue after the Offering. Bruce Gorchow, an executive vice
president of PPM America and a director of the Company, was elected to the
Company's Board of Directors pursuant to JNL's board designation rights under
the Stockholders Agreement.
ACQUISITION OF CAPITOL OFFICE SOLUTIONS, INC. BY GTCR IV AND GLOBAL MANAGEMENT
In June 1997, GTCR IV, in combination with certain other Global stockholders
and members of Global's management, acquired two thirds of the outstanding
stock of Capitol Office Solutions, Inc. ("Capitol"), a company engaged in the
office imaging solutions industry located in the metropolitan Washington, D.C.
area. Following the acquisition, GTCR IV held discussions with the holder of
the minority interest in Capitol about the possibility of a business
combination between Capitol and the Company. The parties were unable to reach
agreement, however, and there can be no assurance that any such business
combination will be consummated in the future. In the absence of a business
combination, the Company may find itself competing with Capitol from time to
time, as Capitol operates in the same geographic market as certain of Global's
core companies although Global and Capitol do not currently offer the same
products and services in any shared geographic market.
As part of the Capitol transaction, Mr. Johnson, Global's President and
Chief Executive Officer and a director of Global; Neal Berney, a director of
Global; Raymond Schilling, Michael Mueller, and Alfred Vieira, executive
officers of Global; and JNL purchased an aggregate of 11.5% of the stock of
Capitol. Global made loans to Mr. Johnson, Mr. Schilling, Mr. Mueller and Mr.
Vieira in the amounts of $200,000, $115,324, $93,169 and $91,507,
respectively. The loans were made on competitive terms and are evidenced by
promissory notes which bear interest at an annual rate of 8.0% payable at
maturity, and which mature on June 30, 2000. The promissory notes are secured
by the Capitol stock purchased with the loan proceeds. Except for GTCR IV,
none of these stockholders holds in excess of ten percent of the voting stock
of Capitol. In connection with the Capitol transaction, PPM America extended
Capitol a $30.0 million line of credit. The directors of Capitol include Carl
Thoma, William Kessinger, Bruce Gorchow and Thomas Johnson.
Global and Capitol entered into a consulting agreement dated as of June 30,
1997 (the "Capitol Consulting Agreement"), pursuant to which Global provides
management consulting and advisory services to Capitol. Under the Capitol
Consulting Agreement, Global receives an annual management fee of $150,000
(plus reimbursement of reasonable out-of-pocket expenses and interest on
accrued but unpaid fees). From July 1, 1997 through January 31, 1998, $87,500
in management fees have accrued, but have not yet been paid, pursuant to the
Capitol Consulting Agreement. Global also received a one-time fee of $270,000
for Global's assistance in arranging the Capitol transaction and the JNL loan
to Capitol. The Consulting Agreement terminates upon the sale of Capitol or
its assets to a party unaffiliated with Global or, at Capitol's option, at
such time as GTCR IV holds less than 10% of the outstanding common equity of
Capitol.
ADDITIONAL LOANS TO MANAGEMENT
In connection with Mr. Schilling's relocation to Tampa, Global loaned Mr.
Schilling $35,000 pursuant to a promissory note, dated September 28, 1995
(which replaces a promissory note dated October 18, 1994 for
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<PAGE>
$30,000), which bears interest at 6.28% per annum. Interest and principal on
Mr. Schilling's note would become due upon Mr. Schilling's voluntary
resignation from employment with the Company prior to three years from the
date of the note, or will be forgiven on such date if he has not so resigned.
Global also loaned to Mr. Mueller $11,793 in connection with his relocation to
Tampa. Mr. Mueller's loan is evidenced by a promissory note dated April 17,
1995 which contains terms similar to those of Mr. Schilling's note.
ACQUISITION OF BERNEY, INC.
On February 24, 1995, the Company acquired all of the outstanding capital
stock of Berney, Inc. (the "Berney Acquisition") pursuant to a Stock Purchase
Agreement (the "Berney Acquisition Agreement") in exchange for $4.6 million in
cash ($460,000 of which was allocated as consideration for certain agreements
by the former stockholders of Berney, Inc. not to compete with the Company).
L. Neal Berney, a director of the Company, held a majority of the capital
stock of Berney, Inc. prior to its acquisition by the Company.
In connection with the acquisition of Berney, Inc., Mr. Berney entered into
an Equity Purchase Agreement with the Company and certain other former
stockholders of Berney, Inc., pursuant to which Mr. Berney purchased 996.66
shares of the Company's Class A Common Stock at a per share price of $90.00,
and 29,038 shares of the Company's Common Stock at a per share price of $0.08.
Mr. Berney entered into an executive agreement with Berney, Inc. upon its
acquisition by Global on February 24, 1995 (the "Berney Executive Agreement").
Pursuant to the Berney Executive Agreement, Mr. Berney receives an annual base
salary initially set at $132,000, subject to periodic increases at the
discretion of the board of directors of Berney, Inc., which consists of Mr.
Johnson, Mr. Berney and Mr. Kessinger. Mr. Berney is eligible for an annual
bonus of up to 50% of his annual base salary upon the attainment of certain
defined objectives. The Berney Executive Agreement renews automatically for
one-year periods unless either party gives 30 days notice of termination.
In connection with the Company's acquisition of Berney, Inc., the Company
entered into a lease (the "Berney Lease") with an entity partly owned by Mr.
Berney (the "Berney entity") pursuant to which the Company rents space from
such entity at rates the Company believes are commercially competitive. The
Berney Lease expires on February 29, 2000 and may be extended at the option of
the Company for an additional five year term. In fiscal years 1996 and 1997
and the period from April 1, 1997 to January 31, 1998, Berney, Inc. has paid
$134,000, $141,000 and $122,000, respectively, in rent pursuant to the Berney
Lease. In addition, the Company has reached a tentative agreement to lease
space in an additional building from the Berney entity.
OTHER TRANSACTIONS
In April 1996, the Company facilitated the sale of 2,210 shares of Class A
Common Stock and 64,390 shares of Common Stock by a departing employee, at a
per share purchase price of $102.13 and $.08, respectively, to certain
investors, all of whom were employees of the Company. In connection with their
participation in the transaction, Neal Berney, Raymond Schilling, Michael
Mueller and Mr. Johnson's son Todd Johnson paid approximately $99,000, $5,600,
$10,000 and $5,000, respectively, and received 946.381, 54.167, 95.749 and
47.875 shares of Class A Common Stock and 27,573, 1,578, 2,789 and 1,394
shares of Common Stock, respectively.
In November 1997, the Company facilitated the sale of 1,083.333 shares of
Class A Common Stock and 31,563 shares of Common Stock by a departing
employee, at a per share purchase price of $102.17 and $.08, respectively, to
certain investors, all of whom were employees of or service providers to the
Company. As part of the Company's termination agreement with the departing
employee, the Company paid the employee an aggregate of approximately $1,400
to compensate for the difference between the sale price for the
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<PAGE>
Common Stock and the then-determined fair market value of such Common Stock.
In connection with the transaction, Raymond Schilling paid approximately
$5,700 and received 54.167 shares of Class A Common Stock and 1,578 shares of
Common Stock, and Michael Mueller, Alfred Vieira, Todd Johnson and Tidewater
Partners, LLC, an entity whose managing members are J. Hovey Kemp and
Christopher Hagan, partners at Hogan & Hartson L.L.P., counsel to the Company,
each paid approximately $11,300 and received 108.333 shares of Class A Common
Stock and 3,156 shares of Common Stock.
Mr. Johnson's son, Todd Johnson, is employed by the Company. Todd Johnson
received approximately $56,000 in salary and bonus in fiscal 1997 and
approximately $40,000 in salary in the nine months ended December 31, 1997.
In March 1998, the Company sold 67,594 shares of Common Stock to GTCR IV,
and 9,656 shares of Common Stock to JNL, for a per share purchase price of
$.07 in accordance with the terms of Thomas Johnson's Executive Agreement and
the Stockholders Agreement, subject to the Company's right to repurchase such
shares in the event the Offering is not consummated.
The Company has entered into indemnification agreements with its directors
and executive officers for the indemnification of and advancement of expenses
to such persons to the full extent permitted by law. See "Management--
Limitation of Liability and Indemnification Matters."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of March 31, 1998, and as adjusted
to reflect the sale of 7,000,000 shares of the Common Stock offered hereby,
for (i) each person (or group of affiliated persons) known by the Company to
be the beneficial owner of more than 5% of the outstanding Common Stock; (ii)
each of the Named Executive Officers; (iii) each director of the Company; (iv)
by each Selling Stockholder and (v) all of the Company's directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARED BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING
NAME AND ADDRESS OF ----------------------- SHARES TO BE SOLD -----------------------
BENEFICIAL OWNER (1) NUMBER PERCENT IN OFFERING (2)(3) NUMBER PERCENT
- -------------------- ------------ ---------- ------------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Golder, Thoma, Cressey,
Rauner Fund IV Limited
Partnership (4)........ 7,118,654 61.5% 274,452 6,844,202 37.4%
Jackson National Life
Insurance Company (5).. 1,034,485 8.9 22,986 1,011,499 5.5%
Thomas S. Johnson (6)... 832,361 7.2 -- 832,361 4.6
Raymond Schilling (7)... 219,210 1.9 -- 219,210 1.2
Michael Mueller (8)..... 179,188 1.5 -- 179,188 *
Alfred N. Vieira (9).... 176,073 1.5 -- 176,073 *
Carl D. Thoma (4)....... 7,118,654 61.5 274,452 6,844,202 37.4%
Bruce D. Gorchow (5).... 1,034,485 8.9 22,986 1,011,499 5.5%
William C.
Kessinger (4).......... 7,118,654 61.5 274,452 6,844,202 37.4%
L. Neal Berney (10)..... 63,232 * -- 63,232 *
James B. Conway (11).... 211,531 1.8 587 210,944 1.2
Green, Manning & Bunch
Holdings, Inc. (12)... 51,236 * 1,975 49,261 *
All directors and
executive officers as a
group
(8 persons) (13)....... 9,623,203 83.1% 297,438 9,325,765 51.0%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, each person has sole voting and investment
power with respect to shares shown as beneficially owned by such person.
Except as otherwise specified below, the address of each of the beneficial
owners identified is 13902 North Dale Mabry, Suite 300, Tampa, Florida
33618.
(2) Assumes no exercise of the Underwriters' over-allotment options to
purchase up to an aggregate of 1,050,000 shares of Common Stock from the
Selling Stockholders. If the over-allotment options are exercised in
full, the total number of shares held by GTCR IV, JNL, Messrs. Johnson,
Schilling and Conway and GMB after the offering will be reduced to
5,947,134 (32.5%), 931,037 (5.1%), 772,361 (4.2%), 215,250 (1.2%),
208,891 (1.1%) and 42,804 (less than one percent), respectively.
(3) In connection with the redemption of Class A Common Stock to be effected
by the Company upon completion of the Offering, GTCR IV, JNL, Mr. Johnson,
Mr. Schilling, Mr. Mueller and Mr. Berney will receive approximately
$23,191,000, $3,833,000, $572,000, $12,000, $23,000 and $225,000,
respectively, in partial payment for the redemption of the shares of Class
A Common Stock held by them. In addition to the cash payments, they will
receive 738,294, 130,233, 18,457, 369, 695 and 6,620 shares of Common
Stock, respectively as payment for the redemption of their shares of Class
A Common Stock.
(4) Consists of 6,380,360 shares held of record by GTCR IV; and 738,294 shares
of Common Stock issuable to GTCR IV upon completion of the Offering in
connection with the redemption of 216,666.674 shares of Class A Common
Stock currently held by GTCR IV. Mr. Thoma and Mr. Kessinger, each of whom
is a director of the Company and a principal of GTCR IV, share voting and
investment power with respect to such shares and each may be deemed to be
the beneficial owner of such shares. The address of each of GTCR IV, Carl
D. Thoma and William Kessinger is c/o Golder, Thoma, Cressey, Rauner,
Inc., 233 South Wacker Drive, 61st Floor, 6100 Sears Tower, Chicago,
Illinois 60606.
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<PAGE>
(5) Consists of 904,252 shares held of record by JNL and 130,233 shares of
Common Stock issuable to JNL upon completion of the Offering in
connection with the redemption of 38,219.598 shares of Class A Common
Stock currently held by JNL. Mr. Gorchow, a director of the Company, is
Executive Vice President of PPM America, Inc., which is affiliated with
JNL, and which shares voting and investment power with respect to shares
held by JNL. Accordingly, Mr. Gorchow may be deemed to be the beneficial
owner of such shares. The address of JNL and Mr. Gorchow is c/o PPM
America, Inc., 225 West Wacker Drive, Suite 1200, Chicago, Illinois
60606.
(6) Includes 18,457 shares of Common Stock issuable to Mr. Johnson upon
completion of the Offering in connection with the redemption of 5,416.697
shares of Class A Common Stock currently held by Mr. Johnson; and 46,200
shares of Common Stock held of record by members of Mr. Johnson's
immediate family over which Mr. Johnson has shared dispositive and sole
voting power.
(7) Includes 369 shares of Common Stock issuable to Mr. Schilling upon
completion of the Offering in connection with the redemption of 108.334
shares of Class A Common Stock currently held by Mr. Schilling.
(8) Includes 695 shares of Common Stock issuable to Mr. Mueller upon
completion of the Offering in connection with the redemption of 204.082
shares of Class A Common Stock currently held by Mr. Mueller.
(9) Includes 369 shares of Common Stock issuable to Mr. Vieira upon
completion of the Offering in connection with the redemption of 108.333
shares of Class A Common Stock currently held by Mr. Vieira.
(10) Includes 6,620 shares of Common Stock issuable to Mr. Berney upon
completion of the Offering in connection with the redemption of
1,943.041 shares of Class A Common Stock currently held by Mr. Berney;
and 28,306 shares of Common Stock held of record by a trust for the
benefit of members of Mr. Berney's immediate family, of which Mr.
Berney's spouse is a co-trustee, and over which shares Mr. Berney may be
deemed to have shared voting and dispositive power. Mr. Berney's address
is c/o Berney, Inc., 209 Gunn Road, Montgomery, Alabama, 36117.
(11) Consists of 189,383 shares held of record by Mr. Conway and 22,148
shares of Common Stock issuable to Mr. Conway upon completion of the
Offering in connection with the redemption of 6,500 shares of Class A
Stock currently held by Mr. Conway. Mr. Conway's address is c/o Conway
Office Products, Inc., 110 Perimeter Road, Nashua, New Hampshire 03063.
(12) Consists of 44,725 shares held of record by Green, Manning & Burch
Holdings, Inc. ("GMB") and 6,511 shares of Common Stock issuable to GMB
upon completion of the Offering in connection with the redemption of
1,910.809 shares of Class A Stock currently held by GMB. GMB's address
is 3600 Republic Plaza, 370 Seventeenth Street, Denver, Colorado 80202.
(13) Includes 895,037 shares of Common Stock issuable upon completion of the
Offering in connection with the redemption of 262,666.759 shares of
Class A Common Stock currently held by the Company's directors and
executive officers. See Notes (4) through (10) above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock. As of
March 31, 1998 the Company had outstanding 11,583,639 shares of Common Stock
and had approximately 93 holders of record of the Common Stock. Each
stockholder of record is entitled to one vote for each outstanding share of
Common Stock owned by such stockholder on every matter properly submitted to
the stockholders for their vote.
Subject to the dividend rights of holders of the Preferred Stock, holders of
Common Stock are entitled to any dividend declared by the Board of Directors
out of funds legally available for such purpose, and, after the payment of any
liquidation preferences to all holders of Preferred Stock, holders of Common
Stock are entitled to receive on a pro rata basis all remaining assets of the
Company available for distribution to the stockholders in the event of the
liquidation, dissolution, or winding up of the Company. Holders of Common
Stock do not have any preemptive right under the Charter to become subscribers
or purchasers of additional shares of any class of the Company's capital
stock.
PREFERRED STOCK
As of the closing of this Offering, no shares of preferred stock, $0.01 par
value per share ("Preferred Stock") will be outstanding. Thereafter, the Board
of Directors will be authorized, without further stockholder approval, to
issue up to 10,000,000 shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, and to fix the number of shares constituting any
series and the designations of such series.
The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. The Company currently has no plans to issue any
shares of Preferred Stock.
REGISTRATION RIGHTS
Following the sale of the shares of Common Stock offered hereby, the holders
of 11,283,639 shares of Common Stock will have certain rights with respect to
the registration of their shares under the Securities Act, pursuant to the
terms of the Registration Agreement among the Company and the holders of such
shares (the "Holders"). If the Company proposes to register any of its
securities under the Securities Act, either for its own account or the
accounts of others, the Holders are entitled to notice of such registration
and are entitled to include their shares of Common Stock in such registration;
provided that the underwriters of any offering have the right under certain
conditions to limit the number of such shares included in such registration.
Certain holders may also require the Company to file, at the Company's
expense, an unlimited number of registration statements under the Securities
Act with respect to their shares of Common Stock, provided that the aggregate
net cash proceeds to all sellers of Common Stock on any such registration
statement is at least $5 million and subject to certain frequency limitations.
Pursuant to the Registration Agreement, the Company has agreed not to make any
public offering of any shares of Common Stock or any securities convertible
into Common Stock for a period extending 90 days after the date of any
underwritten offering in which shares are registered pursuant to the
Registration Agreement without the prior written consent of the underwriters
of such offering, subject to certain exceptions.
The existence and exercise of the foregoing registration rights may hinder
efforts by the Company to arrange future financing for the Company and may
have an adverse effect on the market price of the Common Stock. See "Risk
Factors--Need For Substantial Additional Funds; Highly Leveraged Capital
Structure."
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<PAGE>
DELAWARE LAW AND CERTAIN CHARTER, BYLAW AND OTHER PROVISIONS
The Charter allows the Company to issue without stockholder approval
preferred stock having rights senior to those of the Common Stock. In
addition, the Company will be subject to the provisions of Section 203 of the
Delaware General Corporation Law. Section 203 prohibits publicly held Delaware
corporations from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. These provisions could have the effect of
delaying, deferring or preventing a change in control of the Company or
reducing the price that certain investors might be willing to pay in the
future for shares of the Common Stock.
The Charter provides that each director will serve for a three-year term
with approximately one third of the directors to be elected annually.
Candidates for director may be nominated only by the Board of Directors or by
a stockholder who gives written notice to the Company no later than 60 days
prior nor earlier than 90 days prior to the first anniversary of the last
annual meeting of stockholders. The Company may have as many directors as may
be determined from time to time pursuant to a resolution of the Board. Between
stockholder meetings, the Board may appoint new directors to fill vacancies or
newly created directorships. The Charter will not provide for cumulative
voting at stockholder meetings for election of directors. As a result,
stockholders controlling more than 50% of the outstanding Common Stock can
elect the entire Board of Directors, while stockholders controlling 49% or
less of the Common Stock may not be able to elect any directors. A director
may be removed from office without cause only by the affirmative vote of 75%
of the combined voting power of the then outstanding shares entitled to vote
generally in the election of directors and for cause only by the affirmative
vote of a majority of such combined voting power. See "Management--Board
Composition."
The Charter and the Bylaws also require that, any action required or
permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of the stockholders and may not be
effected by a consent in writing unless such consent is obtained from the
holders of at least 75% of the outstanding shares of stock entitled to vote on
such action. In addition, special meetings of the stockholders of the Company
may be called only by the Board of Directors, the Chairman of the Board, the
chief executive officer of the Company, or by any person or persons holding
shares representing at least 20% of the outstanding capital stock. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.
TRANSFER AGENT AND REGISTRAR
First Union National Bank has been appointed as the transfer agent and
registrar for the Company's Common Stock.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 18,283,639 shares of
Common Stock outstanding. Of these shares, the 7,000,000 shares (8,050,000
shares if the Underwriters' over-allotment options are exercised in full) of
Common Stock sold in the Offering will be freely transferable without
restriction under the Securities Act unless they are held by the Company's
"affiliates," as defined in Rule 144 under the Securities Act.
The remaining 11,283,639 shares of Common Stock outstanding (10,233,639
shares of Common Stock if the Underwriters' over-allotment options are
exercised in full) are "restricted securities" as that term is defined in Rule
144 (the "Restricted Shares"). Of the Restricted Shares, approximately
10,648,226 shares will become eligible for sale 90 days after completion of
the Offering, subject in some cases to certain volume restrictions and other
conditions imposed under Rule 144. The remaining approximately 635,413 shares
will be eligible for sale upon the expiration of their respective holding
periods as set forth in Rule 144. In addition, the holders of approximately
11,283,639 of the Restricted Shares are entitled to certain registration
rights with respect to such shares. See "Description of Capital Stock--
Registration Rights." While 11,270,847 of the Restricted Shares (10,220,847 if
the Underwriters' over-allotment options are exercised in full) are subject to
lock-up agreements and may not be sold for 180 days following the date of this
Prospectus, such agreements provide that Prudential Securities Incorporated
may, in its sole discretion at any time and without notice, release all or a
portion of the shares from these lock-up agreements.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 approximately 1,820,000 shares
of Common Stock issuable under the Stock Plan. Of the 1,820,000 shares
issuable under the Stock Plan, none will be outstanding on the date of
completion of the Offering and no options to purchase such shares will vest
prior to 180 days following the date of this Prospectus.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year (including holding periods of prior owners other than
affiliates) is entitled to sell, within any three-month period commencing 90
days after the closing of the Offering, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding Common Stock
(approximately 182,836 shares immediately after this Offering, assuming no
exercise of the Underwriters' over-allotment options) or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect to the
sale and other limitations. A person who is not an affiliate, has not been an
affiliate within three months prior to sale and has beneficially owned
restricted securities for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
The Company, its executive officers and directors, the Selling Stockholders
and certain stockholders of the Company have agreed that they will not, for a
period of 180 days subsequent to the date of this Prospectus, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or securities
substantially similar thereto, or any securities convertible into or
exercisable or exchangeable for, any shares of Common Stock or securities
substantially similar thereto of the Company (excluding shares of Common Stock
held or proposed to be held through the Company's Savings Plan) without the
prior written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, except that such agreements do not prevent the Company from
granting [additional] options [or restricted stock] under the Stock Plan.
Prudential Securities Incorporated may, in its sole discretion, at any time
and without notice, release all or any portion of the securities subject to
such lock-up agreements.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Sales of a substantial amount of Common Stock in the public
market could adversely affect the market price of the Common Stock and impair
the Company's ability to sell equity securities in the future on favorable
terms.
48
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Smith Barney Inc., William Blair & Company, L.L.C.
and Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated.................................
Smith Barney Inc...................................................
William Blair & Company, L.L.C.....................................
Raymond James & Associates, Inc....................................
---------
Total.............................................................. 7,000,000
=========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby, if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the shares of Common
Stock initially at the public offering price set forth on the cover page of
this Prospectus; that the Underwriters may reallow to selected dealers a
concession of $ per share; and that such dealers may reallow a concession
of $ per share to certain other dealers. After the initial public offering,
the offering price and the concessions may be changed by the Representatives.
The Selling Stockholders have granted the Underwriters over-allotment
options, exercisable for 30 days from the date of this Prospectus, to
purchase, in the aggregate, up to 1,050,000 additional shares of Common Stock
at the initial public offering price, less underwriting discounts and
commissions, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such options solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such options to purchase are exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
7,000,000.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters and contribute to any losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company, its executive officers and directors, the Selling Stockholders
and certain stockholders of the Company have agreed that they will not, for a
period of 180 days subsequent to the date of this Prospectus, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or securities
substantially similar thereto, or any securities convertible into or
exercisable or exchangeable for, any shares of Common Stock or securities
substantially similar thereto of the Company (excluding shares of Common Stock
held or proposed to be held through the Company's Savings Plan) without the
prior written consent of Prudential Securities Incorporated, on
49
<PAGE>
behalf of the Underwriters, except that such agreements do not prevent the
Company from granting additional options under the Stock Plan. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the securities subject to such lock-up
agreements.
At the request of the Company, the Underwriters have initially reserved up
to 650,000 shares of Common Stock for sale at the initial public offering
price to directors, officers, employees, and business associates of the
Company. The number of shares of Common Stock reserved for sale to directors,
officers, employees and business associates may be increased. The number of
shares of Common Stock available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares which are not so purchased will be offered by the Underwriters to the
public on the same basis as the other shares offered hereby.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations among the Company, the Selling Stockholders
and the Representatives. Among the factors to be considered in making such
determination will be the prevailing market conditions, the Company's
financial and operating history and condition, its prospects and the prospects
for its industry in general, the management of the Company and the market
prices of securities for companies in businesses similar to that of the
Company.
In connection with the Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with the Offering
than they are committed to purchase from the Company and the Selling
Stockholders, and in such case may purchase Common Stock in the open market
following the closing of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 1,050,000 shares of Common Stock, by exercising the
Underwriters' over-allotment options referred to above. In addition,
Prudential Securities Incorporated, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of the other Underwriters, the selling concession with respect to
Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail
in the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, may be discontinued at any time.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal
matters will be passed upon for the Underwriters by Willkie Farr & Gallagher,
New York, New York. Tidewater Partners, LLC ("Tidewater"), a limited liability
company whose managing members are J. Hovey Kemp and Christopher J. Hagan,
partners of Hogan & Hartson L.L.P., and whose additional members consist of
two attorneys and one legal assistant at Hogan & Hartson L.L.P., owns 650
shares of the Company's Class A Common Stock and 15,834 shares of Common
Stock. Upon completion of the Offering and the redemption of shares of the
Company's Class A Common Stock, Tidewater will receive approximately $65,000
and will hold a total of 18,048 shares of Common Stock. J. Hovey Kemp and
Christopher J. Hagan each serve as Assistant Secretary to the Company. Mr.
Kemp is also a Director and an Assistant Secretary of Capitol.
50
<PAGE>
EXPERTS
The consolidated financial statements of Global Imaging Systems, Inc. at
March 31, 1996, March 31, 1997, and December 31, 1997, and from inception
(June 3, 1994) to March 31, 1995 and for each of the two years in the period
ended March 31, 1997, and for the nine months ended December 31, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Copy Service & Supply, Inc. for the five-month
period ended May 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Barnard, Combs, Potts & Rhyne, PA, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Southern Business Communications Group for the
nine-month period ended September 30, 1996, appearing in this Prospectus and
Registration Statement have been audited by Smith & Howard, P.C., independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Electronic Systems, Inc. for each of the two
years in the period ended December 31, 1996, and for the six-month period
ended June 30, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Eastern Copy Products, Inc. and Subsidiaries for
each of the three years in the period ended July 31, 1997, appearing in this
Prospectus and Registration Statement have been audited by Pasquale & Bowers,
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Duplicating Specialties, Inc. d/b/a Copytronix
for the ten-month period ended August 31, 1997, appearing in this Prospectus
and Registration Statement have been audited by Moss Adams LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Electronic Systems of Richmond, Inc. for the
year ended December 31, 1996 and for the eleven-month period ended November
30, 1997, appearing in this Prospectus and Registration Statement have been
audited by Edmondson, LedBetter & Ballard, L.L.P., independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
The financial statements of Connecticut Business Systems, Inc. for each of
the two years in the period ended September 30, 1997, and for the three-month
period ended December 31, 1997, appearing in this Prospectus and Registration
Statement have been audited by Arthur Andersen LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
The financial statements of the Business Systems Division of Bloom's Inc.,
for the year ended January 31, 1997, and for the eleven-month period ended
December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Joseph D. Kalicka & Company, LLP, independent auditors,
as set forth in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
51
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act, of which this
Prospectus is a part, with respect to the Common Stock offered hereby. This
Prospectus omits certain information contained in the Registration Statement,
and reference is made to the Registration Statement for further information
with respect to the Company and the Common Stock offered hereby. Statements
contained herein concerning the provisions of documents are necessarily
summaries of such documents and when any such document is an exhibit to the
Registration Statement, each such statement is qualified in its entirety by
reference to the copy of such document filed with the Commission. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and the Commission's Regional
Offices at 65 Park Place, Room 1288, New York, New York 10017, and Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-
2511, and copies may be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Registration Statement, including all exhibits and schedules, and such
reports and other information may also be accessed electronically by means of
the Commission's site on the World Wide Web, at http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent certified public accountants
and make available to its stockholders quarterly reports containing unaudited
financial data for the first three quarters of each fiscal year.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF GLOBAL IMAGING SYSTEMS, INC.
Report of Independent Auditors........................................... F-3
Consolidated Balance Sheets as of March 31, 1996 and 1997 and December
31, 1997................................................................ F-5
Consolidated Statements of Operations from Inception (June 3, 1994) to
March 31, 1995, for the Years Ended March 31, 1996 and 1997 and the Nine
Months Ended December 31, 1996 (Unaudited) and 1997..................... F-7
Consolidated Statements of Stockholders' Equity (Deficit) from Inception
(June 3, 1994) to March 31, 1995, for the Years Ended March 31, 1996 and
1997 and the Nine Months Ended December 31, 1997........................ F-8
Consolidated Statements of Cash Flows from Inception (June 3, 1994) to
March 31, 1995, for the Years Ended March 31, 1996 and 1997 and the Nine
Months Ended December 31, 1996 (Unaudited) and 1997..................... F-9
Notes to Consolidated Financial Statements............................... F-10
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Basis of Presentation.................................................... F-21
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1997... F-22
Unaudited Pro Forma Consolidated Statements of Operations--Year Ended
March 31, 1997.......................................................... F-24
Unaudited Pro Forma Consolidated Statements of Operations--Nine-Month
Period Ended December 31, 1997.......................................... F-26
FINANCIAL STATEMENTS OF COPY SERVICE & SUPPLY, INC.
Independent Auditors' Report............................................. F-28
Combined Statement of Income and Owners' Capital for the Five-Month
Period Ended May 31, 1996............................................... F-29
Combined Statement of Cash Flows for the Five-Month Period Ended May 31,
1996.................................................................... F-30
Notes to Financial Statements............................................ F-31
FINANCIAL STATEMENTS OF SOUTHERN BUSINESS COMMUNICATIONS GROUP
Independent Auditors' Report............................................. F-36
Combined Statement of Income for the Nine-Month Period Ended September
30, 1996................................................................ F-37
Combined Statement of Cash Flows for the Nine-Month Period Ended
September 30, 1996...................................................... F-38
Notes to Combined Financial Statements................................... F-39
FINANCIAL STATEMENTS OF ELECTRONIC SYSTEMS, INC.
Report of Independent Auditors........................................... F-41
Statements of Income and Retained Earnings for the Years Ended December
31, 1995 and 1996 and the Six-Month Period Ended June 30, 1997.......... F-42
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996
and the Six-Month Period Ended June 30, 1997............................ F-43
Notes to Financial Statements............................................ F-44
</TABLE>
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................. F-47
Consolidated Statements of Income and Retained Earnings for the Years
Ended July 31, 1995, 1996 and 1997...................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statements of Cash Flows for the Years Ended July 31, 1995,
1996 and 1997............................................................ F-49
Notes to the Consolidated Financial Statements............................ F-50
FINANCIAL STATEMENTS OF DUPLICATING SPECIALTIES, INC. (COPYTRONIX)
Independent Auditor's Report.............................................. F-54
Statement of Income and Retained Earnings for the Ten-Month Period Ended
August 31, 1997.......................................................... F-55
Statement of Cash Flows for the Ten-Month Period Ended August 31, 1997.... F-56
Notes to Financial Statements............................................. F-57
FINANCIAL STATEMENTS OF ELECTRONIC SYSTEMS OF RICHMOND, INC.
Independent Auditor's Report.............................................. F-60
Statements of Income and Retained Earnings for the Year Ended December 31,
1996 and the Eleven-Month Period Ended November 30, 1997................. F-61
Statements of Cash Flows for the Year Ended December 31, 1996 and the
Eleven-Month Period Ended November 30, 1997.............................. F-62
Notes to Financial Statements............................................. F-63
FINANCIAL STATEMENTS OF CONNECTICUT BUSINESS SYSTEMS, INC.
Report of Independent Public Accountants.................................. F-65
Statements of Income (Loss) and Retained Earnings (Deficit) for the Years
Ended September 30, 1996 and 1997 and Three-Month Period Ended December
31, 1997................................................................. F-66
Statements of Cash Flows for the Years Ended September 30, 1996 and 1997
and the Three-Month Period Ended December 31, 1997....................... F-67
Notes to Financial Statements............................................. F-68
FINANCIAL STATEMENTS OF BUSINESS SYSTEMS DIVISION (BLOOMS)
Report of Independent Certified Public Accountants........................ F-72
Statements of Divisional Net Assets for the Year Ended January 31, 1997
and the 11-Month Period Ended December 31, 1997.......................... F-73
Statements of Divisional Operations for the Year Ended January 31, 1997
and the 11-Month Period Ended December 31, 1997 ......................... F-74
Statements of Changes in Divisional Net Assets for the Year Ended January
31, 1997 and the 11-Month Period Ended December 31, 1997................. F-75
Statements of Divisional Cash Flows for the Year Ended January 31, 1997
and the 11-Month Period Ended December 31, 1997.......................... F-76
Notes to Financial Statements............................................. F-77
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Global Imaging Systems, Inc.
We have audited the accompanying consolidated balance sheets of Global
Imaging Systems, Inc. as of March 31, 1996 and 1997 and December 31, 1997 and
the related consolidated statements of operations, stockholders' equity, and
cash flows from inception (June 3, 1994) to March 31, 1995, for each of the
two years in the period ended March 31, 1997 and for the nine-month period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Global
Imaging Systems, Inc. at March 31, 1996 and 1997 and December 31, 1997 and the
consolidated results of its operations and its cash flows from inception (June
3, 1994) to March 31, 1995, for the years ended March 31, 1996 and 1997, and
for the nine-month period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Tampa, FL
February 13, 1998,
except for Note 12, as to which the date is
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ Ernst & Young LLP
F-3
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-4
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
----------------------- DECEMBER 31
1996 1997 1997
----------- ----------- ------------
A S S E T S
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 397,727 $ 960,758 $ 3,897,598
Accounts receivable, net of allowance
for doubtful accounts ($200,000,
$309,000 and $879,000 at March 31, 1996
and 1997 and December 31, 1997,
respectively).......................... 5,653,186 10,856,167 26,532,661
Inventories............................. 5,526,050 10,055,214 17,573,337
Deferred income taxes................... 251,000 554,000 1,770,000
Prepaid expenses and other current
assets................................. 134,448 112,260 790,081
----------- ----------- ------------
Total current assets.................. 11,962,411 22,538,399 50,563,677
Rental equipment, net..................... 2,634,613 3,668,106 4,879,046
Property and equipment, net............... 1,246,512 1,721,134 4,038,651
Other assets.............................. 294,930 173,816 509,158
Deferred income taxes..................... 121,500 870,000 838,000
Related party notes receivable............ -- 46,793 546,793
Intangible assets, net:
Goodwill................................ 25,074,904 35,824,147 90,092,125
Noncompete agreements................... 1,933,333 1,615,855 1,463,928
Financing fees.......................... 406,987 2,531,917 2,981,676
----------- ----------- ------------
Total assets.......................... $43,675,190 $68,990,167 $155,913,054
=========== =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31 PRO FORMA
------------------------ DECEMBER 31 DECEMBER 31
1996 1997 1997 1997
----------- ----------- ------------ -----------
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable........ $ 1,468,904 $ 3,811,761 $ 10,564,648
Accrued liabilities..... 773,833 1,467,343 3,350,029
Accrued compensation and
benefits............... 940,328 1,789,605 3,120,989
Current maturities of
long-term debt......... 312,641 562,700 268,985
Deferred revenue........ 3,358,279 5,252,390 11,053,619
Income taxes payable.... 70,000 -- --
----------- ----------- ------------
Total current
liabilities.......... 6,923,985 12,883,799 28,358,270
Long-term debt, less
current maturities....... 21,518,848 36,310,123 92,340,216
----------- ----------- ------------
Total liabilities..... 28,442,833 49,193,922 120,698,486
Stockholders' equity:
Class A common stock,
$.01 par value: 400,000
shares authorized;
172,917, 211,146 and
332,925 shares issued
and outstanding at
March 31, 1996 and 1997
and December 31, 1997,
respectively........... 1,729 2,111 3,329 $ --
Class B common stock,
$.01 par value:
50,000,000 shares
authorized; 8,114,436,
8,562,708 and 9,314,839
shares issued and
outstanding at March
31, 1996 and 1997 and
December 31, 1997,
respectively........... 81,144 85,627 93,148 104,728
Class C common stock,
$.01 par value: 900,000
shares authorized; and
-0-, 633,996 and
894,596 shares issued
and outstanding at
March 31, 1996 and 1997
and December 31, 1997,
respectively........... -- 6,340 8,946 8,946
Additional paid-in
capital................ 15,970,927 19,500,286 32,291,100 730,836
Retained earnings
(deficit).............. (821,443) 301,881 3,090,682 (1,007,494)
----------- ----------- ------------ -----------
15,232,357 19,896,245 35,487,205 (162,984)
Less stockholder
receivables............ -- (100,000) (272,637) (272,637)
----------- ----------- ------------ -----------
Total stockholders'
equity............... 15,232,357 19,796,245 35,214,568 $ (435,621)
----------- ----------- ------------ ===========
Total liabilities and
stockholders'
equity............... $43,675,190 $68,990,167 $155,913,054
=========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION NINE-MONTH PERIOD ENDED
(JUNE 3, 1994) YEAR ENDED MARCH 31 DECEMBER 31
TO MARCH 31 ------------------------ -------------------------
1995 1996 1997 1996 1997
-------------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supplies
sales................ $ 6,541,079 $20,561,009 $41,200,292 $27,502,695 $ 80,515,099
Service and rentals... 3,734,730 16,404,888 22,892,898 16,610,942 29,514,904
----------- ----------- ----------- ----------- ------------
Total revenues...... 10,275,809 36,965,897 64,093,190 44,113,637 110,030,003
Costs and operating
expenses:
Cost of equipment and
supplies sales....... 4,193,323 13,455,435 27,087,299 17,982,519 57,487,742
Service and rental
costs................ 1,885,150 8,302,791 11,467,191 8,274,398 14,492,645
Selling, general and
administrative
expenses............. 4,122,500 11,687,398 18,279,813 12,741,792 25,817,773
Intangible asset
amortization......... 328,868 1,396,463 1,939,288 1,397,826 2,159,538
----------- ----------- ----------- ----------- ------------
Total costs and
operating
expenses........... 10,529,841 34,842,087 58,773,591 40,396,535 99,957,698
----------- ----------- ----------- ----------- ------------
Income (loss) from
operations............. (254,032) 2,123,810 5,319,599 3,717,102 10,072,305
Interest expense........ (375,043) (2,041,178) (3,189,204) (2,325,431) (4,534,167)
----------- ----------- ----------- ----------- ------------
Income (loss) before
income taxes........... (629,075) 82,632 2,130,395 1,391,671 5,538,138
Income taxes............ -- 275,000 1,007,071 657,843 2,749,337
----------- ----------- ----------- ----------- ------------
Net income (loss)....... (629,075) (192,368) 1,123,324 733,828 2,788,801
Yield adjustment on
Class A common stock... (189,883) (1,022,979) (1,402,225) (1,028,812) (1,349,128)
----------- ----------- ----------- ----------- ------------
Net income (loss)
available to common
stockholders........... $ (818,958) $(1,215,347) $ (278,901) $ (294,984) $ 1,439,673
=========== =========== =========== =========== ============
Earnings (loss) per
share
Basic and diluted..... $ (.16) $ (.15) $ (.03) $ (.03) $ .15
=========== =========== =========== =========== ============
Weighted average number
of shares used in the
calculation............ 5,244,492 7,931,484 8,642,040 8,523,240 9,522,612
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK CLASS C COMMON STOCK
---------------------- ---------------------------------------------
ADDITIONAL RETAINED
PAID-IN STOCKHOLDER EARNINGS
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE CAPITAL RECEIVABLES (DEFICIT)
---------- ----------- ----------- --------------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June
3, 1994
(Inception)..... -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Common Stock
issued......... 48,995 490 7,890,960 78,910 -- -- 4,893,491 -- --
Net loss........ -- -- -- -- -- -- -- -- (629,075)
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at March
31, 1995........ 48,995 490 7,890,960 78,910 -- -- 4,893,491 -- (629,075)
Common stock
issued......... 123,922 1,239 223,476 2,234 -- -- 11,077,436 -- --
Net loss........ -- -- -- -- -- -- -- -- (192,368)
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at March
31, 1996........ 172,917 1,729 8,114,436 81,144 -- -- 15,970,927 -- (821,443)
Common stock
issued......... 38,229 382 448,272 4,483 633,996 6,340 3,529,359 (100,000) --
Net income...... -- -- -- -- -- -- -- -- 1,123,324
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at March
31, 1997........ 211,146 2,111 8,562,708 85,627 633,996 6,340 19,500,286 (100,000) 301,881
Common stock
issued......... 121,779 1,218 752,136 7,521 260,588 2,606 12,790,814 (172,637) --
Net income...... -- -- -- -- -- -- -- -- 2,788,801
---------- --------- ----------- --------- ---------- --------- ----------- --------- ----------
Balances at
December 31,
1997............ 332,925 $ 3,329 9,314,844 $ 93,148 894,564 $ 8,946 $32,291,100 $(272,637) $3,090,682
========== ========= =========== ========= ========== ========= =========== ========= ==========
<CAPTION>
TOTAL
------------
<S> <C>
Balance at June
3, 1994
(Inception)..... $ --
Common Stock
issued......... 4,972,891
Net loss........ (629,075)
------------
Balances at March
31, 1995........ 4,343,816
Common stock
issued......... 11,080,909
Net loss........ (192,368)
------------
Balances at March
31, 1996........ 15,232,357
Common stock
issued......... 3,440,564
Net income...... 1,123,324
------------
Balances at March
31, 1997........ 19,796,245
Common stock
issued......... 12,629,522
Net income...... 2,788,801
------------
Balances at
December 31,
1997............ $35,214,568
============
</TABLE>
See accompanying notes.
F-8
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION NINE-MONTH PERIOD ENDED
(JUNE 3, 1994) YEAR ENDED MARCH 31 DECEMBER 31
TO MARCH 31, ------------------------- --------------------------
1995 1996 1997 1996 1997
-------------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (629,075) $ (192,368) $ 1,123,324 $ 733,828 $ 2,788,801
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Depreciation.......... 399,643 2,237,923 2,533,486 1,825,808 2,538,657
Amortization.......... 373,834 1,687,168 2,575,879 1,945,582 2,581,199
Deferred income
taxes................ -- (372,500) (527,500) (261,400) (98,000)
Changes in operating
assets and
liabilities, net of
amounts acquired in
purchase business
combinations:
Accounts
receivable......... (159,906) (770,168) (2,105,605) (967,126) (3,072,141)
Inventories......... 644,059 (936,942) (1,278,697) (1,229,163) (283,287)
Prepaid expenses and
other current
assets............. (147,700) 213,760 131,414 10,337 (303,588)
Other assets........ (38,457) (201,600) 71,692 351,357 (150,407)
Accounts payable.... (1,377,852) 387,810 615,923 76,255 (1,246,837)
Accrued
liabilities........ 556,266 (1,427,399) 1,010,451 426,466 (584,194)
Deferred revenue.... (226,331) 282,893 268,518 333,069 417,462
Income taxes........ -- (63,308) (105,000) 78,000 (438,872)
------------ ----------- ------------ ------------ ------------
Net cash provided by
(used in) operating
activities............. (605,519) 845,269 4,313,885 3,323,013 2,148,793
INVESTING ACTIVITIES
Related party notes
receivable............. -- -- (46,793) -- (500,000)
Purchases of property,
equipment and rental
equipment.............. (497,472) (1,593,964) (2,939,709) (2,240,062) (2,671,026)
Payment for purchase of
businesses, net of cash
acquired............... (25,784,492) (8,098,428) (16,008,039) (12,784,275) (61,778,957)
------------ ----------- ------------ ------------ ------------
Net cash used in
investing activities... (26,281,964) (9,692,392) (18,994,541) (15,024,337) (64,949,983)
FINANCING ACTIVITIES
Net draws (payments)
under line of credit
agreements............. 22,659,611 (1,883,248) 14,564,648 11,942,777 55,684,993
Financing fees.......... -- (697,830) (2,761,525) (3,254,790) (853,861)
Common stock issued for
cash................... 4,972,891 11,080,909 3,440,564 3,453,800 10,906,898
------------ ----------- ------------ ------------ ------------
Net cash provided by
financing activities... 27,632,502 8,499,831 15,243,687 12,141,787 65,738,030
------------ ----------- ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ 745,019 (347,292) 563,031 440,463 2,936,840
Cash and cash
equivalents, beginning
of year................ -- 745,019 397,727 397,727 960,758
------------ ----------- ------------ ------------ ------------
Cash and cash
equivalents, end of
year................... $ 745,019 $ 397,727 $ 960,758 $ 838,190 $ 3,897,598
============ =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-9
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
Global Imaging Systems, Inc. was formed on June 3, 1994. The Company's
principal operating subsidiaries are located in the United States and are in
the business of supplying photocopiers, facsimile equipment, automated office
equipment, electronic presentation and document imaging equipment, network
integration services and related service, parts, and supplies. The
consolidated financial statements include the financial statements of Global
Imaging Systems, Inc. and its subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated in consolidation.
Interim Results
The accompanying statements of income and cash flows for the nine-month
period ended December 31, 1996 are unaudited. In the opinion of management,
these statements have been prepared on the same basis as the annual financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of results of the interim
periods. The data disclosed in these notes to the consolidated financial
statements for those periods are also unaudited. Operating results for the
nine-month period ended December 31, 1997 are not necessarily indicative of
the results that may be expected for the entire fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized as follows:
Supply sales to customers are recognized at the time of shipment. Equipment
sales are recognized at the time of customer acceptance, or in the case of
equipment sales financed by third-party leasing companies, at the time of
acceptance by the leasing company and the customer.
Maintenance contract service revenues are recognized ratably over the term
of the underlying maintenance contract. Other service revenues are recognized
as earned. Deferred revenue consists of unearned maintenance contract revenue
that is recognized over the life of the related contract, generally twelve
months.
Rental equipment revenue is recognized ratably over the lives of the
underlying cancelable operating leases, principally one to three years.
Pro Forma Stockholders' Equity (Unaudited)
The Company's presentation of unaudited pro forma stockholders' equity at
December 31, 1997 reflects the effect of the redemption of all outstanding
shares of the Company's Class A common stock, but does not give effect to the
receipt of any proceeds from the Company's initial public offering (Note 12).
The redemption price used was the original cost of $90 plus the cumulative
unpaid yield of 8% and approximately 1,158,000 shares of newly issued common
stock.
F-10
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
The Company's financial instruments include cash, accounts receivable,
accounts payable, long-term debt and obligations under capital leases. The
carrying amount of these financial instruments approximate their fair market
value.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when acquired to be cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, and trade receivables. Concentrations of credit risk with respect
to trade receivables are limited due to the large number of customers
comprising the Company's customer base and their dispersion across different
industries and geographical areas. As of December 31, 1997, the Company had no
significant concentrations of credit risk.
Inventories
Inventories consist of photocopiers, facsimile equipment, automated office
equipment, electronic presentation equipment, document imaging equipment,
computers, and related software, and related parts and supplies and are valued
at the lower of cost (specific identification and/or average cost for
equipment and average cost for related parts and supplies) or market value.
Inventories are stated net of reserves of $133,026, $326,099 and $1,010,876 at
March 31, 1996 and 1997 and December 31, 1997, respectively, for excess and
slow moving inventories.
Long-Lived Assets
The recoverability of long-lived assets (including related intangibles) is
evaluated at the operating unit level by an analysis of operating results and
consideration of other significant events or changes in the business
environment. If an operating unit has current operating losses and there is a
likelihood that such operating losses will continue, the Company will
determine if impairment exists based on the undiscounted expected future cash
flows from operations before interest. Impairment losses would be measured
based on the amount by which the carrying amount exceeds the fair value.
Rental Equipment
Rental equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the assets'
estimated economic lives, principally three years.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is principally provided using the
straight-line method over the assets' estimated economic lives, which range
from three to ten years.
Intangibles
Goodwill (excess of purchase price over fair value of net assets acquired)
recognized in business combinations accounted for as purchases is amortized
over periods of between 20 and 40 years on the straight-
F-11
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
line basis. Accumulated amortization was approximately $600,000, $1,400,000,
and $2,600,000 at March 31, 1996 and 1997 and December 31, 1997, respectively.
Noncompete agreements are amortized over the lives of the agreements, which
range from two to four years, using the straight-line basis. Accumulated
amortization was approximately $1,100,000, $2,200,000 and $3,200,000 at March
31, 1996 and 1997 and December 31, 1997, respectively.
Financing fees are amortized over the terms of the underlying debt
agreements using the straight-line method, which method approximates the
effective interest rate method. Accumulated amortization at March 31, 1996 and
1997, December 31, 1997 was approximately $285,000, $230,000 and $600,000,
respectively. In August 1996, the Company refinanced its existing lines of
credit. Unamortized financing fees of $292,000 that related to the existing
lines of credit were charged to operations at that time.
Reclassifications
Certain amounts from prior years have been reclassified to conform to the
1997 presentation.
New Accounting Standard
In June 1997, the FASB issued Statement No. 131, Disclosures About Segments
of an Enterprise and Related Information (SFAS 131). SFAS 131 establishes
standards for reporting information about operating segments and supersedes
SFAS 14, Financial Reporting for Segments of a Business Enterprise. SFAS 131
will be adopted in fiscal 1999.
2. ACQUISITIONS
From inception (June 3, 1994) to March 31, 1995, the Company acquired four
businesses that provide office imaging solutions and related services for an
aggregate purchase price of approximately $26,881,000, primarily for cash,
including the direct costs of acquisitions of approximately $260,000. The
Company assumed liabilities of $7,019,000 in connection with these
acquisitions. The Company also sold stock at its fair market value in
connection with these acquisitions.
The following summarizes these acquisitions:
<TABLE>
<CAPTION>
TOTAL
ACQUISITION ASSETS GOODWILL
ACQUIRED COMPANY DATE ACQUIRED ACQUIRED
---------------- ------------- ----------- -----------
<S> <C> <C> <C>
Felco Office Systems, Inc. ......... July 1994 $ 5,700,000 $ 2,800,000
Copy Data........................... December 1994 4,100,000 2,000,000
Conway Office Products, Inc. ....... January 1995 18,600,000 9,400,000
Berney, Inc. ....................... January 1995 5,500,000 3,500,000
----------- -----------
$33,900,000 $17,700,000
=========== ===========
</TABLE>
During the year ended March 31, 1996, the Company acquired four businesses
that provide office imaging solutions and related services for an aggregate
purchase price of approximately $9,088,000, primarily for cash, including the
direct costs of acquisitions of approximately $223,000. Liabilities totaling
$3,112,000 were assumed by the Company in connection with these acquisitions.
The Company also sold stock at its fair market value in connection with these
acquisitions. Total assets related to these four acquisitions were
$12,200,000, including goodwill of approximately $8,000,000.
During the year ended March 31, 1997, the Company acquired four businesses
that provide office imaging solutions and related services for an aggregate
purchase price of approximately $16,982,000, primarily for cash, including the
direct costs of acquisitions of approximately $518,000. The Company assumed
$4,118,000 in liabilities in connection with these acquisitions. The Company
also sold stock at its fair market value in connection with these
acquisitions. Total assets related to these four acquisitions were
$21,100,000, including goodwill of approximately $12,000,000.
F-12
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the nine-month period ended December 31, 1997, the Company acquired
ten businesses that provide office imaging solutions and related services for
an aggregate purchase price of approximately $66,353,000 primarily for cash,
including the direct costs of acquisitions of approximately $557,000.
Liabilities assumed in connection with these acquisitions totaled $20,170,000.
The Company also sold stock in connection with these acquisitions. The Class B
common stock was valued from $3.30 to $8.20 per share and the Class A common
stock from $65.00 to $80.00 per share. The excess of the fair value of the
stock over the sales price amounted to $1,723,000 and is included in the
purchase price of these acquisitions.
Significant acquisitions during the nine-month period ended December 31,
1997 include Electronic Systems, Inc. (ESI), Eastern Copy Products, Inc.
(ECP), Electronic Systems of Richmond, Inc. (ESR) and Connecticut Business
Systems, Inc. (CBS).
The following summarizes these acquisitions:
<TABLE>
<CAPTION>
TOTAL
ACQUISITION ASSETS GOODWILL
ACQUIRED COMPANY DATE ACQUIRED ACQUIRED
---------------- ------------- ----------- -----------
<S> <C> <C> <C>
ESI.................................. July 1997 $34,700,000 $24,800,000
ECP.................................. August 1997 9,100,000 5,300,000
ESR.................................. December 1997 15,700,000 8,600,000
CBS.................................. December 1997 12,800,000 9,300,000
----------- -----------
$72,300,000 $48,000,000
=========== ===========
</TABLE>
Total assets related to the remaining six acquisitions was $12,500,000,
including goodwill of approximately $7,400,000. In connection with the
acquisition of CBS, the Company issued stock in January, 1998 at below fair
market value resulting in additional goodwill.
All acquisitions have been accounted for as purchases and accordingly are
included in the results of operations from their dates of acquisitions. In
connection with the allocation of the purchase price, there were no
significant adjustments to fair value.
Under the terms of one of its purchase agreements, the Company is committed
to make contingent payments (the "Earn-out") of up to $3,000,000 to two of the
former owners of the acquired company on or before June 30, 2002. This
contingent payment is based on the future profitability, specifically earnings
before interest and taxes, of the acquired company. The former owner may
receive a portion of the Earn-out equal to $250,000, payable by June 30 of
each year for fiscal years ending March 31, 1999, 2000 and 2001. The former
owner shall be entitled to receive, on or before June 30, 2002, the balance of
the Earn-out, if applicable, minus any portion of the Earn-out previously
paid. The Earn-out, if paid, will be recorded as goodwill related to the
acquired company.
The pro forma results presented below include the effects of the
acquisitions as if they had been consummated at the beginning of the year
prior to the acquisition:
<TABLE>
<CAPTION>
INCEPTION
(JUNE 3, 1994) YEAR ENDED MARCH 31 NINE-MONTH PERIOD ENDED
TO MARCH 31 ------------------------- DECEMBER 31
1995 1996 1997 1997
--------------- ----------- ------------ -----------------------
<S> <C> <C> <C> <C>
Revenues................ $38,633,520 $75,504,139 $196,842,526 $159,390,507
Net income (loss)....... (1,697,316) (1,215,279) 1,907,810 2,943,330
Net income (loss) avail-
able to common stock-
holders................ (2,724,558) (2,738,917) (537,254) 1,099,244
Earnings (loss) per
share.................. (.34) (.30) (.05) .11
</TABLE>
F-13
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RENTAL EQUIPMENT
The Company's rental equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31
------------------------ DECEMBER 31
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Rental equipment on operating
leases............................ $ 4,899,205 $ 7,959,553 $11,096,754
Less accumulated depreciation...... (2,264,592) (4,291,447) (6,217,708)
----------- ----------- -----------
Rental equipment, net.............. $ 2,634,613 $ 3,668,106 $ 4,879,046
=========== =========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
The Company's property and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31
---------------------- DECEMBER 31
1996 1997 1997
---------- ---------- -----------
<S> <C> <C> <C>
Office furniture, equipment and
leasehold improvements.............. $1,664,452 $2,645,701 $ 5,575,614
Less accumulated depreciation and am-
ortization.......................... (417,940) (924,567) (1,536,963)
---------- ---------- -----------
Property and equipment, net.......... $1,246,512 $1,721,134 $ 4,038,651
========== ========== ===========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31
------------------------ DECEMBER 31
1996 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Term loans............................ $20,979,105 $36,105,694 $92,299,600
Various notes payable................. 852,384 767,129 309,601
----------- ----------- -----------
21,831,489 36,872,823 92,609,201
Less current maturities............... (312,641) (562,700) (268,985)
----------- ----------- -----------
$21,518,848 $36,310,123 $92,340,216
=========== =========== ===========
</TABLE>
The Company currently has a credit facility with Jackson National Life
Insurance Company (the "Credit Facility") of up to $120,000,000 for
acquisitions and for working capital purposes. At December 31, 1997,
$27,700,000 was available under the Credit Facility, including $6,000,000
available for working capital under the revolving line of credit. The Credit
Facility bears interest at 3.25% and 3.00% over LIBOR (5.7% at December 31,
1997) for the term and revolving loans, respectively. Principal under the
Credit Facility is repayable in semi-annual installments beginning in fiscal
2000. In addition to these scheduled payments, the Company is required to
prepay outstanding principal in an amount equal to 70% of the excess cash flow
(as defined) for each fiscal year within 90 days of year end. No amounts have
been required to be prepaid under this provision or are expected to be payable
at March 31, 1998. All remaining principal under the Credit Facility is due
and payable in August 2004.
Under the terms of the Credit Facility, the Company has pledged
substantially all of its assets to the lender. The terms of the Credit
Facility also require compliance with numerous covenants that restrict, among
other things, dividend payments, sales of stock or assets or the incurrence of
additional debt.
In fiscal 1997, the Company sold approximately 633,933 shares of Class C
common stock and approximately 27,083 shares of Class A common stock at their
fair value for an aggregate amount of $2,500,000 to its lender. During the
nine months ended December 31, 1997, the Company sold approximately 260,663
shares of Class C common stock and approximately 11,136 shares of Class A
common stock in connection with certain anti-dilution provisions at the same
per share price as the fiscal 1997 shares were sold to the Company's lender,
resulting in aggregate proceeds of $1,030,000 to the Company. Additionally, in
1997, the Company paid a financing fee of 2% to the lender to increase the
Credit Facility by $40,000,000 to $120,000,000.
F-14
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In September 1996, the Company purchased an interest rate cap from a bank on
$23,500,000 of the term loan debt outstanding. In January 1998, the Company
purchased an additional rate cap on an additional $26,475,000 of the term
loan. The interest rate caps are for three-year terms and provide for the
Company to be reimbursed by the bank if the annual average of the LIBOR rate
exceeds 8%. The cost of the interest rate cap ($150,000) is amortized over the
three-year term of the agreement and is included in interest.
Aggregate annual maturities of long-term debt at December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Three months ended March 31, 1998............................. $ 55,000
Fiscal year ended March 31, 1999.............................. 254,601
2000.......................................................... 6,460,972
2001.......................................................... 13,592,547
2002.......................................................... 13,074,735
Thereafter.................................................... 59,171,346
-----------
Total....................................................... $92,609,201
===========
</TABLE>
Interest paid was approximately $380,000, $1,782,000, $2,700,000 and
$3,900,000 for the ten-month period from inception (June 3, 1994) to March 31,
1995, the years ended March 31, 1996 and 1997, and the nine-month period ended
December 31, 1997, respectively.
The Company intends to replace the Credit Facility with another in the near
future. Under the terms of the Credit Facility the Company will be subject to
a prepayment fee of 1% to 4% of the outstanding balance depending on the
length of time elapsed from the beginning of the term of the loan to the date
of prepayment. In the case that the loan is repaid within 60 days of an
initial public offering of the Company's common stock, this fee will be
reduced to the lesser of 1% of the outstanding balance or $250,000.
6. STOCKHOLDERS' EQUITY
From inception through December 31, 1997 the Company has sold stock in
connection with business combinations and to its founding stockholders,
employees and others. During the nine months ended December 31, 1997 such
stock was subscribed and sold as units of approximately 7.15 shares of Class A
common stock and one share of Class B (or one share of Class C) common stock.
The sales of those units have been recorded at their estimated fair value at
the date of the commitment to sell the shares, except for shares issued in
connection with anti-dilution provisions, which shares were issued at the per-
share price at the date of the transaction giving rise to the anti-dilution
agreement. The value of the units has been allocated between shares of the
Class A and Class B (or Class C) common stock based on their estimated fair
values.
Class B stockholders are entitled to voting rights of one vote per share.
Class A and Class C stockholders are not entitled to voting rights.
No distributions other than in complete liquidation of the Company can be
made without approval of the Board of Directors. In the event of such a
distribution, the priority is as follows for the distribution of funds to
stockholders:
1. Class A stockholders are first entitled to a portion of the distribution
equivalent to 8% per annum (the "Yield") of the original share cost
($90).
2. Class A stockholders are then entitled to receive a distribution
equivalent to the original cost ($90) of the shares.
F-15
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. After the required distributions in clauses 1 and 2 above have been
completed, holders of shares of Class A common stock are entitled to
receive 10% of, and holders of shares of Class B common stock and Class
C common stock are entitled to receive 90% of, the remaining portion of
the distribution.
During 1997, the Board of Directors authorized an additional 100,000,
26,400,000 and 26,400,000 shares of Class A, Class B and Class C stock,
respectively.
In connection with the founding agreements, one of the founders and various
members of senior management have received the right to purchase, and have
purchased, an aggregate of 1,207,800 shares of Class B common stock at a price
of $0.07 per share. In June 1994, the Company's president (who is also a
founding stockholder), received an option to purchase at a price of $0.07 per
share, certain shares of common stock that were reserved for issuance to
senior management and that remain unissued as of the time of the Company's
initial public offering. At December 31, 1997, the number of such shares which
remain unissued was 86,276. These shares will be allocated between and
purchased by the Company's president and its majority stockholder (Golder,
Thoma, Cressey, Rauner, Inc.) based on their current ownership of the
Company's common stock.
7. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." SFAS
128 replaced the calculations of primary and fully diluted earnings per share
with basic and diluted earnings per share.
The weighted average number of shares outstanding used in the calculation of
both basic and diluted earnings per share have been adjusted to give
retroactive effect to the 132-for-1 stock split effective upon the closing of
the Offering.
The Company will accrete the approximately $1,000,000 difference of the
redemption value of the Class A common stock and the value allocated to the
stock for calculation of the earnings per share beginning January 1998 (the
month following the date an initial public offering became probable) through
the estimated date of the initial public offering.
Assuming redemption of the Class A common stock using the proceeds from the
number of shares of common stock necessary at $15 per share to redeem such
shares, Earnings per share would have been $0.10 for the year ended March 31,
1997 and $0.23 for the nine months ended December 31, 1997.
8. INCOME TAXES
The Company accounts for income taxes under FASB Statement No. 109,
Accounting for Income Taxes (FASB 109). Deferred income tax assets and
liabilities are determined based upon differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
F-16
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
NINE-
INCEPTION MONTH PERIOD ENDED
(JUNE 3, 1994) TO YEAR ENDED MARCH 31 DECEMBER 31
MARCH 31, --------------------- ----------------------
1995 1996 1997 1996 1997
----------------- --------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal.. $ -- $ 435,000 $1,159,571 $ 689,243 $2,176,337
State.... -- 212,500 375,000 230,000 671,000
----- --------- ---------- --------- ----------
-- 647,500 1,534,571 919,243 2,847,337
Deferred:
Federal.. -- (316,500) (448,400) (196,050) (75,000)
State.... -- (56,000) (79,100) (65,350) (23,000)
----- --------- ---------- --------- ----------
-- (372,500) (527,500) (261,400) (98,000)
----- --------- ---------- --------- ----------
$ -- $ 275,000 $1,007,071 $ 657,843 $2,749,337
===== ========= ========== ========= ==========
</TABLE>
A reconciliation of the difference between the effective income tax rate and
the statutory federal tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
INCEPTION (JUNE 3, 1994) TO --------------------
MARCH 31, 1995 1996 1997
--------------------------- -------- ----------
<S> <C> <C> <C>
Tax at U.S. statutory
rate.................... $(213,886) $ 28,095 $ 724,334
State taxes, net of
federal benefit......... (18,505) 45,142 187,080
Goodwill amortization.... 34,026 150,703 216,252
Valuation allowance...... 184,000 (8,500) (175,500)
Other permanent
differences............. 14,365 59,560 54,905
--------- -------- ----------
$ -- $275,000 $1,007,071
========= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE-
MONTH PERIOD ENDED
DECEMBER 31
----------------------
1996 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
Tax at U.S. statutory rate........................... $ 473,168 $1,882,966
State taxes, net of federal benefit.................. 123,107 427,512
Goodwill amortization................................ 161,019 297,425
Valuation Allowance.................................. (175,500) --
Other................................................ 76,049 141,434
--------- ----------
$ 657,843 $2,749,337
========= ==========
</TABLE>
F-17
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
MARCH 31
-------------------- DECEMBER 31
1996 1997 1997
-------- ---------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Noncompete agreements..................... $351,000 $ 713,000 $1,025,000
Inventory related......................... 120,000 305,000 544,000
Various accrued expenses.................. 31,200 139,000 543,000
Deferred revenue.......................... -- -- 512,000
Depreciation.............................. 191,000 269,000 246,000
Accounts receivable related............... 99,800 110,000 171,000
Capitalized acquisition costs............. -- -- 85,000
Other items............................... 20,000 33,000 --
-------- ---------- ----------
Gross deferred tax asset.................... 813,000 1,569,000 3,126,000
Less: Valuation allowance................... (395,500) -- --
-------- ---------- ----------
417,500 1,569,000 3,126,000
Deferred tax liabilities:
Goodwill.................................. 45,000 145,000 518,000
-------- ---------- ----------
Net deferred tax asset...................... $372,500 $1,424,000 $2,608,000
======== ========== ==========
Classified as follows:
Current asset............................. $251,000 $ 554,000 $1,770,000
Noncurrent asset.......................... 121,500 870,000 838,000
-------- ---------- ----------
$372,500 $1,424,000 $2,608,000
======== ========== ==========
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. A
portion of the reduction of the valuation allowance during the years ended
March 31, 1996 and 1997 was credited to goodwill since it related to basis
differences from previous business combinations not previously recognized.
After consideration of all the evidence, both positive and negative,
management has determined that a valuation allowance is not necessary as of
December 31, 1997.
Cash paid for income taxes was $0, $645,000, $1,581,000 and $2,776,400 from
inception (June 3, 1994) to March 31, 1995, for the years ended March 31, 1996
and 1997 and for the nine-month period ended December 31, 1997, respectively.
9. EMPLOYEE BENEFIT PLANS
The majority of the employees of the Company are eligible to participate in
defined contribution plans (the "Plans") established under Section 401(k) of
the U.S. Internal Revenue Code. Employees are generally eligible to contribute
voluntarily to the Plans after one year of service. The Company may contribute
a discretionary amount of the employee contribution up to specified limits.
Employees are always vested in their contributed balance and generally
become fully vested in the Company's contributions after seven years of
service. The expense related to the Company's contributions to the Plans for
the inception (June 3, 1994) to March 31, 1995, the years ended March 31, 1996
and 1997 and the nine-month period ended December 31, 1997, was approximately
$61,000, $206,000, $302,000 and $372,000, respectively.
F-18
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LEASES
The Company is obligated under various noncancelable operating leases for
its office facilities, office equipment and vehicles. Certain of the leases
for its office facilities are with various employee stockholders. Future
noncancelable lease commitments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
RELATED-PARTY
LEASES OTHER LEASES TOTAL
------------- ------------ ----------
<S> <C> <C> <C>
Three months ended March 31, 1998.... $ 251,042 $ 404,261 $ 655,303
Fiscal year ended March 31, 1999..... 952,938 1,505,660 2,458,598
2000................................. 826,352 1,348,347 2,174,699
2001................................. 472,532 1,231,221 1,703,753
2002................................. 376,028 804,540 1,180,568
Thereafter........................... 140,028 693,644 833,672
---------- ---------- ----------
Total.............................. $3,018,920 $5,987,673 $9,006,593
========== ========== ==========
</TABLE>
Rental expense related to the above leases was as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER LEASE
LEASE EXPENSE EXPENSE TOTAL
------------- ----------- ----------
<S> <C> <C> <C>
Inception (June 3, 1994) to March 31,
1995................................ $ 25,099 $177,901 $ 203,000
Year ended March 31, 1996............ 249,712 315,288 565,000
Year ended March 31, 1997............ 530,407 261,593 792,000
Nine-month period ended December 31,
1997................................ 611,381 763,619 1,375,000
</TABLE>
11. RELATED-PARTY TRANSACTIONS
During 1994, the Company entered into a seven-year consulting agreement with
its majority stockholder, Golder, Thoma, Cressey, Rauner, Inc. (the "Majority
Stockholder"). Under the terms of this agreement, the Company is obligated to
pay the Majority Stockholder an annual management fee of $200,000. The Company
is also obligated to pay a 1% placement fee to the Majority Stockholder for
all debt and equity raised by the Company during the term of the agreement.
The agreement will terminate earlier than the aforementioned seven-year term
upon the closing of any initial public offering of the Company's common stock
or a sale of substantially all of the Company's assets or common stock.
The majority stockholder agreed to waive their 1% placement fee related to
debt refinancing completed in August 1996, because the majority of the work to
obtain the financing was performed by another related party, Green, Manning &
Bunch, which charged a 1% fee.
In connection with the aforementioned agreements, the Company incurred
management fees and placement fees. The following shows the fees paid in each
period:
<TABLE>
<CAPTION>
INCEPTION NINE-MONTH
(JUNE 3, 1994) YEAR ENDED MARCH 31 PERIOD ENDED
TO MARCH 31 ------------------- DECEMBER 31
1995 1996 1997 1997
-------------- --------- --------- ------------
<S> <C> <C> <C> <C>
Management fees.............. $130,000 $ 200,000 $ 200,000 $150,000
Placement fees............... 75,000 390,000 800,000 --
</TABLE>
The Company entered into a consulting agreement with Capitol Office
Solutions (Capitol) in July 1997, whereby the Company will provide certain
human resources, administration, financial, accounting, and
F-19
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consulting services to Capitol for an annual fee of $150,000. Additionally,
the Company received a one-time fee of $270,000 from Capitol related to
assisting Capitol in obtaining financing. The majority stockholders of the
Company also own the majority of the outstanding stock of Capitol.
Related party notes receivable relate to amounts loaned to officers of the
Company to purchase stock in Capitol. These notes, which bear interest of 8%
per annum, are due and payable, with interest, on June 30, 2000, and are
collateralized by the shares purchased with the proceeds of the notes.
Also at December 31, 1997, the Company held notes receivable from employees
with balances totaling $272,637. These notes arose from transactions in fiscal
years 1997 and 1998, whereby the Company loaned the employees money to
purchase shares of the Company's stock. The notes, which bear interest of 8%
per annum, are due and payable, with interest, on dates from July 1 to
November 1, 2000. These notes are collateralized by the shares purchased with
the proceeds of the notes. These receivables are shown on the balance sheet as
a component of stockholders' equity.
12. SUBSEQUENT EVENTS
The Board of Directors contemplates an initial public offering (the
"Offering") of the Company's Common Stock.
Effective , the Board of Directors approved a change in the Company's
capital stock to authorize 10,000,000 shares of $.01 par value preferred
shares, 50,000,000 shares of $.01 par value Class B common stock and 900,000
shares of $.01 par value Class C common stock. At this time, the Board also
authorized a 132-for-1 split for holders of its Class B and Class C common
stock; provided for the automatic conversion into one share of Class B common
stock of each share of its Class C common stock upon consummation of the
Offering; provided that, upon consummation of the Offering, each share of
Class A common stock would automatically be redeemed for $90 plus 8% per annum
from the time of its purchase through May 31, 1998 (provided that the Offering
closes prior to June 30, 1998) and approximately 3.41 shares of Class B common
stock; and renamed its Class B common stock "Common Stock". The accompanying
consolidated financial statements have been restated to reflect this change in
capitalization.
The Board of Directors has adopted a stock option plan, which is to take
effect upon the closing of the Offering. Under the terms of the stock option
plan, 1,820,000 shares of the Company's common stock may be granted pursuant
to stock options or granted or sold as restricted stock to directors, officers
and employees of and consultants and advisors to the Company. Under the stock
option plan, the Board has authorized that upon the closing of the Offering,
options to purchase 519,750 shares of common stock of the Company at an
exercise price equal to the Offering price per share will be granted to key
employees. All of these options are subject to vesting requirements based on
length of service or satisfaction of certain performance milestones.
F-20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial statements are
based on the historical financial statements of the Company, and the
businesses acquired during fiscal 1997 and 1998, which are more fully
described below. The following unaudited pro forma consolidated balance sheet
of the Company as of December 31, 1997, gives effect to the February, 1998
acquisition of the Business Systems Division of Bloom's, Inc. and the January
1998 sale of Global stock to the seller of Connecticut Business Systems, as if
these transactions had occurred on December 31, 1997. The unaudited pro forma
consolidated statements of operations for the nine months ended December 31,
1997 give effect to acquisitions consummated during fiscal year 1998, as if
those acquisitions occurred on April 1, 1997. The unaudited pro forma
consolidated statements of operations for the fiscal year ended March 31, 1997
give effect to acquisitions consummated during fiscal year 1997 and 1998, as
if those acquisitions occurred on April 1, 1996.
During the fiscal year ended March 31, 1997, the Company acquired the stock
or certain assets and liabilities of the following four entities: Copy Service
& Supply, Inc., Copy World of Pittsburgh, Inc., DAPCO Copy Products, Inc., and
Southern Business Communications, Inc., Southern Business Communications of
D.C., Inc. and ATS Atlanta One, LLC (collectively, the latter three entities
are referred to herein as "Southern Business Communications Group"). During
the nine months ended December 31, 1997, the Company acquired the following
ten additional entities: Cascade Office Systems, Inc., Connecticut Business
Systems, Inc., Duplicating Specialties, Inc. d/b/a Copytronix, Eastern Copy
Products, Inc. and Subsidiaries, Electronic Systems, Inc., Electronic Systems
of Richmond, Inc., Quality Business Systems, Inc., South Alabama Business
Machines, Inc., Copy Care, and United Office Systems, Inc. In addition, the
Company acquired the Business Systems Division of Bloom's, Inc. in
February 1998.
The pro forma adjustments are based upon currently available information, as
well as upon certain assumptions that management believes are reasonable. Each
of the acquisitions was accounted for under the purchase method of accounting.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of either future results of operations or results that
might have been achieved had the foregoing transactions been consummated as of
the indicated dates. The unaudited pro forma consolidated financial statements
should be read in conjunction with the notes thereto and the historical
consolidated financial statements of the Company, together with the related
notes thereto, included in this Prospectus and Registration Statement.
F-21
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
BUSINESS
HISTORICAL SYSTEMS DIVISION PRO-FORMA PRO-FORMA
COMPANY OF BLOOM'S, INC.(A) ADJUSTMENTS CONSOLIDATED
---------- ------------------- ----------- ------------
<S> <C> <C> <C>
</TABLE>
A S S E T S
<TABLE>
<S> <C> <C> <C> <C>
Current Assets:
Cash and Cash
Equivalents.......... $ 3,897,598 -- $ 648,000 (b) $ 4,545,598
Accounts Receivable... 26,532,661 $1,855,000 -- 28,387,661
Inventories........... 17,573,337 898,000 -- 18,471,337
Deferred Income
Taxes................ 1,770,000 -- -- 1,770,000
Prepaid Expenses and
Other Current
Assets............... 790,081 -- -- 790,081
------------ ---------- ----------- ------------
Total Current
Assets............. 50,563,677 2,753,000 648,000 53,964,677
Rental Equipment, net... 4,879,046 331,000 -- 5,210,046
Property and Equipment,
net.................... 4,038,651 50,000 -- 4,088,651
Other Assets............ 509,158 -- -- 509,158
Deferred Income Taxes... 838,000 -- -- 838,000
Related Party Notes
Receivable............. 546,793 -- -- 546,793
Intangible Assets, net
Goodwill.............. 90,092,125 -- 4,404,190 (b)(c) 94,496,315
Noncompete
Agreements........... 1,463,928 -- 100,000 (c) 1,563,928
Financing Fees........ 2,981,676 -- -- 2,981,676
------------ ---------- ----------- ------------
Total Assets........ $155,913,054 $3,134,000 $ 5,152,190 $164,199,244
============ ========== =========== ============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
Current Liabilities:
Accounts Payable...... $ 10,564,648 $ 163,000 -- $ 10,727,648
Accrued Liabilities... 3,350,029 32,000 -- 3,382,029
Accrued Compensation
and Benefits......... 3,120,989 -- -- 3,120,989
Current Maturities of
Long-term Debt....... 268,985 -- -- 268,985
Deferred Revenue...... 11,053,619 872,000 -- 11,925,619
------------ ---------- ----------- ------------
Total Current
Liabilities........ 28,358,270 1,067,000 -- 29,425,270
Long-term Debt, Less
Current Maturities..... 92,340,216 -- $ 5,600,000 (c) 97,940,216
------------ ---------- ----------- ------------
Total Liabilities... 120,698,486 1,067,000 5,600,000 127,365,486
Stockholders' Equity:
Pre-Acquisition
Equity............... -- 2,067,000 (2,067,000)(c) --
Class A Common Stock.. 3,329 -- 70 (b) 3,399
Class B Common Stock.. 93,148 -- 1,320 (b) 94,468
Class C Common Stock.. 8,946 -- -- 8,946
Additional Paid-in
Capital.............. 32,291,100 -- 1,617,800 (b) 33,908,900
Retained Earnings..... 3,090,682 -- -- 3,090,682
------------ ---------- ----------- ------------
35,487,205 2,067,000 (447,810) 37,106,395
Less Stockholder
Receivables.......... (272,637) -- -- (272,637)
------------ ---------- ----------- ------------
Total Stockholders'
Equity............. 35,214,568 2,067,000 (447,810) 36,833,758
------------ ---------- ----------- ------------
Total Liabilities
and Stockholders'
Equity............. $155,913,054 $3,134,000 $ 5,152,190 $164,199,244
============ ========== =========== ============
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET
DECEMBER 31, 1997
(a) This column represents the assets and liabilities of the Business Systems
Division of Bloom's Inc. at December 31, 1997 acquired by the Company.
(b) These pro-forma adjustments consist of a transaction whereby the seller of
Connecticut Business Systems, Inc. purchased stock of the Company on
January 9, 1998, in accordance with the company purchase agreement at
below fair market value resulting in additional goodwill.
(c) These pro-forma adjustments consist of the purchase accounting adjustments
in connection with the purchase of the Business Systems Division of
Bloom's, Inc. which became effective February 1, 1998. These adjustments
relate to goodwill, non-compete agreements, and debt obtained to finance
the purchase.
F-23
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
-------------------------
HISTORICAL ACQUIRED PURCHASE PRO-FORMA
COMPANY BUSINESSES(A)(G) ACCOUNTING OTHER CONSOLIDATED
----------- ---------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supplies
sales................ $41,200,292 $102,932,447 -- -- $144,132,739
Service and rental
revenues............. 22,892,898 29,816,889 -- -- 52,709,787
----------- ------------ ---------- ---------- ------------
Total revenues...... 64,093,190 132,749,336 -- -- 196,842,526
Costs and operating
expenses:
Cost of equipment and
supplies sales....... 27,087,299 79,061,787 -- -- 106,149,086
Service and rental
costs................ 11,467,191 16,135,807 -- $ (699,142)(b) 26,903,856
Selling, general, and
administrative
expenses............. 18,279,813 30,269,416 -- (2,581,941)(c) 45,967,288
Intangible asset
amortization and
charges.............. 1,939,288 -- $2,373,605 (d) -- 4,312,893
----------- ------------ ---------- ---------- ------------
Total costs and
operating
expenses........... 58,773,591 125,467,010 2,373,605 (3,281,083) 183,333,123
----------- ------------ ---------- ---------- ------------
Income (loss) from
operations......... 5,319,599 7,282,326 (2,373,605) 3,281,083 13,509,403
Interest expense........ 3,189,204 434,642 6,173,564 (e) -- 9,797,410
----------- ------------ ---------- ---------- ------------
Income (loss) before
income taxes......... 2,130,395 6,847,684 (8,547,169) 3,281,083 3,711,993
Income taxes.......... 1,007,071 2,637,377 (3,123,402)(f) 1,283,137 (f) 1,804,183
----------- ------------ ---------- ---------- ------------
Net income (loss)..... 1,123,324 4,210,307 (5,423,767) 1,997,946 1,907,810
Yield adjustment on
class A common stock (1,402,225) (2,445,064)
----------- ------------
Net (loss) available
to common
stockholders $ (278,901) $ (537,254)
=========== ============
Loss per common share
(basic and diluted)... $ (0.03) $ (0.05)
=========== ============
Weighted average
number of common
shares used in the
calculation.......... 8,642,040 10,339,164
=========== ============
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1997
(a) Represents historical operating results of the following fifteen entities
prior to acquisition of their stock or certain of their assets and
liabilities by the Company as indicated in Note 2 to the consolidated
financial statements on F-12 and F-13: Cascade Office Systems, Inc., Copy
World of Pittsburgh, Inc., DAPCO Copy Products, Inc., Connecticut Business
Systems, Inc., the Business Systems Division of Bloom's, Inc., Copy
Service & Supply, Inc., Duplicating Specialties, Inc. d/b/a Copytronix,
Eastern Copy Products, Inc. and Subsidiaries, Electronic Systems, Inc.,
Electronic Systems of Richmond, Inc., Quality Business Systems, Inc.,
South Alabama Business Machines, Inc., Southern Business Communications
Group, Copy Care, and United Office Systems, Inc.
(b) Reflects identified personnel cost savings related to elimination of
certain service positions in connection with the acquisitions. Prior to
completing an acquisition, the Company formulates a formal integration
plan which clearly identifies the employees to be terminated, their job
classifications or functions, and their locations. The plan also indicates
the time frame for the elimination of these positions. These positions are
typically eliminated within several months of the acquisition date. The
Company classifies service salaries and related costs in the cost of sales
(service and rental costs) section of the Company's financial statements.
(c) Includes estimated cost savings directly related to the acquisition. These
include the elimination of certain sales and administrative positions, net
of additional expenses related to added positions (net savings of
$334,447); a decrease in former owners' salaries and perquisites of
$2,047,066 and $158,223, respectively, to reflect current compensation
levels of former owners as specified in employment agreement; and a
decrease in building lease payments of $42,205 to reflect current lease
rates as specified in acquisition agreements. Prior to completing an
acquisition, the Company formulates a formal integration plan which
clearly identifies the employees to be terminated, their job
classifications or functions, and their locations. The plan also indicates
the time frame for the elimination of these positions. Staff reductions
are typically completed within several months of the acquisition date.
(d) Reflects additional goodwill amortization expense of $1,919,978 and non-
compete covenant amortization expense of $453,627. The goodwill
amortization periods range from 20 to 40 years; goodwill is amortized
using the straight-line method. The non-compete covenant amortization
periods range from 2 to 4 years; non-compete covenants are amortized using
the straight-line method.
(e) Reflects additional interest expense related to borrowings that would have
been incurred by the Company to finance the acquisitions, had all of the
acquisitions been consummated at April 1, 1996. An average interest rate
of 8.9% was used for this calculation, which approximates the Company's
actual borrowing rate during such period.
(f) Represents the income tax impact of purchase accounting adjustments and
other pro forma adjustments based on an effective rate of approximately
38%.
(g) Certain acquired businesses contain periods of activity that are included
both in the March 31, 1997 and December 31, 1997 pro forma statements of
operations, due to the fact that the acquired business' fiscal year-end
does not coincide with the Company's fiscal year-end. Revenues of
$6,746,321 and a net loss of $314,277 of Connecticut Business Systems,
Inc., for the period from April 1, 1997 through September 30, 1997 is
included in both the March 31, 1997 and December 31, 1997 pro forma
statements of operations. Revenues of $5,418,394 and net income of
$370,317 of Eastern Copy Products, Inc. and Subsidiaries for the period
from April 1, 1997 through July 31, 1997, is included in both the March
31, 1997 and December 31, 1997 pro forma income statements of operations.
F-25
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
---------------------------
HISTORICAL ACQUIRED PURCHASE PRO-FORMA
COMPANY BUSINESSES (A) (G) ACCOUNTING OTHER CONSOLIDATED
----------- ------------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and supplies
sales................ $80,515,099 $36,336,885 -- -- $116,851,984
Service and rental
revenue.............. 29,514,904 13,023,619 -- -- 42,538,523
----------- ----------- ----------- ----------- ------------
Total revenues...... 110,030,003 49,360,504 -- -- 159,390,507
Costs and operating ex-
penses:
Cost of equipment and
supplies sales....... 57,487,742 25,226,248 -- -- 82,713,990
Service and rental
costs................ 14,492,645 6,718,837 -- $ (236,597)(b) 20,974,885
Selling, general, and
administrative
expenses............. 25,817,773 14,997,190 -- (1,293,353)(c) 39,521,610
Intangible asset
amortization and
charges.............. 2,159,538 -- $ 993,977(d) -- 3,153,515
----------- ----------- ----------- ----------- ------------
Total costs and
operating
expenses........... 99,957,698 46,942,275 993,977 (1,529,950) 146,364,000
----------- ----------- ----------- ----------- ------------
Income (loss) from
operations......... 10,072,305 2,418,229 (993,977) 1,529,950 13,026,507
Interest expense........ 4,534,167 26,179 2,513,829(e) -- 7,074,175
----------- ----------- ----------- ----------- ------------
Income (loss) before
income taxes......... 5,538,138 2,392,050 (3,507,806) 1,529,950 5,952,332
Income taxes.......... 2,749,337 952,167 (1,288,867)(f) 596,365 (f) 3,009,002
----------- ----------- ----------- ----------- ------------
Net income (loss)..... 2,788,801 1,439,883 (2,218,939) 933,585 2,943,330
----------- ----------- ----------- ----------- ------------
Yield adjustment on
class A common
stock................ (1,349,128) (1,844,086)
----------- ------------
Net income available
to common
stockholders......... $ 1,439,673 $ 1,099,244
=========== ============
Earnings per common
share
(basic and diluted)... $ 0.15 $ 0.11
=========== ============
Weighted average number
of common shares
outstanding............ 9,522,612 10,339,164
=========== ============
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997
(a) Represents historical operating results of the following eleven entities
prior to acquisition of their stock or certain of their assets and
liabilities by the Company as indicated in Note 2 to the consolidated
financial statements on pages F-12 and F-13: Cascade Office Systems, Inc.,
Connecticut Business Systems, Inc., the Business Systems Division of
Bloom's, Inc., Duplicating Specialties, Inc. d/b/a Copytronix, Eastern
Copy Products, Inc. and Subsidiaries, Electronic Systems, Inc., Electronic
Systems of Richmond, Inc., Quality Business Systems, Inc., South Alabama
Business Machines, Inc., Copy Care, Inc. and United Office Systems, Inc.
(b) Reflects identified personnel cost savings related to elimination of
certain service positions in connection with the acquisitions. Prior to
completing an acquisition, the Company formulates a formal integration
plan which clearly identifies the employees to be terminated, their job
classifications or functions, and their locations. The plan also indicates
the time frame for the elimination of these positions. These positions are
typically eliminated within several months of the acquisition date. The
Company classifies service salaries and related costs in the cost of sales
(service and rental costs) section of the Company's financial statements.
(c) Includes estimated cost savings directly related to the acquisition. These
include the elimination of certain sales and administrative positions, net
of additional expenses related to added positions (net savings of
$54,385); a decrease in former owners' salaries and perquisites of
$1,166,219 and $60,519, respectively, to reflect current compensation
levels of former owners as specified in employment agreements; and a
decrease in lease payments of $12,230 to reflect current lease rates as
specified in acquisition agreements. Prior to completing an acquisition,
the Company formulates a formal integration plan which clearly identifies
the employees to be terminated, their job classifications or functions,
and their locations. The plan also indicates the time frame for the
elimination of these positions. Staff reductions are typically completed
within several months of the acquisition date.
(d) Reflects additional goodwill amortization expense of $854,049 and non-
compete covenant amortization expense of $139,928. The goodwill
amortization periods range from 20 to 40 years; goodwill is amortized
using the straight-line method. The non-compete covenant amortization
periods range from 2 to 4 years; non-compete covenants are amortized using
the straight-line method.
(e) Reflects additional interest expense related to borrowings that would have
been incurred by the Company to finance the acquisitions, had all of the
acquisitions been consummated at April 1, 1996. An average interest rate
of 8.9% was used for this calculation which approximates the Company's
actual borrowing rate during such period.
(f) Represents the income tax impact on purchase accounting adjustments and
other pro forma adjustments based on an effective rate of approximately
37%.
(g) Certain acquired businesses contain periods of activity that are included
both in the March 31, 1997 and December 31, 1997 pro forma statements of
operations, due to the fact that the acquired business' fiscal year-end
does not coincide with the Company's fiscal year-end. Revenues of
$6,746,321 and a net loss of $314,277 of Connecticut Business Systems,
Inc., for the period from April 1, 1997 through September 30, 1997 is
included in both the March 31, 1997 and December 31, 1997 pro forma
statements of operations. Revenues of $5,418,394 and net income of
$370,317 of Eastern Copy Products, Inc. and Subsidiaries for the period
from April 1, 1997 through July 31, 1997 is included in both the March 31,
1997 and December 31, 1997 pro forma income statements of operations.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Copy Service and Supply, Inc.
Statesville, North Carolina
We have audited the accompanying combined statements of income and owners'
capital and cash flows of Copy Service and Supply, Inc. for the five months
ended May 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined results of operations and cash flows of
Copy Service and Supply, Inc. for the five months ended May 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Barnard, Combs, Potts & Rhyne,PA
Statesville, North Carolina
February 12, 1998
F-28
<PAGE>
COPY SERVICE AND SUPPLY, INC.
COMBINED STATEMENT OF INCOME
AND OWNERS' CAPITAL
FOR THE FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
Revenue:
Equipment and supplies............................................. $ 833,370
Service agreement renewal.......................................... 628,202
Rental income...................................................... 92,872
---------
1,554,444
Cost of goods sold:
Equipment and supplies............................................. 569,600
Cost of service agreement renewal.................................. 361,240
Cost of rental income.............................................. 16,906
---------
947,746
Gross profit..................................................... 606,698
Selling, general and administrative expenses......................... 508,740
---------
Income from operations............................................... 97,958
Other income (deductions):
Gain on sale of fixed assets....................................... (7,740)
Interest income.................................................... 6,182
Interest expense................................................... (17,864)
---------
Income before income taxes....................................... 78,536
---------
Income taxes:
Current............................................................ (1,646)
Deferred........................................................... 21,288
---------
19,642
---------
Net income....................................................... 58,894
Owners' capital, beginning of period................................. 522,642
---------
Owners' capital, end of period..................................... $ 581,536
=========
</TABLE>
See accompanying notes.
F-29
<PAGE>
COPY SERVICE AND SUPPLY, INC
COMBINED STATEMENT OF CASH FLOWS
FOR THE FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income......................................................... $ 58,894
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization..................................... 37,719
Loss on sale of fixed assets...................................... 7,740
Deferred tax...................................................... 21,288
(Increase) decrease in:
Accounts receivable.............................................. (55,689)
Inventory........................................................ 68,433
Refundable income tax............................................ (531)
Increase (decrease) in:
Accounts payable................................................. (51,702)
Accrued expenses................................................. 14,303
Deferred income.................................................. (55,658)
---------
Net cash provided by operating activities....................... 44,797
---------
Cash flows from investing activities:
Purchase of fixed assets........................................... (2,679)
Lease obligation................................................... (2,335)
Proceeds from sale of fixed assets................................. 47,036
---------
Net cash used by investing activities........................... 42,022
---------
Cash flows from financing activities:
New borrowings:
Short-term........................................................ 74,592
Debt reduction:
Long-term......................................................... (110,220)
Shareholder loans.................................................. (14,000)
---------
Net cash provided (used) by financing activities................ (49,628)
---------
Increase in cash.................................................... 37,191
Cash at beginning of period......................................... 83,417
---------
Cash at end of period........................................... $ 120,608
=========
</TABLE>
Supplemental disclosures of noncash investing and financing activities.
See accompanying notes.
F-30
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination--The combined financial statements include the
accounts of Copy Service and Supply, Inc., CSS Leasing, LLC, and Office
Furniture Concepts, Inc. All material intercompany transactions have been
eliminated.
Organization And Operations--Copy Service and Supply, Inc. incorporated on
January 1, 1984, and operations began immediately thereafter. The Company
sells copiers, business machines and office furniture. The Company services
and furnishes supplies for the equipment it sells.
CSS Leasing, LLC is a limited liability company pursuant to 57C-2-20 of the
General Statue of North Carolina. The Company was formed for the purpose of
entering into various leasing contracts for office equipment, furniture or
other business equipment. Operations began on September 30, 1994.
Office Furniture Concepts, Inc. was incorporated on August 17, 1995, and
operations began immediately thereafter. The Company sells office furniture.
Receivables--Receivables are shown at face value. At May 31, 1996 management
reviewed receivables and all accounts considered uncollectible have been
written off.
Inventory--Inventories are valued at the lower of cost, on the first-in,
first-out basis, or market.
Fixed Assets--Fixed assets are stated at cost. For financial reporting
depreciation prior to 1987 is computed using the accelerated cost recovery
method over the estimated useful lives of 3 to 5 years. Fixed assets purchased
after 1987 are depreciated using the straight line method over the estimated
useful lives of 3 to 40 years. Maintenance and repairs are charged to expense
as incurred and renewals and improvements are capitalized. Gains and losses on
disposals are reflected in current operations except for the gains on traded
properties, which are reflected in the basis of new assets.
Income Taxes--The provision for income taxes includes deferred taxes arising
from temporary differences between financial and tax depreciation due to the
use of accelerated method for tax purposes, and allowance for inventory
obsolescence for book purposes. Tax credits are treated as a reduction of
federal income taxes for the year in which the credits are used. The tax
provision is for Copy Service and Supply, Inc. only because CSS Leasing, LLC
and Office Furniture Concepts, Inc. are entities which are taxed at the owner
level.
Revenue Recognition--The Company sells service contracts for the equipment
it sells. The contracts are for a specified number of copies or for a
specified time period, primarily from one to three years. The customer pays
for the service contracts in advance and the Company recognizes revenue on
these contracts ratably over the life of the contracts. Other service revenues
are recognized as earned.
Supply sales to customers are recognized at the time of shipment. Equipment
sales are recognized at the time of customer acceptance, or in the case of
equipment sales financed by third-party leasing companies, at the time of
acceptance by the leasing company and the customer.
Rental equipment revenue is recognized ratably over the lives of the
underlying cancelable operating leases, principally one to three years.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-31
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
reported amounts of revenues and expenses during the reporting period. Actual
results could vary from the estimates that were used.
Cash And Cash Equivalents--The Company considers all highly liquid
investments with maturities of three months or less when acquired to be cash
equivalents.
NOTE 2--OBLIGATION UNDER SALES-TYPE LEASES:
CSS Leasing, LLC is in the business of leasing office furniture and
equipment. At the inception of the lease, determination is made whether it
qualifies as a sales-type or operating lease.
The following is an analysis of minimum future sales-type lease payments to
be received as of May 31, 1996:
<TABLE>
<S> <C>
May 31, 1997........................................................ $19,738
May 31, 1998........................................................ 15,963
May 31, 1999........................................................ 12,014
May 31, 2000........................................................ 5,012
-------
Total minimum lease receivable...................................... 52,727
Less: imputed interest 13,893
-------
Present value of lease receivable at May 31, 1996................... $38,834
=======
Current portion..................................................... $13,050
=======
Long-term portion................................................... $25,784
=======
</TABLE>
NOTE 3--OPERATING LEASES:
CSS Leasing, LLC is a lessor of office furniture and equipment. The
following is the book value of equipment under operating leases as of May 31,
1996.
<TABLE>
<S> <C>
Leased equipment.................................................... $243,457
Less: accumulated depreciation...................................... 50,744
--------
Net book value...................................................... $192,713
========
</TABLE>
Total depreciation expense was $16,906 for the five months ended May 31,
1996.
Future minimum rentals on noncancelable leases in the aggregate and for the
next three years are as follows:
<TABLE>
<S> <C>
May 31, 1997........................................................ $153,426
May 31, 1998........................................................ 69,473
May 31, 1999........................................................ 8,367
--------
Total minimum rentals............................................. $231,266
========
</TABLE>
F-32
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--FIXED ASSETS:
The major components of fixed assets are as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment................................... $369,299
Vehicles............................................................ 178,774
Leasehold improvements.............................................. 51,683
--------
Total fixed assets................................................ 599,756
Accumulated depreciation............................................ 264,544
--------
Net fixed assets.................................................... $335,212
========
</TABLE>
Depreciation expense for the five months ended May 31, 1996 was $37,673.
NOTE 5--NOTES PAYABLE AND LONG-TERM DEBT:
An analysis of long-term debt is as follows:
<TABLE>
<S> <C>
$200,000 line of credit with bank, interest rate of prime plus
.50%, collateralized by inventory and equipment.................. $200,000
Note payable to bank, due in monthly installments of $276, includ-
ing interest at 7%, collateralized by vehicle.................... 3,700
Note payable to bank, due in monthly installments of $257,
including interest at 6.75%, collateralized by vehicle........... 5,067
Note payable to bank, due in monthly installments of $357,
including interest at 8.25%, collateralized by vehicle........... 6,027
Note payable to bank, due in monthly installments of $333,
including interest at 9.25%, collateralized by vehicle........... 7,276
Note payable to bank, due in monthly installments of $572,
including interest at 9.0%, collateralized by equipment.......... 12,986
Note payable to bank, due in monthly installments of $329,
including interest at 8.75%, collateralized by vehicle........... 7,754
Note payable to bank, due in monthly installments of $7,100,
including interest at 8.50%, collateralized by equipment......... 52,661
Note payable to bank, due in monthly installments of $4,821,
including interest at 8.75%, collateralized by equipment......... 63,116
Credit line with bank, interest payable monthly at 8.5%, maturity
date January 10, 1997, collateralized by equipment .............. 32,213
--------
390,800
Less current installments of long-term debt....................... 361,644
--------
Long-term debt, excluding current installments ................... $ 29,156
========
</TABLE>
F-33
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Principle payments for the next three years are as follows:
<TABLE>
<S> <C>
May 31, 1997......................................................... $361,644
May 31, 1998......................................................... 28,017
May 31, 1999......................................................... 1,139
--------
$390,800
========
</TABLE>
NOTE 6--PROFIT SHARING PLAN:
The Company has a profit sharing plan which is available to all employees
who have attained certain age and service requirements. Contributions made to
the plan are entrusted to an investment company which provides investment
consultation and administration. No contribution was made for the five months
ended May 31, 1996.
NOTE 7--OPERATING LEASE:
The Company conducts its operations from leased facilities. The main office,
showroom space and one branch office are leased from the 100% shareholder.
There are four annual renewable leases, payable $9,999 per month, expiring on
various dates.
Two of the Company's branch offices are leased for a total of $700 per
month. These leases are month to month leases. Also, the Company has one
branch office which is a 36 month lease for a total of $1,046 per month.
Lease expense for the five months ended May 31, 1996 was $58,725.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
May 31, 1997......................................................... $70,693
</TABLE>
NOTE 8--SUPPLEMENTARY CASH FLOWS INFORMATION:
<TABLE>
<S> <C>
Interest paid........................................................ $ 9,321
Income taxes paid.................................................... $ 0
</TABLE>
NOTE 9--CONCENTRATED CREDIT RISK:
The Companies are principally engaged in the business of selling and leasing
copiers business machines and office furniture. Consequently, the ability to
collect the amounts due from customers may be affected by economic fluctuation
in the industry.
NOTE 10--RELATED PARTY:
The 100% shareholder of Copy Service and Supply, Inc. also owns 60% of CSS
Leasing, LLC.
During 1995 the furniture division of Copy Service and Supply, Inc. was
Incorporated. The Corporate name is Office Furniture Concepts, Inc. The
inventory and various fixed assets were transferred into the newly formed
corporation. The 100% shareholder of Copy Service and Supply, Inc. also owns
49% of Office Furniture Concepts, Inc.
F-34
<PAGE>
COPY SERVICE AND SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--INCOME TAXES:
A reconciliation of the provision for income taxes with the amount of income
tax computed at the Federal statutory rate (34%) follows:
<TABLE>
<S> <C>
Tax expense at statutory rate....................................... $26,702
Increase (decrease) in taxes resulting from:
Elimination of non taxable entities................................. (6,164)
Expenses not tax deductible......................................... 2,708
State taxes, net of federal benefit................................. (3,604)
-------
Provision for income taxes charged to operation..................... $19,642
=======
</TABLE>
NOTE 12--SUBSEQUENT EVENTS:
On June 1, 1996 the Company was sold to new owners. After the sale CSS
Leasing LLC and Office Furniture Concepts, Inc. were merged into Copy Service
and Supply, Inc.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors Southern Business Communications Group
We have audited the accompanying combined statements of income and cash
flows of Southern Business Communications Group for the nine months ended
September 30, 1996. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Southern Business Communications Group for the nine months ended September 30,
1996 in conformity with generally accepted accounting principles.
/s/ Smith & Howard, P.C.
Atlanta, Georgia
January 8, 1998
F-36
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Revenues
Net product sales................................................ $11,878,102
Service and rentals.............................................. 1,534,257
-----------
13,412,359
Costs and Expenses
Cost of products sold............................................ 9,106,579
Service and rental costs......................................... 427,911
Selling, general and administrative.............................. 2,680,675
-----------
12,215,165
-----------
Operating Income................................................... 1,197,194
Other Income (Expense)
Interest expense................................................. (93,993)
Other............................................................ 24,932
-----------
(69,061)
-----------
Net Income..................................................... $ 1,128,133
===========
</TABLE>
See accompanying notes.
F-37
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
COMBINED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Cash received from customers.................................. $ 13,537,742
Cash paid to suppliers and employees.......................... (12,017,450)
Interest paid................................................. (93,993)
Other income.................................................. 24,932
------------
Net Cash Provided by Operating Activities................... 1,451,231
------------
Cash Flows from Investing Activities:
Purchases of property and equipment........................... (46,594)
Loans to shareholders......................................... (360,000)
------------
Net Cash Required by Investing Activities................... (406,594)
------------
Cash Flows from Financing Activities:
Net line of credit borrowings................................. 206,759
Principal payments on notes payable to related parties, net... (300,047)
Proceeds from issuance of long-term debt...................... 228,926
Principal payments on long-term debt and capital lease
obligation................................................... (345,330)
Distributions to shareholders................................. (819,643)
------------
Net Cash Required by Financing Activities................... (1,029,335)
------------
Net Increase in Cash............................................ 15,302
Cash at Beginning of Period..................................... 62,624
------------
Cash at End of Period........................................... $ 77,926
============
Reconciliation of Net Income to Net Cash Provided by Operating
Activities:
Net Income...................................................... $ 1,128,133
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation.................................................. 90,558
Decrease in accounts receivable............................... 282,258
Decrease in inventories....................................... 144,627
Decrease in accounts payable and checks outstanding........... (71,181)
Decrease in deferred revenue.................................. (156,875)
Increase in accrued liabilities............................... 33,711
------------
Total Adjustments........................................... 323,098
------------
Net Cash Provided by Operating Activities....................... $ 1,451,231
============
</TABLE>
See accompanying notes.
F-38
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1. DESCRIPTION OF THE BUSINESS
Southern Business Communications Group (the Company) is engaged in the sale
and installation or leasing of electronic presentation equipment, document
imaging management, and system integration. The Company also provides
maintenance on the equipment and microfilm service bureau work to convert
paper files to microfilm.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined financial statements include the accounts of Southern Business
Communications, Inc. (SBC), Southern Business Communications of D.C., Inc.
(SBC of DC), and ATS Atlanta (ATS), three companies affiliated through common
ownership. All significant inter-company transactions have been eliminated.
Revenue Recognition
Revenues from product sales are recognized upon shipment to customer.
Revenues related to systems support agreements are recognized ratably over the
terms of the agreements, generally one year.
Inventories
Inventories consist of audio, visual, micrographic and computer equipment
and related parts and supplies valued at the lower of cost or market as
determined using the first-in, first-out (FIFO) method.
Depreciation and Amortization
Depreciation of property and equipment is provided over the useful lives of
the assets primarily on the straight-line method.
Useful lives for depreciable assets are as follows:
<TABLE>
<S> <C>
Building and improvements....................................... 31 years
Machinery and equipment......................................... 3 to 7 years
Furniture and fixtures.......................................... 5 to 7 years
Equipment held for lease........................................ 5 years
</TABLE>
Income Taxes
As a result of elections with the IRS made by the stockholders of the
entities comprising the Company, the Company is not liable for income taxes as
of September 30, 1996. The stockholders are liable for individual income taxes
on their respective shares of the entities' taxable income, and the
accompanying combined financial statements do not include a provision for
income taxes.
NOTE 3. LINES OF CREDIT
The Company has working capital revolving line of credit agreements with a
bank which provide for total borrowings of $2,100,000. Borrowings are limited
to 85% of accounts receivable and 50% of inventories, with borrowings based on
inventories limited to specified amounts per the agreements. Borrowings under
the agreements are secured by accounts receivable, inventories and the
personal guarantees of the Company's stockholders. Interest is payable monthly
at the bank's prime rate. Outstanding borrowings under the agreements at
September 30, 1996 totaled $907,189 as follows: SBC--$785,225, SBC of DC--
$111,964, ATS--$10,000.
F-39
<PAGE>
SOUTHERN BUSINESS COMMUNICATIONS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1996
SBC also has a second line of credit with the same bank which provides for
borrowings up to $250,000 for capital expenditures. Interest is payable
monthly at the bank's prime rate. Borrowings under the agreement are secured
by a second lien on the SBC's land and building. There were no outstanding
borrowings under this agreement at September 30, 1996.
NOTE 4. LONG-TERM DEBT
Principal payments on long-term debt are as follows for years ending
September 30:
<TABLE>
<S> <C>
1997................................................................ $ 30,991
1998................................................................ 28,429
1999................................................................ 26,862
2000................................................................ 26,161
2001................................................................ 29,919
Thereafter.......................................................... 284,942
--------
$427,304
========
</TABLE>
NOTE 5. LEASES
The Company leases office space under operating leases that expire at
various dates through 2000. Rent expense under these leases approximated
$44,000. Future minimum rental payments required under operating leases with
initial or remaining noncancellable lease terms in excess of one year are as
follows:
<TABLE>
<S> <C>
1997................................................................ $ 66,912
1998................................................................ 68,364
1999................................................................ 48,840
2000................................................................ 10,977
--------
$195,093
========
</TABLE>
NOTE 6. PROFIT SHARING PLAN
The Company has a profit sharing 401(k) plan (the Plan) which is qualified
under Section 401(k) of the Internal Revenue Code and covers substantially all
employees. Under the provisions of the Plan, the Company contributes
discretionary amounts as determined by the Board of Directors. Participants'
vested interests in the Company's contributions are based upon years of
service, as defined, with the Company. Contributions to the Plan were $23,628.
NOTE 7. SUBSEQUENT EVENT
Subsequent to September 30, 1996, all of the outstanding stock of SBC, SBC
of DC and ATS was purchased by an unrelated corporation which owns other
companies engaged in the same lines of business as the Company.
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders
Electronic Systems, Inc.
We have audited the accompanying statements of income and retained earnings
and cash flows of Electronic Systems, Inc. for the years ended December 31,
1995 and 1996 and the six months ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Electronic Systems, Inc. for the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young
Richmond, Virginia
January 23, 1998
F-41
<PAGE>
ELECTRONIC SYSTEMS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------ JUNE 30
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Equipment, supplies and parts........ $24,096,319 $35,903,314 $20,373,983
Service and training................. 4,013,939 6,304,117 3,899,523
Rental............................... 758,271 802,465 422,963
----------- ----------- -----------
Total revenue...................... 28,868,529 43,009,896 24,696,469
Cost of goods and services sold:
Equipment, supplies and parts........ 20,478,529 31,008,200 17,294,908
Service and training................. 1,883,456 3,115,095 1,804,993
Rental............................... 470,729 513,096 282,111
----------- ----------- -----------
Total cost of goods and services
sold.............................. 22,832,714 34,636,391 19,382,012
----------- ----------- -----------
6,035,815 8,373,505 5,314,457
Selling, general, and administrative
expenses.............................. 4,824,892 5,961,952 4,482,983
----------- ----------- -----------
1,210,923 2,411,553 831,474
Other income (expense):
Interest expense..................... (78,207) (87,713) (17,250)
Interest income...................... 16,498 21,850 34,135
Management fee....................... 15,000 25,000 14,000
Other, net........................... 100,008 32,740 90,031
----------- ----------- -----------
53,299 (8,123) 120,916
----------- ----------- -----------
Net income............................. 1,264,222 2,403,430 952,390
Retained earnings at beginning of
year.................................. 1,958,487 2,877,594 4,682,982
Distributions to shareholders.......... (345,115) (598,042) (1,174,346)
----------- ----------- -----------
Retained earnings at end of year....... $ 2,877,594 $ 4,682,982 $ 4,461,026
=========== =========== ===========
</TABLE>
See accompanying notes.
F-42
<PAGE>
ELECTRONIC SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------ JUNE 30
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 1,264,222 $ 2,403,430 $ 952,390
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 398,866 521,799 250,726
(Gain) loss on sale of assets........ 1,610 8,243 (26,620)
Provision for doubtful accounts...... 20,776 -- 108,000
Changes in operating assets and
liabilities:
Accounts receivable................. (1,725,911) 35,132 (691,819)
Inventories......................... (617,253) (463,747) 248,873
Prepaid expenses and other.......... 42,368 (336) (44,952)
Accounts payable.................... 801,781 2,032,101 (1,301,766)
Accrued expenses and other
liabilities........................ 162,239 371,848 554,626
----------- ----------- -----------
Net cash provided by operating
activities............................ 348,698 4,908,470 49,458
INVESTING ACTIVITIES
Purchases of property and equipment.... (659,254) (444,200) (339,048)
Proceeds on sale of property and
equipment............................. 39,176 101,242 45,043
Proceeds on notes receivable from
shareholders.......................... -- -- 166,980
----------- ----------- -----------
Net cash used in investing activities.. (620,078) (342,958) (127,025)
FINANCING ACTIVITIES
Borrowings on revolving credit loan.... 1,792,325 200,000 --
Repayments on revolving credit loan.... (1,026,630) (1,178,705) --
Principal payments on long-term debt... (149,200) (236,700) (20,000)
Distributions to shareholders.......... (345,115) (598,042) (1,174,346)
----------- ----------- -----------
Net cash (used) provided by financing
activities............................ 271,380 (1,813,447) (1,194,346)
(Decrease) increase in cash............ -- 2,752,065 (1,271,913)
Cash at beginning of year.............. 10,450 10,450 2,762,515
----------- ----------- -----------
Cash at end of year.................... $ 10,450 $ 2,762,515 $ 1,490,602
=========== =========== ===========
</TABLE>
See accompanying notes.
F-43
<PAGE>
ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Electronic Systems, Inc. (the Company) is an office technology supplier
incorporated in Virginia. The Company sells and services computer hardware,
software and copiers and provides consulting and training services for various
office systems. The following is a description of the Company's significant
accounting policies:
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, primarily using
specific identification.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
both straight-line and accelerated methods over the estimated useful lives of
the related assets.
Rental Equipment
Equipment is rented to customers under operating leases. Rental equipment is
stated at cost. Depreciation is computed using the straight-line method over
the estimated useful life of the related asset. Future minimum rentals as of
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 AMOUNT
------------------- --------
<S> <C>
1998................................................................ $426,258
1999................................................................ 261,103
2000................................................................ 105,828
--------
$793,189
========
</TABLE>
Revenue Recognition
Revenues are recognized as follows:
Equipment and supply sales revenues are recognized when shipped or delivered
and title and risk of loss pass to the customer.
Maintenance contract service revenues are recognized ratably over the term
of the underlying maintenance contract. Other service revenues are recognized
as earned.
Rental revenue is recognized ratably over the term of the underlying leases,
typically one to three years.
Advertising
The costs of advertising the Company's products and services are generally
expensed as incurred. Total advertising costs amounted to $176,910, $197,525
and $47,392 in 1995, 1996 and 1997, respectively.
Income Taxes
The Company is organized to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions, the Company does not pay
federal or state income taxes on its corporate income. Instead the Company's
income is included in the income of its stockholders for federal and state
income tax purposes.
F-44
<PAGE>
ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management make estimates and
assumptions which affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Long Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in 1996 and such adoption had no effect on the
financial statements.
2. BORROWINGS
The Company has a term loan collateralized by its headquarters land and
building. The loan bears interest at 90.2778% of prime and principal payments
are $40,000 for each of the next five years.
Interest paid on all indebtedness was $78,207, $87,713 and $17,256 in 1995,
1996 and 1997, respectively.
3. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan which covers all full-time employees meeting
certain eligibility requirements. Participants may elect to contribute up to
15% of their compensation on a pre-tax basis, as defined in the plan. The
Company contributes an amount equal to 50% of the participant's contribution
not to exceed 5% of each participant's base compensation. Participants are
fully vested in the Company contributions. The Company made contributions of
$68,404, $93,390 and $62,766 in 1995, 1996 and 1997, respectively.
The Company also maintains a profit sharing plan which covers all full time
employees meeting certain eligibility requirements. Contributions to the plan
are at the discretion of the Board of Directors. The Company contributed
$92,000, $120,000 and $60,000 in 1995, 1996 and 1997, respectively.
4. LEASES
The Company is obligated under various noncancelable operating leases for
facilities, warehouse space and training centers.
Future minimum lease payments under the noncancelable operating leases as of
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30 AMOUNT
------------------- --------
<S> <C>
1998................................................................ $113,449
1999................................................................ 74,339
2000................................................................ 65,570
2001................................................................ 68,849
2002................................................................ 41,309
--------
$363,516
========
</TABLE>
Rent expense amounted to $57,914, $77,126 and $61,658 in 1995, 1996 and
1997, respectively.
F-45
<PAGE>
ELECTRONIC SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS
The Company provides certain administrative and accounting services to
Electronic Systems of Richmond, Inc., a corporation owned by certain
shareholders of Electronic Systems, Inc. Management fees of $15,000, $25,000
and $14,000 were received by the Company in 1995, 1996 and 1997, respectively.
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and
accounts receivable. The Company's temporary cash is invested in short-term
money market accounts.
The Company markets its products and services to customers located primarily
in Virginia. The Company performs credit evaluations of its customers prior to
delivery or commencement of services and normally does not require collateral.
Payments for equipment are typically due within thirty days of billing and
supplies and services are typically due upon receipt. The Company maintains an
allowance for potential credit losses and losses have historically been within
management's expectations. Credit losses have historically been insignificant.
The carrying values of amounts classified as current assets and current
liabilities approximate fair values due to the short-term nature of these
instruments. The carrying value of long-term debt approximates fair value as
current borrowing rates approximately market rates for loans with similar
rates.
Two customers accounted for 11%, 20% and 8% of the Company's sales in 1995,
1996 and 1997, respectively.
7. SUBSEQUENT EVENTS
Effective July 7, 1997, all outstanding stock of the Company was acquired by
Global Imaging Systems, Inc. In connection with the acquisition, the Company's
S Corporation election was terminated and from the date of acquisition forward
the earnings of the Company will be taxed at the corporate level.
Immediately prior to the acquisition, the headquarters building and land and
related term debt were transferred in the form of a shareholder distribution
to an entity owned by the shareholders of the Company. The Company has entered
into an agreement to lease these facilities for five years, with initial rent
of $185,082 per year, escalating 2% annually.
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Eastern Copy Products, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of income and
retained earnings and cash flows of EASTERN COPY PRODUCTS, INC. AND
SUBSIDIARIES for the years ended July 31, 1997, 1996, and 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES as of July 31, 1997,
1996, and 1995 in conformity with generally accepted accounting principles.
/s/ Pasquale & Bowers, LLP
Syracuse, New York
December 17, 1997
F-47
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED JULY 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales and service
Equipment sales....................... $ 8,389,297 $ 5,838,732 $ 4,691,487
Service............................... 5,897,324 5,281,391 4,640,232
Rental income......................... 737,113 761,268 733,635
Other................................. 230,241 163,977 203,475
----------- ----------- -----------
15,253,975 12,045,368 10,268,829
----------- ----------- -----------
Cost of sales and service
Cost of equipment sales............... 5,549,634 3,914,590 2,822,924
Cost of service....................... 3,982,670 3,645,680 3,142,454
Depreciation on rental equipment...... 254,990 170,193 182,768
Other................................. 126,740 104,937 96,405
----------- ----------- -----------
9,914,034 7,835,400 6,244,551
----------- ----------- -----------
Gross profit............................ 5,339,941 4,209,968 4,024,278
Selling, general and administrative
expenses............................... 4,971,142 4,087,298 3,689,948
----------- ----------- -----------
Income from operations.................. 368,799 122,670 334,330
Other expense--net, including interest
expense of $108,879, $111,947, and
$123,441............................... 76,090 54,537 78,732
----------- ----------- -----------
Income before provision for income
taxes.................................. 292,709 68,133 255,598
Provision for income taxes (Note 5)..... 110, 000 12,400 99,800
----------- ----------- -----------
Net income.............................. 182,709 55,733 155,798
Retained earnings (accumulated
deficit)--beginning of year............ 55,645 (88) (155,886)
----------- ----------- -----------
Retained earnings (accumulated
deficit)--end of year.................. $ 238,354 $ 55,645 $ (88)
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-48
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1997, 1996, AND 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.................................. $ 182,709 $ 55,733 $ 155,798
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Deferred tax expense (benefit)............ (29,000) (138,000) 65,000
Depreciation.............................. 283,640 210,788 232,672
Bad debt expense.......................... 124,242 40,236 38,889
Loss on disposal of assets................ 0 0 3,355
Changes in assets and liabilities
affecting cash flow from operating
activities:
Accounts receivable..................... (263,488) (317,460) (129,802)
Inventory............................... 677,796 34,657 (456,844)
Other current assets.................... 17,179 (52,319) 66,530
Other assets............................ 0 800 0
Accounts payable........................ (111,511) (439,855) 36,831
Notes payable........................... (231,243) 424,747 85,940
Accrued expenses........................ 12,309 115,168 (65,573)
Deferred revenue........................ 8,419 195,200 (79,325)
Income taxes payable.................... 126,000 86,964 14,688
Other current liabilities............... (29,028) 2,802 (5,512)
--------- --------- ---------
Total adjustments..................... 585,315 163,728 (193,151)
--------- --------- ---------
Net cash provided by (used in) operat-
ing activities....................... 768,024 219,461 (37,353)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures--Net................... (559,067) (102,409) (70,609)
--------- --------- ---------
Net cash used in investing activi-
ties................................. (559,067) (102,409) (70,609)
--------- --------- ---------
Cash flows from financing activities
Proceeds from long-term debt................ 131,219 93,611 55,472
Payments on long-term debt.................. (202,168) (180,436) (161,000)
Payments on capital lease obligations....... 0 (5,426) (57,887)
(Advances) Repayments on shareholder loan--
Net........................................ (10,925) (39,985) 41,415
--------- --------- ---------
Net cash used in financing activi-
ties................................. (81,874) (132,236) (122,000)
--------- --------- ---------
Net increase (decrease) in cash............... 127,083 (15,184) (229,962)
Cash--Beginning of year....................... 112,274 127,458 357,420
--------- --------- ---------
Cash--End of year............................. $ 239,357 $ 112,274 $ 127,458
========= ========= =========
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements.
F-49
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The parent company is primarily involved in the selling, leasing and
servicing of Konica office copiers. Eastern Copy Credit Corporation, Inc., a
wholly-owned subsidiary, was formerly involved in the leasing of office
copiers and is now inactive. Eastern Copy Products Vend-A-Copy Division, Inc.,
a wholly-owned subsidiary, is engaged in providing copy vending services to
the general public.
Principles of Consolidation
The consolidated financial statements include the accounts of Eastern Copy
Products, Inc., and both of its wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated. "Company" as used herein
refers to the consolidated group.
Concentrations of Credit Risk
The Company, in the normal course of business, grants credit to customers,
essentially all of whom are located in central or western New York State. The
Company uses the direct write-off method to provide for bad debts. Management
considers any allowance necessary for uncollectible accounts receivable at
July 31, 1997, 1996, and 1995 as not material to the financial statements.
At July 31, 1997, the Company had approximately $92,000 in bank deposits in
excess of federally insured levels.
Inventory
Inventory represents copiers, parts and supplies held for sale or lease.
Inventory is stated at the lower of average cost or market.
Revenue Recognition
Revenue is recognized when earned. The Company recognizes revenue on
maintenance contracts primarily on a straight-line basis over the term of the
related agreements. Lengths of the maintenance agreements generally range from
one to three years.
The three year agreements generally involve the Company providing a copier
and the related maintenance under one installment contract. Essentially all of
these contracts, and the conditional title to the associated equipment, are
subsequently sold to a third party financing company in exchange for cash
proceeds. A portion of the proceeds are allocated to machine sales and
recognized currently, while the remainder is deferred and recognized as
service income on a straight-line basis over the term of the related
agreement.
Revenue is recorded on equipment sales upon delivery to a customer. Service
revenue is recorded at the time service is performed.
Depreciation
Fixed assets are recorded at cost.
The cost of fixed assets is depreciated over the estimated useful lives of
the related assets using the straight-line method for financial statement
purposes.
F-50
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of deferred revenue
and fixed assets for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for--Interest.......... $108,879 $111,947 $123,441
--Income taxes................................... $ 2,093 $ 69,747 $ 20,460
</TABLE>
Capital expenditures reflected in the statements of cash flows includes the
net increase in vending copiers in service and the net increase in copiers on
operating lease.
Non-Cash Financing Activities
During fiscal 1996, the Company issued 10 shares of common stock at its fair
market value to Konica Business Machines, Inc. In consideration for the
shares, Konica transferred all of the assets and liabilities of Konica's
Buffalo, New York branch to the Company. The assets and liabilities
transferred consisted of computer parts and equipment inventory, and
obligations under customer maintenance agreements. Following is a summary of
the transaction:
<TABLE>
<S> <C>
Copier inventory transferred.................................... $ 261,024
Liabilities under maintenance agreements assumed................ (110,400)
---------
Value assigned to common stock issued........................... $ 150,624
=========
</TABLE>
2. NOTES PAYABLE
The Company has various notes payable owed to financing companies under
inventory financing arrangements. The arrangements call for the respective
financing company to pay the invoice cost, less available discounts, on
inventory purchases. The Company then remits payment for the full invoiced
cost to the financing company; if payment to the finance company is made
within 30 days, the Company retains a portion of the discount. Interest is
charged on any late payments.
F-51
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT
Scheduled maturities of long-term debt for the next four years and in the
aggregate are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
------------
<S> <C>
1998............................... $732,017
1999............................... 70,438
2000............................... 49,528
2001............................... 19,411
--------
$871,394
========
</TABLE>
4. COMMITMENTS
The Company leases vehicles, office equipment, office and warehouse
facilities under various noncancelable operating leases. Lease expense under
these arrangements for the years ended July 31, 1997, 1996, and 1995,
approximated $234,000, $96,000, and $63,000, respectively. Minimum future
rental payments due under the agreements for the next five years and in the
aggregate are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
JULY 31,
------------
<S> <C>
1998............................. $ 287,868
1999............................. 239,428
2000............................. 241,615
2001............................. 205,865
2002............................. 171,990
Thereafter....................... 79,464
----------
$1,226,230
==========
</TABLE>
The Company also leases certain other office and warehouse facilities on a
month-to-month basis, and accounts for the agreements as operating leases.
5. INCOME TAXES
The components of the provision for income taxes at July 31, 1997, 1996, and
1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Current expense--Federal..................... $129,000 $ 133,000 $ 50,600
--State...................................... 10,000 17,400 6,200
Current benefit from utilization of operating
loss carryforward--Federal.................. 0 0 (22,000)
Deferred tax expense (benefit)--Federal...... (23,000) (110,000) 47,000
--State...................................... (6,000) (28,000) 18,000
-------- --------- --------
$110,000 $ 12,400 $ 99,800
======== ========= ========
</TABLE>
F-52
<PAGE>
EASTERN COPY PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred tax asset at July 31, 1997, 1996, and 1995, is comprised of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Deferred tax assets.......................... $796,000 $ 787,000 $ 703,000
Deferred tax liabilities..................... (94,000) (114,000) (168,000)
-------- --------- ---------
Net deferred tax asset....................... $702,000 $ 673,000 $ 535,000
======== ========= =========
</TABLE>
The reconciliation of the effective income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate....................................... 34% 15% 34%
State taxes, net of federal income tax benefit................ 6 6 6
Other, net.................................................... (2) (3) (1)
--- --- ---
38% 18% 39%
=== === ===
</TABLE>
Deferred tax assets result primarily from different methods of revenue
recognition on certain maintenance contracts for book and tax purposes.
Deferred tax liabilities result mainly from the use of accelerated
depreciation methods for tax purposes.
At July 31, 1997, the Company has a state operating loss carryforward of
approximately $146,000 available to offset future state taxable income
expiring through the year 2011.
6. RELATED PARTY TRANSACTIONS
The Company leases office and warehouse space from its shareholder on a
month-to-month basis. Rent expense incurred under the arrangements amounted to
$150,000 for fiscal years 1997, 1996, and 1995, and is included in selling,
general and administrative expenses.
7. MAJOR SUPPLIER
The Company buys substantially all of its equipment, parts, and supplies
held for resale from Konica. Net amounts due Konica at July 31, 1997, 1996,
and 1995, approximated $724,000, $780,000, and $1,398,000, respectively, and
are included in accounts payable.
8. PENSION PLAN
The Company maintains a 401(k) profit sharing plan covering substantially
all employees meeting certain age and length of service requirements. Employer
contributions are at the discretion of the Board of Directors. No
contributions were made for the years ended July 31, 1997, 1996, and 1995.
9. SUBSEQUENT EVENTS
Stock Purchase Agreement
Effective August 1, 1997, the Company entered into a Stock Purchase
Agreement with Conway Office Products, Inc. ("Conway"), a wholly-owned
subsidiary of Global Imaging Systems, Inc. for all the capital stock of the
Company. The total purchase price for the stock of the Company was
approximately $6,750,000.
Merger
Effective September 1, 1997, Eastern Copy Products Vend-A-Copy Division,
Inc. and Eastern Copy Credit Corporation, Inc., merged into Eastern Copy
Products, Inc.
F-53
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Duplicating Specialties, Inc.
We have audited the accompanying statements of income and retained earnings
and cash flows of Duplicating Specialties, Inc. for the ten months ended
August 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Duplicating Specialties, Inc. for the ten months ended August 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
Vancouver, Washington
December 19, 1997
F-54
<PAGE>
DUPLICATING SPECIALTIES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE TEN MONTHS ENDED AUGUST 31, 1997
<TABLE>
<S> <C>
Revenue
Equipment and supplies............................................ $4,240,383
Service agreement revenue......................................... 2,006,268
Rental income..................................................... 72,736
----------
6,319,387
Cost of sales
Cost of equipment and supplies sales.............................. 2,642,715
Cost of service agreement revenue................................. 927,691
Cost of rental income............................................. 22,184
----------
3,592,590
Gross profit........................................................ 2,726,797
Selling, general and administrative expenses........................ 2,493,602
Provision for doubtful accounts..................................... 25,201
----------
Operating income.................................................... 207,994
----------
Other income (expense)
Miscellaneous income.............................................. 10,556
Interest expense.................................................. (7,470)
----------
3,086
----------
Net income before income taxes...................................... 211,080
Income taxes........................................................ 93,361
----------
Net income.......................................................... 117,719
Retained earnings, beginning of period.............................. 625,249
----------
Retained earnings, end of period.................................... $ 742,968
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
DUPLICATING SPECIALTIES, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED AUGUST 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net income........................................................ $ 117,719
Adjustments to reconcile net income to net cash flows from
operating activities
Depreciation.................................................... 57,560
Net deferred taxes.............................................. (94,687)
Gain on sale of assets.......................................... (456)
Increase (decrease) in cash due to changes in assets and
liabilities
Accounts receivable, net........................................ (24,421)
Inventory....................................................... 141,727
Prepaid expense................................................. 24,110
Cash surrender value of life insurance.......................... 9,473
Deposits........................................................ 1,317
Accounts payable................................................ (188,859)
Accrued expenses................................................ 413,033
Deferred service contract revenue............................... 40,921
---------
Net cash flows from operating activities...................... 497,437
Cash flows from investing activities
Purchase of equipment............................................. (112,570)
Proceeds from sale of assets...................................... 17,040
---------
Net cash flows from investing activities...................... (95,530)
Cash flows from financing activities
Net change in short-term note payable............................. (202,000)
Proceeds from long-term borrowings................................ 25,000
Payments on long-term borrowings.................................. (18,774)
Increase in due from stockholder.................................. (10,686)
---------
Net cash flows from financing activities...................... (206,460)
---------
Net increase in cash................................................ 195,447
Cash, beginning of period........................................... 46,930
---------
Cash, end of period................................................. $ 242,377
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
DUPLICATING SPECIALITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 1--NATURE OF BUSINESS
The Company is an Oregon corporation engaged in the business of selling and
providing maintenance and supplies for reproduction equipment and facsimile
machines. Customers are primarily located in Oregon and Southwest Washington.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents--For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The Company maintains its cash
in bank deposit accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash equivalents.
Accounts receivable--Management periodically assesses the collectability of
accounts receivable. This assessment provides the basis for the allowance for
doubtful accounts and related bad debt expense. The allowance for doubtful
accounts was $30,000 as of August 31, 1997. Credit is generally extended to
customers without collateral requirements.
Inventory--Inventory is stated at the lower of cost (first-in first-out
method) or market.
Equipment and vehicles--Expenditures for maintenance and repairs are charged
to expense as incurred, whereas major betterments and equipment additions are
capitalized. The Company has provided for depreciation of equipment using
straight-line and accelerated methods over estimated useful lives ranging from
three to ten years.
Revenue recognition--Revenues are recorded at the time of shipment of
products or performance of services. Deferred service contract revenue is
recognized over the estimated service period, based upon copier usage.
Contracts are billed in increments of preventive maintenance cycles.
Income taxes--Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the bases of the
equipment and vehicles for financial and income tax reporting. The deferred
tax assets and liabilities represent future tax return consequences of these
differences which will either be taxable or deductible when the assets and
liabilities are recovered or settled.
Use of estimates--The preparation of the financial statements in conformity
with generally accepted accounting principles require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 3--INVENTORY
Inventory as of August 31, 1997 consists of:
<TABLE>
<S> <C>
Duplicating equipment............................................ $330,520
Supplies......................................................... 118,651
Service parts and accessories.................................... 309,955
--------
$759,126
========
</TABLE>
F-57
<PAGE>
DUPLICATING SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT
Long-term debt as of August 31, 1997 consists of:
<TABLE>
<S> <C>
Notes payable collateralized by automotive equipment. Interest
rates from 3.9% to 8.58%. Due in monthly payments totaling
$1,792, including interest. Maturing from October 1998 to March
2002. Paid in full during September 1997......................... $41,925
Less current portion.............................................. 16,087
-------
$25,838
=======
</TABLE>
The following is a schedule of required principal payments on long-term debt
during the succeeding five years:
<TABLE>
<CAPTION>
YEAR ENDING
AUGUST
31,
-----------
<S> <C>
1998............................................................ $16,087
1999............................................................ 12,286
2000............................................................ 5,081
2001............................................................ 5,283
2002............................................................ 3,188
-------
$41,925
=======
</TABLE>
NOTE 5--LEASES
The Company leases office and warehouse space under a long-term operating
lease. The lease agreement provides for monthly payments of $6,500 (increasing
to $7,850 effective September 1, 1997), plus property taxes. The lease expires
November 30, 2003. Lease expense for the ten months ended August 31, 1997 was
$73,990. The following is a schedule of future minimum facility lease
payments, required for the next 5 years, under the operating lease as of
August 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDING
AUGUST 31,
-----------
<S> <C>
1998 ......................................................... $ 94,200
1999 .......................................................... 94,200
2000 .......................................................... 94,200
2001 .......................................................... 94,200
2002 .......................................................... 94,200
--------
$471,000
========
</TABLE>
NOTE 6--PROFIT SHARING AND 401(K) PLAN
The Company adopted a profit sharing plan effective November 1, 1969. The
plan provides for contributions to be determined annually by the board of
directors of up to 15% of eligible compensation. The Company approved a
contribution of $116,027 for the ten months ended August 31, 1997.
In addition, the Company provides a 401(k) plan benefit whereby eligible
employee contributions are matched by the Company. The Company contribution
for the 401(k) plan was $32,071 for the ten months ended August 31, 1997.
F-58
<PAGE>
DUPLICATING SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As more fully described in Note 10, the Company was acquired subsequent to
period end and these plans were terminated and replaced by plans of the new
parent company.
NOTE 7--INCOME TAXES
The deferred tax asset and liability as of August 31, 1997 consist of the
following:
<TABLE>
<S> <C>
Current deferred tax asset
Allowance for doubtful accounts................................ $ 11,700
Accrued officer salaries....................................... 86,171
Accrued vacation............................................... 9,849
--------
$107,720
========
Noncurrent deferred tax liability
Depreciation................................................... $ 23,584
========
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<S> <C>
Current.......................................................... $188,048
Deferred......................................................... (94,687)
--------
$ 93,361
========
</TABLE>
The Company's income tax expense differed from the statutory Federal rate as
follows:
<TABLE>
<S> <C>
Statutory rate applied to net income before income taxes.......... $65,571
Increase in income taxes resulting from
Effect of non-deductible expenses under federal tax code........ 4,049
State and local taxes, net of federal tax benefit............... 25,051
Other........................................................... (1,310)
-------
$93,361
=======
</TABLE>
NOTE 8--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<S> <C>
Cash paid for interest............................................ $ 7,470
=======
Cash paid for income taxes........................................ $81,688
=======
</TABLE>
NOTE 9--CONCENTRATION
Approximately 80% of all inventory purchases of the Company were from one
vendor during the ten months ended August 31, 1997.
NOTE 10--SUBSEQUENT EVENT
Subsequent to, but effective as of, August 31, 1997 all outstanding stock of
the Company was purchased by Global Imaging Systems, Inc., a Delaware
corporation.
F-59
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors Global Imaging Systems, Inc. Tampa, Florida
We have audited the accompanying statements of income and retained earnings
and statements of cash flow of Electronic Systems of Richmond, Inc. for the
eleven-month and twelve-month periods ended November 30, 1997 and December 31,
1996, respectively. These financial statements are the responsibility of
Electronic Systems of Richmond, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the statements of income and retained earnings and
statements of cash flows referred to above present fairly, in all material
respects, the results of operations and cash flows of Electronic Systems of
Richmond, Inc. for the eleven-month and twelve-month periods ended November
30, 1997 and December 31, 1996, respectively, in conformity with generally
accepted accounting principles.
/s/ EDMONDSON, LEDBETTER & BALLARD,
L.L.P.
Norfolk, Virginia
January 27, 1998
F-60
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE ELEVEN-MONTH AND TWELVE-MONTH PERIODS ENDED
NOVEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenue
Net sales of products............................. $ 9,337,430 $ 20,075,135
Service and rental................................ 1,635,354 1,474,899
----------- ------------
Total revenue................................... 10,972,784 21,550,034
----------- ------------
Costs and expenses
Cost of goods sold................................ 6,260,046 16,973,045
Service and rental costs.......................... 676,726 686,579
Selling, general and administrative............... 1,939,057 2,190,345
----------- ------------
Total costs and expenses........................ 8,875,829 19,849,969
----------- ------------
Net profit...................................... 2,096,955 1,700,065
----------- ------------
Other income
Interest income................................... 152,943 110,746
Other income...................................... 78,178 7,755
----------- ------------
Total other income.............................. 231,121 118,501
----------- ------------
Net income...................................... 2,328,076 1,818,566
Retained earnings, beginning of period.......... 2,783,057 1,606,491
Dividends declared................................ (3,956,262) (642,000)
----------- ------------
Retained earnings, end of period................ $ 1,154,871 $ 2,783,057
=========== ============
</TABLE>
See Independent Auditor's Report
and Accompanying Notes to Financial Statements
F-61
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
STATEMENTS OF CASH FLOWS
FOR THE ELEVEN-MONTH AND TWELVE-MONTH PERIODS ENDED
NOVEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income......................................... $ 2,328,076 $1,818,566
Adjustments to reconcile net income to net cash
from operating activities
Depreciation...................................... 17,074 19,213
Uncollectible accounts expense.................... -- 37,747
Loss on disposition of assets..................... -- 84
(Increase) decrease in operating assets
Accounts receivable.............................. (1,531,626) 1,611,357
Inventories of machines, parts and supplies...... (155,670) 453,519
Prepaid expense.................................. 2,054 (1,396)
Increase (decrease) in operating liabilities
Accounts payable................................. (3,277,819) 1,941,085
Accrued commissions.............................. 701,623 33,855
Sales tax payable................................ (4,080) 650
Deferred income.................................. 67,315 113,321
Other............................................ 1,169 342
----------- ----------
Net cash provided (used) by operating activities... (1,851,884) 6,028,343
----------- ----------
Cash flows from investing activities
Acquisition of equipment........................... (12,431) (19,557)
----------- ----------
Net cash used by investing activities.............. (12,431) (19,557)
----------- ----------
Cash flows from financing activities
Proceeds from issuance of common stock............. 110,670 --
Dividends paid..................................... (1,120,440) (642,000)
----------- ----------
Net cash used by financing activities.............. (1,009,770) (642,000)
----------- ----------
Increase in cash and cash equivalents................ (2,874,085) 5,366,786
Cash and cash equivalents, beginning of period....... 6,844,570 1,477,784
----------- ----------
Cash and cash equivalents, end of period............. $ 3,970,485 $6,844,570
=========== ==========
Supplemental disclosure of cash flow information
Cash paid during the period for interest........... $ 2,721 $ 4,075
=========== ==========
Supplemental schedule of noncash investing and fi-
nancing activities
Increase in dividends payable...................... $ 2,835,822 $ --
=========== ==========
</TABLE>
See Independent Auditor's Report
and Accompanying Notes to Financial Statements
F-62
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
NOTES TO FINANCIAL STATEMENTS
NATURE OF BUSINESS
The Company is engaged in the sale of technologies and related services,
primarily as a systems integrator with a focus on computer networking,
networking security, data systems security, migration services and Internet
access and connectivity. The Company serves its customers from locations in
Richmond and Arlington, Virginia.
Effective December 1, 1997, Electronic Systems of Richmond, Inc. became a
subsidiary of Electronic Systems, Inc. and adopted a March 31 year-end.
SIGNIFICANT ACCOUNTING POLICIES
Estimates Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported assets and
liabilities and the reported revenues and expenses. Actual results could vary
from the estimates that were used.
Revenue Recognition Income is recognized at point of sale except for income
from maintenance agreements and training which is recognized over individual
contract terms and as training is provided.
Cash Equivalents The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Accounts Receivable The Company routinely extends its customers trade
credit, most of which is not collateralized or otherwise secured.
Uncollectible accounts receivable are charged to operations in the period in
which an account is determined to be uncollectible.
Inventory Inventories are valued at the lower of cost or market, using the
specific identification method.
Equipment All equipment is recorded at cost and depreciated using the
straight-line method. Depreciable lives are from five to seven years.
Advertising Advertising costs are charged to operations when incurred.
Income Taxes The Corporation is not subject to corporate income tax because
its shareholders have elected to be taxed according to Subchapter S of the
Internal Revenue Code. As such, net income or loss; certain items of income
and expense; and credits, if any, are passed through to the shareholders for
inclusion in their tax returns.
UNCOLLECTIBLE ACCOUNTS
Included in expense for the period ended December 31, 1996 are $37,747 of
uncollectible acccounts. There were no uncollectible accounts charged to
expense for the period ended November 30, 1997.
ADVERTISING
Advertising expenses were $30,788 and $71,822 for the periods ended November
30, 1997 and December 31, 1996, respectively.
DEPRECIATION
Depreciation charges of $17,074 and $19,213 were expensed for the periods
ended November 30, 1997 and December 31, 1996, respectively.
F-63
<PAGE>
ELECTRONIC SYSTEMS OF RICHMOND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
RELATED PARTY TRANSACTIONS
The Company receives administrative and accounting personnel assistance from
Electronic Systems, Inc., an affiliated corporation with in excess of 50% of
its stock owned by several of the stockholders of Electronic Systems of
Richmond, Inc. Included in administrative expense are management fees of
$33,750 and $25,000 paid to Electronic Systems, Inc., for the periods ended
November 30, 1997 and December 31, 1996, respectively.
OPERATING LEASES
The Company leases its Richmond facilities through a non-cancelable
operating lease which expires November 30, 2000. The Company leases its
Arlington facilities through a non-cancelable operating lease which expires
May 31, 2000. These leases provide for annual operating expense adjustments.
Occupancy expense attributable to operating leases was $103,813 and $95,554,
respectively, for the periods ended November 30, 1997 and December 31, 1996,
respectively.
Minimum future rent commitments under these leases for the four months
ending March 31, 1998, and for each of the next four years ending March 31,
are:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 TOTAL
------- -------- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
$37,428 $114,610 $119,464 $ 55,492 $ -- $326,994
</TABLE>
EMPLOYEE BENEFIT PLANS
Effective July 1, 1996, the Company began to offer a profit sharing plan
with a 401(k) deferral feature covering substantially all employees who have
attained age 21, have been employed for at least one year, and who work a
minimum of 1,000 hours annually. Contributions to the plan are an employer-
matching contribution of 50% of employee elective deferrals up to 5% of
salary. The Company's policy is to fund the contributions as accrued. Employer
contributions to this plan were $16,772 and $7,454 for the periods ended
November 30, 1997 and December 31, 1996, respectively, exclusive of plan
administration costs.
CONCENTRATION OF CREDIT RISK
At November 30, 1997 and at various times during the periods ended November
30, 1997 and December 31, 1996, the Company had on deposit with a single
financial institution, more than $100,000, which is the limit currently
insured by the Federal Deposit Insurance Corporation.
DIVIDENDS
The Company declared dividends of $3,693.99 and $629.41 per share for the
periods ended November 30, 1997 and December 31, 1996, respectively.
SUBSEQUENT EVENT
Effective December 1, 1997, shareholders of record November 30, 1997 were
redeemed by a new shareholder, Electronic Systems, Inc.
RECLASSIFICATIONS
Certain amounts in the December 31, 1996 financial statements have been
reclassified to conform with the current year financial statement
presentation. These reclassifications had no effect on operating results as
previously reported.
F-64
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Connecticut Business Systems, Inc.:
We have audited the accompanying statements of income (loss) and retained
earnings (deficit) and cash flows of Connecticut Business Systems, Inc. for
the years ended September 30, 1996 and September 30, 1997 and for the three
months ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Connecticut Business System, Inc. for the years ended September 30, 1996 and
September 30, 1997 and for the three months ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 16, 1998
F-65
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE THREE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------- THREE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 DECEMBER 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net sales:
Equipment............. $ 5,608,784 $ 6,577,866 $1,592,616
Supplies.............. 2,083,713 2,241,317 601,013
Service............... 3,995,009 4,330,964 1,154,604
Other................. 113,613 139,469 34,507
----------- ----------- ----------
Total net sales..... 11,801,119 13,289,616 3,382,740
----------- ----------- ----------
Costs and operating
expenses:
Equipment............. 3,505,491 4,113,684 934,930
Supplies.............. 1,230,029 1,314,995 343,953
Service............... 2,279,942 2,207,399 558,607
Selling, general and
administrative....... 4,545,790 5,227,111 1,261,578
Other................. 166,414 193,563 38,562
----------- ----------- ----------
11,727,666 13,056,752 3,137,630
----------- ----------- ----------
Income from
operations......... 73,453 232,864 245,110
Interest expense........ 122,405 123,402 38,352
----------- ----------- ----------
Income (loss) before
provision for income
taxes................ (48,952) 109,462 206,758
Provision (benefit) for
state income taxes..... -- (18,000) 20,000
----------- ----------- ----------
Net income (loss)... (48,952) 127,462 186,758
Retained earnings
(deficit), beginning of
period................. (112,471) (161,423) (33,961)
Distribution to
shareholders........... -- -- 32,000
----------- ----------- ----------
Retained earnings
(deficit), end of
period................. $ (161,423) $ (33,961) $ 120,797
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997
AND THE THREE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30, THREE MONTHS ENDED
1996 1997 DECEMBER 31, 1997
------------- ------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activ-
ities:
Net income (loss)............. $ (48,952) $ 127,462 $ 186,758
Adjustments to reconcile net
income (loss) to net cash
provided by operating activi-
ties:
Depreciation................ 192,147 275,788 82,191
Changes in operating assets
and liabilities--
Accounts receivable....... 2,622 (57,816) 47,680
Inventories............... 81,146 99,995 (31,621)
Other receivables......... (44,529) 29,785 12,580
Deposits.................. 28,770 (25,995) (3,172)
Accounts payable.......... (99,723) (158,858) 53,425
Accrued expenses.......... 65,956 201,445 (82,069)
Unearned income........... (68,118) (188,668) 74,477
Deferred tax asset........ -- (18,000) 12,000
--------- --------- ---------
Net cash provided by oper-
ating activities......... 109,319 285,138 352,249
--------- --------- ---------
Cash flows from investing activ-
ities:
Acquisition of property and
equipment.................... (483,194) (701,678) (120,335)
Disposition of property and
equipment.................... 268,384 281,497 25,907
--------- --------- ---------
Net cash used for invest-
ing activities........... (214,810) (420,181) (94,428)
--------- --------- ---------
Cash flows from financing activ-
ities:
Net proceeds from notes pay-
able to stockholders......... 216,776 566,697 --
Repayments of revolving and
other note payable, net...... (59,284) (439,433) (165,000)
(Decrease) increase of long-
term liabilities............. (64,207) 10,912 13,994
--------- --------- ---------
Net cash provided by (used
for) financing
activities............... 93,285 138,176 (151,006)
--------- --------- ---------
Net (decrease) increase in
cash........................... (12,206) 3,133 106,815
Cash, beginning of period....... 28,073 15,867 19,000
--------- --------- ---------
Cash, end of period............. $ 15,867 $ 19,000 $ 125,815
========= ========= =========
Supplemental disclosure of cash
flow information:
Cash paid for interest........ $ 122,883 $ 127,892 $ 38,252
========= ========= =========
Cash paid for state income
taxes........................ $ 3,529 $ 4,508 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997 AND DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization--
Connecticut Business Systems, Inc. (the Company) commenced operations on
April 18, 1986 when it purchased property, equipment and inventory from
Columbia Business Systems, Inc. The Company sells, rents and services
photocopy machines, facsimile machines and duplicators and distributes related
supplies.
Use of estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories--
Inventories are stated at the lower of cost (average cost and specific
identification) or market. The inventory value at September 30, 1996,
September 30, 1997 and December 31, 1997 are net of reserves for
excess/obsolete inventory of approximately $-0-, $170,000 and $58,000,
respectively.
Property and equipment--
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Demo and showroom equipment...................................... 2-5 years
Furniture and fixtures........................................... 5 years
Warehouse equipment.............................................. 5 years
Vehicles......................................................... 3 years
Leasehold improvements........................................... 7 years
</TABLE>
Revenue recognition and unearned income--
Revenue on the sale of machines and supplies is recorded when the machines
and supplies are shipped. Revenue for services is recorded when the services
are provided. Maintenance contract service revenues are recognized ratably
over the term of the applicable maintenance contract.
Amounts billed under maintenance agreements are reflected in unearned income
and recognized as income on a straight-line basis over the term of the related
contract. Contract terms range from one to three years, but primarily are for
a one year term.
Concentration of credit risk--
Financial instruments which may subject the Company to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company purchases a
majority of its machines for resale from one vendor. Purchases from this
vendor are based on inventory requirements and no purchase commitments or
blanket purchase orders existed at September 30, 1996, September 30, 1997 or
December 31, 1997.
F-68
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. REVOLVING AND OTHER NOTE PAYABLE:
At September 30, 1996, September 30, 1997 and December 31, 1997, the Company
had the following notes payable:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- ------------- ------------
<S> <C> <C> <C>
Revolving note payable, with
interest at bank's prime (8.50% at
September 30, 1997) plus 1%,
payable monthly................... $600,000 $165,000 $--
Note payable with interest at
14.123% payable monthly........... 4,433 -- --
-------- -------- ----
604,433 165,000 --
Less--current maturities........... (604,433) (165,000) --
-------- -------- ----
Long-term debt..................... $ -- $ -- $--
======== ======== ====
</TABLE>
Under the terms of the revolving note payable (the Note), the Company may
borrow up to $1,250,000, not to exceed 80% of eligible accounts receivable, as
defined, and 45% of eligible inventory, as defined. As of September 30, 1996,
September 30, 1997 and December 31, 1997, the Company had $650,000, $1,085,000
and $1,250,000, respectively, of available borrowing under the Note.
The Note is collateralized by substantially all assets of the Company and
personally guaranteed by the stockholders.
The Note also contains certain restrictive financial covenants including
minimum tangible net worth of $500,000 (which considers amounts due
stockholders as capital), a current ratio greater than 1.1, minimum working
capital of $450,000 (as defined) and a debt service ratio greater than 1.2. As
of September 30, 1996, September 30, 1997 and December 31, 1997, the Company
was in compliance with these covenants.
3. NOTES PAYABLE TO STOCKHOLDERS:
The Company has entered into note agreements with its two stockholders.
These notes are due upon demand and bear interest at 10%, payable quarterly.
These notes are classified as long-term as the stockholders do not intend to
request repayment until after December 31, 1998. A portion of these notes
payable is subordinated to the Company's bank debt and is classified as
Subordinated Notes Payable to Stockholders in the accompanying financial
statements (see Note 8 for Subsequent Event).
4. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
standard requires that a deferred tax asset or liability be recognized for the
estimated future tax effects attributable to temporary differences.
The Company has elected to be taxed as an S corporation for Federal income
tax purposes. As such, the Company is not subject to Federal income taxes as
the taxable income of the Company is included in the individual income tax
returns of the stockholders of the Company.
F-69
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for state income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30, THREE MONTHS ENDED
1996 1997 DECEMBER 31, 1997
------------- ------------- ------------------
<S> <C> <C> <C>
Current....................... $-- $ -- $ 8,000
Deferred...................... -- (18,000) 12,000
---- -------- -------
$-- $(18,000) $20,000
==== ======== =======
</TABLE>
Deferred tax assets and liability are comprised of the following:
<TABLE>
<CAPTION>
CURRENT ASSET LONG-TERM LIABILITY
---------------------------------------- ----------------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997 1996 1997 1997
------------- ------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Depreciation............ $ -- $ -- $ -- $28,600 $18,000 $18,000
Inventory reserves...... -- 18,000 6,000 -- -- --
Deferred income......... 15,000 15,000 15,000 -- -- --
------- ------- ------- ------- ------- -------
$15,000 $33,000 $21,000 $28,600 $18,000 $18,000
======= ======= ======= ======= ======= =======
</TABLE>
5. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1992, the Company established a salary deferral plan
under Section 401(k) of the Internal Revenue Code. Substantially all full-time
salaried employees are eligible to participate in the plan which provides for
salary deferrals from 1% to 15% of gross wages, up to a maximum deferral of
$9,500. The Company's annual contribution to the plan is discretionary.
Approximately $17,000, $20,000 and $3,000 are included in general and
administrative expenses on the accompanying Statements of Income and Retained
Earnings (Deficit) for the years ended September 30, 1996, September 30, 1997
and for the three months ended December 31, 1997, respectively, relating to
the Company's discretionary contribution.
6. OTHER LONG-TERM LIABILITIES:
As of September 30, 1996, September 30, 1997 and December 31, 1997 other
long-term liabilities consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1997 1997
------------- ------------- ------------
<S> <C> <C> <C>
Unearned income..................... $29,924 $51,436 $65,430
Deferred state income taxes......... 28,600 18,000 18,000
------- ------- -------
$58,524 $69,436 $83,430
======= ======= =======
</TABLE>
7. COMMITMENTS:
The Company leased its Rocky Hill facility from CBS Realty Associates (CBS
Realty), a partnership related through common ownership through March, 1997.
In March, 1997, CBS Realty sold the building to an unrelated third party. The
Company has entered into a seven year triple net lease for this space at
approximately $140,000 per year. The Company also leases office space in
Norwalk, CT. (expires September, 1998) and Westchester, NY. (expires August,
1998) and office equipment and vehicles under operating leases expiring in
various years. Total lease expense resulting from the agreements noted above
approximated $277,000, $293,000 and $82,000 for the years ended September 30,
1996, September 30, 1997 and the three months ended December 31, 1997,
respectively.
F-70
<PAGE>
CONNECTICUT BUSINESS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Minimum future annual rental payments under noncancellable operating leases,
as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998 (nine months).............................................. $ 246,044
1999............................................................ 222,789
2000............................................................ 214,562
2001............................................................ 192,443
2002............................................................ 168,068
Thereafter...................................................... 230,554
----------
$1,274,460
==========
</TABLE>
8. SUBSEQUENT EVENT:
As of the close of business on December 31, 1997, the stockholders of the
Company sold their stock to Global Imaging Systems, Inc. (Global) for
$8,700,000 in cash and $650,000 in stock. In addition, the Company, through
funding provided by Global, repaid the notes due the former stockholders of
approximately $1,405,000.
F-71
<PAGE>
To the Stockholder and To the Stockholders and
Board of Directors Board of Directors
Bloom's, Incorporated Global Imaging Systems, Inc.
Enfield, Connecticut Tampa, Florida
We have audited the accompanying statement of divisional net assets of
Business Systems Division ("BSD"), an operating division of Bloom's,
Incorporated (which is a Massachusetts S Corporation) as of December 31, 1997
and January 31, 1997, and the related statements of divisional operations,
changes in divisional net assets, and divisional cash flows for the eleven
months ended December 31, 1997 and the year ended January 31, 1997. These
financial statements are the responsibility of the management of Bloom's,
Incorporated. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
The accompanying financial statements were prepared on the basis of
presentation as described in Note 1, and are not intended to be a complete
presentation of all of the assets and liabilities of Business Systems Division
as if it were a standalone entity.
In our opinion, the accompanying financial statements as of December 31,
1997 and January 31, 1997 and for the periods then ended, present fairly, in
all material respects, the net assets of Business Systems Division and its
divisional operations, cash flows and changes in net assets in accordance with
the basis of accounting described in Note 1 in conformity with generally
accepted accounting principles.
/s/ Joseph D. Kalicka & Company, LLP
JOSEPH D. KALICKA & COMPANY, LLP
Certified Public Accountants
Holyoke, Massachusetts
February 6, 1998 (for the period ended December 31, 1997)
February 20, 1998 (for the period ended January 31, 1997)
F-72
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF DIVISIONAL NET ASSETS
DECEMBER 31, 1997 AND JANUARY 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
A S S E T S
<S> <C> <C>
Current assets:
Cash funds.......................................... $ 50 $ 50
Accounts receivable--trade.......................... 1,327,584 1,324,137
Other receivables................................... 2,074 3,555
Inventory........................................... 820,921 659,316
----------- -----------
Total current assets.............................. 2,150,629 1,987,058
----------- -----------
Property and equipment:
Equipment rental fleet.............................. 2,117,793 2,146,233
Vehicles............................................ 238,871 249,177
Furniture and equipment............................. 80,815 70,207
----------- -----------
2,437,479 2,465,617
Accumulated depreciation............................ (2,052,535) (1,776,567)
----------- -----------
Total property and equipment...................... 384,944 689,050
----------- -----------
Other assets:
Deposits............................................ 450 450
Accounts receivable--trade--noncurrent.............. 480,260 306,799
----------- -----------
Total other assets................................ 480,710 307,249
----------- -----------
Total assets...................................... $ 3,016,283 $ 2,983,357
=========== ===========
L I A B I L I T I E S A N D D I V I S I O N A L N E T A S S E T S
Current liabilities:
Accounts payable.................................... $ 45,493 $ 44,859
Accrued expenses.................................... 137,634 195,501
Deferred revenues................................... 726,703 817,128
----------- -----------
Total current liabilities......................... 909,830 1,057,488
----------- -----------
Other liabilities:
Deferred revenues--noncurrent....................... 132,345 67,494
Accounts payable--noncurrent........................ 119,970 --
----------- -----------
Total other liabilities........................... 252,315 67,494
----------- -----------
Total liabilities................................. 1,162,145 1,124,982
----------- -----------
Divisional net assets............................... 1,854,138 1,858,375
----------- -----------
Total liabilities and divisional net assets....... $ 3,016,283 $ 2,983,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-73
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF DIVISIONAL OPERATIONS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1997 AND YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Net sales:
Equipment........................................... $3,173,138 $2,399,948
Supplies............................................ 1,205,492 1,152,446
Service............................................. 2,320,161 2,481,687
Rental.............................................. 718,711 795,731
Other............................................... 600,623 522,216
---------- ----------
Total net sales................................... 8,018,125 7,352,028
---------- ----------
Costs and operating expenses:
Equipment........................................... 2,470,845 1,911,202
Supplies............................................ 862,645 804,788
Service............................................. 1,046,690 1,081,357
Rental.............................................. 91,196 85,157
Selling, general and administrative................. 3,578,078 3,822,870
---------- ----------
Total costs and operating expenses................ 8,049,454 7,705,374
---------- ----------
Loss from operations.................................. (31,329) (353,346)
Other income (expense):
Interest expense.................................... (41,553) (62,184)
Interest income..................................... 21,283 22,750
---------- ----------
(20,270) (39,434)
---------- ----------
Loss before provision for income taxes................ (51,599) (392,780)
(Provision) benefit for state income taxes.......... 5,000 31,000
---------- ----------
Divisional net loss................................... $ (46,599) $ (361,780)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-74
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF CHANGES IN DIVISIONAL NET ASSETS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1997 AND YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C>
Divisional net assets, February 1, 1996............................ $1,693,200
Activity--year ended January 31, 1997:
Net assets provided by Bloom's, Incorporated to Business Systems
Division........................................................ 526,955
Net loss for year................................................ (361,780)
----------
Divisional net assets, January 31, 1997............................ 1,858,375
Activity--eleven months ended December 31, 1997:
Net assets provided by Bloom's, Incorporated to Business System's
Division........................................................ 42,362
Net loss for period.............................................. (46,599)
----------
Divisional net assets--December 31, 1997........................... $1,854,138
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-75
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
STATEMENTS OF DIVISIONAL CASH FLOWS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1997 AND YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (46,599) $(361,780)
Adjustment to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation...................................... 359,567 464,128
Changes in operating assets and liabilities:
Accounts receivable--trade...................... (176,908) (487,440)
Other receivables............................... 1,481 (3,555)
Inventories..................................... (161,605) 130,741
Accounts payable................................ 120,604 (70,924)
Accrued expenses................................ (57,867) 104,818
Deferred income................................. (25,574) (14,735)
--------- ---------
Net cash provided (used) by operating
activities..................................... 13,099 (238,747)
--------- ---------
Cash flows from investing activities:
Acquisition of equipment............................ (55,461) (287,758)
Deposits made....................................... -- (450)
--------- ---------
Net cash used by investing activities........... (55,461) (288,208)
--------- ---------
Cash flows from financing activities:
Cash provided by Bloom's Incorporated............... 42,362 526,955
--------- ---------
Net cash provided by financing activities....... 42,362 526,955
--------- ---------
Net change in cash.................................... -- --
Divisional cash, beginning of period.................. 50 50
--------- ---------
Divisional cash, end of period........................ $ 50 $ 50
========= =========
Supplemental cash flow information:
Interest paid during period......................... $ 41,553 $ 62,184
========= =========
Taxes paid during period............................ None None
========= =========
</TABLE>
Additional cash flow disclosures:
During the eleven months ended December 31, 1997 the Division disposed of
$84,977 of fully depreciated equipment through retirement or sale and $220,557
was disposed of during the earlier period.
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND JANUARY 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
Business Systems Division ("BSD", the "Division") is an operating division
of Bloom's, Incorporated, (the "Company", "Bloom's"). Bloom's was organized
under the laws of the Commonwealth of Massachusetts in 1948 and maintains its
corporate offices in Enfield, Connecticut with sales and service locations in
Massachusetts and Connecticut. Bloom's, Incorporated is a Massachusetts S
corporation, and closes its fiscal year on January 31, of each year.
The Company is engaged in retail sales, service, and lease of graphic arts
equipment, photocopiers and fax machines. The Printed Products Division
provides graphic arts equipment and supplies to the printing trade. Business
Systems Division provides copiers and fax machines to the general business and
educational community.
In January, 1998, the Company agreed to sell substantially all of the direct
operating assets of the Business Systems Division (exclusive of cash and
prepaids), subject to certain direct liabilities and obligations, to Global
Imaging System's, Inc. ("Global") through its Connecticut subsidiary,
Connecticut Business Systems, Inc. to be effective, February 1, 1998.
These divisional financial statements have been prepared using the
historical basis of accounting but include only the net assets and resulting
cash flows directly attributable to the BSD division along with the related
revenues and expenses for the Division including certain corporate
allocations, all of which are included in Bloom's financial statements. Net
assets, as used in these financial statements, may also include certain
liabilities which are not to be assumed by Global.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 55, these statements have been adjusted to include certain
corporate expenses incurred by Bloom's on the Division's behalf. The financial
statements may not necessarily present BSD's net assets, results of
operations, changes in net assets and cash flows if the Division was a
standalone entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Corporate allocation:
Bloom's, Incorporated provides services to BSD, including management,
accounting, working capital financing, tax, financial accounting and
reporting, benefits administration, occupancy, shipping/receiving, insurance,
information systems management, accounts receivable and credit, and accounts
payable functions. For purposes of these financial statements, the above
corporate costs have been allocated based upon the percentage of time
corporate administrative personnel were estimated to spend on the BSD division
along with an estimated percentage of common occupancy costs deemed incurred
by BSD. Such allocations and corporate charges totalled approximately
$1,170,000 for the eleven months ended December 31, 1997, of which
approximately $568,000 was for remuneration paid to the majority
stockholder/officer.
Corporate allocations for the year ended January 31, 1997 amounted to
approximately $1,435,000, of which approximately $684,000 was for remuneration
to the same stockholder/officer.
Management believes that the basis used for allocating corporate
administrative services is reasonable. However, the amounts included in these
allocations may differ from those that would result from transactions among
unrelated parties. In addition, these allocations were not based on specific
costs attributable to BSD
F-77
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
division and may not be representative of actual costs that would have been
incurred if BSD division had been operating independently.
B. Revenue recognition:
Assets, liabilities, revenues and expenses are recognized on the accrual
method of accounting. Revenues from the sale of machines and supplies is
recognized when the product is shipped to the customer through a regular sale
or a direct-sales type lease. Revenues for service are recorded at the time
the service is provided. Maintenance contract service revenues are recognized
ratably over the term of the applicable maintenance contract or on a per copy
basis, where the contract stipulates a minimum number of copies.
Unearned revenues at December 31, 1997 of $859,048 are the result of
billings to customers under maintenance service agreements which are scheduled
to be earned after December 31, 1997. Contract terms range from one month to
three years, but are generally for periods of one year. Unearned revenues at
January 31, 1997 amounted to $884,622.
C. Accounts receivable:
The Company uses the direct write-off method to provide for bad debts.
Management considers an allowance for uncollectible accounts at December 31,
1997 and January 31, 1997 unnecessary and not material to the financial
statements.
Accounts receivable at December 31, 1997 and January 31, 1997 include
billings for product sales, service, contracts, and equipment sold under
Company financed sales type leases. When the Company directly finances the
sale of equipment through direct leasing arrangement and the economic risks of
ownership are effectively borne by the customer, the arrangement is recognized
as a sale upon shipment of the equipment. Customer payments under these
arrangements are to be received over the life of the lease and give rise to
deferred receivables.
D. Inventories:
Inventories, which consist of equipment, supplies and parts are stated at
the lower of average cost or market. Inventory at December 31, 1997 is stated
net of reserves for excess/obsolete inventory of approximately $41,000
($31,500 at January 31, 1997).
E. Concentrations of credit risk:
Financial instruments which may subject the Company (and BSD) to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Concentrations of credit risk relating to cash and cash
equivalents arose when from time to time during the period cash deposited in
one financial institution exceeded the FDIC insured limits of $100,000. Credit
risks relating to concentrations from accounts receivable are mitigated due to
the large number of customers within the Company's customer base, all of whom
are located in the New England region.
In addition, BSD purchases substantially all of its equipment inventory for
resale and a majority of its resale supplies and parts from one vendor.
Purchases from this vendor are based upon inventory requirements and no
purchase commitments or blanket purchase orders exist at December 31, 1997.
The Company's formal agreement with that vendor expired in 1996 and continues
on an informal basis.
F-78
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
F. Equipment and depreciation:
Equipment is recorded at cost. Depreciation is provided using straight line
and accelerated methods over estimated useful lives (for furniture, fixtures,
and motor vehicles) and the rental period for depreciation of the equipment
rental fleet. Components of accumulated depreciation at December 31, 1997 and
January 31, 1997 are as follows:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
DEPRECIATION DEPRECIATION LIFE
12/31/97 1/31/97 (YEARS)
------------ ------------ -------
<S> <C> <C> <C>
Equipment Rental Fleet................... $1,787,124 $1,540,013 1-5
Motor vehicles........................... 222,335 206,158 5
Furniture & equipment.................... 43,076 30,396 5
---------- ----------
Totals................................. $2,052,535 $1,776,567
========== ==========
</TABLE>
Depreciation charged to expense for the eleven months ended December 31,
1997 amounted to $359,567 ($464,128 for the year ended January 31, 1997).
Expenditures for maintenance and repairs are charged against income as
incurred. Company policy is to charge or credit to income any loss or gain
resulting from disposal or retirements of vehicles or furniture and equipment.
Gains or losses on disposition of equipment rental fleet are included in net
sales on the statement of operations.
G. Leases:
The Company is the lessor of equipment under operating leases expiring in
various years. The cost and accumulated depreciation of leased assets are
included in equipment as rental (Note 1F).
H. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. One
significant estimate is the amounts of corporate expenses allocable to BSD as
more fully described in Note 2A.
I. Advertising costs:
The Company expenses production costs of advertising the first time
advertising takes place. Advertising costs for the eleven months ended
December 31, 1997 amounted to approximately $147,000, ($176,000 for the year
ended January 31, 1997) which is stated net of manufacturers' reimbursement.
3. INCOME TAXES:
Bloom's has elected and the stockholders have consented to be taxed under
the provisions of Subchapter S of the Internal Revenue Code effective for tax
years after January 31, 1987. In lieu of federal corporation income taxes, the
stockholders of an S corporation are taxed on their proportionate share of the
corporation's taxable income. Therefore, no provisions or liabilities for
federal income taxes has been included in these financial statements.
F-79
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As a Massachusetts S corporation, the Company is subject to corporate income
taxes on its net income because total receipts aggregate $6 million or more.
The Company is also subject to Connecticut corporate income taxes.
Statement of Financial Accounting Standards No. 109 requires that deferred
income taxes be computed using the liability method under which deferred
income tax assets and liabilities are computed based on differences between
the financial statement and tax basis of assets and liabilities which will
result in taxable or deductible amounts on future tax returns. These financial
statements do not include any provisions for deferred state income taxes since
they are not considered material.
State income tax benefits of $5,000 and $31,000, respectively, included on
the statement of operations for the period ended December 31, 1997 and January
31, 1997 result from the tax savings inuring to the Company each year, when
taxes are computed on all operations.
4. WORKING CAPITAL AND ALLOCATED INTEREST:
The working capital employed by BSD is provided directly by Bloom's,
Incorporated and by an unsecured revolver note payable to a commercial bank
held in the name of Bloom's, Incorporated. The note, currently limited to
$2,500,000, was amended in August, 1997 and is scheduled to expire on July 31,
1998 unless renewed. This note is not included as those liabilities to be
assumed by Global. However, interest, at the prime rate, of approximately
$42,000 for the eleven months ended December 31, 1997, has been allocated to
these financial statements on the basis of direct employable assets of each of
the operating divisions of Bloom's, Incorporated. Amounts for the year ended
January 31, 1997 approximated $62,000.
5. RELATED PARTY TRANSACTIONS--LEASE:
In March 1981, the Company entered into a 25 year lease agreement with the
Company's majority stockholder (lessor) covering its general offices and
warehouse in Enfield, Connecticut.
During the eleven months ended December 31, 1997, the Company made rental
payments under the lease of $107,000. Of this amount, approximately $58,000
has been allocated to BSD on the basis of the occupancy formula discussed in
Note 2A ($63,000 for the earlier period). Aggregate future annual minimum
rentals to Bloom's, Incorporated (excluding payment for real estate taxes,
maintenance, utilities and insurance) are estimated as follows:
<TABLE>
<CAPTION>
THRU DECEMBER 31,
-----------------
<S> <C>
1998............................................................ $107,000
1999............................................................ 107,000
2000............................................................ 107,000
2001............................................................ 107,000
2002............................................................ 107,000
Thereafter...................................................... 330,000
--------
$865,000
========
</TABLE>
Obligations under this lease will not be assumed by Global.
F-80
<PAGE>
BUSINESS SYSTEMS DIVISION
(AN OPERATING DIVISION OF BLOOM'S, INCORPORATED)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS:
The Company is obligated under three leases at December 31, 1997 which are
used exclusively by BSD division for outside sales offices. The terms of these
arrangements are summarized below:
East Hartford, CT:
The facility lease is dated March 15, 1996 which calls for minimum
monthly payments of $2,500 per month through September 30, 1998, plus a
share of operating expenses.
Pittsfield, MA:
The facility is rented on a month to month basis and currently calls for
monthly rents of $700 per month plus common expenses.
Fairfield, CT:
The facility arrangement calls for monthly rents of $750 plus common
expenses on a month to month basis. In January, 1998, monthly rents were
increased to $1,000.
The Company is also committed under three (3) vehicle leases which will
expire during 1998 and 1999. Minimum monthly rents aggregate $646 per month,
with two leases expiring in May, 1998 ($406 per month) and the third lease
expiring in October, 1999 for $240 per month. All vehicles are used in BSD
operations.
Future minimum monthly payments under facility and vehicle leases (all of
which are to be transferred to Global) are as follows at December 31, 1997:
<TABLE>
<CAPTION>
AGGREGATE
MINIMUM
PAYMENTS
---------
<S> <C>
1998............................................................. $29,910
1999............................................................. 2,400
-------
Total.......................................................... $32,310
=======
</TABLE>
7. EMPLOYEE BENEFIT PLAN:
The Company maintains a salary deferral plan under section 401(k) of the
Internal Revenue Code which covers substantially all employees. Company
contributions to the plan are at the discretion of the Board of Directors.
There were no employer contributions to the plan for the eleven months ended
December 31, 1997. Employer contributions amounted to approximately $110,000
for the year ended January 31, 1997, of which approximately $65,000 was
charged to BSD Division.
8. SUBSEQUENT EVENT:
Effective February 1, 1998, one of BSD's larger customers decided not to
renew a portion of their rental arrangement and returned approximately 90
copiers out of a total of approximately 250 under lease during 1997.
Financially, this may result in a reduction in future annual rental (and total
annual sales) of approximately $200,000 to $250,000.
F-81
<PAGE>
Customers continue to demand more integrated office imaging solutions. As
the technology that drives copiers, facsimiles, printers, electronic
presentation equipment and DIM equipment continues to converge, there is an
increasing role for computers and networks in the functioning of these
products.
[Graphic depicting "Office Imaging Solutions" as the center of a "Network"
hub. The hub has eight spokes. One spoke is an image labeled "Document
Management System." One is an image of a classroom and teacher labeled
"Training and Support." One is an image of an office building labeled "Remote
Location." One is an image of a computer labeled "Computer Workstation." One
is an image of a fax machine labeled "Facsimile." One is an image of a copier
labeled "Digital Copier/Printer." One is simply designated "Network Services."
One is an image of a projector and screen labeled "LCD Projector."]
Global intends to expand its offerings to provide products and services in
the automated office equipment market, the electronic presentation systems
market, the DIM systems market and the network integration markets in each of
its geographic markets.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SO-
LICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JU-
RISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 7
Use of Proceeds............................................................ 14
Dividend Policy............................................................ 14
Capitalization............................................................. 15
Dilution................................................................... 16
Selected Financial Data.................................................... 17
Selected Pro Forma Financial Data.......................................... 18
Management's Discussion and Analysis
of Financial Condition and Results of Operations.......................... 19
Business................................................................... 26
Management................................................................. 34
Certain Transactions....................................................... 39
Principal and Selling Stockholders......................................... 44
Description of Capital Stock............................................... 46
Shares Eligible for Future Sale............................................ 48
Underwriting............................................................... 49
Legal Matters.............................................................. 50
Experts.................................................................... 51
Additional Information..................................................... 52
Index to Financial Statements.............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7,000,000 Shares
Global Imaging Systems, Inc.
[LOGO, including the text "Think Globally, Act Locally"]
Common Stock
----------------
P R O S P E C T U S
----------------
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
RAYMOND JAMES & ASSOCIATES, INC.
May , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered. All amounts
shown are estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 37,996
NASD filing fee.................................................. 13,380
Nasdaq National Market fee....................................... 90,000
Blue sky qualification fees and expenses......................... 20,000
Accounting fees and expenses..................................... 1,221,000
Legal fees and expenses.......................................... 200,000
Printing and engraving expenses.................................. 270,000
Transfer agent and registrar fees................................ 2,000
Miscellaneous expenses........................................... 145,624
----------
Total.......................................................... $2,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated Certificate of Incorporation to be filed and
effective upon the closing of the Offering (the "Charter") and Amended and
Restated Bylaws of the Company provide for the indemnification of the
Company's directors and officers to the fullest extent permitted by law.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company
pursuant to the Company's Certificate of Incorporation, as amended, Bylaws and
the Delaware General Corporation Law, the Company has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
As permitted by the Delaware General Corporation Law, the Charter provides
that directors of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, relating
to prohibited dividends or distributions or the repurchase or redemption of
stock or (iv) for any transaction from which the director derives an improper
personal benefit. As a result of this provision, the Company and its
stockholders may be unable to obtain monetary damages from a director for
breach of his or her duty of care.
Additionally, the Company has entered into indemnification agreements with
certain of its directors, officers and other key personnel, which may, in
certain cases, be broader than the specific indemnification provisions
contained under applicable law. The indemnification agreements may require the
Company, among other things, to indemnify such officers, directors and key
personnel against certain liabilities that may arise by reason of their status
or service as directors, officers or employees of the Company, to advance the
expenses incurred by such parties as a result of any threatened claims or
proceedings brought against them as to which they could be indemnified, and to
cover such officers, directors and key employees under the Company's
directors' and officers' liability insurance policies to the maximum extent
that insurance coverage is maintained.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 17, 1995 the Company has sold and issued the following
unregistered securities:
(a) In January 1996, the Company sold 3,832.83 shares of Class A Common
Stock ("Class A Common Shares") and 111,672 shares of Common Stock ("Common
Shares") for aggregate purchase prices of $344,955 and $8,845, respectively,
to executives of three companies in connection with the Company's acquisition
of those companies. One of the executives paid for his purchase with a three-
year secured promissory note in the principal amount of $49,800, bearing an
annual interest rate of 8%.
(b) In January 1996, the Company sold 1,083.333 Class A Common Shares and
31,563 Common Shares for purchase prices of $97,500 and $2,500, respectively,
as an employment incentive to an individual who paid for his purchase with a
three-year secured promissory note in the principal amount of $100,000,
bearing an annual interest rate of 8%.
(c) In January 1996, the Company sold 216.660 Class A Common Shares and
6,312 Common Shares for purchase prices of $19,500 and $500, respectively, to
an individual as an employment incentive.
(d) In February 1996, the Company sold 2,535 Class A Common Shares and
73,859 Common Shares for aggregate purchase prices of $228,150 and $5,850,
respectively, to executives of a company in connection with its acquisition by
the Company.
(e) In April 1996, the Company facilitated the sale of 2,210 shares of Class
A Common Stock and 64,390 shares of Common Stock by departing employee at a
per share purchase price of $102.13 and $.08, respectively, to certain
investors, all of whom were employees of the Company. In connection with the
transaction, Neal Berney, Raymond Schilling, Michael Mueller, and Thomas
Johnson's son Todd Johnson paid approximately $99,000, $5,600, $10,000 and
$5,000, respectively, and received 946.381, 54.167, 95.749 and 47.875 shares
of Class A Common Stock and 27,573, 1,578, 2,789 and 1,394 shares of Common
Stock.
(f) In June 1996, the Company sold 2,608.667 Class A Common Shares and
76,005 Common Shares for aggregate purchase prices of $234,780 and $6,020,
respectively, to executives of a company in connection with its acquisition by
the Company. The executives provided $190,800 of the aggregate purchase price
in the form of capital stock of Office Furniture Concepts, Inc., a North
Carolina corporation.
(g) In August 1996, the Company sold 27,083.33 Class A Common Shares and
633,932 shares of Class C Common Stock for purchase prices of $2,437,500 and
$62,500, respectively, to Jackson National Life Insurance Company ("JNL") in
connection with the Company's obtaining a credit facility from JNL.
(h) In September 1996, the Company sold 1,354.166 Class A Common Shares and
31,696 Common Shares for purchase prices of $121,875 and $3,125, respectively,
to an investor in a private placement.
(i) In November 1996, the Company sold 6,370 Class A Common Shares and
149,100 Common Shares for aggregate purchase prices of $573,300 and $14,700,
respectively, to executives of a company in connection with its acquisition by
the Company.
(j) In March 1997, the Company sold 812.50 Class A Common Shares and 19,017
Common Shares for aggregate purchase prices of $73,125 and $1,875,
respectively, as an employment incentive to an individual and to an investor
in a private placement.
(k) In March 1997, the Company sold 172,547 Common Shares for a purchase
price of $11,764.62 to Alfred N. Vieira as an employment incentive.
(l) In April 1997, the Company sold 2,600 Class A Common Shares and 47,999
Common Shares for aggregate purchase prices of $234,000 and $6,000,
respectively, to executives of a company in connection with its acquisition by
the Company. One of the executives paid for her purchase with a 21-month
secured promissory note in the principal amount of $20,000, bearing an annual
interest rate of 8%.
(m) In July 1997, the Company sold 1,083.33 Class A Common Shares and 19,999
Common Shares for purchase prices of $97,500 and $2,500, respectively, as an
employment incentive to an individual who paid for the purchase with a three-
year secured promissory note in the principal amount of $100,000, bearing
interest at an annual rate of 8%.
II-2
<PAGE>
(n) In August 1997, the Company sold 18,200 Class A Common Shares and
335,999 Common Shares for aggregate purchase prices of $1,638,000 and $42,000,
respectively, to an individual, an entity and to executives of a company in
connection with the company's acquisition by the Company.
(o) In August 1997, the Company sold 117 Class A Common Shares and 2,159
Common Shares for purchase prices of $10,530 and $270, respectively, to an
individual as an employment incentive.
(p) In September 1997, the Company sold 617.499 Class A Common Shares and
11,399 Common Shares for aggregate purchase prices of $55,575 and $1,425,
respectively, to individuals as employment incentives.
(q) In September 1997, the Company sold 4,901 Class A Common Shares and
90,480 Common Shares for aggregate purchase prices of $441,090 and $11,310,
respectively, to executives of a company in connection with its acquisition by
the Company and to an individual as an employment incentive.
(r) In September 1997, the Company sold 1,083.33 Class A Common Shares and
19,999 Common Shares for purchase prices of $97,500 and $2,500, respectively,
to an individual as an employment incentive, who paid for the purchase with a
three-year secured promissory note in the principal amount of $100,000,
bearing an annual interest rate of 8%.
(s) In October 1997, the Company sold 1,300 Class A Common Shares and 23,999
Common Shares for aggregate purchase prices of $117,000 and $3,000,
respectively, to individuals as employment incentives.
(t) In November 1997, the Company facilitated the sale of 1,083.333 shares
of Class A Common Stock and 31,563 shares of Common Stock by a departing
employee at a per share purchase price of $102.17 and $.08, respectively, to
certain investors, all of whom were employees of or service providers to the
Company. As part of the Company's termination agreement with the departing
employee, the Company paid the employee an aggregate of approximately $1,400
to compensate for the difference between the sale price for the Common Stock
and the then-determined fair market value of such Common Stock. In connection
with the transaction, Raymond Schilling paid approximately $5,700 and received
54.167 shares of Class A Common Stock and 1,578 shares of Common Stock, and
Michael Mueller, Alfred Vieira, Todd Johnson and Tidewater Partners, LLC, an
entity whose managing members are J. Hovey Kemp and Christopher Hagan,
partners at Hogan & Hartson L.L.P., counsel to the Company, each paid
approximately $11,300 and received 108.333 shares of Class A Common Stock and
3,156 shares of Common Stock.
(u) In November 1997, the Company sold 4,283.5 Class A Common Shares and
79,079 Common Shares for aggregate purchase prices of $385,515 and $9,885,
respectively, to executives of a company in connection with its acquisition by
the Company.
(v) In November 1997, the Company sold 45,166.953 Class A Common Shares for
a purchase price of $4,065,025.80 to Golder Thoma Cressey Rauner Fund IV
Limited Partnership and 1,106.258 Class A Common Shares for a purchase price
of $99,563.20 to Thomas Johnson under the terms of an Equity Purchase
Agreement dated June 9, 1994.
(w) In November 1997, the Company sold 11,136.268 Class A Common Shares and
260,663 shares of Class C Common Stock for purchase prices of $1,002,264.16
and $25,699.08, respectively, to JNL in connection with an amendment to the
Company's credit facility from JNL.
(x) In November 1997, the Company sold 556.643 Class A Common Shares and
13,029 Common Shares for purchase prices of $50,097.84 and $1,284.56,
respectively, to an investor in a private placement.
(y) In January 1997, the Company sold 5,850 Class A Common Shares and
107,999 Common Shares for aggregate purchase prices of $526,500 and $13,500,
respectively, $540,000 to executives of a company in connection with its
acquisition by the Company and to an individual as an employment incentive.
(z) In January 1998, the Company sold 7,020 Class A Common Shares and
129,599 Common Shares for aggregate purchase prices of $631,800 and $16,200,
respectively, to an individual in connection with the Company's acquisition of
a company.
(aa) In March 1998, the Company sold an aggregate of 86,276 Common Shares to
GTCR IV, JNL and Thomas Johnson for an aggregate purchase price of $5,882
pursuant to preexisting contractual obligations.
The share amounts set forth above give effect to the company's 132-for-1
stock split of the Common Stock expected to be effected in May 1998. The sales
and issuances of securities in the transactions described above were deemed to
be exempt from registration under the Securities Act by virtue of Section 4(2)
or Regulation D promulgated thereunder.
II-3
<PAGE>
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients received adequate
information about the Company or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation (to be filed with the
Secretary of State of Delaware prior to the closing of this offering).
3.2 Amended and Restated Certificate of Incorporation (to be filed with the
Secretary of State of Delaware upon the closing of this offering).
3.3 Bylaws**
3.4 Amended and Restated Bylaws (to become effective upon the closing of
this offering).
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Hogan & Hartson L.L.P. with respect to the legality of the
Common Stock.*
10.1 Equity Purchase Agreement, dated as of June 9, 1994, as amended, by and
among Global; Thomas S. Johnson; Golder, Thoma, Cressey, Rauner Fund IV
Limited Partnership ("GTCR IV") and additional stockholders.**
10.2 Registration Agreement, dated as of June 9, 1994, as amended, by and
among Global and the stockholders identified therein.**
10.3 Termination Agreement, dated as of , 1998, by and among Global;
GTCR IV; Golder, Thoma, Cressey, Rauner, Inc. ("GTCR") and the
stockholders identified therein.*
10.4 Form of Equity Subscription Agreement, by and between Global and certain
of its stockholders.**
10.5 Amended and Restated Credit Agreement, dated as of November 14, 1997, as
amended, by and among Jackson National Life Insurance Company ("JNL") as
Lender and PPM America, Inc., as Agent, Global and its subsidiaries.
10.6 Investor Purchase Agreement, dated as of August 14, 1996, between Global
and JNL.**
10.7 Investor Purchase Agreement, dated as of September 30, 1996, between
Global and Green Manning & Bunch Holdings, Inc.**
10.8 Executive Agreement, dated as of June 9, 1994, as amended, by and among
Global, Thomas S. Johnson and GTCR IV.+
10.9 Executive Agreement, dated as of June 9, 1994, as amended, by and among
Global, Raymond Schilling and GTCR IV.+
10.10 Executive Agreement, dated as of January 1, 1995, as amended, by and
among Global, H. Michael Mueller and GTCR IV.+
10.11 Executive Agreement, dated as of March 31, 1997, by and among Global,
Alfred N. Vieira and GTCR IV.+
10.12 1998 Stock Option and Incentive Plan.+
10.13 Form of Supply Agreement between the Company and Konica.++**
10.14 Non-Exclusive Third Party Lessor Agreement, dated July 16, 1996, as
amended, by and between Global and General Electric Capital
Corporation.++**
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.15 License Agreement, dated as of July 31, 1996, as amended, between Global
and Copelco Capital, Inc.++**
10.16 Non-Exclusive Third Party Lessor Agreement, dated July 26, 1996, as
amended, by and between Global and Tokai Financial Services, Inc.++**
10.17 Stock Purchase Agreement, dated as of June 27, 1996 by and among Global
as Buyer, Copy Service & Supply, Inc., Office Furniture Concepts, Inc.,
CSS Leasing, LLC and Terry K. Smith and Crystal E. Smith as Sellers.++**
10.18 Stock Purchase Agreement, dated as of November 13, 1996 by and among
Global as Buyer and Southern Business Communications, Inc. and Mark M.
Lloyd and Arthur E. Kreps as Sellers.++**
10.19 Asset Purchase Agreement, dated as of November 13, 1996 by and among
ATS-Atlanta One, LLC as Seller, ATS-Atlanta One, Inc. as Purchaser, and
ATS-Atlanta, Inc., Mark M. Lloyd and Arthur E. Kreps.++**
10.20 Stock Purchase Agreement, dated as of August 7, 1997 by and among
Global, ESI Acquisition Corporation as Buyer, Electronic Systems, Inc.
("ESI") and the Shareholders of ESI as Sellers.++**
10.21 Stock Purchase Agreement, dated as of August 29, 1997 by and among
Global, Conway Office Products as Buyer, Eastern Copy Products, Inc. and
Michael E. Kleinhans as Seller.++**
10.22 Stock Purchase Agreement, dated as of September 30, 1997 by and among
Global as Buyer, Duplicating Specialties, Inc. (d/b/a Copytronix) and
Dean Groves as Seller.++**
10.23 Stock Purchase Agreement, dated as of September 30, 1997 by and among
Global as Buyer, Quality Business Systems, Inc. and Gary Stevens as
Seller.++**
10.24 Stock Purchase Agreement, dated as of September 30, 1997 by and among
Global as Buyer, Cascade Office Systems, Inc. and Fred Woodard as
Seller.++**
10.25 Stock Purchase Agreement, dated as of December 23, 1997 by and among
Global, ESI as Buyer, Electronic Systems of Richmond, Inc. ("ESRI") and
the Shareholders of ESRI as Seller.++**
10.26 Stock Purchase Agreement, dated as of December 31, 1997, as assigned, by
and among Global, Connecticut Business Systems, Inc. as Buyer, and the
Company, Michael E. Shea, Jr. and Peter Wenzke as Sellers.++**
10.27 Asset Purchase Agreement, dated as of February 26, 1998 by and among
Connecticut Systems, Inc., Bloom's Business Systems, a division of
Bloom's Incorporated, the Assets and Bloom's Incorporated as Seller.++**
10.28 Stock Purchase Agreement, dated as of November 13, 1996, by and among
Global as Buyer, Southern Business Communications of D.C., Inc., and
George Gough, Mark M. Lloyd, and Arthur E. Kreps as Sellers.++
10.29 Form of Indemnification Agreement between Global and its directors and
executive officers.+
10.30 Letter Agreement, dated April 22, 1998, by and among Global, First Union
National Bank and First Union Capital Markets Group.++
21.1 Subsidiaries of Global.**
23.1 The consent of Ernst & Young LLP.
23.2 The consent of Barnard, Combs, Potts & Rhyne, PA.*
23.3 The consent of Smith & Howard, P.C.*
23.4 The consent of Ernst & Young LLP.*
23.5 The consent of Pasquale & Bowers, LLP.*
23.6 The consent of Moss Adams LLP.*
23.7 The consent of Edmondson, LedBetter & Ballard, L.L.P.*
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
23.8 The consent of Arthur Andersen LLP.*
23.9 The consent of Joseph D. Kalicka & Company, LLP.*
23.10 The consent of Hogan & Hartson L.L.P. (to be included in Exhibit 5.1).*
23.11 The consent of Pacific Media Associates.
23.12 The consent of International Data Corporation.
24.1 Power of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+Management contract or compensatory plan, contract or arrangement.
++Confidential treatment has been requested for portions of this exhibit.
(b) Financial Statement Schedules
Report of Independent Auditors on Schedule
Schedule II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as may be required by the
underwriter to permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, GLOBAL IMAGING
SYSTEMS, INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
TAMPA, STATE OF FLORIDA ON THE 8TH DAY OF MAY, 1998.
Global Imaging Systems, Inc.
/s/ Thomas S. Johnson
By: ___________________________________
THOMAS S. JOHNSON President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C>
NAME TITLE DATE
---- ----- ----
/s/ Thomas S. Johnson President, Chief May 8, 1998
- ------------------------------------ Executive Officer
THOMAS S. JOHNSON and Director
(Principal
Executive Officer
/s/ Raymond Schilling Vice President, May 8, 1998
- ------------------------------------ Chief Financial
RAYMOND SCHILLING Officer, Secretary
and Treasurer
(Principal
Financial and
Accounting
Officer)
* Chairman of the May 8, 1998
- ------------------------------------ Board
CARL D. THOMA
* Director May 8, 1998
- ------------------------------------
L. NEAL BERNEY
* Director May 8, 1998
- ------------------------------------
BRUCE D. GORCHOW
* Director May 8, 1998
- ------------------------------------
WILLIAM C. KESSINGER
/s/ Thomas S. Johnson
*By: _______________________________
THOMAS S. JOHNSON
Attorney-In-Fact
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
We have audited the consolidated financial statements of Global Imaging
Systems, Inc. as of March 31, 1996 and 1997 and December 31, 1997, and for the
period from inception (June 3, 1994) to March 31, 1995, the years ended March
31, 1996 and 1997 and the nine-month period ended December 31, 1997, and have
issued our report thereon dated February 13, 1998 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Tampa, Florida
February 13, 1998
The foregoing report is in the form that will be signed upon the completion
of the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ Ernst & Young LLP
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
RESERVE FOR RETURNS AND ALLOWANCES AND BAD DEBTS:
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT THE CHARGED TO CHARGED TO BALANCE AT THE
BEGINNING OF COSTS AND OTHER END OF
THE PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS THE PERIOD
-------------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Period Ended:
March 31, 1995........ $ -- $ 8,125 $135,000 $ 6,125 $137,000
March 31, 1996........ $137,000 $ 34,498 $ 58,666 $30,164 $200,000
March 31, 1997........ $200,000 $ 30,824 $147,005 $68,785 $309,044
December 31, 1997..... $309,044 $116,251 $519,689 $65,840 $879,144
</TABLE>
RESERVE FOR EXCESS AND SLOW-MOVING INVENTORY:
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT THE CHARGED TO CHARGED TO BALANCE AT THE
BEGINNING OF COSTS AND OTHER END OF
THE PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS THE PERIOD
-------------- ---------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Period Ended:
March 31, 1995........ $ -- $ -- $270,000 $ 13,222 $ 256,778
March 31, 1996........ $256,778 $197,248 $ 98,000 $419,000 $ 133,026
March 31, 1997........ $133,026 $256,280 $340,000 $403,207 $ 326,099
December 31, 1997..... $326,099 $443,000 $642,877 $401,100 $1,010,876
</TABLE>
- --------
(1) These amounts primarily represent reserve balances acquired in connection
with business combinations.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation (to be filed
with the Secretary of State of Delaware prior to the closing of
this offering).
3.2 Amended and Restated Certificate of Incorporation (to be filed
with the Secretary of State of Delaware upon the closing of this
offering).
3.3 Bylaws**
3.4 Amended and Restated Bylaws (to become effective upon the
closing of this offering).
4.1 Specimen Common Stock Certificate.
5.1 Opinion of Hogan & Hartson L.L.P. with respect to the legality
of the Common Stock.*
10.1 Equity Purchase Agreement, dated as of June 9, 1994, as amended,
by and among Global; Thomas S. Johnson; Golder, Thoma, Cressey,
Rauner Fund IV Limited Partnership ("GTCR IV") and additional
stockholders.**
10.2 Registration Agreement, dated as of June 9, 1994, as amended, by
and among Global and the stockholders identified therein.**
10.3 Termination Agreement, dated as of , 1998, by and among
Global; GTCR IV; Golder, Thoma, Cressey, Rauner, Inc. ("GTCR")
and the stockholders identified therein.*
10.4 Form of Equity Subscription Agreement, by and between Global and
certain of its stockholders.**
10.5 Amended and Restated Credit Agreement, dated as of November 14,
1997, as amended, as amended, by and among Jackson National Life
Insurance Company ("JNL") as Lender and PPM America, Inc., as
Agent, Global and its subsidiaries.
10.6 Investor Purchase Agreement, dated as of August 14, 1996,
between Global and JNL.**
10.7 Investor Purchase Agreement, dated as of September 30, 1996,
between Global and Green Manning & Bunch Holdings, Inc.**
10.8 Executive Agreement, dated as of June 9, 1994, as amended, by
and among Global, Thomas S. Johnson and GTCR IV.+
10.9 Executive Agreement, dated as of June 9, 1994, as amended, by
and among Global, Raymond Schilling and GTCR IV.+
10.10 Executive Agreement, dated as of January 1, 1995, as amended, by
and among Global, H. Michael Mueller and GTCR IV.+
10.11 Executive Agreement, dated as of March 31, 1997, by and among
Global, Alfred N. Vieira and GTCR IV.+
10.12 1998 Stock Option and Incentive Plan.+
10.13 Form of Supply Agreement between the Company and Konica.++**
10.14 Non-Exclusive Third Party Lessor Agreement, dated July 16, 1996,
as amended, by and between Global and General Electric Capital
Corporation.++**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.15 License Agreement, dated as of July 31, 1996, as amended,
between Global and Copelco Capital, Inc.++**
10.16 Non-Exclusive Third Party Lessor Agreement, dated July 26, 1996,
as amended, by and between Global and Tokai Financial Services,
Inc.++**
10.17 Stock Purchase Agreement, dated as of June 27, 1996 by and among
Global as Buyer, Copy Service & Supply, Inc., Office Furniture
Concepts, Inc., CSS Leasing, LLC and Terry K. Smith and Crystal
E. Smith as Sellers.++**
10.18 Stock Purchase Agreement, dated as of November 13, 1996 by and
among Global as Buyer and Southern Business Communications, Inc.
and Mark M. Lloyd and Arthur E. Kreps as Sellers.++**
10.19 Asset Purchase Agreement, dated as of November 13, 1996 by and
among ATS-Atlanta One, LLC as Seller, ATS-Atlanta One, Inc. as
Purchaser, and ATS-Atlanta, Inc., Mark M. Lloyd and Arthur E.
Kreps.++**
10.20 Stock Purchase Agreement, dated as of August 7, 1997 by and
among Global, ESI Acquisition Corporation as Buyer, Electronic
Systems, Inc. ("ESI") and the Shareholders of ESI as
Sellers.++**
10.21 Stock Purchase Agreement, dated as of August 29, 1997 by and
among Global, Conway Office Products as Buyer, Eastern Copy
Products, Inc. and Michael E. Kleinhans as Seller.++**
10.22 Stock Purchase Agreement, dated as of September 30, 1997 by and
among Global as Buyer, Duplicating Specialties, Inc. (d/b/a
Copytronix) and Dean Groves as Seller.++**
10.23 Stock Purchase Agreement, dated as of September 30, 1997 by and
among Global as Buyer, Quality Business Systems, Inc. and Gary
Stevens as Seller.++**
10.24 Stock Purchase Agreement, dated as of September 30, 1997 by and
among Global as Buyer, Cascade Office Systems, Inc. and Fred
Woodard as Seller.++**
10.25 Stock Purchase Agreement, dated as of December 23, 1997 by and
among Global, ESI as Buyer, Electronic Systems of Richmond, Inc.
("ESRI") and the Shareholders of ESRI as Seller.++**
10.26 Stock Purchase Agreement, dated as of December 31, 1997, as
assigned, by and among Global, Connecticut Business Systems,
Inc. as Buyer, and the Company, Michael E. Shea, Jr. and Peter
Wenzke as Sellers.++**
10.27 Asset Purchase Agreement, dated as of February 26, 1998 by and
among Connecticut Systems, Inc., Bloom's Business Systems, a
division of Bloom's Incorporated, the Assets and Bloom's
Incorporated as Seller.++**
10.28 Stock Purchase Agreement, dated as of November 13, 1996, by and
among Global as Buyer, Southern Business Communications of D.C.,
Inc., and George Gough, Mark M. Lloyd, and Arthur E. Kreps as
Sellers.++
10.29 Form of Indemnification Agreement between Global and its
directors and executive officers.+
10.30 Letter Agreement, dated April 22, 1998, by and among Global,
First Union National Bank and First Union Capital Markets
Group.++
21.1 Subsidiaries of Global.**
23.1 The consent of Ernst & Young LLP.
23.2 The consent of Barnard, Combs, Potts & Rhyne, PA.*
23.3 The consent of Smith & Howard, P.C.*
23.4 The consent of Ernst & Young LLP.*
23.5 The consent of Pasquale & Bowers, LLP.*
23.6 The consent of Moss Adams LLP.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
23.7 The consent of Edmondson, LedBetter & Ballard, L.L.P.*
23.8 The consent of Arthur Andersen LLP.*
23.9 The consent of Joseph D. Kalicka & Company, LLP.*
23.10 The consent of Hogan & Hartson L.L.P. (to be included in Exhibit
5.1).*
23.11 The consent of Pacific Media Associates.
23.12 The consent of International Data Corporation.
24.1 Power of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
+Management contract or compensatory plan, contract or arrangement.
++Confidential treatment has been requested for portions of this exhibit.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GLOBAL IMAGING SYSTEMS, INC.
This corporation was organized by filing its original Certificate of
Incorporation under the name of "Global Imaging Systems Inc." with the Secretary
of State of Delaware on June 3, 1994. This Amended and Restated Certificate of
Incorporation, which restates, integrates and further amends the Certificate of
Incorporation of this corporation, was duly adopted in accordance with Section
245 of the General Corporation Law of the State of Delaware.
ARTICLE I
The corporation was organized and exists under Delaware law.
ARTICLE II
The name of the corporation is Global Imaging Systems, Inc.
(hereinafter referred to as the "CORPORATION").
ARTICLE III
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE IV
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
<PAGE>
ARTICLE V
5.1 AUTHORIZED SHARES
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is sixty-one million, three
hundred five thousand (61,305,000) shares. Fifty-one million, three hundred five
thousand (51,305,000) shares shall be Common Stock, each having a par value of
one cent ($.01) per share ("COMMON SHARES"), consisting of:
(1) 400,000 shares of Class A Common Stock, par value $.01 per share
("CLASS A COMMON");
(2) 50,000,000 shares of Common Stock (formerly "Class B Common
Stock"), par value $.01 per share ("COMMON STOCK"); and
(3) 905,000 shares of Class C Common Stock, par value $.01 per share
("CLASS C COMMON").
Ten million (10,000,000) shares shall be Preferred Stock, each having a par
value of $.01 per share ("PREFERRED SHARES").
Upon the filing of this Amended and Restated Certificate of
Incorporation, each outstanding share of Class B Common Stock shall be
redesignated as "Common Stock." Also upon the filing of this Amended and
Restated Certificate of Incorporation, each outstanding share of Class B Common
Stock shall be divided into one hundred thirty-two (132) outstanding shares of
Common Stock, and each outstanding share of Class C Common shall be divided into
one hundred thirty-two (132) outstanding shares of Class C Common (the "STOCK
SPLIT").
No fractional shares of Common Stock or Class C Common shall be
created or outstanding upon the effectiveness of the Stock Split. All shares of
Common Stock (including fractions thereof) issuable to a holder upon
effectiveness of the Stock Split shall be aggregated for purposes of determining
whether the Stock Split would result in the issuance of any fractional share,
and all shares of Class C Common (including fractions thereof) issuable to a
holder upon effectiveness of the Stock Split shall be aggregated for purposes of
determining whether the Stock Split would result in the issuance of any
fractional share. If, after the aforementioned aggregation and Stock Split, any
holder of Common Stock or of Class C Common would otherwise be entitled to be
issued any fractional share, the Corporation shall, in lieu of issuing such
fractional share, pay cash equal to the fair market value of such fractional
share, as determined in good faith by the Corporation's Board of Directors.
-2-
<PAGE>
The Class A Common, the Common Stock, the Class C Common and any other
common stock issued hereafter are referred to collectively as the "COMMON
SHARES." The Common Shares and the Preferred Shares shall have the rights,
preferences and limitations set forth below. Capitalized terms used but not
otherwise defined in Section 5.1 or Section 5.2 of this Article are defined in
Section 5.4.
5.2 COMMON SHARES
Except as otherwise provided in this Section 5.2 or as otherwise
required by applicable law, all shares of Class A Common, Common Stock and Class
C Common shall (1) be subject to all of the rights, privileges, preferences and
priorities of the Preferred Shares as set forth in the certificate of
designations filed to establish each series of Preferred Shares and (2) shall be
identical in all respects and shall entitle the holders thereof to the rights
and privileges, subject to the same qualifications, limitations and
restrictions.
5.2.1 VOTING RIGHTS
Except as otherwise provided in this Section 5.2 or as otherwise
required by applicable law, all holders of Common Stock shall be entitled to one
vote per share on all matters to be voted on by the Corporation's stockholders.
Except for any amendment to this Article V of the Certificate of Incorporation
or except as otherwise required by applicable law, each holder of Class A Common
and Class C Common shall not be entitled to vote on any matter submitted to a
vote of the Corporation's stockholders.
5.2.2 DISTRIBUTIONS
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Shares as to the payment of dividends or other distributions,
including upon liquidation of the Corporation, the full amount of such dividends
or other distributions to which such holders are respectively entitled in
preference to the Common Shares, then Distributions may be paid on the Common
Shares and on any class or series of stock entitled to participate therewith as
to Distributions, out of any assets legally available for the payment of
Distributions thereon, but only when and as declared by the Board of Directors
of the Corporation, except in the case of Distributions in complete liquidation
of the Corporation. At the time of each Distribution, such Distribution shall be
made to the holders of Class A Common, Common Stock and Class C Common
outstanding as of the time of such Distribution in the following priority:
(I) The holders of Class A Common shall be entitled to receive all or
a portion of such Distribution (ratably among such holders based upon
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<PAGE>
the number of shares of Class A Common held by each such holder as of the time
of such Distribution) equal to the aggregate Unpaid Yield on the outstanding
shares of Class A Common as of the time of such Distribution, and no
Distribution or any portion thereof shall be made under Sections 5.2.2(ii) and
5.2.2(iii) below until the entire amount of the Unpaid Yield on the outstanding
shares of Class A Common as of the time of such Distribution has been paid in
full. The Distributions made pursuant to this Section 5.2.2(i) to holders of
Class A Common shall constitute a payment of Yield on Class A Common.
(II) After the required amount of a Distribution has been made
in full pursuant to Section 5.2.2(i) above, the holders of Class A Common, as a
separate class, shall be entitled to receive all or a portion of such
Distribution (ratably among such holders based upon the number of shares of
Class A Common held by each such holder as of the time of such Distribution)
equal to the aggregate Unreturned Original Cost of the outstanding shares of
Class A Common as of the time of such Distribution, and no Distribution or any
portion thereof shall be made under Section 5.2.2(iii) below until the entire
amount of the Unreturned Original Cost of the outstanding shares of Class A
Common as of the time of such Distribution has been paid in full. The
Distributions made pursuant to this Section 5.2.2(ii) to holders of Class A
Common shall constitute a return of Original Cost of Class A Common.
(III) After the required amount of a Distribution has been
made pursuant to Sections 5.2.2(i) and 5.2.2(ii) above, (A) if there are any
shares of Class A Common outstanding, (1) the holders of Class A Common shall be
entitled to receive 10% of the remaining portion of such Distribution (ratably
among such holders based on the number of shares of Class A Common held by each
such holder as of the time of such Distribution) and (2) the holders of Common
Stock and Class C Common, as a single class, shall be entitled to receive 90% of
the remaining portion of such Distribution (ratably among such holders based
upon the number of shares of Common Stock and Class C Common held by each such
holder as of the time of such Distribution), and (B) if there are no shares of
Class A Common outstanding, the holders of Common Stock and Class C Common, as a
single class, shall be entitled to receive 100% of the remaining portion of such
Distribution (ratably among such holders based upon the number of shares of
Common Stock and Class C Common held by each such holder as of the time of such
Distribution).
5.2.3 CONVERSION PROVISION
(A) OPTIONAL CONVERSION OF CLASS A COMMON OR OF CLASS C
---------------------------------------------------
COMMON. Upon compliance with the provisions of Section 5.2.3(c) below, each
- ------
holder of Class A Common or of Class C Common may at any time convert any whole
number or all of such holder's Class A Common or Class C Common, as the case may
be, into shares of fully paid and nonassessable Common Stock. Each share of
Class A Common Stock converted hereunder shall be
-4-
<PAGE>
converted into a number of shares of Common Stock equal to the Common Stock
Amount Per Share. Each share of Class C Common converted hereunder shall be
converted at the rate (subject to adjustment as provided in Section 5.2.3(b)) of
one share of Common Stock for each share of Class C Common surrendered for
conversion.
(B) ADJUSTMENTS ON CONVERSION. If the Corporation shall in any manner
-------------------------
subdivide (by stock split, reclassification, stock dividend or otherwise) or
combine (by reverse stock split, reclassification or otherwise) any class or
series of the outstanding Common Shares, effective provision shall be made by
the Board of Directors of the Corporation to appropriately protect the rights of
the holders of the Common Shares, including provision for the protection of all
conversion rights hereunder. In case of any reorganization, reclassification or
change of any class or series of the Common Shares (other than a change in par
value, or from par value to no par value as a result of a subdivision or
combination), or in case of any consolidation of the Corporation with one or
more other corporations or a merger of the Corporation with another corporation
(other than a consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change of any
class or series of outstanding Common Shares), or in case of any sale, lease or
other disposition to another entity (other than a wholly owned subsidiary of the
Corporation) of all or substantially all the assets of the Corporation or in
case of any other similar event, each holder of a share of Class C Common shall
have the right at any time thereafter, so long as the conversion right hereunder
with respect to such share of Class C Common would exist had such event not
occurred, to convert such share into the kind and amount of shares of stock and
other securities and property (including cash) receivable upon such
reorganization, reclassification, change, consolidation, merger, sale, lease or
other disposition or other similar event had such share of Class C Common been
converted into Common Stock immediately prior to such reorganization,
reclassification, change, consolidation, merger, sale, lease or other
disposition or other similar event. In the event of such a reorganization,
reclassification, change, consolidation, merger, sale, lease or other
disposition or other similar event, effective provision shall be made in the
certificate of incorporation of the resulting or surviving corporation or
otherwise to appropriately protect the rights and interests herein of the
holders of Common Shares (including provision for the protection of the
conversion rights of any class or series of the Common Shares) that shall be
applicable, as nearly as reasonably may be, to any such other shares of stock
and other security and property deliverable upon conversion of any class or
series of the Common Shares into which each share of such class or series of
Common Shares might have been converted immediately prior to such event. The
Corporation shall not have the power to be a party to any reorganization,
reclassification, change, consolidation, merger, sale, lease or other
disposition or other similar event pursuant to which any holder of any class or
series of Common Shares would be required to take (x) any voting securities, the
voting provisions of which would cause such holder to violate any law,
regulation or
-5-
<PAGE>
other requirement of any government body applicable to such holder, or (y) any
securities convertible into voting securities, the voting provisions of which if
such convention took place would cause such holder to violate any law,
regulation or other requirement of any government body applicable to such holder
other than securities which are specifically provided to be convertible only in
the event that such conversion may occur without any such violation.
(C) MANNER OF EFFECTING CONVERSION. To convert Class A Common or Class
------------------------------
C Common into Common Stock, a holder must: (w) complete and sign a conversion
notice on the back of the certificate representing the shares of Class A Common
or Class C Common, as the case may be, to be converted or deliver written notice
to the Corporation (or, if a conversion agent has been designated, to such agent
(the "CONVERSION AGENT")); (x) surrender such Class A Common or Class C Common
stock certificate to an officer designated by the Corporation or, if a
Conversion Agent has been designated, to the Conversion Agent; (y) if the shares
are being issued in a name other than that of the holder, furnish appropriate
endorsements and transfer documents if required by the registrar for the
Corporation's stock or the Conversion Agent; and (z) if the shares are being
issued in a name other than that of the holder, pay any transfer tax or similar
tax if required by Section 5.2.3(e). Such conversion shall be deemed to have
been effected on the date and time such shares of Class A Common or Class C
Common are surrendered for conversion, and the person entitled to receive shares
of Common Stock issuable on such conversion shall be treated for all purposes as
the record holder of the shares of Common Stock as of such date and time. As
soon as practicable after the conversion has been effected, the Corporation
shall deliver (or shall cause any Conversion Agent to deliver) a certificate or
certificates for the number of shares of Common Stock issuable upon the
conversion. If less than all the shares represented by any certificate
representing Common Shares are being converted, a new stock certificate
representing the unconverted shares shall be promptly issued by the Corporation
to the holder thereof.
(D) AUTOMATIC CONVERSION OF CLASS C COMMON.
--------------------------------------
(I) Each share of Class C Common shall automatically be
converted into shares of Common Stock immediately prior to the closing of a
Qualified Public Offering with respect to aggregate offering proceeds of at
least $20 million, at the rate (subject to adjustment as provided in Section
5.2.3(b)) of one share of Common Stock for each share of Class C Common.
(II) Upon the occurrence of the event specified in paragraph (i)
above, the outstanding shares of Class C Common shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
-6-
<PAGE>
conversion unless the certificates evidencing such shares of Class C Common are
either delivered to the Corporation or its transfer agent as provided below, or
the holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by or in
connection with such certificates. Upon the occurrence of such automatic
conversion of the Class C Common, the holders of shares of Class C Common shall
surrender the certificates representing such shares at the office of the
Corporation or any transfer agent for the Class C Common. Thereupon, there
shall be issued and delivered to such holder promptly at such office in its name
as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Class C Common surrendered were convertible on the date on which such automatic
conversion occurred.
(E) TRANSFER TAXES, ETC. If a holder converts Class A Common or
-------------------
Class C Common, the Corporation shall pay any documentary, stamp or similar
issue or transfer tax due on the issue of shares of Common Stock upon such
conversion. However, the holder shall pay any such tax which is due if and
because the shares are issued in a name other than that of such holder.
(F) RESERVATION OF SHARES. The Corporation shall reserve out of its
---------------------
authorized but unissued Common Stock or its Common Stock held in treasury
sufficient shares of Common Stock to permit the conversions of all outstanding
shares of Class A Common or Class C Common pursuant to Section 5.2.3 of this
Article V. All Common Stock issued upon such conversion shall be fully paid and
non-assessable.
5.2.4 REDEMPTION.
(A) REDEMPTION AFTER QUALIFIED PUBLIC OFFERING.
------------------------------------------
(I) Upon the occurrence of any Qualified Public Offering, the
Corporation shall redeem all of the outstanding shares of Class A Common. The
Corporation shall effect such redemption by paying, for each share of Class A
Common, (A) cash in an amount equal to the sum of (1) the Unreturned Original
Cost plus (2) the Unpaid Yield and (B) a number of shares of Common Stock equal
to the Common Stock Amount Per Share (the "REDEMPTION PRICE").
(II) As used in this Section 5.2.4(a), the term "REDEMPTION
DATE" shall refer to the date upon which the Qualified Public Offering
triggering the automatic redemption hereunder closes with respect to aggregate
offering proceeds of at least $20 million (the "CLOSING DATE"); provided,
however, that, if the Corporation receives the proceeds from such closing too
late in the day for the Corporation to effect the cash deposit required pursuant
to Section 5.2.4(a)(vi) on such date using such proceeds, then the Redemption
Date
-7-
<PAGE>
shall be the next day on which such deposit can be effected. On or prior to the
Redemption Date, written notice shall be mailed, first class postage prepaid, or
delivered personally, to each holder of record (at the close of business on the
day immediately preceding the Redemption Date) of the Class A Common, at the
address last shown on the records of the Corporation for such holder, notifying
such holder of the redemption, the Redemption Date, the Redemption Price and the
place at which payment may be obtained and calling upon such holder to surrender
to the Corporation, in the manner and at the place designated, his or her
certificate or certificates representing the shares of Class A Common (the
"REDEMPTION NOTICE"). Except as provided in Section 5.2.4(a)(iii), on or after
the Redemption Date, each holder of Class A Common shall surrender to the
Corporation the certificate or certificates representing such shares, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable (and the Common Stock portion
thereof deliverable) to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled.
(III) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares of Class A Common as holders of Class A Common (except the
right to receive the Redemption Price, without interest on the cash portion
thereof, and including the shares of Common Stock comprising a part thereof,
upon surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption of shares of Class
A Common are insufficient to redeem all of the shares of Class A Common, those
funds which are legally available will be used to pay first the Unpaid Yield
component of the Redemption Price, then the Unreturned Original Cost component
of the Redemption Price on a pro rata basis according to the number of shares
held, and the remaining unpaid cash portion of the Redemption Price shall be
paid to the holders of the Class A Common by the issuance of shares of Common
Stock, valued at the initial public offering price of such shares in the
Qualified Public Offering.
(IV) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, holders of shares of Class A
Common shall have the rights of holders of Common Stock with respect to the
shares of Common Stock to which such holders are entitled upon redemption, and
such shares shall be deemed to be outstanding whether or not the certificates
representing the redeemed shares of Class A Common are surrendered to the
Corporation or its agent; provided, however, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon redemption of shares of the Class A Common unless the certificates
evidencing such shares of Class A Common are either delivered to the Corporation
or its agent as provided below, or the holder notifies the Corporation or its
agent that such
-8-
<PAGE>
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by or in connection with such certificates. Upon the occurrence of such
automatic redemption of the Class A Common, the holders of shares of Class A
Common shall surrender the certificates representing such shares at the office
of the Corporation or any transfer agent for the Class A Common. Thereupon,
there shall be issued and delivered to such holder promptly at such office in
its name as shown on such surrendered certificate or certificates, a certificate
or certificates for the number of shares of Common Stock payable upon the
redemption of the shares of Class A Common represented by the surrendered
certificate.
(V) No fractional shares of Common Stock shall be issued upon
redemption of the Class A Common. All shares of Common Stock (including
fractions thereof) issuable upon redemption of more than one share of Class A
Common by a holder thereof shall be aggregated for purposes of determining
whether the redemption would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the redemption would result in the
issuance of any fractional share, the Corporation shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction multiplied by
the Common Stock's initial public offering price.
(VI) On the Closing Date, the Corporation shall deposit the cash
portion of the Redemption Price of all shares of Class A Common with a bank or
trust corporation having aggregate capital and surplus in excess of $100,000,000
as a trust fund for the benefit of the respective holders of the shares of Class
A Common, with irrevocable instructions and authority to the bank or trust
corporation to pay the cash portion of the Redemption Price for such shares to
their respective holders on or after the Redemption Date upon receipt of
notification from the Corporation that such holder has surrendered his or her
Class A Common certificate to the Corporation pursuant to Section 5.2.4(a)(iv)
above; provided, however, that if the Corporation receives the proceeds from the
closing of the Qualified Public Offering triggering the automatic redemption
hereunder too late in the day for the Corporation to effect such cash deposit on
the Closing Date using such proceeds, then the Corporation shall effect such
cash deposit on the next day on which such deposit can be effected, and the
Corporation shall also deliver instructions and authority to the bank designated
to receive the proceeds of such Qualified Public Offering for the Corporation's
account to effect such deposit. On the Closing Date, the Corporation shall also
provide irrevocable instructions and authority to the Corporation's transfer
agent to issue the shares of Common Stock payable in redemption of the shares of
Class A Common in accordance with Section 5.2.4(a)(iv) above. As of the
Redemption Date, the deposit and the foregoing instructions to the transfer
agent shall constitute full redemption payment for the shares of Class A Common
to their holders, and from and after the Redemption Date the shares of Class A
Common shall be redeemed and shall be deemed to be no longer outstanding, and
the holders thereof shall cease to be stockholders with
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<PAGE>
respect to such shares and shall have no rights with respect thereto except the
right to receive from the bank or trust corporation payment of the cash portion
of the Redemption Price of the shares, without interest, upon surrender of their
certificates therefor, plus to receive from the transfer agent stock
certificates representing the shares of Common Stock issuable as payment for the
redemption. The balance of any moneys deposited by the Corporation pursuant to
this Section 5.2.4(a)(vi) remaining unclaimed at the expiration of two (2) years
following the Redemption Date shall thereafter be returned to the Corporation
upon its request expressed in a resolution of its Board of Directors.
(B) SPECIAL REDEMPTIONS. If a Sale of the Corporation has
-------------------
occurred or the Corporation obtains knowledge that a Sale of the Corporation is
to occur, the Corporation shall give prompt written notice of such Sale of the
Corporation describing in reasonable detail the definitive terms and date of
consummation thereof to each holder of Class A Common, but in any event such
notice shall not be given later than five days after the occurrence of such Sale
of the Corporation. The holder or holders of a majority of the Class A Common
then outstanding may require the Corporation to redeem all of the shares of
Class A Common by giving written notice to the Corporation of such election (the
"CLASS A ELECTION") prior to the later of (i) 21 days after receipt of the
Corporation's notice and (ii) five (5) days prior to the consummation of the
sale of the Corporation (the "EXPIRATION DATE"). Upon receipt of the Class A
Election, the Corporation shall be obligated to redeem the Class A Common on the
later to occur of (i) the occurrence of the Sale of the Corporation or (ii) five
(5) days after the Corporation's receipt of such election. The redemption price
for each share of Class A Common shall be equal to the sum of (i) the Unreturned
Original Cost, (ii) the Unpaid Yield and (iii) the Fair Market Value of the
Class A Common. If in any case a proposed Sale of the Corporation does not
occur, all requests to make such redemption in connection therewith shall be
automatically rescinded.
5.2.5 STOCK SPLITS AND STOCK DIVIDENDS.
The Corporation shall not in any manner subdivide (by stock split,
stock dividend or otherwise) or combine (by stock split, stock dividend or
otherwise) the outstanding Common Shares of one Class unless the outstanding
Common Shares of all the other classes shall be proportionately subdivided or
combined, or unless the applicable conversion rates, redemption price formulas,
and definitions set forth in this Certificate of Incorporation are
proportionately adjusted. All such subdivisions and combinations shall be
payable only in Class A Common to the holders of Class A Common, in Common Stock
to the holders of Common Stock, and in Class C Common to the holders of Class C
Common. In no event shall a stock split or stock dividend constitute a payment
of Yield or a return of Original Cost.
-10-
<PAGE>
5.2.6 REGISTRATION OF TRANSFER
The Corporation shall keep at its principal office (or such other
place as the Corporation reasonably designates) a register for the registration
of Common Shares. Upon the surrender of any certificate representing shares of
any Class of Common Shares at such place, the Corporation shall, at the request
of the registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of such Class represented by the surrendered certificate,
and the Corporation forthwith shall cancel such surrendered certificate, and the
Corporation forthwith shall cancel such surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares of such Class as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate. The issuance of new certificates shall be made without charge to
the holders of the surrendered certificates for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
issuance.
5.2.7 REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder will be satisfactory) of the ownership
and the loss, theft, theft, destruction or mutilation of any certificate
evidencing one or more shares of any Class of Common Shares, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement will be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such Class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
5.2.8 NOTICES
All notices referred to herein shall be in writing, shall be delivered
personally or by first Class mail, postage prepaid, and shall be deemed to have
been given when so delivered or mailed to the Corporation at its principal
executive offices and to any stockholder at such holder's address as it appears
in the stock records of the Corporation (unless otherwise specified in a written
notice to the Corporation by such holder).
5.2.9 AMENDMENT AND WAIVER.
No amendment or waiver of any provision of this Article V shall be
effective without the prior written consent of the holders of a majority of each
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Class of the then outstanding Common Shares voting separately and not as a
single class.
5.3 PREFERRED SHARES
The Board is authorized, subject to limitations prescribed by the
Delaware General Corporation Law and the provisions of this Certificate of
Incorporation, to provide, by resolution or resolutions from time to time and by
filing a certificate of designations pursuant to the Delaware General
Corporation Law, for the issuance of the shares of Preferred Shares in series,
to establish from time to time the number of shares to be included in each such
series, to fix the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and to fix the qualifications, limitations or restrictions thereof. Any
such provision for the issuance of any series of Preferred Shares shall require
the approval of the holders of at least three fourths of the outstanding shares
of Class A Common then outstanding, if any.
5.4 DEFINITIONS
"AFFILIATE" of GTCR means any general or limited partner of GTCR or
any other Person or investment fund controlling, controlled by or under common
control with GTCR.
"COMMON STOCK AMOUNT PER SHARE" means a number of shares of Common
Stock equal to the quotient obtained by dividing (i) the sum of the number of
shares of Common Stock plus the number of shares of Class C Common outstanding
immediately prior to the closing of the relevant Qualified Public Offering (or,
in the case of a conversion pursuant to Section 5.2.3 hereof, the date preceding
such conversion) minus the number of shares of Common Stock issued prior to such
point in time upon the conversion of any shares of Class A Common pursuant to
Section 5.2.3 hereof (as adjusted for any stock splits, combinations, or similar
events) by (ii) the product of nine (9) multiplied by the sum of the number of
shares of Class A Common outstanding immediately prior to the closing of the
Qualified Public Offering (or, in the case of a conversion pursuant to Section
5.2.3 hereof, the date preceding such conversion) plus the number of shares of
Class A Common that have been converted prior to such point in time pursuant to
Section 5.2.3 hereof (as adjusted for any stock splits, combinations, or similar
events).
"DISTRIBUTION" means each distribution made by the Corporation to
holders of Common Shares, whether in cash, property, or securities of the
Corporation and whether by dividend, liquidating distributions or otherwise;
provided that neither of the following shall be a Distribution: (a) any
redemption or repurchase by the Corporation of any Common Shares for any reason
(after which such shares shall cease to be outstanding shares) or (b) any
recapitalization or
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exchange of any Common Shares, or any subdivision (by stock split, stock
dividend or otherwise) or any combination (by stock split, stock dividend or
otherwise) of any outstanding Common Shares.
"FAIR MARKET VALUE" means the fair market value of each share of the
Class A Common as of the date of determination as computed in accordance with
the following formula:
FMVA = (AMP/9) x (1/TCA)
WHERE
FMVA = The fair market value per share of Class A Common.
AMP = The product of (i) the Market Price and (ii) the sum of
the number of shares of Common Stock plus the number of
shares of Class C Common outstanding on the date of
determination minus the number of shares of Common
Stock issued prior to the date of determination upon
the conversion of any shares of Class A Common pursuant
to Section 5.2.3 hereof (as adjusted for any stock
splits, combinations, or similar events).
TCA = The total number of outstanding shares of Class A
Common on the date of determination (plus the number of
shares of Class A Common that have been converted prior
to the date of determination pursuant to Section 5.2.3
hereof (as adjusted for any stock splits, combinations,
or similar events)).
"GTCR" means Golder, Thoma, Cressey, Rauner Fund IV, L.P.
"ORIGINAL COST" of each share of Class A Common shall be equal to
$90.00 (as proportionally adjusted for all stock splits, stock dividends and
other recapitalizations affecting the Class A Common).
"MARKET PRICE" of the Common Stock means the average of the closing
prices of the Common Stock's sales on all securities exchanges on which the
Common Stock may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day the Common Stock
is not so
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listed, the closing sale price of the Common Stock on the NASDAQ National Market
System if it is listed on the NASDAQ National Market System, or if the Common
Stock is not listed on the NASDAQ National Market System, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M.,
New York time, or, if on any day the Common Stock is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which "FAIR MARKET
VALUE" is being determined and the 20 consecutive business days prior to such
day. If at any time the Common Stock is not listed on any securities exchange or
quoted in the NASDAQ System or the over-the-counter market, "FAIR MARKET VALUE"
will be the fair value thereof determined jointly by the Corporation and the
holders of a majority of the Common Shares, with the consent of the holders of a
majority of the Class C Common Stock, which consent shall not be unreasonably
withheld. If such parties are unable to reach agreement within a reasonable
period of time, such fair value will be determined by an independent appraiser
jointly selected by the Corporation and the holders of a majority of the Common
Stock. In determining the "FAIR MARKET VALUE" of the Common Stock under the
preceding two sentences, the Corporation or the independent appraiser, as the
case may be, shall subtract the aggregate amount of the Unreturned Original Cost
and the Unpaid Yield, if any, on the outstanding Class A Common.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"QUALIFIED PUBLIC OFFERING" means the sale in an underwritten public
offering registered under the Securities Act of shares of the Corporation's
Common Shares having an aggregate offering value of at least $20 million,
including any amounts to be sold on account of selling security holders or upon
the exercise of underwriters' options and prior to the deduction of fees,
expenses and underwriters' discounts and commissions.
"SALE OF THE CORPORATION" means any transaction or series of
transactions pursuant to which any Person(s) other than GTCR in the aggregate
acquire(s) (i) capital stock of the Corporation possessing the voting power
(other than voting rights accruing only in the event of a default, breach or
event of noncompliance) to elect a majority of the Corporation's board of
directors (whether by merger, consolidation, reorganization, combination, sale
or transfer of the Corporation's capital stock, shareholder or voting agreement,
proxy, power of attorney or otherwise) or (ii) all or substantially all of the
Corporation's and its Subsidiaries' assets determined on a consolidated basis
(measured by either book value in accordance with generally accepted accounting
principles consistently
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<PAGE>
applied or fair market value determined in the reasonable good faith judgment of
the Corporation's board of directors).
"SUBSIDIARY" means with respect to any Person, any corporation of
which the shares of stock having a majority of the general voting power in
electing the board of directors are, at the time as of which any determination
is being made, owned by such Person either directly or indirectly through
Subsidiaries.
"UNPAID YIELD" of any share of Class A Common means an amount equal to
the excess, if any, of (a) the aggregate Yield accrued on such share, over (b)
the aggregate amount of Distributions made by the Corporation that constitute
payment of Yield on such share.
"UNRETURNED ORIGINAL COST" of any share of Class A Common means an
amount equal to the excess, if any, of (a) the Original Cost of such share, over
(b) the aggregate amount of Distributions made by the Corporation that
constitute a return of Original Cost of such share.
"YIELD" means, with respect to each share of Class A Common, the
amount accruing on such share, from the date of its original issuance by the
Corporation through the date on which the Corporation declares or becomes
obligated to pay, as the case may be, any Distribution or redemption price, each
day during such period at the rate of 8% per annum of such share's Unreturned
Original Cost; provided, however, that for purposes of calculating the
Redemption Price of a share of Class A Common in connection with a Qualified
Public Offering, the Yield shall be calculated through May 31, 1998 in the event
such Qualified Public Offering closes with respect to at least $20 million in
aggregate offering proceeds on or prior to June 30, 1998.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the by-laws of the Corporation.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
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may be designated from time to time by the board of directors or in the by-laws
of the Corporation. Election of directors need not be by written ballot unless
the by-laws of the Corporation so provide.
ARTICLE IX
The Corporation shall, to the fullest extent permitted by Delaware law
as in effect from time to time, indemnify any person against all liability and
expense (including attorney's fees) incurred by reason of the fact that he is or
was a director or officer of the Corporation or, while serving at the request of
the Corporation as a director, officer, partner or trustee of, or in any similar
managerial or fiduciary position of, or as an employee or agent of, another
corporation, partnership, joint venture, trust, association, or other entity.
Expenses (including attorneys' fees) incurred in defending an action, suit, or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit, or proceeding to the full extent and under the circumstances
permitted by Delaware law. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, fiduciary,
or agent of the Corporation against any liability asserted against and incurred
by such person in any such capacity or arising out of such person's position,
whether or not the Corporation would have the power to indemnify against such
liability under the provisions of this Article IX. The indemnification provided
by this Article XI shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under this certificate of incorporation, any
bylaw, agreement, vote of stockholders or disinterested directors, statute, or
otherwise, and shall inure to the benefit of their heirs, executors, and
administrators. The provisions of this Article IX shall not be deemed to
preclude the Corporation from indemnifying other persons from similar or other
expenses and liabilities as the board of directors or the stockholders may
determine in a specific instance or by resolution of general application. Any
repeal or modification of this Article IX by the stockholders of the Corporation
shall not adversely affect any right or protection of a director or officer of
the Corporation existing at the time of such repeal or modification.
ARTICLE X
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except as to liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for violations of Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation law hereafter is
amended to further eliminate or limit the liability of a director, then a
director of the Corporation, in addition to the
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circumstances in which a director is not personally liable as set forth in the
preceding sentence, shall not be liable to the fullest extent permitted by the
amended Delaware General Corporation Law. Any repeal or modification of this
Article X by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation in the manner now
or hereafter prescribed herein and by the laws of the State of Delaware, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
The undersigned, for the purpose of Amending and Restating the
Certificate of Incorporation of the Corporation, does make and file this Amended
and Restated Certificate of Incorporation and does hereby certify that the facts
herein stated are true; and I have accordingly hereunto set my hand.
Executed this ______ day of May, 1998.
____________________________
Thomas S. Johnson
President
ATTEST:
__________________________________
Raymond Schilling
Secretary
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EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GLOBAL IMAGING SYSTEMS, INC.
This corporation was organized by filing its original Certificate of
Incorporation under the name of "Global Imaging Systems Inc." with the Secretary
of State of the State of Delaware on June 3, 1994. On January 8, 1998, this
corporation filed a Certificate of Amendment to its Amended and Restated
Certificate of Incorporation, which, among other things, changed its name to
"Global Imaging Systems, Inc." This Amended and Restated Certificate of
Incorporation was duly adopted in accordance with Section 245 of the General
Corporation Law of the State of Delaware (the "DELAWARE GENERAL CORPORATION
LAW").
ARTICLE 1. NAME
The name of this corporation is Global Imaging Systems, Inc. (the
"CORPORATION").
ARTICLE 2. REGISTERED OFFICE AND AGENT
The registered office of the Corporation in the State of Delaware
shall be located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801. The registered agent of the Corporation
at such address shall be The Corporation Trust Company.
ARTICLE 3. PURPOSE AND POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law. The Corporation shall have all power necessary or convenient
to the conduct, promotion or attainment of such acts and activities.
<PAGE>
ARTICLE 4. CAPITAL STOCK
4.1. AUTHORIZED SHARES
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 60,000,000, of which 50,000,000
shares shall be Common Stock, having a par value of $.01 per share ("COMMON
STOCK"), and 10,000,000 shares shall be Preferred Stock, having a par value of
$.01 per share ("PREFERRED STOCK").
4.2. COMMON STOCK
4.2.1. RELATIVE RIGHTS
The Common Stock shall be subject to all of the rights, privileges,
preferences and priorities of the Preferred Stock as set forth in the
certificate of designations filed to establish each series of Preferred Stock.
Each share of Common Stock shall have the same relative rights as and be
identical in all respects to all the other shares of Common Stock.
4.2.2. DIVIDENDS
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of shares of any class of stock having preference over
the Common Stock as to the payment of dividends, the full amount of dividends
and of sinking fund or retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends thereon, but only when and as declared by the Board of
Directors of the Corporation (the "Board").
4.2.3. DISSOLUTION, LIQUIDATION, WINDING UP
In the event of any dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common Stock,
and holders of any class or series of stock entitled to participate therewith,
in whole or in part, as to the distribution of assets in such event, shall
become entitled to participate in the distribution of any assets of the
Corporation remaining after the Corporation shall have paid, or provided for
payment of, all debts and liabilities of the Corporation and after the
Corporation shall have paid, or set aside for payment, to the holders of any
class of stock having preference over the Common Stock in the event of
dissolution, liquidation or winding up the full preferential amounts (if any) to
which they are entitled.
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4.2.4. VOTING RIGHTS
Each holder of shares of Common Stock shall be entitled to attend
all special and annual meetings of the stockholders of the Corporation and,
share for share and without regard to class, together with the holders of all
other classes of stock entitled to attend such meetings and to vote (except any
class or series of stock having special voting rights), to cast one vote for
each outstanding share of Common Stock so held upon any matter or thing
(including, without limitation, the election of one or more directors) properly
considered and acted upon by the stockholders.
4.3. PREFERRED STOCK
The Board is authorized, subject to limitations prescribed by the
Delaware General Corporation Law and the provisions of this Certificate of
Incorporation, to provide, by resolution or resolutions from time to time and by
filing a certificate of designations pursuant to the Delaware General
Corporation Law, for the issuance of the shares of Preferred Stock in series, to
establish from time to time the number of shares to be included in each such
series, to fix the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and to fix the qualifications, limitations or restrictions thereof.
4.4. NO ACTION BY WRITTEN CONSENT
No action that is required to be taken by stockholders at an annual
or special meeting or that may be so taken shall instead be taken by written
consent unless such written consent is obtained from the holders of at least
three-fourths of the voting power of all the then-outstanding shares of stock of
the Corporation entitled to vote on such action, including the holders of at
least three-fourths of the shares of any class or series of stock entitled to
vote on such action as a separate class.
ARTICLE 5. BOARD OF DIRECTORS
5.1. NUMBER; ELECTION; REMOVAL; VACANCIES
The number of directors of the Corporation shall be such number as
from time to time shall be fixed by, or in the manner provided in, the bylaws of
the Corporation. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock to the public (the "Initial Public Offering"), the
directors shall be divided into three
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classes, as nearly equal in number as possible, designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Unless and except to the extent that the bylaws of the Corporation
shall otherwise require, the election of directors of the Corporation need not
be by written ballot. Subject to the rights of any holders of Preferred Stock,
directors may be removed for cause only upon the affirmative vote of a majority
of the voting power of all the then-outstanding shares of stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, and may be removed without cause only upon the
affirmative vote of at least three-fourths of the voting power of all the then-
outstanding shares of stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. Newly created
directorships resulting from an increase in the number of directors and any
vacancies on the Board resulting from death, resignation, disqualification,
removal or other cause may be filled only by resolution of the Board.
5.2. MANAGEMENT OF BUSINESS AND AFFAIRS OF THE CORPORATION
The business and affairs of the Corporation shall be managed by or
under the direction of the Board. Except as otherwise provided in this Amended
and Restated Certificate of Incorporation, each director of the Corporation
shall be entitled to one vote per director on all matters voted or acted upon by
the Board.
5.3. LIMITATION OF LIABILITY
No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director,
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provided that, to the extent required by the Delaware General Corporation Law,
this provision shall not eliminate or limit the liability of a director (a) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders; (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) under Section 174 of
the Delaware General Corporation Law; or (d) for any transaction from which the
director derived an improper personal benefit. Any repeal or modification of
this ARTICLE 5.3 shall be prospective only and shall not adversely affect any
right or protection of, or any limitation of the liability of, a director of the
Corporation existing at, or arising out of facts or incidents occurring prior
to, the effective date of such repeal or modification.
ARTICLE 6. COMPROMISE OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the Delaware General Corporation Law or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of the Delaware General
Corporation Law order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
ARTICLE 7. AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the
Delaware General Corporation Law, the Board is expressly authorized and
empowered to adopt, amend and repeal the bylaws of the Corporation. The bylaws
of the Corporation may be adopted, amended or repealed by the stockholders of
the Corporation only upon the affirmative vote of at least three-fourths of the
entire voting power of all the then-outstanding shares of stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
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ARTICLE 8. RESERVATION OF RIGHT TO AMEND CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time to
time, to amend, alter, change, or repeal any provision contained in this Amended
and Restated Certificate of Incorporation, and other provisions authorized by
the laws of the State of Delaware at the time in force may be added or inserted,
in the manner now or hereafter prescribed by law; and all rights, preferences,
and privileges of any nature conferred upon stockholders, directors, or any
other persons by and pursuant to this Amended and Restated Certificate of
Incorporation in its present form or as hereafter amended are granted subject to
the rights reserved in this ARTICLE 8. The affirmative vote of three-fourths of
the entire voting power of all the then-outstanding shares of stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, or adopt any provision
inconsistent with, SECTION 4.4 OR ARTICLE 5, 7 OR 8 of this Amended and Restated
Certificate of Incorporation.
* * *
IN WITNESS WHEREOF, the undersigned, for the purpose of amending and
restating the Amended and Restated Certificate of Incorporation of the
Corporation pursuant to Section 245 of the Delaware General Corporation Law,
does make, file and record this Amended and Restated Certificate of
Incorporation and does hereby certify that the facts hereinabove stated are
truly set forth, and accordingly executes this Amended and Restated Certificate
of Incorporation this _____ day of _________, 1998.
GLOBAL IMAGING SYSTEMS, INC.
By:________________________________
Thomas S. Johnson
President
Attest:
_____________________________
Raymond Schilling
Secretary
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EXHIBIT 3.4
GLOBAL IMAGING SYSTEMS, INC.
BYLAWS
ADOPTED
AS OF
May ___, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. OFFICES....................................................1
1.1. Registered Office.....................................1
1.2. Other Offices.........................................1
2. MEETINGS OF STOCKHOLDERS...................................1
2.1. Place of Meetings.....................................1
2.2. Annual Meetings.......................................1
2.3. Special Meetings......................................3
2.4. Notice of Meetings....................................3
2.5. Waivers of Notice.....................................4
2.6. List of Stockholders..................................4
2.7. Quorum at Meetings....................................4
2.8. Voting and Proxies....................................5
2.9. Required Vote.........................................5
2.10. Inspectors...........................................5
3. DIRECTORS..................................................6
3.1. Powers................................................6
3.2. Number and Election...................................7
3.3. Vacancies; Resignation................................7
3.4. Meetings..............................................8
3.4.1. Regular Meetings...............................8
3.4.2. Special Meetings...............................8
3.4.3. Telephone Meetings.............................8
3.4.4. Action Without Meeting.........................8
3.4.5. Waiver of Notice of Meeting....................8
3.5. Quorum and Vote at Meetings...........................9
3.6. Committees of Directors...............................9
3.7. Compensation of Directors.............................10
4. OFFICERS...................................................10
4.1. Positions.............................................10
4.2. Chairman..............................................10
4.3. President.............................................10
4.4. Vice President........................................11
4.5. Secretary.............................................11
4.6. Assistant Secretary...................................11
4.7. Treasurer.............................................11
4.8. Assistant Treasurer...................................12
4.9. Term of Office........................................12
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4.10. Compensation.........................................12
4.11. Fidelity Bonds.......................................12
5. CAPITAL STOCK..............................................12
5.1. Certificates of Stock; Uncertificated Shares..........12
5.2. Lost Certificates.....................................13
5.3. Record Date...........................................13
5.3.1. Actions by Stockholders........................13
5.3.2. Payments.......................................14
5.4. Stockholders of Record................................14
6. INDEMNIFICATION; INSURANCE.................................14
6.1. Authorization of Indemnification......................14
6.2. Right of Claimant to Bring Action Against
the Corporation.......................................15
6.3. Non-exclusivity.......................................16
6.4. Survival of Indemnification...........................16
6.5. Insurance.............................................16
7. GENERAL PROVISIONS.........................................17
7.1. Inspection of Books and Records.......................17
7.2. Dividends.............................................17
7.3. Reserves..............................................17
7.4. Execution of Instruments..............................17
7.5. Fiscal Year...........................................17
7.6. Seal..................................................18
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BYLAWS
OF
GLOBAL IMAGING SYSTEMS, INC.
1. OFFICES
1.1. REGISTERED OFFICE
The registered office of the Corporation shall be in Wilmington,
Delaware.
1.2. OTHER OFFICES
The Corporation may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors of the
Corporation (the "Board") may from time to time determine or as may be necessary
or useful in connection with the business of the Corporation.
2. MEETINGS OF STOCKHOLDERS
2.1. PLACE OF MEETINGS
All meetings of the stockholders shall be held at such place as may be
fixed from time to time by the Board, the Chairman or the President.
2.2. ANNUAL MEETINGS
(a) The Corporation shall hold annual meetings of stockholders on such
dates and at such times as the Board, the Chairman or the President designates
from time to time. At an annual meeting, the stockholders shall elect by a
plurality vote (as provided in SECTION 2.9 hereof) directors to succeed those
whose terms expire and to fill any vacancies and any newly created directorships
(resulting from any increase in the number of directors comprising the full
Board) existing at the time of the annual meeting. The nomination of persons
for election to the Board and the proposal of any other business to be
transacted at an annual meeting may be made only (i) by or at the direction of
the Board or (ii) by any stockholder of record who gives notice in accordance
with the procedures set forth in
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paragraph (b) of this SECTION 2.2 and who is a stockholder of record both on the
date of giving such notice and on the record date for the determination of
stockholders entitled to vote at such annual meeting; only persons thereby
nominated shall be eligible to serve as a directors and only business thereby
proposed shall be transacted at an annual meeting. The presiding officer of the
annual meeting shall determine whether a nomination or any proposal of business
complies or complied with this SECTION 2.2.
(b) For nominations and other business to be brought properly before
an annual meeting by a stockholder pursuant to clause (ii) of paragraph (a) of
this SECTION 2.2, the stockholder must deliver notice to the Secretary at the
principal executive offices of the Corporation in accordance with this SECTION
2.2(B). The notice must be received by the Secretary not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
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meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, the stockholder must so deliver the notice not earlier
than the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the tenth
day following the day on which public announcement of the date of such meeting
is first made; provided further, however, that in the event that the number of
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directors to be elected to the Board is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board made by the Corporation at least 70 days prior to the first
anniversary of the preceding annual meeting, with respect to nominees for any
new position created by the increase, the stockholder must so deliver the notice
not later than the close of business on the tenth day following the day on which
such public announcement is first made. The stockholder's notice must set
forth: (i) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and resolutions thereunder (together
with such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected), whether or not the Corporation
is then subject to Section 14(a) and such rules and regulations; (ii) as to any
other business that the stockholder proposes to transact at the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting the business at the meeting and any material interest in
the business of the stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, the name and address of the stockholder, as they appear on the
Corporation's books, and of such beneficial
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owner, the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner and a
representation that the stockholder intends to appear in person or by proxy at
the annual meeting to bring such business before the meeting. For purposes of
this SECTION 2.2 and SECTION 2.3 hereof, a "public announcement" means
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service, in a document publicly filed with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act (or their successor provisions), or in a notice of meeting or proxy
statement mailed generally to the Corporation's stockholders. In giving notice
under this SECTION 2.2, a stockholder must also comply with state law and the
Exchange Act (and the rules and regulations thereunder). Nothing in this
SECTION 2.2 shall be deemed to affect the rights of a stockholder to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 (or its successor provision) under the Exchange Act.
2.3. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called only by the Board, the
Chairman, the President or the holders of 20% or more of the then-outstanding
shares of stock of the Corporation entitled to vote generally in the election of
directors. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice relating to such meeting (or to the
purposes for which the meeting is called if such notice is waived or is not
required as provided in the Delaware General Corporation Law or these Bylaws).
In the case of a special meeting of stockholders called for the purpose of
electing directors, nominations may be made only (i) by or at the direction of
the Board, or (ii) by any stockholder of record who delivers to the Secretary,
no later than the tenth day following the day on which public announcement of
the special meeting is made, a notice that complies with and is delivered in
accordance with SECTION 2.2(B) above.
2.4. NOTICE OF MEETINGS
Written notice of any meeting of stockholders, stating the place, date
and hour of the meeting, and (if it is a special meeting) the purpose or
purposes for which the meeting is called, shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than 60 days before
the date of the meeting (except to the extent that such notice is waived or is
not required as provided in the General Corporation Law of the State of Delaware
(the "DELAWARE GENERAL CORPORATION LAW") or these Bylaws). Such notice shall be
given in accordance
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with, and shall be deemed effective as set forth in, Section 222 (or any
successor section) of the Delaware General Corporation Law.
2.5. WAIVERS OF NOTICE
Whenever the giving of any notice is required by statute, the
Certificate of Incorporation or these Bylaws, a waiver thereof, in writing and
delivered to the Corporation, signed by the person or persons entitled to said
notice, whether before or after the event as to which such notice is required,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
shall constitute a waiver of notice (1) of such meeting, except when the
stockholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (2) (if it is a special meeting) of
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, unless the stockholder
objects to considering the matter at the beginning of the meeting.
2.6. LIST OF STOCKHOLDERS
After the record date for a meeting of stockholders has been fixed, at
least ten days before such meeting, the officer or other agent of the
Corporation who has charge of the stock ledger of the Corporation shall make a
list of all stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place in the city where the meeting is to be held, which
place is to be specified in the notice of the meeting, or at the place where the
meeting is to be held. Such list shall also, for the duration of the meeting,
be produced and kept open to the examination of any stockholder who is present
at the time and place of the meeting.
2.7. QUORUM AT MEETINGS
Stockholders may take action on a matter at a meeting only if a quorum
exists with respect to that matter. Except as otherwise provided by statute or
by the Certificate of Incorporation, the holders of a majority of the shares
entitled to vote at the meeting, and who are present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. Where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on
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that matter. Once a share is represented for any purpose at a meeting (other
than solely to object (1) to holding the meeting or transacting business at the
meeting, or (2) (if it is a special meeting) to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice), it is deemed present for quorum purposes for the remainder
of the meeting and for any adjournment of that meeting unless a new record date
is or must be set for the adjourned meeting. The holders of a majority of the
voting shares represented at a meeting, whether or not a quorum is present, may
adjourn such meeting from time to time.
2.8. VOTING AND PROXIES
Unless otherwise provided in the Delaware General Corporation Law or
in the Corporation's Certificate of Incorporation, and subject to the other
provisions of these Bylaws, each stockholder shall be entitled to one vote on
each matter, in person or by proxy, for each share of the Corporation's capital
stock that has voting power and that is held by such stockholder. No proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed appointment of proxy shall be
irrevocable if the appointment form states that it is irrevocable and if, and
only as long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
2.9. REQUIRED VOTE
When a quorum is present at any meeting of stockholders, all matters
shall be determined, adopted and approved by the affirmative vote (which need
not be by ballot) of the holders of a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote with respect to the
matter, unless the proposed action is one upon which, by express provision of
statutes or of the Certificate of Incorporation, a different vote is specified
and required, in which case such express provision shall govern and control with
respect to that vote on that matter. Where a separate vote by a class or
classes is required, the affirmative vote of the holders of a majority of the
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class. Notwithstanding the foregoing,
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
2.10. INSPECTORS
Prior to any meeting of stockholders, the Board or the President shall
appoint one or more inspectors to act at such meeting and make a written report
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thereof and may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
the meeting of stockholders, the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall ascertain the number of shares
outstanding and the voting power of each, determine the shares represented at
the meeting and the validity of proxies and ballots, count all votes and
ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors and
certify their determination of the number of shares represented at the meeting
and their count of all votes and ballots. The inspectors may appoint or retain
other persons to assist them in the performance of their duties. The date and
time of the opening and closing of the polls for each matter upon which the
stockholders will vote at a meeting shall be announced at the meeting. No
ballot, proxy or vote, nor any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls. In determining the
validity and counting of proxies and ballots, the inspectors shall be limited to
an examination of the proxies, any envelopes submitted therewith, any
information provided by a stockholder who submits a proxy by telegram, cablegram
or other electronic transmission from which it can be determined that the proxy
was authorized by the stockholder, ballots and the regular books and records of
the corporation, and they may also consider other reliable information for the
limited purposes of reconciling proxies and ballots submitted by or on behalf of
banks, brokers, their nominees or similar persons that represent more votes than
the holder of a proxy is authorized by the record owner to cast or more votes
than the stockholder holds of record. If the inspectors consider other reliable
information for such purpose, they shall, at the time they make their
certification, specify the precise information considered by them, including the
person or persons from whom they obtained the information, when the information
was obtained, the means by which the information was obtained and the basis for
the inspectors' belief that such information is accurate and reliable.
3. DIRECTORS
3.1. POWERS
The business and affairs of the Corporation shall be managed by or
under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things, subject to any limitation
set
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forth in the Certificate of Incorporation or as otherwise may be provided in the
Delaware General Corporation Law.
3.2. NUMBER AND ELECTION
The number of directors that shall constitute the full board shall be
determined by resolution of the Board. Directors need not be stockholders. The
directors shall be elected at the annual meeting of the stockholders in
accordance with this SECTION 3.2, except as provided in SECTION 3.3 hereof.
Once elected (or chosen pursuant to SECTION 3.3 hereof), a director shall hold
office until the expiration of such director's term and director's successor is
elected and qualified or until the director dies, resigns or is removed;
provided, however, that if the Board decreases the number of directors
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constituting the Board the eliminated directorships resulting from such decrease
shall be apportioned by the Board among the three classes of directors so a to
maintain such classes as nearly equal in number as possible. A director holding
a directorship that is eliminated by the Board shall cease to hold office upon
the expiration of such director's current term unless such director is nominated
and elected to another directorship on the Board.
3.3. VACANCIES; RESIGNATION
Vacancies and newly created directorships resulting from any increase
in the number of directors of the Board may be filled only by the affirmative
vote of a majority of the directors then in office, although fewer than a
quorum, or by a sole remaining director. Whenever the holders of any class or
classes of stock or series thereof are entitled to elect one or more directors
by the provisions of the Certificate of Incorporation, vacancies and newly
created directorships of such class or classes or series may be filled by the
affirmative vote of a majority of the directors elected by such class or classes
or series thereof then in office, or by a sole remaining director so elected.
The term of a director chosen to fill a vacant directorship shall expire at the
annual meeting of stockholders at which the terms of the other directors of the
same class expire, and until such director's successor shall be elected and
qualified.
A director may resign at any time upon written notice to the
Corporation, and the resignation shall take effect at the time specified in the
notice, without any need for acceptance by the Board. In the event that one or
more directors resigns from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, with the vote thereon to take effect
when such resignation or resignations become effective.
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3.4. MEETINGS
3.4.1. REGULAR MEETINGS
Regular meetings of the Board may be held without notice at such time
and at such place as shall from time to time be determined by the Board.
3.4.2. SPECIAL MEETINGS
Special meetings of the Board may be called by the Chairman or
President on one day's notice to each director, either personally or by
telephone, express delivery service (so that the scheduled delivery date of the
notice is at least one day in advance of the meeting), telegram or facsimile
transmission, and on five days' notice by mail (effective upon deposit of such
notice in the mail). The notice need not describe the purpose of a special
meeting.
3.4.3. TELEPHONE MEETINGS
Members of the Board may participate in a meeting of the Board by any
communication by means of which all participating directors can simultaneously
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
3.4.4. ACTION WITHOUT MEETING
Any action required or permitted to be taken at any meeting of the
Board may be taken without a meeting if the action is taken by all members of
the Board. The action must be evidenced by one or more written consents
describing the action taken, signed by each director, and delivered to the
Corporation for inclusion in the minute book.
3.4.5. WAIVER OF NOTICE OF MEETING
A director may waive any notice required by statute, the Certificate
of Incorporation or these Bylaws before or after the date and time stated in the
notice. Except as set forth below, the waiver must be in writing, signed by the
director entitled to the notice, and delivered to the Corporation for inclusion
in the minute book. Notwithstanding the foregoing, a director's attendance at
or participation in a meeting waives any required notice to the director of the
meeting unless the director at the beginning of the meeting objects to holding
the meeting or transacting business at the meeting and does not thereafter vote
for or assent to action taken at the meeting.
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3.5. QUORUM AND VOTE AT MEETINGS
At all meetings of the Board, a quorum of the Board consists of a
majority of the total number of directors comprising the full Board as
established pursuant to SECTION 3.2 of these Bylaws. The vote of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation or by these Bylaws.
3.6. COMMITTEES OF DIRECTORS
The Board may designate one or more committees, each committee to
consist of one or more directors. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If a member of a committee
is absent from any meeting, or disqualified from voting thereat, the remaining
member or members present and not disqualified from voting, whether or not such
member or members constitute a quorum, may, by unanimous vote, appoint another
member of the Board to act at the meeting in the place of such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or adopting,
amending or repealing any bylaw of the Corporation; and unless the resolution
designating the committee, these bylaws or the Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend, to authorize the issuance of stock, or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board.
Each committee shall keep regular minutes of its meetings and report the same to
the Board, when required. Unless otherwise specified in the Board resolution
appointing the Committee, all provisions of the Delaware General Corporation Law
and these Bylaws relating to meetings, action without meetings, notice (and
waiver thereof), and quorum and voting requirements of the Board apply, as well,
to such committees and their members.
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3.7. COMPENSATION OF DIRECTORS
The Board shall have the authority to fix the compensation of
directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
4. OFFICERS
4.1. POSITIONS
The officers of the Corporation shall be a Chairman, a President, a
Secretary and a Treasurer, and such other officers as the Board (or an officer
authorized by the Board) from time to time may appoint, including one or more
Vice Presidents (any of whom may be designated Senior Vice President or
Executive Vice President), Assistant Secretaries and Assistant Treasurers. Each
such officer shall exercise such powers and perform such duties as shall be set
forth below and such other powers and duties as from time to time may be
specified by the Board or by any officer(s) authorized by the Board to prescribe
the duties of such other officers. Any number of offices may be held by the
same person, except that in no event shall the President and the Secretary be
the same person. Each of the Chairman, President, and/or any Vice President may
execute bonds, mortgages and other documents under the seal of the Corporation,
except where required or permitted by law to be otherwise executed and except
where the execution thereof shall be expressly delegated by the Board to some
other officer or agent of the Corporation.
4.2. CHAIRMAN
The Chairman shall (when present and unless otherwise provided by
resolution of the Board or delegated by the Chairman) preside at all meetings of
the Board and stockholders, and shall ensure that all orders and resolutions of
the Board and stockholders are carried into effect. The Chairman may execute
bonds, mortgages and other contracts, under the seal of the Corporation, if
required, except where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof shall be expressly
delegated by the Board to some other officer or agent of the Corporation.
4.3. PRESIDENT
The President shall be the Chief Executive Officer of the Corporation
and shall have full responsibility and authority for management of the
operations of the Corporation and shall have and perform such other duties as
may be prescribed
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by the stockholders, the Board or the Executive Committee (if any). The
President may execute bonds, mortgages and other contracts, under the seal of
the Corporation, if required, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the Board to some other officer or agent of the
Corporation.
4.4. VICE PRESIDENT
In the absence of the President or in the event of the President's
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated, or in the
absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting shall have all the powers of,
and be subject to all the restrictions upon, the President. Unless the order is
otherwise designated, an Executive Vice President shall come in order before any
Senior Vice President and any Vice President, and a Senior Vice President shall
come in order before any Vice President.
4.5. SECRETARY
The Secretary shall have responsibility for preparation of minutes of
meetings of the Board and of the stockholders and for authenticating records of
the Corporation. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board. The Secretary
or an Assistant Secretary may also attest all instruments signed by any other
officer of the Corporation.
4.6. ASSISTANT SECRETARY
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board (or if there shall have been no
such determination, then in the order of their election), shall, in the absence
of the Secretary or in the event of the Secretary's inability or refusal to act,
perform the duties and exercise the powers of the Secretary.
4.7. TREASURER
The Treasurer shall have responsibility for the custody of the
corporate funds and securities and shall see to it that full and accurate
accounts of receipts and disbursements are kept in books belonging to the
Corporation. The Treasurer shall render to the Chairman, the President, and the
Board, upon request, an
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account of all financial transactions and of the financial condition of the
Corporation.
4.8. ASSISTANT TREASURER
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board (or if there shall
have been no such determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of the Treasurer's inability or
refusal to act, perform the duties and exercise the powers of the Treasurer.
4.9. TERM OF OFFICE
The officers of the Corporation shall hold office until their
successors are chosen and qualify or until their earlier resignation or removal.
Any officer may resign at any time upon written notice to the Corporation. Any
officer elected or appointed by the Board may be removed at any time, with or
without cause, by the affirmative vote of a majority of the Board.
4.10. COMPENSATION
The compensation of officers of the Corporation shall be fixed by the
Board or by any officer(s) authorized by the Board to prescribe the compensation
of such other officers.
4.11. FIDELITY BONDS
The Corporation may secure the fidelity of any or all of its officers
or agents by bond or otherwise.
5. CAPITAL STOCK
5.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES
The shares of the Corporation shall be represented by certificates,
provided that the Board may provide by resolution that some or all of any or all
classes or series of the Corporation's stock be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until the
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board, every holder of stock represented by
certificates, and upon request every holder of uncertificated shares, shall be
entitled to have a certificate
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(representing the number of shares registered in certificate form) signed in the
name of the Corporation by the Chairman, President or any Vice President, and by
the Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary of
the Corporation. Any or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar whose signature or facsimile
signature appears on a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue.
5.2. LOST CERTIFICATES
The Board, Chairman, President or Secretary may direct a new
certificate of stock to be issued in place of any certificate theretofore issued
by the Corporation and alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming that the certificate
of stock has been lost, stolen or destroyed. When authorizing such issuance of
a new certificate, the Board or any such officer may, as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or such owner's legal representative, to advertise
the same in such manner as the Board or such officer shall require and/or to
give the Corporation a bond or indemnity, in such sum or on such terms and
conditions as the Board or such officer may direct, as indemnity against any
claim that may be made against the Corporation on account of the certificate
alleged to have been lost, stolen or destroyed or on account of the issuance of
such new certificate or uncertificated shares.
5.3. RECORD DATE
5.3.1. ACTIONS BY STOCKHOLDERS
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall not be more than 60 days nor less than ten days before the date of such
meeting. If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, unless the Board
fixes a new record date for the adjourned meeting.
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5.3.2. PAYMENTS
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
5.4. STOCKHOLDERS OF RECORD
The Corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends, to
receive notifications, to vote as such owner, and to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise may be provided by the Delaware General Corporation Law.
6. INDEMNIFICATION; INSURANCE
6.1. AUTHORIZATION OF INDEMNIFICATION
Each person who was or is a party or is threatened to be made a party
to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative and whether
by or in the right of the Corporation or otherwise (a "proceeding"), by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to an employee benefit plan, shall be
(and shall be deemed to have a contractual right to be) indemnified and held
harmless by the Corporation (and any successor to the Corporation by merger or
otherwise) to the fullest extent authorized by, and subject to the conditions
and (except as provided herein) procedures set forth in the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but any such
amendment shall not be deemed to limit or prohibit the rights of indemnification
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<PAGE>
hereunder for past acts or omissions of any such person insofar as such
amendment limits or prohibits the indemnification rights that said law permitted
the Corporation to provide prior to such amendment), against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA taxes
or penalties and amounts paid or to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith; provided, however, that the
-------- -------
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person (except
for a suit or action pursuant to SECTION 6.2 hereof) only if such proceeding (or
part thereof) was authorized by the Board. Persons who are not directors or
officers of the Corporation and are not so serving at the request of the
Corporation may be similarly indemnified in respect of such service to the
extent authorized at any time by the Board. The indemnification conferred in
this SECTION 6.1 also shall include the right to be paid by the Corporation (and
such successor) the expenses (including attorneys' fees) incurred in the defense
of or other involvement in any such proceeding in advance of its final
disposition; provided, however, that, if and to the extent the Delaware General
-------- -------
Corporation Law requires, the payment of such expenses (including attorneys'
fees) incurred by a director or officer in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an undertaking
by or on behalf of such director or officer to repay all amounts so paid in
advance if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this SECTION 6.1 or otherwise; and provided
--------
further, that such expenses incurred by other employees and agents may be so
- -------
paid in advance upon such terms and conditions, if any, as the Board deems
appropriate.
6.2. RIGHT OF CLAIMANT TO BRING ACTION AGAINST THE CORPORATION
If a claim under SECTION 6.1 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring an action against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
action. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct that make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed or is otherwise not entitled to indemnification under SECTION 6.1, but
the burden of proving such defense shall be on the Corporation. The failure of
the Corporation (in the manner provided under the Delaware General Corporation
Law) to have made a determination prior to or after the commencement of such
action that
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<PAGE>
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the Delaware General
Corporation Law shall not be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct. Unless
otherwise specified in an agreement with the claimant, an actual determination
by the Corporation (in the manner provided under the Delaware General
Corporation Law) after the commencement of such action that the claimant has not
met such applicable standard of conduct shall not be a defense to the action,
but shall create a presumption that the claimant has not met the applicable
standard of conduct.
6.3. NON-EXCLUSIVITY
The rights to indemnification and advance payment of expenses provided
by SECTION 6.1 hereof shall not be deemed exclusive of any other rights to which
those seeking indemnification and advance payment of expenses may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
6.4. SURVIVAL OF INDEMNIFICATION
The indemnification and advance payment of expenses and rights thereto
provided by, or granted pursuant to, SECTION 6.1 hereof shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee, partner or agent and shall inure to the
benefit of the personal representatives, heirs, executors and administrators of
such person.
6.5. INSURANCE
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, partner (limited or general) or agent of another
corporation or of a partnership, joint venture, limited liability company, trust
or other enterprise, against any liability asserted against such person or
incurred by such person in any such capacity, or arising out of such person's
status as such, and related expenses, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of the Delaware General Corporation Law.
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<PAGE>
7. GENERAL PROVISIONS
7.1. INSPECTION OF BOOKS AND RECORDS
Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right during the
usual hours for business to inspect for any proper purpose the Corporation's
stock ledger, a list of its stockholders, and its other books and records, and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office or at its principal place of business.
7.2. DIVIDENDS
The Board may declare dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation and
the laws of the State of Delaware.
7.3. RESERVES
The directors of the Corporation may set apart, out of the funds of the
Corporation available for dividends, a reserve or reserves for any proper
purpose and may abolish any such reserve.
7.4. EXECUTION OF INSTRUMENTS
All checks, drafts or other orders for the payment of money, and promissory
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board may from time to time designate.
7.5. FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board.
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<PAGE>
7.6. SEAL
The corporate seal shall be in such form as the Board shall approve.
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or otherwise reproduced.
The foregoing Bylaws were adopted by the Board on ________________,
1998, to be effective as of the closing of the Company's initial public offering
of shares of its common stock.
-----------------------------------
Secretary
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<PAGE>
EXHIBIT 4.1
[LOGO OF GLOBAL IMAGING SYSTEMS APPEARS HERE]
NUMBER SHARES
GLOBAL IMAGING SYSTEMS, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 37934A 10 0
AND STATEMENTS AS TO THE RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS ON SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
fully paid and non-assessable shares of common stock, par value $0.01 per share,
of
Global Imaging Systems, Inc.
(the "Corporation"), a Delaware Corporation.
The shares represented by this certificate are transferable only on the
stock transfer books of the Corporation by the holder of record hereof or
by duly authorized attorney upon the surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Corporation's Transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated:
[SEAL OF GLOBAL IMAGING SYSTEMS, INC. APPEARS HERE]
/s/ Raymond Schilling /s/ Thomas Johnson
SECRETARY AND TREASURER PRESIDENT
COUNTERSIGNED AND REGISTERED
FIRST UNION NATIONAL BANK
(CHARLOTTE, NC) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation is authorized to issue more than one class or series of
stock. The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Such request may be made to the Secretary of the Company.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF TRANSFER MIN ACT- Custodian
--------------------- ---------------------
(Cust) (Minor)
under Uniform Transfers to Minors
Act
--------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received,______________________________hereby sell(s), assigns
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock evidenced by this certificate, and do(does) hereby
irrevocably constitute and appoint
, Attorney,
- ---------------------------------------------------------------------
to transfer the said shares on the books of the Corporation, with full power of
substitution.
Dated
----------------------------- ----------------------------------
Signature
----------------------------------
Signature
In presence of
------------------------------
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.5
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF NOVEMBER 14, 1997
AMONG
GLOBAL IMAGING SYSTEMS INC.
AND THE OTHER BORROWERS NAMED HEREIN
collectively, as Borrower,
PPM AMERICA, INC.
as Agent,
and
JACKSON NATIONAL LIFE INSURANCE COMPANY,
as Lender
===============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1: CREDIT FACILITIES.............................................. 2
1.1 Loans........................................................... 2
(A) Revolving Loans............................................. 2
(B) Manner of Making Revolving Loans............................ 2
(1) Revolving Loan Advances................................ 2
(2) Notice of Revolving Loan Borrowings.................... 3
(3) Disbursement of Revolving Loans........................ 3
(C) Term Loans.................................................. 3
(1) Initial Term Loan...................................... 3
(2) Additional Term Loans.................................. 3
(3) Notice of Additional Term Loan Borrowings.............. 4
(4) Disbursement of Additional Term Loans.................. 4
(5) Payment of Term Loans.................................. 4
(D) Notes....................................................... 5
1.2 Interest and Related Fees....................................... 5
(A) Interest.................................................... 5
(B) Unused Line Fee............................................. 6
(C) Computation of Interest and Related Fees.................... 6
(D) Default Rate of Interest.................................... 6
(E) Excess Interest............................................. 6
1.3 Expenses and Attorneys Fees..................................... 6
1.4 Payments........................................................ 7
1.5 Mandatory Prepayments and Other Payments........................ 7
(A) Prepayments from Excess Cash Flow........................... 7
(B) Maximum Loan Balance Compliance............................. 8
(C) Prepayments in Excess of Maximum Debt....................... 8
(D) Issuances and Sales of Capital Stock........................ 8
(E) Asset Sales................................................. 9
(F) Optional Prepayments........................................ 9
1.6 Term of the Agreement........................................... 9
1.7 Prepayment Fee.................................................. 9
1.8 Borrower's Loan Account......................................... 11
1.9 Collection of Accounts.......................................... 11
1.10 Joint and Several Liability; Rights of Contribution............. 12
1.11 Use of Proceeds................................................. 12
1.12 Ratification.................................................... 13
SECTION 2: AFFIRMATIVE COVENANTS.......................................... 13
2.1 Compliance With Laws............................................ 13
2.2 Maintenance of Properties; Insurance............................ 15
2.3 Inspection; Lender Meetings..................................... 16
2.4 Corporate Existence, etc........................................ 16
2.5 Interest Rate Protection........................................ 16
2.6 Further Assurances.............................................. 17
SECTION 3: NEGATIVE COVENANTS............................................. 17
3.1 Indebtedness.................................................... 17
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<PAGE>
3.2 Liens and Related Matters....................................... 18
(A) No Liens.................................................... 18
(B) No Negative Pledges......................................... 19
(C) No Restrictions on Subsidiary Distributions to Borrower..... 19
3.3 Investments: Joint Ventures..................................... 20
3.4 Contingent Obligations.......................................... 20
3.5 Restricted Junior Payments...................................... 21
3.6 Restriction on Fundamental Changes.............................. 21
3.7 Disposal of Assets or Subsidiary Stock.......................... 21
3.8 Transactions With Affiliates.................................... 22
3.9 Management Fees and Compensation................................ 22
3.10 Conduct of Business............................................. 22
3.11 Changes Relating to Indebtedness................................ 22
3.12 Fiscal Year..................................................... 23
3.13 Press Release: Public Offering Materials........................ 23
3.14 Subsidiaries.................................................... 23
3.15 Bank Accounts................................................... 23
3.16 Acquisitions.................................................... 23
SECTION 4: FINANCIAL COVENANTS/REPORTING.................................. 25
4.1 Capital Expenditure Limits...................................... 25
4.2 Leverage Ratio.................................................. 25
4.3 Pro Forma EBITDA................................................ 26
4.4 Fixed Charge Coverage........................................... 26
4.5 Interest Expense Coverage....................................... 27
4.5A Maintenance of Financial Covenants.............................. 27
4.6 Financial Statements and Other Reports.......................... 27
(A) Monthly Financials.......................................... 28
(B) Year-End Financials......................................... 28
(C) Borrower Compliance Certificate............................. 28
(D) Accountants' Reliance Letter................................ 29
(E) Accountants' Reports........................................ 29
(F) Availability and Borrowing Base Certificates................ 29
(G) Management Report........................................... 29
(H) Appraisals.................................................. 30
(I) Projections................................................. 30
(J) SEC Filings and Press Releases.............................. 30
(K) Events of Default, etc...................................... 30
(L) Litigation.................................................. 30
(M) Supplemental Schedules; Notice of Organizational Changes.... 31
(N) Casualty Losses............................................. 31
(0) Change in Corporate Management.............................. 31
(P) Other Information........................................... 31
4.7 Accounting Terms: Utilization of GAAP for Purposes
of Calculations Under Agreement................................. 31
SECTION 5: REPRESENTATIONS AND WARRANTIES................................. 32
5.1 Disclosure...................................................... 32
5.2 No Material Adverse Effect...................................... 32
5.3 No Default: Governmental Consents............................... 32
5.4 Organization, Powers, Capitalization and Good Standing.......... 33
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<PAGE>
(A) Organization and Powers..................................... 33
(B) Capitalization.............................................. 33
(C) Binding Obligation.......................................... 33
(D) Qualification............................................... 33
5.5 Financial Statements............................................ 34
5.6 Intellectual Property........................................... 34
5.7 Investigations Audits, Etc...................................... 34
5.8 Employee Matters................................................ 34
5.9 Solvency........................................................ 35
5.10 Environmental Compliance........................................ 35
5.11 Litigation...................................................... 36
5.12 ERISA........................................................... 36
SECTION 6: DEFAULT, RIGHTS AND REMEDIES................................... 36
6.1 Event of Default................................................ 36
(A) Payment..................................................... 36
(B) Default in Other Agreements................................. 36
(C) Breach of Certain Provisions................................ 37
(D) Breach of Warranty.......................................... 37
(E) Other Defaults Under Loan Documents......................... 37
(F) Involuntary Bankruptcy; Appointment of Receiver, etc........ 37
(G) Voluntary Bankruptcy: Appointment of Receiver, Etc.......... 37
(H) Governmental Liens.......................................... 38
(I) Judgment and Attachments.................................... 38
(J) Material Adverse Effect..................................... 38
(K) Dissolution................................................. 38
(L) Solvency.................................................... 38
(M) Injunction.................................................. 38
(N) ERISA: Pension Plans........................................ 38
(0) Environmental Issues........................................ 39
(P) Invalidity of Loan Documents................................ 39
(Q) Damages, Strike, Casualty................................... 39
(R) Licenses and Permits........................................ 39
(S) Failure of Security......................................... 39
(T) Change in Control........................................... 39
6.2 Suspension of Commitment........................................ 39
6.3 Acceleration.................................................... 40
6.4 Performance by Agent............................................ 40
SECTION 7: CONDITIONS TO LOANS............................................ 40
7.1 Conditions to All Loans......................................... 40
7.2 Conditions to Funding Additional Term Loans . .................. 41
(A) Use of Proceeds............................................. 41
(B) Due Diligence Package....................................... 41
(C) Evidence of Perfected First Priority Security
Interests of the Lenders in Assets.......................... 41
(D) Maximum Availability........................................ 42
(E) Other Documents............................................. 42
SECTION 8: ASSIGNMENT AND PARTICIPATION................................... 42
SECTION 9: MISCELLANEOUS.................................................. 42
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9.1 Indemnities..................................................... 42
9.2 Amendments and Waivers.......................................... 42
9.3 Notices......................................................... 43
9.4 Failure or Indulgence Not Waiver: Remedies
Cumulative...................................................... 44
9.5 Marshalling, Payments Set Aside................................. 44
9.6 Severability.................................................... 44
9.7 Headings........................................................ 44
9.8 Applicable Law.................................................. 45
9.9 Successors and Assigns.......................................... 45
9.10 No Fiduciary Relationship....................................... 45
9.11 Construction.................................................... 45
9.12 Confidentiality................................................. 45
9.13 Consent to Jurisdiction and Service of Process.................. 45
9.14 Waiver of Jury Trial............................................ 46
9.15 Survival of Warranties and Certain Agreements................... 46
9.16 Entire Agreement................................................ 46
9.17 Counterparts.................................................... 47
SECTION 10: DEFINITIONS................................................... 47
10.1 Certain Defined Terms........................................... 47
10.2 Other Definitional Provisions................................... 62
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<PAGE>
EXHIBITS
Exhibit 1.1 Borrowing Loan Request - See 1996 Loan Agreement
Exhibit 4.6 (C) Compliance Certificate - See 1996 Loan Agreement
Exhibit 4.6(F) Availability Certificate - See 1996 Loan Agreement
Exhibit 4.6 (F-l) Borrowing Base Certificate - See 1996 Loan Agreement
Exhibit l.l (D-l) Form of Revolving Credit Note
Exhibit l.l(D-2) Form of Term Note
Exhibit 8 Form of Agent Agreement - See 1996 Loan Agreement
SCHEDULES
Schedule 2.2(B) Insurance
Schedule 3.1 Indebtedness
Schedule 3.2(A) (11) Liens
Schedule 3.4 Contingent Obligations
Schedule 3.8 Affiliate Transactions
Schedule 3.9 Management Fees and Compensation
Schedule 3.10 Business Description
Schedule 3.16 Due Diligence Package
The Exhibits and Schedules to this Amended and Restated Credit Agreement are not
included with this Registration Statement on Form S-1. Global will provide these
exhibits and schedules upon the request of the Securities and Exchange
Commission.
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This CREDIT AGREEMENT (the "Agreement") is dated as of August 14, 1996
and as amended and restated as of November 14, 1997, is entered into by and
among GLOBAL IMAGING SYSTEMS INC., a Delaware corporation ("Global"), GLOBAL
IMAGING OPERATIONS, INC., a Delaware corporation ("Operations"), GLOBAL IMAGING
FINANCE COMPANY, a Delaware corporation ("Finance"), COPY SERVICE & SUPPLY,
INC., a North Carolina corporation ("Copy Service"), OFFICE FURNITURE CONCEPTS,
INC., a North Carolina corporation ("Office Concepts"), CSS LEASING, LLC, a
North Carolina limited liability company ("CSS Leasing"), FELCO OFFICE SYSTEMS,
INC., a Texas corporation ("Felco"), BERNEY, INC., an Alabama corporation
("Berney"), CONWAY OFFICE PRODUCTS, INC. a New Hampshire corporation ("Conway"),
AMERICAN PHOTOCOPY EQUIPMENT COMPANY OF PITTSBURGH, a Delaware corporation
("AMCOM"), SOUTHERN COPY SYSTEMS, INC., an Alabama corporation ("Southern
Copy"), BUSINESS EQUIPMENT UNLIMITED, a Maine corporation ("Business
Equipment"), CAMERON OFFICE PRODUCTS, INC., a Massachusetts corporation
("Cameron"), SOUTHERN BUSINESS COMMUNICATIONS, INC., a Georgia corporation
("Southern Business"), ELECTRONIC SYSTEMS, INC., a Virginia corporation
("Electronic Systems"), EASTERN COPY PRODUCTS, INC., a New York corporation
("Eastern Copy"), QUALITY BUSINESS SYSTEMS, INC., a Washington corporation
("Quality Business"), DUPLICATING SPECIALTIES, INC., an Oregon corporation
("Duplicating Specialties") (Global, Operations, Finance, Copy Service, Office
Concepts, CSS Leasing, Felco, Berney, Conway, AMCOM, Southern Copy, Business
Equipment, Cameron, Southern Business, Electronic Systems, Eastern Copy, Quality
Business and Duplicating Specialties are each individually and collectively
referred to herein as "Borrower"), JACKSON NATIONAL LIFE INSURANCE COMPANY, a
Michigan insurance corporation, ("Jackson" or "Lender" and collectively with all
other Lenders, if any, the "Lenders") and PPM AMERICA, INC., a Delaware
corporation, as Agent for the Lenders (the "Agent").
R E C I T A L S:
WHEREAS, the Borrower, the Lender and the Agent are parties to a Credit
Agreement dated as of August 14, 1996, as amended (as so amended, the "1996 Loan
Agreement"), pursuant to which the Lender made revolving loans to the Borrower
from time to time in an amount not to exceed $3,500,000 and term loans to the
Borrower in the original principal amount not to exceed $76,500,000;
WHEREAS, the Borrower has requested and the Lender has agreed, to amend
and restate the 1996 Loan Agreement, in its entirety, to, among other things,
increase the Revolving Loan Commitment to $6,000,000 and the Term Loan
Commitment to $114,000,000;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Lenders and Agent agree as
follows:
SECTION 1
CREDIT FACILITIES
1.1 Loans. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrower contained
herein:
(A) Revolving Loans. Pursuant to the 1996 Loan Agreement, the
Lenders have made Revolving Loans to the Borrower which Loans shall be repaid
pursuant to the terms of this Agreement. Subject to the terms and conditions
herein set forth, each Lender agrees, severally and not jointly, to continue to
lend to Borrower from the Closing Date to the Expiry Date, its Pro Rata Share of
Revolving Loans not in excess of the lesser of (i) the Borrowing Base and (ii)
the Revolving Loan Commitment. As used herein, the "Borrowing Base" shall mean
an amount as of any time of determination equal to the sum of:
(x) Eighty (80%) percent of Eligible Accounts, plus
(y) Forty-five (45%) percent of Eligible Inventory.
Revolving Loans may be repaid and reborrowed. If at any time
Revolving Loans exceed the Maximum Revolving Loan Balance, Revolving Loans must
be repaid immediately in an amount sufficient to eliminate any excess. No Lender
shall have any obligation to make advances hereunder to the extent any requested
advance would cause the principal balance of the Revolving Loans then
outstanding to exceed the Maximum Revolving Loan Balance or the Maximum Loan
Balance; provided that the Requisite Lenders may, in their sole discretion,
elect from time to time to make Revolving Loans in excess of the Maximum
Revolving Loan Balance. If Revolving Loans in excess of the Maximum Revolving
Loan Balance are made pursuant to the approval of the Requisite Lenders as set
forth in the proviso to the preceding sentence, then the Maximum Revolving Loan
Balance shall be deemed increased by such amount but only for so long as the
Requisite Lenders allow such Loans to be outstanding.
(B) Manner of Making Revolving Loans.
(1) Revolving Loan Advances. Revolving Loans shall be made
and repaid on any two Business Days of each week; provided, however: (i)
Borrower may only engage in two transactions each week, (ii) Borrower may only
engage in one transaction on any given Business Day and (iii) Borrower must
provide Agent with one day prior notice before engaging in any such transaction.
The Revolving Loans may be repaid and the principal amount thereof reborrowed
from time to time prior to the Expiry Date subject to
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<PAGE>
all the terms and conditions hereof. Each Revolving Loan shall be made and
repaid in the aggregate amount of $100,000 or any greater amount that is an
integral multiple of $50,000.
(2) Notice of Revolving Loan Borrowings. The Borrower
shall give telephonic, telex or telecopy notice to the Agent in the form of the
Borrowing Request set forth as Exhibit 1.1 hereto (which notice shall be
irrevocable once given and, if by telephone, shall be confirmed in writing
within one Business Day of such telephonic notice) by no later than 10:30 A.M.
C.S.T. on the date that is at least one Business Day prior to the date of each
requested Revolving Loan. Each such notice from the Borrower shall specify: (a)
the date of the requested Revolving Loan and (b) the amount of the requested
Revolving Loan. The Borrower agrees that the Agent may rely on any such
telephonic, telex or telecopy notice given by any Person it in good faith
believes is an authorized representative of the Borrower without the necessity
of independent investigation, and in the event any notice by telephone conflicts
with the Borrower's written confirmation, such written confirmation shall govern
and prevail. The Borrower shall also give telephonic, telex or telecopy notice
to Agent at least one Business Day prior to the date of any repayment of the
Revolving Loans.
(3) Disbursement of Revolving Loans. Not later than 1:00
P.M. C.S.T. on the date of any Revolving Loan, each Lender, severally and not
jointly, subject to the terms and conditions hereof, shall make available its
Pro Rata Share of the requested Revolving Loan (determined on the basis of such
Lender's Revolving Loan Commitment) in funds immediately available at such bank
and to such account as shall be specified by an authorized representative of the
Borrower in writing to the Lenders.
(C) Term Loans.
(1) Initial Term Loan. Pursuant to the terms of the 1996
Loan Agreement, the Lenders have made Term Loans to the Borrower in the
aggregate principal amount of $74,479,600 (the "Initial Term Loans") which loans
remain outstanding and shall be repaid in accordance with the terms of this
Agreement.
(2) Additional Term Loans. Each Lender agrees, severally
and not jointly, to lend to Borrower, its Pro Rata Share of each additional Term
Loan during the period from the Closing Date through the Expiry Date, for the
purpose of financing Acquisitions and the purchase of rental pool equipment (the
"Additional Term Loans") . The aggregate amount of all Term and Revolving Loan
Commitments shall not exceed the Maximum Loan Commitment. No Lender shall have
any obligation to make advances under this subsection 1.1(C) (2) unless all of
the conditions set forth in subsections 7.1 and 7.2 have been satisfied or to
the extent any requested advance would cause the principal balance of all Loans
then outstanding to exceed the Maximum Loan Balance or at the time of such
request Revolving Loans outstanding exceed the Maximum Revolving Loan Balance.
Loan Availability shall be
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<PAGE>
determined not less than monthly based on the most recent Loan Availability
Certificate delivered to Agent as provided in subsection 4.6(F). If at any time
the Term Loans together with all other Loans exceed the Maximum Loan Balance,
Term Loans must be repaid immediately in an amount sufficient to eliminate any
excess.
(3) Notice of Additional Term Loan Borrowings. The
Borrower shall give telephonic, telex or telecopy notice to the Agent in the
form of the Borrowing Request set forth as Exhibit 1.1 hereto (which notice
shall be irrevocable once given and, if by telephone, shall be confirmed in
writing within one Business Day of such telephonic notice) by no later than
10:30 A.M. C.S.T. on the date that is at least three Business Days prior to the
date of each requested Additional Term Loan. Each such notice from the Borrower
shall specify: (a) the date of the requested Additional Term Loan (b) the amount
of the requested Additional Term Loan and (c) the sources and uses of the
proceeds of such requested Additional Term Loan. The Borrower agrees that the
Agent may rely on any such telephonic, telex or telecopy notice given by any
Person it in good faith believes is an authorized representative of the Borrower
without the necessity of independent investigation, and in the event any notice
by telephone conflicts with the Borrower's written confirmation, such written
confirmation shall govern and prevail. The Borrower shall also give telephonic,
telex or telecopy notice to Agent at least two Business Days prior to the date
of any repayment of the Term Loans.
(4) Disbursement of Additional Term Loans. Not later than
1:00 P.M. C.S.T. on the date of any Additional Term Loan, each Lender, severally
and not jointly, subject to the terms and conditions hereof, shall make
available its Pro Rata Share of the requested Additional Term Loan (determined
on the basis of such Lender's Term Loan Commitment) in funds immediately
available at such bank and to such account as shall be specified by an
authorized representative of the Borrower in writing to the Lenders.
(5) Payment of Term Loans. Borrower shall repay the Term
Loans through periodic repayments on the dates and in amounts equal to the
percentages indicated below of the aggregate principal amount of all Term Loans
("Scheduled Installments").
Percent of the Aggregate Principal
Date Amount of All Term Loans
---- ----------------------------------
January 31, 2000 7%
July 31, 2000 7%
January 31, 2001 9.5%
July 31, 2001 9.5%
January 31, 2002 9.5%
July 31, 2002 9.5%
January 31, 2003 12%
July 31, 2003 12%
January 31, 2004 12%
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Scheduled Maturity Date 12%
Notwithstanding the foregoing, in the event Additional Term Loans are made after
January 31, 2000, the Scheduled Installments due after such date shall be
recalculated to increase the percentages set forth above, pro rata, to ensure
that the entire principal balance of all Term Loans is repaid in accordance with
the above percentages in each of the remaining years taking into consideration
the Scheduled Installments previously paid. Scheduled Installments paid by
Borrower may not be reborrowed except to the extent such payments were made
pursuant to subsections 1.5(A), (B) or (C) and solely for the purpose of
financing Acquisitions pursuant to the terms herein.
(D) Notes. Borrower shall execute and deliver to each Lender:
(i) an amended and restated revolving note to evidence the Revolving Loans, such
revolving note to be in the principal amount of the Revolving Loan Commitment of
such Lender and with other appropriate insertions; and (ii) an amended and
restated term note to evidence the Term Loans such term note to be in the
principal amount of the Term Loan Commitment of such Lender and with other
appropriate insertions. In the event of an assignment pursuant to the Lender
Addition Agreement, Borrower shall, upon surrender of the assigning Lender's
Notes, issue new Notes to reflect the new Commitments of the assigning Lender
and its assignee.
1.2 Interest and Related Fees.
(A) Interest. Except as otherwise set forth in the last
paragraph of this subsection 1.2(A), from the date the Loans are made and the
other Obligations become due, the Obligations shall bear interest as follows:
(1) The Term Loans shall bear interest at the sum of
the LIBOR Rate plus three and one-quarter of one percent (3.25%) per annum.
(2) The Revolving Loans shall bear interest at the sum of
the LIBOR Rate plus three percent (3%) per annum.
The LIBOR Rate applicable to each Loan during each Interest
Period shall be established on the second to last Business Day of the preceding
Interest Period except that the applicable rate with respect to: (i) the first
Interest Period shall be established on the second Business Day preceding the
Closing Date; and (ii) Additional Term Loans shall be established at the same
rate in effect with respect to outstanding Term Loans on the closing date of
each Acquisition to be financed with the proceeds of such Additional Term Loan.
The Agent shall notify the Borrower of the interest rate applicable to the Loan
for each Interest Period as soon as practicable, provided, however, that the
failure of the Agent to provide such notice shall not affect the interest rate
applicable to the Loan during such Interest Period. The Agent's good faith
determination of the applicable interest rate
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shall be conclusive and binding except in the case of manifest error or willful
misconduct.
If the introduction of or the interpretation of any law, rule, or
regulation would increase the reserve requirement and as a result there would be
an increase in the cost of making or maintaining a LIBOR Rate Loan (a Regulatory
Change"), then Agent shall submit a certificate demonstrating the impact of the
increased cost and require payment thereof within ten (10) days from the
Borrower. There are no limitations on the number of times such certificate may
be submitted. If the Agent requests compensation from the Borrower pursuant to
the provisions of this paragraph the Borrower may, at its option, effective at
the end of the current Interest Period, upon at least two Business Days prior
written notice to the Agent, elect to convert the interest rate applicable to
the obligations to the Base Rate plus 1.50% until the Agent has notified the
Borrower that the Regulatory Change giving rise to such request is no longer in
effect.
(B) Unused Line Fee. From the Original Closing Date, Borrower shall
pay to Agent, for the ratable benefit of Lenders, a fee in an amount equal to
(i) the sum of the Revolving Loan Commitment less the sum of (x) the average
daily balance of the Revolving Loans during the preceding month multiplied by
(ii) one-quarter percent (.25%) per annum. Such fee is payable monthly in
arrears on the last Business Day of each Interest Period for the entire Interest
Period.
(C) Computation of Interest and Related Fees. Interest on all Loans
and any other Obligations and the related fees set forth in this subsection 1.2
shall be calculated daily on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed in the period during which it accrues.
Interest on all Loans is payable to Agent, for the benefit of Lenders, on the
last Business Day of the applicable Interest Period and on the Expiry Date,
whether by acceleration or otherwise.
(D) Default Rate of Interest. At the election of Agent, after the
occurrence of an Event of Default and for so long as it continues, the Loans and
other Obligations shall bear interest at a rate that is two percent (2%) in
excess of the rates otherwise payable under this Agreement. Agent shall notify
Borrower promptly after Agent's imposition of interest at the default rate as
specified herein.
(E) Excess Interest. In no event shall charges constituting interest
payable by Borrower hereunder exceed the maximum amount or the rate permitted
under any applicable law or regulation, and if any part or provision of this
Agreement is in contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
1.3 Expenses and Attorneys Fees. Borrower agrees to promptly pay all fees,
costs and expenses (including reasonable fees, costs
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and expenses of attorneys) incurred by Agent and Lenders in connection with any
matters contemplated by or arising out of the Loan Documents, in connection with
the examination, review, due diligence investigation, documentation, negotiation
and closing of the transactions contemplated herein and in connection with the
continued administration of the Loan Documents including any amendments,
modifications, and waivers. Borrower agrees to promptly pay all fees, costs and
expenses (including fees, costs and expenses of attorneys) incurred by Agent and
Lenders in connection with any action to enforce any Loan Document or to collect
any payments due from Borrower. All fees, costs and expenses for which Borrower
is responsible under this subsection 1.3 shall be deemed part of the Obligations
when incurred, payable on demand and secured by the Collateral.
1.4 Payments. All payments by Borrower of the Obligations shall be
made in same day funds and delivered to Agent by wire transfer to the following
account or such other place as Agent may from time to time designate:
Northern Trust CHGO
ABA No. : 0710-0015-2
Account Number: 5186041000
For Further Credit
to Account Number: 26-91241
Account Name: Jackson National Life Insurance
Company
Reference: Global Imaging Systems Inc.
Date of Payment, principal and
interest breakdown
Attention: Income Collections
Borrower shall receive credit for such funds if received by 2:00 p.m. CST on
such day. In the absence of timely notice and receipt, such funds shall be
deemed to have been paid on the next Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day that is not a Business Day,
the payment may be made on the next succeeding Business Day and such extension
of time shall be included in the computation of the amount of interest and fees
due hereunder.
Borrower hereby authorizes Agent to make a Revolving Loan for the
payment of interest, unused line fees, closing fees and increased costs as a
result of any Regulatory Change. Prior to an Event of Default, other fees, costs
and expenses (including those of attorneys) reimbursable to Agent and Lenders
pursuant to subsection 1.3 or elsewhere in any Loan Document may be debited to
the Revolving Loans after fifteen (15) days notice. After an Event of Default,
no notice is required.
1.5 Mandatory Prepayments and Other Payments.
(A) Prepayments from Excess Cash Flow. Within ninety (90) days
after the end of each of its Fiscal Years, Borrower shall
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prepay the Loans in an amount equal to seventy percent (70%) of the Excess Cash
Flow for such Fiscal Year together with unpaid interest accrued on such amount
to the date of such payment. The first prepayment shall be for the Fiscal Year
ending March 31, 1998. The calculation of Excess Cash Flow shall be based on the
audited financial statements for the Borrower and its Subsidiaries. Borrower may
voluntarily prepay any portion of the remaining thirty percent (30%) of Excess
Cash Flow for any Fiscal Year together with accrued interest. Any prepayments
made from Excess Cash Flow shall not be subject to the Prepayment Fee. All such
prepayments, whether mandatory or voluntary pursuant to this subsection 1.5
(A), shall be applied: first, pro-rata to the Scheduled Installments; and
second, to the outstanding principal balance of the Revolving Loans. Borrower
may reborrow Revolving Loans and Term Loans repaid pursuant to this subsection
1.5(A); provided, however, Term Loans may only be reborrowed for the purpose of
financing an Acquisition in accordance with the terms hereof and provided
further all Loans outstanding do not exceed the Maximum Loan Balance and all
Revolving Loans outstanding do not exceed the Maximum Revolving Loan Balance.
(B) Maximum Loan Balance Compliance. If at any time there
remain outstanding Revolving Loans and/or Term Loans in excess of the Maximum
Loan Balance, Borrower shall immediately repay Revolving Loans and/or Term Loans
to eliminate such excess.
(C) Prepayments in Excess of Maximum Debt. If at any time the
Indebtedness of Borrower and its Subsidiaries exceeds the applicable Maximum
Debt, Borrower shall immediately repay Revolving Loans and/or Term Loans in an
amount sufficient to eliminate any such excess. Borrower may reborrow Revolving
Loans and Term Loans paid pursuant to this subsection 1.5(C) at such time as
Borrower is in compliance with the applicable Maximum Debt after giving effect
to such reborrowing but, with respect to Term Loans, solely for the purpose of
financing Acquisitions in accordance with the terms of this Agreement.
(D) Issuances and Sales of Capital Stock. In the event
Borrower issues or sells any of its capital stock after the Original Closing
Date in accordance with the terms of this Agreement and with the Agent's
consent, the entire amount of the net proceeds received by the Borrower in
connection with such sale or issuance, at Agent's option, shall be paid to the
Lenders together with unpaid interest accrued on such amount to the date of such
payment to prepay the Term Loans. Agent shall advise Borrower whether or not it
shall require such prepayment at the time it consents to such issuance or sale.
All such prepayments shall be applied to the Obligations in the order set forth
in subsection 1.5(A) and shall not be subject to the Prepayment Fee. Borrower
may not reborrow Term Loans paid pursuant to this subsection 1.5(D) .
Notwithstanding the foregoing, any issuance or sale of capital stock shall not
be subject to the prepayment provisions of this subsection 1.5(D) if such
issuance or sale is to (i) existing management of a business acquired by
Borrower in connection with an
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Acquisition; provided, however, such sale or issuance is consummated within one
month of the closing date of such Acquisition; (ii) GTCR IV pursuant to the
terms of the GTCR Equity Purchase Agreement; or (iii) Green Manning & Bunch with
respect to the sale of 1,354.17 shares of Class A common stock and 240.13 shares
of Class B common stock of Global.
(E) Asset Sales. In the event Borrower, with the consent of
Agent, sells, transfers, leases or otherwise disposes of any of its properties,
business or assets in excess of the amounts permitted under subsection 3.7, the
net proceeds of such sale, transfer, lease or other disposition shall be paid to
the Lenders to prepay the Term Loans together with unpaid interest accrued on
such amount to the date of such payment and the applicable Prepayment Fee. All
such prepayments shall be applied to the Obligations in the order set forth in
subsection 1.5(A) and may not be reborrowed.
(F) Optional Prepayments. Except as set forth herein, any
prepayment of the Term Loans shall be subject to the Prepayment Fee and may not
be reborrowed.
1.6 Term of the Agreement. This Agreement and the other Loan
Documents shall become effective as of the date set forth on the first page
hereof and shall continue in full force and effect until the Scheduled Maturity
Date, unless sooner terminated pursuant to the terms hereof. All of the
Obligations shall become due and payable as otherwise set forth herein, but in
any event, all of the remaining Obligations shall become due and payable on the
Expiry Date. Upon such date and following repayment in full of the Obligations,
this Agreement will terminate. Notwithstanding any such termination, until all
Obligations have been fully paid and satisfied, Agent shall be entitled to
retain the security interests in the Collateral granted under the Security
Documents and the ability to exercise all rights and remedies available to Agent
under the Loan Documents and applicable laws.
1.7 Prepayment Fee.
(A) If for any reason this Agreement is terminated prior to
the Scheduled Maturity Date or, except as otherwise provided herein, Borrower
prepays a portion of the Term Loan Balance, in view of the impracticality and
extreme difficulty of ascertaining actual damages and by mutual agreement of the
parties as to a reasonable calculation of Lenders' lost profits as a result
thereof, Borrower agrees to pay to Agent for the ratable benefit of Lenders,
upon the effective date of such termination or such prepayment, a fee in the
amount set forth below (the "Prepayment Fee") if such termination or prepayment
is effective in the period indicated:
Amount Period
------ ------
(i) 5.0% of the Term Loan First 12 month period
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Balance following the Original
Closing Date
(ii) 4.0% of the Term Loan Second 12 month period
Balance following the Original
Closing Date
(iii) 3.0% of the Term Loan Third 12 month period
Balance following the Original
Closing Date
(iv) 2.0% of the Term Loan Fourth 12 month period
Balance following the Original
Closing Date
(v) 1.0% of the Term Loan Fifth and Sixth 12 month
Balance periods following the
Original Closing Date
Such Prepayment Fee shall be presumed to be the amount of damages sustained by
Lenders as a result of such early termination or prepayment and Borrower agrees
that it is reasonable under the circumstances currently existing. The Prepayment
Fee shall be included in the Obligations.
(B) Notwithstanding the foregoing subsection 1.7(A): (i) in
the event that Borrower completes an initial public offering of its stock and
registers such shares on a recognized securities exchange or the NASDAQ system
and prepays in full all of the Obligations upon completion of such public
offering, then in such event, Borrower shall only be required to pay a
prepayment fee in an amount equal to the lesser of $250,000 or 1% of the Term
Loan Balance; or (ii) the Requisite Lenders decline to make an Additional Term
Loan with respect to an Acquisition which complies with all of the requirements
set forth under subsection 3.16 and would be approved by the Requisite Lenders
except that such Additional Term Loan would result in all Loans exceeding the
Maximum Loan Commitment and the Requisite Lenders do not elect to increase the
Maximum Loan Commitment or the Agent, with the consent of the Required Lenders,
is unable to locate other suitable Lenders to purchase an interest in the Loans
equal to such excess, Borrower shall not be required to pay the Prepayment Fee.
(C) In addition to the exceptions set forth in subsection
1.7(B), if: (i) the Term Loan Balance is at least $105 million; (ii) Borrower
has requested an increase in the Maximum Loan Commitment because in its good
faith judgment Borrower reasonably believes that the Maximum Loan Commitment is
insufficient to finance its prospective Acquisitions for the following six
months and the Lenders do not elect to increase such Commitment; (iii) Borrower
refinances the Obligations and the obligations under such refinancing exceed
$120 million within six months of the termination of this Agreement and such
amount was utilized by Borrower solely to retire the Obligations and to
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finance Acquisitions, then, in such event, Borrower shall not be required to pay
the Prepayment Fee pursuant to subsection 1.7 (A); provided, however,
Borrower deposits into escrow, with an escrow agent selected by Agent pursuant
to the terms and conditions of an escrow agreement in form and substance
satisfactory to Agent, the Prepayment Fee required to be paid under subsection
1.7(A) to assure compliance with this provision.
1.8 Borrower's Loan Account. Agent will maintain loan account records
for (a) all Loans, interest charges and payments thereof, (b) the charging and
payment of all fees, costs and expenses and (c) all other debits and credits
pursuant to this Agreement. The balance in the loan accounts shall be
presumptive evidence of the amounts due and owing to Lenders, provided that any
failure to so properly debit or credit the loan amounts shall not limit or
affect the Borrower's obligation to pay. Periodically, Agent shall provide to
Borrower a statement for each loan account setting forth the principal of each
account and interest due thereon. Borrower must deliver a written objection
within sixty (60) days after receipt of the statement or the statement will be
presumed as binding evidence of the obligation absent manifest error. During the
continuance of an Event of Default, Borrower irrevocably waives the right to
direct the application of any and all payments and Borrower hereby irrevocably
agrees that Agent shall have the continuing exclusive right to apply and reapply
payments in any manner it deems appropriate.
1.9 Collection of Accounts. At any time that an Event of Default has
occurred and is continuing, at Agent's request, Borrower shall establish and
maintain, at its expense, lockboxes and related blocked accounts ("Blocked
Accounts"), as Agent may specify, with such banks as are acceptable to Lender
into which Borrower shall promptly deposit and direct its account debtors to
directly remit all payments on account and all payments constituting proceeds of
Inventory or other Collateral in the identical form in which such payments are
made, whether by cash, check or other manner. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance
satisfactory to Agent, providing that all items received or deposited in the
Blocked Accounts are the property of Agent or Co-Agent, as applicable, for the
ratable benefit of Lenders, that the depository bank has no lien upon, or right
to setoff against, the Blocked Accounts (other than for customary bank fees and
uncollected deposits), the items received for deposit therein, or the funds
from time to time on deposit therein and that the depository bank will wire, or
otherwise transfer, in immediately available funds, on a daily basis, all funds
received or deposited into the Blocked Accounts to such bank account of Agent or
Co-Agent as Agent or Co-Agent may from time to time designate for such purpose
("Payment Account"). Borrower agrees that all payments made to such Blocked
Accounts or other funds received and collected by Agent or Co-Agent, whether on
the Accounts or as proceeds of Inventory or other Collateral or otherwise shall
be the property of
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Agent, or Co-Agent, as applicable, for the ratable benefit of the Lenders to be
applied to the Obligations.
1.10 Joint and Several Liability; Rights of Contribution.
(A) Each Borrower states and acknowledges that: (i) pursuant
to this Agreement, Borrowers desire to utilize their borrowing potential on a
consolidated basis to the same extent possible if they were merged into a single
corporate entity; (ii) it has determined that it will benefit specifically and
materially from the advances of credit contemplated by this Agreement; (iii) it
is both a condition precedent to the obligations of Agent and Lenders hereunder
and a desire of Borrowers that each Borrower execute and deliver to Agent and
Lenders this Agreement; and (iv) Borrowers have requested and bargained for the
structure and terms of security for the advances contemplated by this Agreement.
(B) Each Borrower hereby irrevocably and unconditionally: (i)
agrees that it is jointly and severally liable to Agent and Lenders for the full
and prompt payment of all the Obligations and the full and prompt performance of
all obligations of any Borrower under this Agreement or any other Loan Document,
notwithstanding anything herein or in any other Loan Document specifying that a
particular Borrower is responsible for a given payment or performance; (ii)
agrees to fully and promptly perform all of its obligations hereunder with
respect to each advance of credit hereunder as if such advance had been made
directly to it; and (iii) agrees as a primary obligation to indemnify Agent and
each Lender on demand for and against any loss incurred by Agent or such Lender
as a result of any of the obligations of any of the Borrowers being or becoming
void, voidable, unenforceable or ineffective for any reason whatsoever, whether
or not known to Agent or Lenders or any Person, the amount of such loss being
the amount which Agent or such Lender would otherwise have been entitled to
recover from any Borrower.
(C) Notwithstanding anything herein to the contrary, it is
the desire and intent of each Borrower, the Lenders and the Agent that this
Agreement shall be enforced against each Borrower to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. If, however, and to the extent that, the
obligations of a Borrower under this Agreement shall be adjudicated to be
invalid or unenforceable for any reason (including, without limitation, because
of any applicable state or federal law relating to fraudulent conveyances or
transfers), then the amount of the Obligations of such Borrower shall be deemed
to be reduced and such Borrower shall pay the maximum amount of the Obligations
which would be permissible under applicable law.
1.11 Use of Proceeds. Borrower shall use the proceeds of the Loans,
other than Additional Term Loans, only for: (a) capital expenditures, (b) costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement
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and the other Loan Documents and (c) general operating working capital. All
proceeds of Additional Term Loans shall be used by Borrower only for
Acquisitions, transaction costs directly related to such Acquisitions and the
purchase of rental pool equipment. None of the proceeds will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin security or
for the purposes of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the Loans to be considered a "purpose credit" within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System,
as amended.
1.12 Ratification. Except to the extent expressly provided to the
contrary herein, the terms and provisions of the Loan Documents are not affected
in any way hereby and shall remain in full force and effect and are hereby
ratified and confirmed. Each of the Borrowers acknowledges and agrees that the
term "Obligations" as used herein, in the Security Documents and in the other
Loan Documents, includes, without limitation, the Borrowers' obligations
hereunder as well as under the Amended and Restated Term Note and the Amended
and Restated Revolving Note.
SECTION 2
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment and the Term Loan Commitment are in effect and until payment in full
of all Obligations unless the Requisite Lenders shall otherwise give their prior
written consent, Borrower shall perform and comply with, and shall cause each of
the other Loan Parties to perform and comply with, all covenants in this Section
2 applicable to such Person.
2.1 Compliance With Laws.
(A) Borrower will (i) comply with and will cause each of its
Subsidiaries to comply with all material requirements of all applicable laws,
rules, regulations and orders of any governmental authority (including, without
limitation, laws, rules, regulations and orders relating to taxes, employer and
employee contributions, securities, employee retirement and welfare benefits,
environmental protection matters, including all Environmental Laws, and employee
health and safety) as now in effect and which may be imposed in the future in
all jurisdictions in which Borrower or its Subsidiaries are now doing business
or may hereafter be doing business, and (ii) maintain or obtain and will cause
each of its Subsidiaries to maintain or obtain, all material licenses and
permits now held or hereafter required by Borrower and its Subsidiaries. This
subsection 2.1(A) shall not preclude the Borrower or any Subsidiary from
contesting any taxes or other payments, if they are being diligently contested
in good faith and if appropriate expense provisions have been recorded in
conformity with GAAP. Borrower
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represents and warrants that as of the date hereof, it: (i) is in material
compliance and each of its Subsidiaries is in compliance with the requirements
of all applicable laws, rules, regulations and orders of any governmental
authority as now in effect, and (ii) maintains and each of its Subsidiaries
maintains all material licenses and permits referred to above.
(B) Borrower shall and shall cause each of its Subsidiaries
to establish and maintain, at its expense, a system to assure and monitor its
continued material compliance with all Environmental Laws in all of its
operations, which system shall include annual reviews of such compliance by
employees or agents of Borrower and its Subsidiaries who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
shall be promptly furnished, or caused to be furnished, by Borrower to Agent.
Borrower and each of its Subsidiaries shall take prompt and appropriate action
to respond to any non-compliance with any of the Environmental Laws and shall
regularly report to Agent on such response.
(C) Borrower shall and shall cause each of its Subsidiaries to
give both oral and written notice to Agent immediately upon Borrower's or such
Subsidiary's receipt of any notice of, or Borrower's or such Subsidiary's
otherwise obtaining knowledge of either (i) the occurrence of any event
involving the release, spill or discharge, threatened or actual, of any
Hazardous Material or (ii) any investigation, proceeding, complaint, order,
directive, claims, citation or notice with respect to: (a) any noncompliance
with or violation of any Environmental Law by Borrower or any of its
Subsidiaries, (b) the release, spill or discharge, threatened or actual, of any
Hazardous Material, (c) the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or (d)
any other environmental, health or safety matter, which affects Borrower, any of
its Subsidiaries or their respective businesses, operations or assets or any
properties at which Borrower or any of its Subsidiaries transported, stored or
disposed of any Hazardous Materials.
(D) Without limiting the generality of the foregoing, whenever
Agent reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower or any of its Subsidiaries in
order to avoid any material non-compliance with any Environmental Law, Borrower
shall, at Agent's request and Borrower's expense: (i) cause an independent
environmental engineer acceptable to Agent to conduct such tests of the site
where non-compliance or alleged non-compliance with such Environmental Laws has
occurred as to such non-compliance and prepare and deliver to Agent a report as
to such non-compliance setting forth the results of such tests, a proposed plan
for responding to any environmental problems described therein, and an estimate
of the costs thereof and (ii) provide to Agent a supplemental report of such
engineer whenever the scope of such
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non-compliance, or Borrower's response thereto or the estimated costs thereof,
shall change in any material respect.
(E) Borrower shall indemnify and hold harmless Agent and each
Lender, their respective directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and all losses,
claims, damages, liabilities, costs, and expenses (including attorneys' fees and
legal expenses) directly or indirectly arising out of or attributable to the
use, generation, manufacture, reproduction, storage, release, threatened
release, spill, discharge, disposal or presence of a Hazardous Material,
including, without limitation, the costs of any required or necessary repair,
clean-up or other remedial work with respect to any property of Borrower or any
of its Subsidiaries and the preparation and implementation of any closure,
remedial or other required plans. All representations, warranties, covenants and
indemnifications in this subsection 2.1 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
2.2 Maintenance of Properties; Insurance.
(A) Borrower will maintain or cause to be maintained in good
repair, working order and condition, in accordance with past practices, all
material properties used in the business of Borrower and its Subsidiaries and
will make or cause to be made all appropriate repairs, renewals and replacements
thereof.
(B) Except as set forth on Schedule 2.2(B), Borrower will
maintain or cause to be maintained, with financially sound and reputable
insurers rated A, Class 15 or better by A.M. Best, public liability and property
damage insurance and all other insurance with respect to its business and
properties and the business and properties of its Subsidiaries against loss or
damage of the kinds customarily carried or maintained by corporations of
established reputation engaged in similar businesses and in amounts reasonably
acceptable to Agent and will deliver evidence thereof to Agent. The policies of
workmen's compensation insurance set forth on Schedule 2.2(B) shall be replaced
upon expiration or cancellation with policies issued by insurance carriers rated
at least A, Class 15 or better by A.M. Best provided the coverage, cost and
other material aspects of such insurance is reasonable in the judgment of
Borrower and Lender. In no event shall policies of insurance be replaced with
policies issued by an insurance carrier rated less than the existing ratings of
the insurance carriers on the Borrower's existing policies as of the Original
Closing Date or with respect to policies issued by Riscorp Insurance Company,
rated A+, Class 6 or better. Notwithstanding the foregoing, Berney's workman's
compensation coverage may continue to be part of a pool provided such coverage
is issued by a financially sound and reputable insurer. Borrower shall cause
Agent to be named as loss payee (in the case of casualty), and additional
insured (in all other cases) on all insurance policies pursuant to appropriate
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endorsements in form and substance reasonably satisfactory to Agent.
(C) Borrower will maintain with an insurer satisfactory to
Agent, a key-man life insurance policy covering Thomas Johnson, Chief Executive
Officer of the Borrower, in an amount of at least $5,000,000 with the Agent
named as the beneficiary thereof. The proceeds of such policy shall be used by
Agent to repay the Obligations or, at the election of the Requisite Lenders, to
locate and employ a successor chief executive officer. Any proceeds used to
repay the Obligations shall not be subject to the Prepayment Fee and may not be
reborrowed.
(D) Borrower represents and warrants that it and each of its
Subsidiaries currently maintains all material properties as set forth above and
maintains all insurance described above. Borrower shall notify Agent immediately
of any change in any policy of insurance or any termination or cancellation of
any policy (whether by lapse for non-payment of premiums or otherwise).
2.3 Inspection; Lender Meetings. Borrower shall permit any
authorized representatives of Agent or any Lender to visit and inspect any of
the properties of Borrower or any of its Subsidiaries, including its and their
financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances and business with its
and their officers and certified public accountants, at such reasonable times
during normal business hours and as often as may be reasonably requested.
2.4 Corporate Existence, etc. Except as otherwise permitted by
subsection 3.6, Borrower will, and will cause each of its Subsidiaries to, at
all times preserve and keep in full force and effect its corporate existence and
all rights and franchises material to its business.
2.5 Interest Rate Protection. The Borrower has previously entered
into a plus or minus 2% interest rate collar or other similar agreements
(collectively, the "Rate Protection Agreements"), on terms and conditions
satisfactory to the Agent, in order that the effective cost of borrowing to the
Borrower on an amount of not less than $23,525,000 of the outstanding Term Loans
is fixed for not less than three (3) years from the effective date of such
agreements. Within thirty days from the date hereof, Borrower shall enter into
an additional Rate Protection Agreement or amend its existing Rate Protection
Agreements in order that the cost of borrowing to the Borrower on an aggregate
amount of $50,000,000 of the outstanding Term Loans is fixed on substantially
the same terms and conditions as the existing Rate Protection Agreements;
provided, however, that the terms and cost of such additional interest rate
protection agreements are comparable (i.e., not cost prohibitive but not
necessarily equal) to the agreements entered into by the Borrower pursuant to
the preceding sentence.
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2.6 Further Assurances.
(A) Borrower shall and shall cause each Loan Party to, from
time to time, execute such guaranties, financing statements, documents, security
agreements and reports as Agent at any time may reasonably request to evidence,
perfect or otherwise implement the guaranties and security for repayment of the
Obligations provided for in the Loan Documents.
(B) Borrower shall cause any Subsidiaries of Borrower promptly
to become a co-borrower hereunder or, at Agent's request, to guaranty the
Obligations and to grant to Agent, for the benefit of Lenders, a security
interest in the real, personal and mixed property of such Subsidiary to secure
the Obligations on terms and conditions satisfactory to the Agent in its sole
discretion.
SECTION 3
NEGATIVE COVENANTS
Borrower covenants and agrees that so long as the Revolving Loan
Commitment and Term Loan Commitment are in effect and until payment in full of
all Obligations unless the Requisite Lenders shall otherwise give its prior
written consent, Borrower shall comply with and shall cause each of the other
Loan Parties to comply with all covenants in this Section 3 applicable to such
Person.
3.1 Indebtedness. Borrower will not and will not permit any of its
Subsidiaries, directly or indirectly, to create, incur, assume, guaranty, or
otherwise become or remain directly or indirectly liable with respect to any
Indebtedness except:
(A) the Obligations;
(B) intercompany Indebtedness among Global and its
wholly-owned Subsidiaries; provided that the obligations of each obligor of such
Indebtedness shall be: (i) unsecured and subordinated in right of payment to the
Obligations from and after such time as any portion of the Obligations shall
become due and payable (whether at stated maturity, by acceleration or
otherwise); and (ii) reflected on Borrower's books and records;
(C) Indebtedness set forth on Schedule 3.1;
(D) Indebtedness not to exceed $2,000,000 in the aggregate at
any time outstanding in connection with any obligation owed for all or any part
of the deferred purchase price of Inventory if the purchase price is due more
than six (6) months from the date the obligation is incurred;
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(E) Indebtedness not to exceed $1,000,000 in the aggregate at
any time outstanding secured by purchase money Liens or with respect to capital
leases; and
(F) Indebtedness in connection with an Acquisition.
3.2 Liens and Related Matters.
(A) No Liens. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create, incur, assume or permit to exist
any Lien on or with respect to any property or asset (including any document or
instrument with respect to goods or accounts receivable) of Borrower or any of
its Subsidiaries, whether now owned or hereafter acquired, or any income or
profits therefrom, except Permitted Encumbrances. "Permitted Encumbrances"
means the following:
(1) Liens for taxes, assessments or other governmental-
charges not yet due and payable or those being contested in good
faith by appropriate proceedings promptly instituted and diligently
conducted which stay enforcement of such Liens and if a reserve or
other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been established;
(2) statutory Liens of landlords, carriers, warehousemen,
mechanics, materialmen and other similar liens imposed by law, which
are incurred in the ordinary course of business for sums not more
than thirty (30) days delinquent or which are being contested in
good faith; provided that a reserve or other appropriate provision
shall have been established and the aggregate amount of such Liens
is less than $250,000;
(3) Liens (other than any Lien imposed by the Employee
Retirement Income Security Act of 1974 or any rule or regulation
promulgated thereunder) incurred or deposits made in the ordinary
course of business in connection with workers, compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety,
stay, customs and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return of money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);
(4) deposits, in an aggregate amount not to exceed
$250,000, made in the ordinary course of business to secure
liability to insurance carriers;
(5) Liens for purchase money obligations; provided
that: (a) the purchase of the asset subject to any such Lien is
permitted under subsection 4.1; (b) the Indebtedness secured by any
such Lien is permitted under subsection 3.1 (E); and (c) any such
Lien encumbers only the asset so purchased;
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(6) leases or subleases granted to others not interfering in
any material respect with the business of Borrower or any of its
Subsidiaries;
(7) easements, rights of way, restrictions, and other
similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of Borrower or any
of its Subsidiaries;
(8) any interest or title of a lessor or sublessor
under any lease permitted by subsection 4.1;
(9) Liens in favor of Agent, for the benefit, of
Lenders;
(10) any attachment or judgment Lien not constituting
an Event of Default under subsection 6.1(I); provided Borrower is
diligently pursuing its remedies with respect to such Lien and such
Lien is removed from record within 60 days after its attachment or
judgment has been rendered with respect thereto; and
(11) Liens: (i) existing on the date hereof and
renewals and extensions thereof, which Liens are set forth on
Schedule 3.2(A) (11) hereto; and (ii) Liens arising out of vendor
financing for the deferred purchase price of Inventory; provided
that with respect to (i) and (ii) above the sum of the aggregate
amount of the obligations secured by such Liens and the Indebtedness
permitted to be outstanding under Section 3.1(D) shall not at any
time exceed $5,000,000 in the aggregate and provided further that
(x) an aggregate of 80% of the obligations secured by such Liens is
paid within 45 days of the incurrence of the obligations giving rise
to such Liens, (y) any extension or renewal of any such Liens only
covers the property originally covered by such Liens and (z) no
Default or Event of Default has occurred or is continuing.
(B) No Negative Pledges. Borrower will not and will not permit
any of its Subsidiaries directly or indirectly to enter into or assume any
agreement (other than the Loan Documents) prohibiting the creation or assumption
of any Lien upon its properties or assets, whether now owned or hereafter
acquired.
(C) No Restrictions on Subsidiary Distributions to Borrower.
Except as provided herein, Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (i) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by Borrower or any
Subsidiary of Borrower; (ii) subject to subordination provisions in favor of
Lenders, pay any Indebtedness owed to Borrower or any other Subsidiary; (iii)
make loans or advances to
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Borrower or any other Subsidiary; or (iv) transfer any of its property or assets
to Borrower or any other Subsidiary.
3.3 Investments: Joint Ventures. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to make or own any
Investment in any Person except:
(A) Borrower and its Subsidiaries may make and own Investments
in Cash Equivalents; provided that such Cash Equivalents are not subject to
setoff rights in favor of the issuing bank arising from any banking relationship
of Borrower or its Subsidiaries;
(B) Borrower and its Subsidiaries may make intercompany loans
and Investments to the extent permitted under subsection 3.1;
(C) Borrower and its Subsidiaries may make loans and advances
to employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business not to exceed $300,000 in the aggregate at any time
outstanding;
(D) Investments in connection with Acquisitions permitted
hereunder;
3.4 Contingent Obligations. Borrower will not and will not permit
any of its Subsidiaries directly or indirectly to create or become or be liable
with respect to any Contingent Obligation except those:
(A) resulting from endorsement of negotiable instruments for
collection in the ordinary course of business;
(B) existing on the Closing Date and described in Schedule 3.4
annexed hereto;
(C) arising with respect to customary indemnification and hold
harmless agreements entered in connection with any Acquisition closed prior to
the date hereof or otherwise permitted to be consummated hereunder;
(D) incurred in the ordinary course of business with respect
to surety and appeal bonds, performance and return-of-money bonds and other
similar obligations not exceeding at any time outstanding $500,000 in aggregate
liability;
(E) incurred with respect to Indebtedness permitted by
subsection 3.1;
(F) arising under indemnity agreements to title insurers to
cause such title insurers to issue to Agent mortgagee title insurance policies;
(G) arising with respect to customary indemnification and
purchase price adjustment obligations incurred in connection
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with Asset Dispositions made pursuant to the terms of this Agreement; and
(H) not permitted by clauses (A) through (G) above, so long as
any such Contingent Obligations, in the aggregate at any time outstanding, do
not exceed $400,000.
3.5 Restricted Junior Payments. Borrower will not and will not permit any
of its Subsidiaries directly or indirectly to declare, order, pay, make or set
apart any sum for any Restricted Junior Payment except Subsidiaries of Global
may make Restricted Junior Payments with respect to their common stock to the
extent necessary to permit Global to pay the Obligations and to pay expenses
incurred in the ordinary course of business.
3.6 Restriction on Fundamental Changes.
(A) Borrower will not and will not permit any of its Subsidiaries
directly or indirectly to: (i) amend, modify or waive any term or provision of
its articles of incorporation or by-laws unless required by law; (ii) enter into
any transaction of merger or consolidation except (a) in connection with an
Acquisition permitted hereunder and (b) any Subsidiary of Borrower may be merged
with or into Borrower (provided that Borrower is the surviving entity) or any
other Subsidiary of Borrower; (iii) liquidate, wind-up or dissolve itself (or
suffer any liquidation or dissolution) ; or (iv) acquire by purchase or
otherwise all or any substantial part of the business or assets or stock of any
other Person other than in connection with an Acquisition or other Investment
permitted hereunder.
(B) Borrower will not, and will not permit any of its Subsidiaries,
to issue, sell, assign, pledge, convey, dispose or otherwise encumber any shares
of capital stock, in Borrower or any such Subsidiary or the right to receive any
dividend or distribution on account thereof or grant any options, warrants, or
purchase rights .
3.7 Disposal of Assets or Subsidiary Stock. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to: convey, sell, lease,
sublease, transfer or otherwise dispose of, or grant any Person an option to
acquire, in one transaction or a series of related transactions any of its
property, business or assets, or the capital stock of or other equity interests
in any of its Subsidiaries, whether now owned or hereafter acquired except for
(a) bona fide sales of Inventory to customers for fair value in the ordinary
course of business, bona fide sales of rental pool equipment for fair value in
the ordinary course of business and dispositions of obsolete equipment not used
or useful in the business and (b) other Asset Dispositions if all of the
following conditions are met: (i) the market value of assets sold or otherwise
disposed of in any single transaction or series of related transactions does not
exceed $250,000 and the aggregate market value of assets sold or otherwise
disposed of in any Fiscal
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Year of Borrower does not exceed $500,000; (ii) consideration received is at
least equal to the fair market value of such assets; (iii) the sole
consideration received is in cash or personal property provided such personal
property is used in Borrower's business and the Agent obtains a security
interest in such property so acquired; (iv) after giving effect to the sale or
other disposition of the assets included within the Asset Disposition and the
repayment of Indebtedness with the cash proceeds thereof, Borrower is in
compliance on a pro forma basis with the covenants set forth in Section 4
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; (v) no Default or Event of Default shall result from such sale or
other disposition; and (vi) Borrower has notified Agent of any indemnification
or purchase price adjustment obligations to be incurred by Borrower in
connection with such Asset Disposition.
3.8 Transactions With Affiliates. Borrower will not and will not permit
any of its Subsidiaries directly or indirectly to enter into or permit to exist
any transaction (including the purchase, sale, lease or exchange of any property
or the rendering of any service) with any Affiliate or with any director,
officer or employee of any Loan Party, except (a) as set forth on Schedule 3.8
or (b) transactions in the ordinary course of and pursuant to the reasonable
requirements of the business of Borrower or any of its Subsidiaries and upon
fair and reasonable terms which are fully disclosed to Agent and are no less
favorable to Borrower or such Subsidiary than would be obtained in a comparable
arm's length transaction with a Person that is not an Affiliate. Notwithstanding
the foregoing, no payments may be made with respect to any items set forth on
Schedule 3.8 upon the occurrence and during the continuation of a Default or
Event of Default.
3.9 Management Fees and Compensation. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to pay any management,
consulting, placement or similar fees to any Affiliate or to any director,
officer or employee of any Loan Party except payments for, or on account of,
actual services rendered or except as set forth on Schedule 3.9. Notwithstanding
the foregoing, no payments may be made with respect to items set forth on
Schedule 3.9 upon the occurrence and during the continuation of a Default or
Event of Default. During the continuation of a Default or Event of Default,
payments not so made shall accrue, and may not be paid by Borrower until no
Default or Event of Default is outstanding.
3.10 Conduct of Business. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to engage in any business other than
businesses of the type described on Schedule 3.10.
3.11 Changes Relating to Indebtedness. Borrower will not and will not
permit any of its Subsidiaries directly or indirectly to change or amend the
terms of any Indebtedness if the effect of such amendment is to: (a) increase
the interest rate on such
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Indebtedness or change the subordination provisions thereof (or the
subordination terms of any guaranty thereof); or (b) change or amend any other
item (including without limitation change the dates upon which payments or
principal or interest are due on such Indebtedness,change any event of default
or add any covenant with respect to such Indebtedness or change the prepayment
provisions of such Indebtedness) if such change or amendment would increase the
obligations of the obligor or confer additional material rights on the holder of
such Indebtedness in a manner adverse to Borrower, any of its Subsidiaries,
Agent or any of the Lenders.
3.12 Fiscal Year. Neither Borrower nor any Subsidiary of Borrower will
change its Fiscal Year.
3.13 Press Release: Public Offering Materials. Borrower will not and will
not permit any Loan Party to disclose the name of Agent or any Lender in any
press release or in any prospectus, proxy statement or other materials filed
with any governmental entity relating to a public offering of the capital stock
of any Loan Party without Agent's or such Lender's prior written consent, which
shall not be unreasonably withheld, unless such disclosure is required by law or
legal process, in which event neither Agent nor any Lender shall have the right
to approve or consent to the same provided Borrower delivers, or causes to be
delivered, to Agent a copy of the proposed release, prospectus, proxy statement
or other materials prior to the issuance, filing or release thereof.
3.14 Subsidiaries. Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to establish, create or acquire any new
Subsidiary other than in connection with an Acquisition or Investment permitted
hereunder; provided, in each instance, at Agent's or Requisite Lenders' request,
such Subsidiary becomes a co-borrower hereunder or guaranties the Obligations of
Borrower to Agent and Lenders under the Loan Documents and secures such guaranty
or its obligations under the Loan Documents by pledging to Agent, for the
benefit of Lenders, all of its assets.
3.15 Bank Accounts. Borrower will not and will not permit any of its
Subsidiaries to establish any new bank accounts without prior written notice to
Agent and provided such account is subject to a bank agreement in form and
substance satisfactory to the Agent.
3.16 Acquisitions. Except as otherwise provided in Section 3.16(c), the
following procedure shall apply with respect to all Acquisitions:
(A) When Borrower desires to make an Acquisition, Borrower shall
deliver, or cause to be delivered, to Agent a due diligence package, including
the information set forth on Schedule 3.16. Such information shall be delivered
to Agent as soon as it is available and shall be subject to the provisions of
subsection 9.12. Borrower shall keep Agent fully informed of its ongoing due
diligence and Agent may, at its request, visit the entity to be
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acquired. Without limiting the Requisite Lenders' ability, in their sole
discretion, to accept or reject any request by Borrower that Borrower be
permitted to consummate an Acquisition, the Lenders will consider a particular
request if with respect to the proposed Acquisition: (i) prior to and after
giving effect to the consummation of such Acquisition, no Default or Event of
Default exists or would exist, (ii) if the Acquisition is in the form of a stock
purchase, the Borrower acquires all of the capital stock of the entity acquired,
(iii) in connection with such Acquisition, any portion of the purchase price to
be paid with Indebtedness shall be issued by Borrower in favor of the seller of
such stock or assets and shall be on terms and conditions satisfactory to the
Lenders and shall be fully subordinate and junior in right of payment to the
Obligations, (iv) after giving effect to the consummation of such Acquisition,
Borrower's total Indebtedness shall not exceed the applicable Maximum Debt and
Borrower shall be in compliance with all of the financial covenants set forth in
Section 4 both on a historical basis and on a pro forma basis, and (v) the
business proposed to be acquired shall not have any Contingent Obligation or
other contingent liability which could reasonably be expected to have a Material
Adverse Effect. In computing Pro Forma Operating Cash Flow with respect to each
Acquisition, any add backs attributable to such Acquisition shall be approved by
the Agent.
(B) Within five (5) Business Days after receipt of the complete due
diligence package Agent will notify Borrower if it or any Lender reasonably
requires any additional information with respect to the proposed Acquisition. No
later than the later of (x) ten (10) Business Days after Lender's receipt of the
complete due diligence package and (y) ten (10) Business Days after receipt of
such additional information as Agent or any Lender shall reasonably request,
Agent will notify Borrower, in writing, whether or not the Requisite Lenders
approve or disapprove of the proposed Acquisition on the terms set forth in the
due diligence package. Any failure on the part of Requisite Lenders either to
approve or disapprove, in writing, the proposed Acquisition within said ten (10)
Business Day period, as applicable, shall constitute approval by Requisite
Lenders of such Acquisition on the terms and conditions set forth in the
acquisition summary. If there is any material change to the terms of the
proposed Acquisition, including any material change to the purchase agreement
relating to such Acquisition, or any adverse change to the entity which is the
subject of such proposed Acquisition, Borrower shall notify Agent of the same
and the Requisite Lenders' further approval will be required, which approval
will be granted or denied within ten (10) Business Days of receipt of written
notice of such material change. Any failure on the part of the Requisite Lenders
either to approve or disapprove within said ten (10) Business Day period shall
constitute Requisite Lenders' approval of such Acquisition.
(C) Notwithstanding the foregoing, the Borrower need not obtain the
approval of the Requisite Lenders with respect to Acquisitions which do not
exceed $2,000,000, individually, and $5,000,000 in the aggregate during any
fiscal year of the Borrower
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("Small Acquisitions"); provided, however, the Borrower has complied with the
provisions of Section 3.16(A)(i) through (v) and at least 2 Business Days prior
to consummation of any such Acquisition, the Borrower has delivered to the Agent
the letter of intent and a summary of acquisition highlights which represent
such Acquisition, as well as an Availability Certificate. With respect to all
Acquisitions, including Small Acquisitions, without the consent of the Agent,
Borrower shall continue its practice of retaining Ernst & Young or another "Big
6" public accounting firm to conduct financial due diligence with respect to all
Acquisitions.
The foregoing provisions are not intended to affect the conditions to
Lenders' obligations to fund Additional Term Loans as provided in Section 7
hereof; provided, however, with respect to Small Acquisitions the Borrower shall
deliver the materials required by Section 7.2(B) within 30 days following the
consummation of such Acquisition.
SECTION 4
FINANCIAL COVENANTS/REPORTING
Borrower covenants and agrees that so long as the Revolving Loan Commitment
and the Term Loan Commitment remains in effect and until payment in full of all
Obligations unless Requisite Lenders shall otherwise give their prior written
consent, Borrower shall comply with and shall cause each of the other Loan
Parties to comply with all covenants in this Section 4 applicable to such
Person.
4.1 Capital Expenditure Limits. The aggregate amount of capital
expenditures of Borrower and its Subsidiaries during the Fiscal Year ending
March 31, 1998 and each Fiscal Year thereafter will not exceed the following
amounts:
(a) with respect to Rental Pool Capital Expenditures, the amount
approved annually by the Agent for each Fiscal Year plus an additional
amount, if any, approved by the Agent with respect to each company
subsequently acquired by the Borrower during such Fiscal Year.
(b) With respect to General Capital Expenditures, 7% of Pro Forma
EBITDA for the twelve (12) month period preceding the date of determination
which shall be measured monthly.
4.2 Leverage Ratio. Borrower shall not permit (i) Indebtedness of Borrower
and its Subsidiaries divided by (ii) the sum of Pro Forma EBITDA less General
Capital Expenditures for the rolling four quarters ending on the dates set forth
below to exceed the ratio set forth opposite each such date.
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Rolling Four Quarters Ending Ratio
---------------------------- -----
09/30/97 5.0 to 1
12/31/97 5.0 to 1
03/31/98 5.0 to 1
06/30/98 4.8 to 1
09/30/98 4.8 to 1
12/31/98 4.8 to 1
03/31/99 4.8 to 1
06/30/99 4.2 to 1
09/30/99 4.2 to 1
12/31/99 4.2 to 1
03/31/00 4.2 to 1
Thereafter 3.0 to 1
4.3 Pro Forma EBITDA. Borrower shall not permit Pro Forma EBITDA for
Borrower and its Subsidiaries to be less than the amounts set forth below for
the rolling four quarters ending on the dates specified below:
Rolling Four
Quarters Ending Amount
--------------- ------
09/30/97 $16,747,800.
12/31/97 1.5% in excess of the amount
required to be maintained in
the immediately preceding
rolling four quarters measured
plus 85% of Acquisition EBITDA
for the current rolling four
quarters.
03/31/98 1.5% in excess of the amount
required to be maintained in
the immediately preceding
rolling four quarters measured
plus 85% of Acquisition EBITDA
for the current rolling four
quarters.
06/30/98 and each 2.1875% in excess of the
quarter thereafter amount required to
be maintained in the
immediately preceding rolling
four quarters measured plus
85% of Acquisition EBITDA for
the current rolling four
quarters.
4.4 Fixed Charge Coverage. Borrower shall not permit the ratio of (x)
EBITDA less Total Capital Expenditures to (y) Fixed Charges for the rolling four
quarters ending on the dates set forth below to be less than the ratio set
forth opposite each such date.
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Rolling Four Quarters Ending Ratio
---------------------------- -----
09/30/97 1.30 to 1
12/31/97 1.30 to 1
03/31/98 1.30 to 1
06/30/98 1.30 to 1
09/30/98 1.30 to 1
12/31/98 1.30 to 1
03/31/99 1.30 to 1
06/30/99 1.30 to 1
09/30/99 1.30 to 1
12/31/99 1.30 to 1
03/31/00 1.20 to 1
Thereafter 1.05 to 1
4.5 Interest Expense Coverage Ratio. Borrower will not permit the ratio of
EBITDA to Interest Expense of the Borrower and its Subsidiaries for the rolling
four quarters ending on the dates set forth below to be less than the ratio set
forth opposite each such date.
Four Rolling Quarters Ending Ratio
---------------------------- -----
12/31/96 2.60 to 1
03/31/97 2.60 to 1
06/30/97 2.75 to 1
09/30/97 2.75 to 1
12/31/97 2.75 to 1
03/31/98 2.75 to 1
06/30/98 2.90 to 1
09/30/98 2.90 to 1
12/31/98 2.90 to 1
03/31/99 2.90 to 1
06/30/99 3.20 to 1
09/30/99 3.20 to 1
12/31/99 3.20 to 1
03/31/00 3.20 to 1
Thereafter 4.00 to 1
4.5A Maintenance of Financial Covenants. Borrower will not consummate any
Acquisition, if after giving effect to such Acquisition, the Borrower is not in
compliance with the covenants set forth in subsections 4.1 through 4.5 above.
4.6 Financial Statements and Other Reports. Borrower will maintain, and
cause each of its Subsidiaries to maintain, a system of accounting established
and administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP (it being understood
that quarterly financial statements are not required to have footnote
disclosures). Borrower will deliver to Agent and each Lender each of the
financial statements and other reports described below.
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(A) Monthly Financials. As soon as available and in any event within
thirty (30) days after the end of each month, Borrower will deliver (i) the
consolidated and consolidating balance sheet of Borrower and its Subsidiaries,
as at the end of such month and the related consolidated and consolidating
statements of income, stockholders, equity and cash flow for such month and for
the period, from the beginning of the then current fiscal year of Borrower and
its Subsidiaries to the end of such month all in reasonable detail and stating
the corresponding figures from the consolidated budget of the Borrower and its
subsidiaries for such period, (ii) a schedule of the outstanding Indebtedness
for borrowed money of Borrower and its Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest in excess of an aggregate amount of
$250,000 with respect to such debt issues or loans and (iii) a schedule
indicating the amount of Rental Pool Capital Expenditures agreed to by the Agent
and the Rental Pool Capital Expenditures incurred to date.
(B) Year-End Financials. As soon as available and in any event within
ninety (90) days after the end of each fiscal year, Borrower will deliver: (i)
the consolidated and consolidating balance sheet of Borrower and its
Subsidiaries as at the end of such year and the related consolidated and
consolidating statements of income, stockholders, equity and cash flow for such
fiscal year, together with the notes thereto, all in reasonable detail and
stating in comparative form (a) the respective audited consolidated and
consolidating figures as of the end of and for the previous fiscal year and (b)
the corresponding figures from the consolidated budget of the Borrower and its
Subsidiaries for such fiscal year, (ii) a schedule of the outstanding
Indebtedness for borrowed money of Borrower and its Subsidiaries describing in
reasonable detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest in excess of an aggregate
amount of $250,000 with respect to such debt issues or loans, (iii) a report
with respect to the financial statements from a firm of Certified Public
Accountants selected by Borrower and reasonably acceptable to Agent, which
report shall be prepared in accordance with Statement of Auditing Standards No.
58 (the "Statement") entitled "Reports on Audited Financial Statements" and such
report shall be "Unqualified" (as such term is defined in such Statement), and
(iv) a management letter regarding internal controls issued by such Certified
Public Accountants and addressed to the Borrower, prepared in conjunction with
the Borrower's annual audit.
(C) Borrower Compliance Certificate. Together with each delivery of
financial statements of Borrower and its Subsidiaries pursuant to subsections
4.6(A) and 4.6(B) above, Borrower will deliver a fully and properly completed
Compliance Certificate (in substantially the same form as Exhibit 4.6 (C))
signed by Borrower's chief executive officer or chief financial officer.
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(D) Accountants' Reliance Letter. Together with each delivery of
consolidated financial statements pursuant to subsection 4.6(B), Borrower will
deliver a copy of a letter addressed to Borrower's certified public accountants
informing such accountants that a primary intent of Borrower was for the
professional services such accountants provided to Borrower in preparing their
audit report was to benefit or influence Lenders and their successors or
assigns, and identifying Lenders as a party that Borrower has indicated intends
to rely on such professional services provided to Borrower by such accountants.
(E) Accountants' Reports. Promptly upon receipt thereof, Borrower
will deliver copies of all significant reports submitted by Borrower's firm of
certified public accountants in connection with each annual, interim or special
audit or review of any type of the financial statements or related internal
control systems of Borrower made by such accountants, including any comment
letter submitted by such accountants to management in connection with their
services.
(F) Availability and Borrowing Base Certificates. As soon as
available and in any event at (i) the time any Revolving Loan hereunder is
requested; (ii) within thirty (30) Business Days after the end of each month;
and (iii) upon the consummation of each Acquisition, Borrower will deliver to
Agent an Availability Certificate (in substantially the same form as Exhibit
4.6(F)) as at the last day of such month, or as at the last date for which all
applicable data is available in the case of a Acquisition. Borrower shall also
deliver to the Agent not later than ten Business Days following the last
Business Day of each calendar month, a borrowing base certificate in the form of
Exhibit 4.6(F-l) showing the Borrower's Borrowing Base as of the close of
business on the last Business Day of the immediately preceding calendar month.
(G) Management Report. Together with each delivery of financial
statements of Borrower and its Subsidiaries pursuant to subsections 4.6(A) and
4.6(B), Borrower will deliver a management report (i) describing the operations
and financial condition of Borrower and its Subsidiaries for the month then
ended and the portion of the current fiscal year then elapsed (or for the fiscal
year then ended in the case of year-end financials), (ii) setting forth in
comparative form the corresponding figures for the corresponding periods of the
previous fiscal year and the corresponding figures from the most recent
Projections for the current fiscal year delivered to Agent pursuant to
subsection 4.6(I), and (iii) discussing the reasons for any significant
variations. The information above shall be presented in reasonable detail and
shall be certified by the chief financial officer of Borrower to the effect
that, to the best of such officers knowledge, such information fairly presents
in all material respects the results of operations and financial condition of
Borrower and its Subsidiaries as at the dates and for the periods indicated.
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(H) Appraisals. From time to time, if Agent determines that obtaining
appraisals is necessary in order to comply with applicable laws or regulations,
Agent will obtain, at Borrower's expense, appraisal reports in form and
substance and from appraisers satisfactory to Agent stating the then current
fair market values of all or any portion of the real estate owned by Borrower or
any of its Subsidiaries.
(I) Projections. As soon as available and in any event no later than
the last day of Borrower's Fiscal Year, Borrower will deliver Projections of
Borrower and its Subsidiaries for the forthcoming three Fiscal Years, year by
year, and for the forthcoming Fiscal Year, month by month including a three year
business plan relating to such Projections and any quarterly updates or other
additional information reasonably requested by Agent. Such Projections shall be
updated after the consummation of each Acquisition.
(J) SEC Filings and Press Releases. Promptly upon their becoming
available, Borrower will deliver copies of (i) all financial statements,
reports, notices and proxy statements sent or made available by Borrower or any
of its Subsidiaries to their security holders, (ii) all regular and periodic
reports and all registration statements and prospectuses, if any, filed by
Borrower or any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any governmental or private regulatory
authority, and (iii) all press releases and other statements made available by
Borrower or any of its Subsidiaries to the public concerning developments in the
business of any such Person.
(K) Events of Default, etc. Promptly upon any officer of Borrower
obtaining knowledge of any of the following events or conditions, Borrower shall
deliver copies of all notices given or received by Borrower with respect to any
such event or condition and a certificate of Borrower's chief executive officer
specifying the nature and period of existence of such event or condition and
what action Borrower has taken, is taking and proposes to take with respect
thereto: (i) any condition or event that constitutes an Event of Default or
Default; (ii) any notice that any Person has given to Borrower or any of its
Subsidiaries or any other action taken with respect to a claimed default or
event or condition of the type referred to in subsection 6.1(B); or (iii) any
event or condition that would reasonably be expected to result in any Material
Adverse Effect.
(L) Litigation. Promptly upon any officer of Borrower obtaining
knowledge of: (i) the institution of any action, suit, proceeding, governmental
investigation or arbitration against or affecting any Loan Party or any property
of any Loan Party not previously disclosed by Borrower to Agent or (ii) any
material development in any action, suit, proceeding, governmental investigation
or arbitration at any time pending against or affecting any Loan Party or any
property of any Loan Party which in
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each case, would reasonably be expected to have a Material Adverse Effect,
Borrower will promptly give notice thereof to Agent and provide such other
information as may be reasonably available to them to enable Agent and its
counsel to evaluate such matter.
(M) Supplemental Schedules; Notice of Organizational Changes.
Annually, concurrently with Borrower's delivery of the Projections required by
subsection 4.6(I), Borrower shall supplement in writing and deliver to Agent
revisions of the Schedules annexed to this Agreement to the extent necessary to
disclose new or changed facts or circumstances after the Original Closing Date;
provided that subsequent disclosures shall not constitute a cure or waiver of
any Default or Event of Default resulting from the matters disclosed. Borrower
shall provide written notice to Agent of: (i) all jurisdictions in which a Loan
Party becomes qualified after the Original Closing Date to transact business,
(ii) any material change after the Original Closing Date in the authorized and
issued capital stock or other equity interests of any Loan Party or any of their
respective Subsidiaries or any other material amendment to their charter, by-
laws or other organization documents, and (iii) any Subsidiary created or
acquired by any Loan Party after the Original Closing Date, such notice, in each
case, to identify the applicable jurisdictions, capital structures or
Subsidiaries, as applicable.
(N) Casualty Losses. Borrower shall notify Lender promptly upon the
occurrence of any property casualty loss with respect to any of its assets or
the assets of any of its subsidiaries in excess of $250,000.
(O) Change in Corporate Management. Global shall notify Lender
promptly of any change or expected change in the corporate management of Global
or any change in the senior corporate, sales or service management of any of its
Subsidiaries.
(P) Other Information. With reasonable promptness, Borrower will
deliver such other information and data with respect to any Loan Party or any
Subsidiary of any Loan Party as from time to time may be reasonably requested by
Agent.
4.7 Accounting Terms: Utilization of GAAP for Purposes of Calculations
Under Agreement. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Agent or any Lender pursuant to subsection 4.6 shall be prepared in accordance
with GAAP as in effect at the time of such preparation. No Accounting Changes
(as defined below) shall affect financial covenants, standards or terms in this
Agreement; provided, that Borrower shall prepare footnotes to each Compliance
Certificate and the financial statements required to be delivered hereunder that
show the differences between the financial statements delivered (which reflect
such Accounting Changes) and the basis for calculating financial covenant
compliance (without reflecting such Accounting
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Changes). "Accounting Changes" means: (a) changes in accounting principles
required by GAAP and implemented by Borrower; (b) changes in accounting
principles recommended by Borrower's certified public accountants and
implemented by Borrower; and (c) changes in carrying value of Borrower's or any
of its Subsidiaries assets, liabilities or equity accounts resulting from (i)
the application of purchase accounting principles (A.P.B. 16 and/or 17 and EITF
88-16 and FASB 109) to the Related Transactions or (ii) other adjustments that,
in each case, were applicable to, but not included in, the Pro Forma. All such
adjustments resulting from expenditures made subsequent to the Original Closing
Date (including, but not limited to, capitalization of costs and expenses or
payment of pre-Original Closing Date liabilities) shall be treated as expenses
in the period the expenditures are made so as to assure a consistent application
of all accounting principles implemented by Borrower.
SECTION 5
REPRESENTATIONS AND WARRANTIES
In order to induce Agent and Lenders to enter into this Agreement and to
make Loans, Borrower represents and warrants to Agent and Lenders that the
following statements are true, correct and complete:
5.1 Disclosure. No representation or warranty of any Loan Party contained
in this Agreement, the financial statements referred to in subsection 5.5, the
other Related Transactions Documents or any other document, certificate or
written statement furnished to Agent or Lenders by or on behalf of any such
Person for use in connection with the Loan Documents or the Related Transactions
Documents contains any untrue statement of a material fact or omitted, omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made.
5.2 No Material Adverse Effect. Since March 31, 1996 there have been no
events or changes in facts or circumstances affecting any Loan Party which
individually or in the aggregate have had or would reasonably be expected to
have a Material Adverse Effect and that have not been disclosed herein or in the
attached Schedules.
5.3 No Default: Governmental Consents.
(A) The consummation of the Related Transactions does not and will not
violate, conflict with, result in a breach of, or constitute a default (with due
notice or lapse of time or both) under any contract of any Loan Party except if
such violations, conflicts, breaches or defaults have been waived on or before
the Closing Date and are disclosed on Schedule 5.3.
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(B) The execution, delivery and performance by each Loan Party of each
Related Transactions Document to which it is a party, and the consummation of
the Related Transactions do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body except for
filings required in connection with the perfection of security interests granted
pursuant to the Loan Documents, and other filings, authorizations, consents and
approvals, all of which have been made or obtained.
5.4 Organization, Powers, Capitalization and Good Standing.
(A) Organization and Powers. Each of the Loan Parties is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation (which jurisdiction is set forth on Schedule 5.4
(A)) , Each of the Loan Parties has all requisite corporate power and authority
to own and operate its properties, to carry on its business as now conducted and
proposed to be conducted, to enter into each Related Transactions Document to
which it is a party and to carry out the Related Transactions.
(B) Capitalization. The authorized capital stock of each of the Loan
Parties is as set forth on Schedule 5.4(B). All issued and outstanding shares of
capital stock of each of such Loan Parties are duly authorized and validly
issued, fully paid, nonassessable, free and clear of all Liens other than those
in favor of Agent, for the benefit of Lenders, and such shares were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. The capital stock of each of such Loan Parties is owned by the
stockholders and in the amounts set forth on Schedule 5.4(B). As of the Closing
Date, no shares of the capital stock of any such Loan Party, other than those
described above, are issued and outstanding. As of the Closing Date, except as
provided in any agreement executed in connection with the issuance to Lenders of
equity securities of any Loan Party, there are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Loan Party of any
shares of capital stock or other securities of any such entity.
(C) Binding Obligation. This Agreement is, and the other Related
Transactions Documents when executed and delivered will be, the legally valid
and binding obligations of the applicable Loan Parties, each enforceable against
the Loan Parties, as applicable, in accordance with their respective terms.
(D) Qualification. Each of the Loan Parties is duly qualified and in
good standing wherever necessary to carry on its business and operations, except
in jurisdictions in which the failure to be qualified and in good standing could
not reasonably be expected to have a Material Adverse Effect. All jurisdictions
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in which each Loan Party is qualified to do business are set forth on
Schedule 5.4(D).
5.5 Financial Statements. All financial statements concerning Borrower and
its Subsidiaries which have been or will hereafter be furnished by Borrower and
its Subsidiaries to Agent pursuant to this Agreement, including those listed
below, have been or will be prepared in accordance with GAAP consistently
applied (except as disclosed therein) for and do or will present fairly in all
material respects the financial condition of the corporations covered thereby as
at the dates thereof and the results of their operations for the periods then
ended.
(A) The consolidated and consolidating balance sheet at March 31, 1997
and the related statement of income of Borrower and its Subsidiaries, for the
fiscal year then ended, certified by Ernst & Young.
(B) The unaudited consolidated and consolidating balance sheet at
September 30, 1997 and the related unaudited statement of income of Borrower and
its Subsidiaries for the six (6) months then ended.
5.6 Intellectual Property. Borrower and each of its Subsidiaries owns, is
licensed to use or otherwise has the right to use, all patents, trademarks,
trade names, copyrights, technology, know-how and processes used in or necessary
for the conduct of its business as currently conducted that are material to the
condition (financial or other) , business or operations of Borrower or its
Subsidiaries (collectively called "Intellectual Property") and is registered,
filed or issued, where applicable, in the appropriate office and jurisdictions
for such registrations, filing or issuances. All patents, trademarks, trade
names and copyrights are identified on Schedule 5.6. Except as disclosed in
Schedule 5.6, the use of Intellectual Property by Borrower and its Subsidiaries,
does not and has not been alleged by any Person to infringe on the rights of any
Person.
5.7 Investigations Audits, Etc. Except as set forth on Schedule 5.7,
neither Borrower, nor any of its Subsidiaries are the subject of any review or
audit by the Internal Revenue Service or any governmental investigation
concerning the violation or possible violation of any law.
5.8 Employee Matters. Except as set forth on Schedule 5.8, as of the
Closing Date: (a) no Loan Party nor any of their respective employees is subject
to any collective bargaining agreement, (b) no petition for certification or
union election is pending with respect to the employees of any Loan Party and no
union or collective bargaining unit has sought such certification or recognition
with respect to the employees of any Loan Party, and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrower after due inquiry, threatened between any Loan Party and its respective
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employees, other than employee grievances arising in the ordinary course of
business which would not reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect. Except as set forth on Schedule
5.8, neither Borrower nor any of its Subsidiaries is subject to an employment
contract.
5.9 Solvency. As of and from and after the date of this Agreement and after
giving effect to the consummation of the Related Transactions, Borrower and its
Subsidiaries: (a) own and will own assets the fair saleable value of which, on a
going concern basis, are (i) greater than the total amount of liabilities
(including contingent liabilities) of Borrower and its Subsidiaries and (ii)
greater than the amount that will be required to pay the probable liabilities of
Borrower's then existing debts as they become absolute and matured considering
all financing alternatives and potential asset sales reasonably available to
Borrower and its Subsidiaries; (b) have capital that is not unreasonably small
in relation to their respective businesses as presently conducted or any
contemplated or undertaken transaction; and (c) do not intend to incur and do
not believe that they will incur debts beyond their ability to pay such debts as
they become due.
5.10 Environmental Compliance.
(A) Except as set forth on Schedule 5.10 hereto, neither Borrower nor
any of its Subsidiaries has generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which at any time
violates any applicable Environmental Law or any license, permit, certificate,
approval or similar authorization thereunder and the operations of Borrower
complies in all material respects with all Environmental Laws and all licenses,
permits, certificates, approvals and similar authorizations thereunder.
(B) Except as set forth on Schedule 5.10 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or any of its Subsidiaries or the release, spill or discharge,
threatened or actual, of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter, which
affects Borrower or any of its Subsidiaries or their respective businesses,
operations or assets or any properties at which Borrower or any Subsidiary has
transported, stored or disposed of any Hazardous Materials.
(C) Neither Borrower nor any of its Subsidiaries has any material
liability (contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment,
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transportation, manufacture, handling, production or disposal of any
Hazardous Materials.
(D) Borrower and each of its Subsidiaries has all licenses, permits,
certificates, approvals or similar authorizations required to be obtained or
filed in connection with the operations of Borrower under any Environmental Law
and all of such licenses, permits, certificates, approvals or similar
authorizations are valid and in full force and effect.
5.11 Litigation. There are no material actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Borrower's knowledge,
threatened against or affecting the Borrower or any of its Subsidiaries at law
or in equity, or before or by any governmental department, commission, board,
bureau, agency or instrumentality; neither the Borrower nor any of its
Subsidiaries is subject to any arbitration proceedings or, to the best of the
Borrower's knowledge, any material governmental investigations or inquiries
(including inquiries as to the qualification to hold or receive any license or
permit) ; and, to the best of the Borrower's knowledge, there is no basis for
any of the foregoing. Neither the Borrower nor any of its Subsidiaries, has
received any opinion or memorandum or legal advice from legal counsel to the
effect that it or its Subsidiaries is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business.
5.12 ERISA. The Borrower's 401(k) Retirement Plan complies in all material
respects with all applicable laws, rules, regulations and orders of all
governmental authorities.
SECTION 6
DEFAULT, RIGHTS AND REMEDIES
6.1 Event of Default. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) Payment. (i) Failure of Borrower to pay when due any of the
Obligations other than the payment of interest; and (ii) failure of Borrower to
pay, within five (5) days after the due date, any interest on any of the Loans;
(B) Default in Other Agreements. (i) Failure of Borrower or any of its
Subsidiaries to pay when due or within any applicable grace period any principal
or interest on Indebtedness (other than the Loans) or any Contingent Obligations
or (ii) breach or default of Borrower or any of its Subsidiaries with respect to
any Indebtedness (other than the Loans) or any Contingent Obligations, if the
effect of such failure to pay, default or breach is to permit the holder or
holders then to cause, Indebtedness and/or Contingent Obligations having an
individual principal amount in excess of $250,000 or having an aggregate
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principal amount in excess of $500,000 to become or be declared due prior to
their stated maturity;
(C) Breach of Certain Provisions. Failure of Borrower to perform or comply
with any term or condition contained in: (i) the portion of subsection 2.2
relating to Borrower's obligation to maintain insurance; or (ii) subsection 2.3,
Section 3 or Section 4;
(D) Breach of Warranty. Any representation, warranty, certification or
other statement made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made;
(E) Other Defaults Under Loan Documents. Borrower or any other Loan Party
defaults in the performance of or compliance with any term contained in this
Agreement or the other Loan Documents and such default is not remedied or waived
within fifteen (15) days after receipt by Borrower of notice from Agent of such
default (other than occurrences described in other provisions of this subsection
6.1 for which a different grace or cure period is specified or which constitute
immediate Events of Default);
(F) Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court
enters a decree or order for relief with respect to Borrower or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code, which decree or
order is not stayed or other similar relief is not granted under any applicable
federal or state law; or (ii) the continuance of any of the following events for
sixty (60) days unless dismissed, bonded or discharged: (a) an involuntary case
is commenced against Borrower or any of its Subsidiaries, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a
decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over
Borrower or any of its Subsidiaries, or over all or a substantial part of its
property, is entered; or (c) an interim receiver, trustee or other custodian is
appointed without the consent of Borrower or any of its Subsidiaries, for all or
a substantial part of the property of Borrower or any such Subsidiary;
(G) Voluntary Bankruptcy: Appointment of Receiver, Etc. (i) An order for
relief is entered with respect to Borrower or any of its Subsidiaries or
Borrower or any of its Subsidiaries commences a voluntary case under the
Bankruptcy Code, or consents to the entry of an order for relief in an
involuntary case or to the conversion of an involuntary case to a voluntary case
under any such law or consents to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or (ii) Holdings, Borrower or any of its Subsidiaries makes any
assignment for the benefit of creditors; or (iii) the Board of Directors of
Holdings, Borrower or any of its Subsidiaries adopts any resolution or otherwise
authorizes action
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to approve any of the actions referred to in this subsection 6.1 (G);
(H) Governmental Liens. Any lien, levy or assessment is filed or recorded
with respect to or otherwise imposed upon all or any part of the Collateral or
the assets of Borrower or any of its Subsidiaries by the United States or any
department or instrumentality thereof or by any state, county, municipality or
other governmental agency (other than Permitted Encumbrances);
(I) Judgment and Attachments. Any money judgment, writ or warrant of
attachment, or similar process (other than those described in subsection 6.1(H))
involving (i) an amount in any individual case in excess of $200,000 or (ii) an
amount in the aggregate at any time in excess of $400,000 (in either case not
adequately covered by insurance as to which the insurance company has
acknowledged coverage) is entered or filed against Borrower or any of its
Subsidiaries or any of their respective assets and remains undischarged,
unvacated, unbonded or unstayed for a period of thirty (30) days or in any event
later than five (5) Business Days prior to the date of any proposed sale
thereunder;
(J) Material Adverse Effect. A Material Adverse Effect shall have occurred;
(K) Dissolution. Any order, judgment or decree is entered against Borrower
or any of its Subsidiaries decreeing the dissolution or split up of Borrower or
that Subsidiary and such order remains undischarged or unstayed for a period in
excess of fifteen (15) days;
(L) Solvency. A Borrower on any of its Subsidiaries ceases to be solvent or
admits in writing its present or prospective inability to pay its debts as they
become due;
(M) Injunction. Borrower or any of its Subsidiaries is enjoined, restrained
or in any way prevented by the order of any court or any administrative or
regulatory agency from conducting all or any material part of its business and
such order continues for more than fifteen (15) days;
(N) ERISA: Pension Plans. (i) Any Loan Party fails to make full payment
when due of all amounts which, under the provisions of any employee pension
benefit plan (as defined in Section 3 (2) of ERISA) or any applicable provisions
of the Internal Revenue Code as amended from time to time ("IRC"), any Loan
Party is required to pay as contributions thereto and such failure results in or
is likely to result in a Material Adverse Effect; or (ii) an accumulated funding
deficiency or withdrawal liability in excess of $250,000 occurs or exists,
whether or not waived, with respect to any employee pension benefit plan or
multi-employer plan; or (iii) any employee pension benefit plan loses its status
as a qualified plan under the IRC and such event results in
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or would reasonably be expected to result in a Material Adverse Effect;
(O) Environmental Issues. Failure to: (i) obtain or maintain any
material operating licenses or permits required by environmental authorities;
(ii) begin, continue or complete any remediation activities as required by any
environmental authorities; (iii) store or dispose of any hazardous materials in
accordance with applicable environmental laws and regulations; or (iv) comply
with any other material environmental laws;
(P) Invalidity of Loan Documents. Any of the Loan Documents ceases to
be in full force and effect in all material respects due to any action or
omission of any Loan Party or is declared to be null and void, or any Loan Party
denies that it has any further liability under any Loan Documents to which it is
party, or gives notice to such effect;
(Q) Damages, Strike, Casualty. Any material damage to, or loss, theft
or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than fifteen (15) consecutive days, the
cessation or substantial curtailment of revenue producing activities at any
facility of Borrower or any of its Subsidiaries if any such event or
circumstance described in this clause (Q) could reasonably be expected to have a
Material Adverse Effect;
(R) Licenses and Permits. The loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired by
Borrower or any of its Subsidiaries, if such loss, suspension, revocation or
failure to renew would reasonably be expected to have a Material Adverse Effect;
(S) Failure of Security. Agent, for the benefit of Lenders, does not
have or ceases to have a valid and perfected first priority security interest in
the Collateral (subject to Permitted Encumbrances), in each case, for any
reason other than the failure of Agent to take any action within its control;
(T) Change in Control. (i) GTCR ceases to beneficially own and control,
directly or indirectly, at least fifty-one percent (51%) of the issued and
outstanding shares of each class of capital stock of Global entitled (without
regard to the occurrence of any contingency) to vote for the election of a
majority of the members of the board of directors of Borrower, or (ii) GTCR IV
ceases to beneficially own and control all of the shares of each class of
capital stock of Global owned by GTCR IV on the Closing Date.
6.2 Suspension of Commitment. Upon the occurrence of any Default or Event
of Default, Agent or Lenders, without notice or demand, may immediately cease
making additional Loans and the Revolving Loan Commitment, Term Loan Commitment
shall be suspended; provided that, in the case of a Default, if the subject
condition
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or event is waived, cured or removed by the Requisite Lenders within any
applicable grace or cure period, the Revolving Loan Commitment and Term Loan
Commitment shall be reinstated. Requisite Lenders, in their sole discretion, may
alternatively suspend only a portion of the Revolving Loan Commitment and Term
Loan Commitment.
6.3 Acceleration. Upon the occurrence of any Event of Default described in
the foregoing subsections 6.1(F) or 6.1(G), the unpaid principal amount of and
accrued interest and fees on the Term Loans and the Revolving Loans and all
other Obligations shall automatically become immediately due and payable,
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other requirements of any kind, all of which are hereby
expressly waived by Borrower, and the Revolving Loan Commitment and Term Loan
Commitment shall thereupon terminate. Upon the occurrence and during the
continuance of any other Event of Default, Agent may, and upon demand by
Requisite Lenders, Agent shall, by written notice to Borrower declare all or any
portion of the Loans and all or some of the other Obligations to be, and the
same shall forthwith become, immediately due and payable together with accrued
interest thereon, and the Revolving Loan Commitment and Term Loan Commitment
shall thereupon terminate. Any such declaration made by Agent may be rescinded
by Agent, in its sole discretion, or upon the demand of the Requisite Lenders.
6.4 Performance by Agent. If Borrower shall fail to perform any covenant,
duty or agreement contained in any of the Loan Documents, Agent may perform or
attempt to perform such covenant, duty or agreement on behalf of Borrower after
the expiration of any cure or grace periods set forth herein. In such event,
Borrower shall, at the request of Agent, promptly pay any amount reasonably
expended by Agent in such performance or attempted performance to Agent,
together with interest thereon at the rate of interest in effect upon the
occurrence of an Event of Default as specified in subsection 1.2(E) from the
date of such expenditure until paid. Notwithstanding the foregoing, it is
expressly agreed that Agent shall not have any liability or responsibility for
the performance of any obligation of Borrower under this Agreement or any other
Loan Document.
SECTION 7
CONDITIONS TO LOANS
The obligations of each Lender to make Loans are subject to satisfaction of
all of the applicable conditions set forth below.
7.1 Conditions to All Loans. The obligations of each Lender to make Loans
on any date ("Funding Date") are subject to the conditions precedent set forth
below.
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(A) Agent shall have received, in accordance with the provisions of
subsection 1.1, a notice requesting an advance of a Revolving Loan or an
Additional Term Loan.
(B) The representations and warranties contained in Section 5 of this
Agreement and elsewhere herein and in the Loan Documents shall be (and each
request by Borrower for a Loan shall constitute a representation and warranty by
Borrower that such representations and warranties are) true, correct and
complete in all material respects on and as of that Funding Date to the same
extent as though made on and as of that date, except for any representation or
warranty limited by its terms to a specific date and taking into account any
amendments to the Schedules or Exhibits as a result of any disclosures made in
writing by Borrower to Agent after the Closing Date and approved by Agent.
(C) No event shall have occurred and be continuing or would result from
the consummation of the borrowing contemplated that would constitute an Event of
Default or a Default.
(D) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain Agent or any Lender
from making any Loans.
7.2 Conditions to Funding Additional Term Loans.
The obligations of each Lender to make Additional Term Loans on each
Funding Date are subject to the further conditions precedent set forth below.
(A) Use of Proceeds. The proceeds of Additional Term Loans shall be
used solely to finance all or a portion of the purchase price of an Acquisition
and all transaction costs directly associated with such Acquisition or to
acquire rental pool equipment and to the extent such proceeds are used to
acquire rental pool equipment Borrower shall deliver to Agent the schedule
required pursuant to Section 4.6(A) (iii) herein.
(B) Due Diligence Package. The Acquisition shall be permitted hereunder
and with respect to Acquisitions other than Small Acquisitions, Agent shall have
received, in accordance with the provisions of subsection 3.16, the due
diligence package. With respect to Small Acquisitions, Borrower shall deliver
such due diligence package within 30 days after consummation of such
Acquisition.
(C) Evidence of Perfected First Priority Security Interests of the
Lenders in Assets. With respect to the entity to be acquired and prior to the
funding of such Loan, Agent shall have received evidence of the proper filing in
all required filing offices of duly executed UCC financing statements with
respect to such Acquisition in form reasonably satisfactory to Agent and
perfecting first priority security interests of Agent, on behalf of the Lenders,
in all of the assets of the entity to be acquired.
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(D) Maximum Availability. After giving effect to such Additional Term
Loan, the outstanding Loans will not exceed the Maximum Loan Balance.
(E) Other Documents. The due execution and delivery of the documents
set forth on Schedule 7.1 and such other documents as Agent may reasonably
request.
SECTION 8
ASSIGNMENT AND PARTICIPATION
Jackson may assign its rights and delegate its obligations under this
Agreement and further may assign, or sell participations in all or any part of
its Loans or its Revolving Loan Commitment and/or Term Loan Commitment. The
rights and responsibilities as between the Agent and the Lenders are subject to
and set forth in the Agent Agreement, a copy of which is attached hereto as
Exhibit 8.
SECTION 9
MISCELLANEOUS
9.1 Indemnities. Borrower agrees to indemnify, pay, and hold Agent, each
Lender and their respective officers, directors, employees, agents, and
attorneys (the "Indemnitees") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits and claims of
any kind or nature whatsoever that may be imposed on, incurred by, or asserted
against the Indemnitee as a result of being a party to this Agreement; provided
that Borrower shall have no obligation to an Indemnitee hereunder with respect
to liabilities arising from the gross negligence or willful misconduct of that
Indemnitee, as determined by a court of competent jurisdiction. This subsection
9.1 shall survive the termination of this Agreement.
9.2 Amendments and Waivers. No amendment, modification, or termination, or
waiver of any provision of this Agreement or any Loan Documents, shall be
effective unless the same shall be in writing and signed by Requisite Lenders or
Agent, as applicable (or less if permitted by the Agent Agreement or the
applicable Lender Addition Agreement) and the applicable Loan Party; provided
that, except to the extent permitted by the Agent Agreement or the applicable
Lender Addition Agreement, no amendment, modification, termination or waiver
shall, unless in writing and signed by all Lenders, do any of the following: (a)
increase the Commitment of any Lender; (b) reduce the principal of, rate of
interest on or fees payable with respect to any Loan; (c) extend the final
scheduled maturity date of the principal amount of the Loans; (d) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Loans, or the percentage of Lenders which
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shall be required for Lenders or any of them to take any action hereunder; (e)
release Collateral (except if the sale or disposition of such Collateral is
permitted under the Assignment and Participation Agreement or any other Loan
Document); (f) amend or waive this subsection 9.2 or the definitions of the
terms used in this subsection 9.2 insofar as the definitions affect the
substance of this subsection 9.2; or (g) consent to the assignment or other
transfer by any Loan Party of any of its rights and obligations under any Loan
Document; and provided further than no amendment, modification, termination or
waiver affecting the rights or duties of Agent under any Loan Document shall in
any event be effective, unless in writing and signed by Agent, in addition to
Lenders required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Note shall be effective without the written concurrence
of the holder of that Note. No notice to or demand on Borrower or any other Loan
Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 9.2 shall be binding upon each
holder of the Notes at the time outstanding, each future holder of the Notes,
and, if signed by a Loan Party, on such Loan Party.
9.3 Notices. Any notice or other communication required shall be in writing
addressed to the respective party as set forth below and may be personally
served, telecopied, sent by telex, sent by overnight courier service or U.S.
mail and shall be deemed to have been given: (a) if delivered in person, when
delivered; (b) if delivered by telecopy or telex, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. CST; (c) if delivered by
reputable overnight courier for overnight delivery, one (1) Business Day after
delivery to courier properly addressed, or (d) if delivered by U.S. mail, four
(4) Business Days after deposit with postage prepaid and properly addressed.
Notices shall be addressed as follows:
If to Borrower: GLOBAL IMAGING SYSTEMS INC.
13902 North Dale Mabry Highway
Suite 300
Tampa, Florida 33618
ATTN: Ray Schilling
Telephone: (813) 960-5508
Telecopy: (813) 264-7877
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With copies to: HOGAN & HARTSON, L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004-1109
ATTN: J. Hovey Kemp, Esq.
Telephone: (202) 637-5623
Telecopy: (202) 637-5910
If to Agent
or Jackson: PPM AMERICA, INC.
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
ATTN: Private Placements
Telephone: (312) 634-2500
Telecopy: (312) 634-0054
With a copy to: ANDERSON KILL & OLICK, P.C.
1251 Avenue of the Americas
New York, New York 10020
ATTN: J. Andrew Rahl, Jr., Esq.
Telephone: (212) 278-1469
Telecopy: (212) 278-1733
9.4 Failure or Indulgence Not Waiver: Remedies Cumulative. No failure or
delay on the part of Agent or any Lender to exercise, or any partial exercise
of, any power, right, or privilege hereunder or under any other Loan Documents
shall impair such power, right, or privilege or be construed to be a waiver of
any Default or Event of Default. All rights and remedies existing hereunder or
under any other Loan Document are cumulative to and not exclusive of any rights
or remedies otherwise available.
9.5 Marshalling, Payments Set Aside. Neither Agent nor any Lender shall be
under any obligation to marshall any assets in payment of any or all of the
Obligations. To the extent that the Borrower makes a payment(s) or Agent and/or
any Lender enforce their Liens or exercise its right of set-off, and such
payment(s) or the proceeds of such enforcement or set off is subsequently
invalidated, declared to be fraudulent or preferential, set aside, or required
to be repaid by anyone, then to the extent of such recovery, the Obligations or
part thereof originally intended to be satisfied, and all Liens, rights and
remedies therefor, shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set off had not occurred.
9.6 Severability. The invalidity, illegality, or unenforceability in any
jurisdiction of any provision under the Loan Documents shall not affect or
impair the remaining provisions in the Loan Documents.
9.7 Headings. Section and subsection headings are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purposes or be given substantive effect.
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9.8 Applicable Law. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF THE
RELATIONSHIP BETWEEN THE PARTIES HERETO, WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE, SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES.
9.9 Successors and Assigns. Subject to the provisions of Section 8, this
agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns except that Borrower may not assign
its rights or obligations hereunder.
9.10 No Fiduciary Relationship. No provision in the Loan Documents and no
course of dealing between the parties shall be deemed to create any fiduciary
duty by Agent, any Lender to Borrower.
9.11 Construction. Agent, each Lender and Borrower acknowledge that each of
them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review the Loan Documents with its legal counsel and
that the Loan Documents shall be constructed as if jointly drafted by Agent,
each Lender and Borrower.
9.12 Confidentiality. Each Lender agrees to exercise its best efforts to
keep any non public information delivered pursuant to the Loan Documents,
confidential from Persons other than those employed by or engaged by such Lender
in evaluating, approving, structuring or administering the Loans and those
employed by or engaged by such Lender's assignees or participants, or potential
assignees or participants.
9.13 Consent to Jurisdiction and Service of Process.
(A) BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW
YORK CITY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST AGENT OR ANY
LENDER OR ANY AFFILIATE INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT
ONLY IN A COURT IN NEW YORK, NEW YORK.
(B) BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
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BORROWER WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE
ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT,
SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED
BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS PROVIDED IN SUBSECTION 9.3 EXCEPT
THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY
SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY
BORROWER REFUSES TO ACCEPT SERVICE, BORROWER HEREBY AGREES THAT SERVICE UPON IT
BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
9.14 Waiver of Jury Trial. BORROWER AND EACH LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. BORROWER, AGENT AND EACH
LENDER ALSO WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT
FOR THIS WAIVER, BE REQUIRED OF LENDERS. THE SCOPE OF THIS WAIVER IS INTENDED TO
BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. BORROWER, AGENT AND EACH LENDER ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER, AGENT AND EACH LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THE LOAN DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9.15 Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement, the making of the Loans and the execution and
delivery of the Notes. Notwithstanding anything in this Agreement or implied by
law to the contrary, the agreements of Borrower set forth in subsections 1.3 and
9.1 shall survive the payment of the Loans and the termination of this
Agreement.
9.16 Entire Agreement. This Agreement, the Notes and the other Loan
Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, understandings, whether
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oral or written, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto.
9.17 Counterparts. This Agreement may be executed in several counterparts,
all of which shall be deemed to be an original but all of which counterparts
collectively shall constitute one agreement.
SECTION 10
DEFINITIONS
10.1 Certain Defined Terms. The terms defined below are used in this
Agreement as so defined. Terms defined in the preamble and recitals to this
Agreement are used in this Agreement as so defined.
"1996 Loan Agreement" shall have the meaning set forth in the Recitals
hereto.
"Accounts" mean all present and future rights of Borrower to payment
for goods sold or leased or for services rendered, which are not evidenced by
instruments or chattel paper, and whether or not earned by performance.
"Acquisition" means the direct or indirect purchase or other
acquisition, with the prior written consent of the Requisite Lenders, whether by
asset acquisition, stock acquisition, merger or otherwise, of a distinct
business to be operated by Borrower or any of its Subsidiaries.
"Acquisition EBITDA" means EBITDA attributable to each Acquisition
during the one (1) year period preceding the date of determination for the
number of months immediately preceding the consummation of the applicable
Acquisition for which acceptable financial statements of Borrower have been
delivered to Agent pursuant to Subsection 4.6(a), plus Allowable Adjustments
and, for purposes of Section 4.3, plus EBITDA attributable to each Acquisition
for the period from the consummation of the applicable Acquisition through the
date of determination; provided, however, such amounts have not been included in
EBITDA.
"Additional Term Loans" shall have the meaning set forth in subsection
1.1(C)(2).
"Affiliate" means any Person (other than Agent or any Lender): (a)
directly or indirectly controlling, controlled by, or under common control with,
Borrower; (b) directly or indirectly owning or holding five percent (5%) or more
of any equity interest in Borrower; or (c) five percent (5%) or more of whose
voting stock or other equity interest is directly or indirectly owned or held by
Borrower. For purposes of this definition, "control" (including
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with correlative meanings, the terms "controlling", "controlled by" and
"under common control with") means the possession directly or indirectly of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or by contract or
otherwise.
"Agent" means PPM America, Inc. in its capacity as Agent for the
Lenders under this Agreement and any successor in such capacity appointed
pursuant to the Agent Agreement.
"Agent Agreement" shall have the meaning set forth in Section 8.
"Agreement" means this Credit Agreement (including all schedules,
exhibits, annexes and appendices hereto).
"Allowable Adjustments" means with respect to any business acquired by
Borrower, the estimated monthly amount of cost savings (net of the estimated
monthly amount of cost increases) attributable to operational efficiencies
expected to be created by Borrower with respect to such business for the twelve
(12) month period following the consummation of such business acquired, as
calculated by Borrower and acceptable to Agent in its discretion, for the number
of months which have not elapsed during the 12 month period (i) commencing on
the last day of the month preceding the consummation of the Acquisition for
which financial statements were available and (ii) ending on the first
anniversary of the date determined pursuant to clause (i).
"Asset Disposition" means the disposition whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise of any of the
following: (a) any of the stock, of any of Borrower's Subsidiaries or (b) any or
all of the assets of Borrower or any of its Subsidiaries other than sales of
Inventory in the ordinary course of business.
"Assignment and Participation Agreement" shall have the meaning set
forth in Section 8.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time or any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect and all rules and
regulations promulgated thereunder.
"Base Rate" means a variable rate of interest equal to the average
published variable rate of interest per annum which is announced from time to
time by Bankers Trust Company or The Chase Manhattan Bank, N.A. as the "prime
rate," "reference rate," "base rate," or other similar rate. The Base Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer by any Lender.
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"Blocked Accounts" shall have the meaning set forth in subsection 1.9.
"Borrower" shall mean and include each of Global and its Subsidiaries
who are signatories hereto. All representations contained herein shall be deemed
individually made by each "Borrower" and each of the covenants, agreements, and
obligations set forth herein shall be deemed to be the joint and separate
covenants, agreements, and obligations of the Borrowers. For purposes of
subsection 6.1 of this Agreement, references to the "Borrower" shall be deemed
to mean and include each of Global and its Subsidiaries who are signatories
hereto or all of them. Any notice, request, consent, report or other information
or agreement delivered to Agent or any Lender by any Borrower shall be deemed to
be ratified by, consented to, and also delivered by the other Borrowers. Each of
the Borrowers recognize and agree that each covenant and agreement of "Borrower"
or "Borrowers" in this Agreement and in the other Loan Documents shall create a
joint and several obligation of such entities, which may be enforced against
such entities jointly, or against each entity separately. Without limiting the
terms of this Agreement, and the other Loan Documents, the security interests
granted under the Loan Documents in properties, assets, and collateral of
"Borrower" shall include and extend to the properties, interests, assets, and
collateral of such entities, and any of them. Similarly, the term "Obligations"
shall include, without limitation, all obligations, liabilities, and
indebtedness of such entities, or any of them, to Agent and Lenders, whether
such obligations, liabilities, and indebtedness shall be joint, several, joint
and several, or individual.
"Borrowing Base" shall have the meaning set forth in subsection
1.1(A).
"Borrowing Base Certificate" shall have the meaning set forth in
subsection 4.6(F) .
"Business Day" means (a) for all purposes other than as covered by
clause (b) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of Illinois, or is a day on which
banking institutions located in any such state are closed; and (b) with respect
to all notices, determinations, fundings and payments in connection with Loans
bearing interest at the LIBOR Rate, any day that is a Business Day described in
clause (a) above and that is also a day for trading by and between banks in
Dollar deposits in the applicable interbank LIBOR market.
"Cash Equivalent" means: (i) marketable direct obligations issued
directly or unconditionally guarantied by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one (1) year from the date of acquisition
thereof; (ii) commercial paper maturing no more than one (1) year from the date
issued and, at the time of acquisition, having a rating of at
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least A-l from Standard & Poor's Corporation or at least P-l from Moody's
Investors Service, Inc.; (iii) certificates of deposit or bankers' acceptances
maturing within one (1) year from the date of issuance thereof issued by, or
overnight reverse repurchase agreements from, any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia having combined capital and surplus of not less than
$500,000,000; and (iv) time deposits maturing no more than thirty (30) days from
the date of creation thereof with commercial banks having membership in the
Federal Deposit Insurance Corporation in amounts not exceeding the lesser of
$100,000 or the maximum amount of insurance applicable to the aggregate amount
of Borrower's deposits at such institution.
"Closing Date" means November 14, 1997.
"Co-Agent" means PPM Finance, Inc. in its capacity as Co-Agent for the
Lenders.
"Collateral" means, collectively: (a) all capital stock, and other
property pledged pursuant to the Security Documents; (b) all "Collateral" as
defined in the Security Documents; (c) all real property mortgaged pursuant to
the Security Documents; and (d) any property or interest provided in addition to
or in substitution for any of the foregoing.
"Commitment" or "Commitments" means the commitment or commitments of a
Lender or Lenders to make the Loans described in subsection 1.1.
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person: (i) with respect to
any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (ii) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; or (iii)
under any foreign exchange contract, currency swap agreement, interest rate swap
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates.
Contingent Obligations shall include (a) the direct or indirect guaranty,
including, keep wells endorsement (other than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, and (c) any liability of such Person
for the obligations of another through any agreement to
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purchase, repurchase or otherwise acquire such obligation or any property
constituting security therefor, to provide funds for the payment or discharge of
such obligation or to maintain the solvency, financial condition or any balance
sheet item or level of income of another. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed.
"Default" means a condition or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"EBITDA" means, for any period, net income (or loss) of Borrower and
its Subsidiaries on a consolidated basis determined in accordance with GAAP, but
excluding: (a) the income (or loss) of any Person (other than Subsidiaries of
Borrower) in which Borrower or any of its Subsidiaries has an ownership interest
unless received by Borrower or its Subsidiary in a cash distribution; (b) the
income (or loss) of any Person accrued prior to the date it became a Subsidiary
of Borrower or is merged into or consolidated with Borrower or that Person's
assets are acquired by Borrower or any of its Subsidiaries, plus (i) any
provision for (or less any benefit from) income and franchise taxes included in
the determination of net income; (ii) interest expense deducted in the
determination of net income including interest rate protection amortization to
the extent not included in (iii) herein; (iii) amortization and depreciation
deducted in determining net income; (iv) expenses of the Related Transactions
included in the determination of net income provided that such expenses were
included in the Pro Forma, or disclosed in the notes thereto; (v) non-cash
extraordinary losses (as defined under GAAP) net of related tax effects; less
(a) expenditures pursuant to the last sentence of subsection 4.7 applicable to,
but not included in, the Pro Forma; including expenditures during the period
made in connection with the Related Transactions and payment of liabilities
existing on the Closing Date, (b) gains from Asset Dispositions (other than
Asset Dispositions which do not exceed in the aggregate $100,000) or gains from
other non-cash items in excess of $100,000 in the aggregate included in the
determination of net income, and (c) extraordinary gains, as defined under GAAP,
net of related tax effects; plus any management fees paid to GTCR deducted in
determining EBITDA. All amounts taken into consideration hereunder shall be
without duplication including, but not limited to, the Related Transaction
expenses.
"Eligible Accounts" means Accounts created by Borrower which are and
continue to be acceptable to Lender based on the criteria set forth below.
Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which
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transactions are completed in accordance with the terms and provisions contained
in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days after
the date of the original invoice or shipping date for them less any reserves
established by Borrower, not otherwise established hereunder;
(c) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(d) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America, or, at Agent's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Agent, sufficient to cover such Account, in form and substance satisfactory to
Agent and, if required by Agent, the original of such letter of credit has been
delivered to Agent and the issuer thereof notified of the assignment of the
proceeds of such letter of credit to Agent, or (ii) such Account is otherwise
acceptable in all respects to Agent (subject to such lending formula with
respect thereto as Agent may determine);
(e) such Accounts do not consist of progress billings, bill and
hold invoices or retain invoices, except as to bill and hold invoices, if Agent
shall have received an agreement in writing from the account debtor, in form and
substance satisfactory to Agent, confirming the unconditional obligation of the
account debtor to take the goods related thereto and pay such invoice;
(f) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts;
(g) there are no facts, events or occurrences which would impair
the validity, enforceability or collectibility of such Accounts or reduce the
amount payable or delay payment thereunder;
(h) such Accounts are subject to the first priority, valid and
perfected security interest of Lenders and any goods giving rise thereto are
not, and were not at the time of the sale thereof, subject to any liens except
those permitted in this Agreement;
(i) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
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<PAGE>
(j) (i) the account debtors with respect to such Accounts are not
any foreign government; or (ii) Accounts in excess of $250,000 of an account
debtor and in the aggregate of $500,000 of all account debtors that are the
United States of America, any State, political subdivision, department, agency
or instrumentality thereof, unless with respect to such Accounts (in excess of
such levels) the Federal Assignment of Claims Act of 1940, as amended or any
similar State or local law, if applicable, has been complied with in a manner
satisfactory to Agent;
(k) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(1) such Accounts of a single account debtor or its affiliates do
not constitute more than seven and one-half (7.5%) percent of all otherwise
Eligible Accounts (but the portion of the Accounts not in excess of such
percentage may be deemed Eligible Accounts);
(m) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Agent from time to time (but the portion of the
Accounts not in excess of such credit limit may still be deemed Eligible
Accounts); and
(n) such Accounts are owed by account debtors deemed creditworthy
at all times by Agent, as determined by Agent.
"Eligible Inventory" means Inventory, valued at the lower of cost
(determined on a first-in, first-out or average basis) or market value,
consisting of photocopiers, facsimile equipment, automated office equipment,
office furniture and related parts and supplies held for resale in the ordinary
course of the business of Borrower and net of inventory reserves established for
slow moving, obsolete inventory. Eligible Inventory shall not include (i)
packaging and shipping materials; (ii) supplies used or consumed in Borrower's
business; (iii) Inventory at premises other than those owned and controlled by
Borrower, except if Lender shall have received an agreement in writing from the
person in possession of such Inventory and/or the owner or operator of such
premises in form and substance satisfactory to Agent acknowledging Lenders'
first priority security interest in the Inventory, waiving security interests
and claims by such person against the Inventory and permitting Agent access to,
and the right to remain on, the premises so as to exercise Agent's rights and
remedies and otherwise deal with the Collateral; (iv) Inventory subject to a
security interest or lien in favor of any person other than Lender; (v) bill and
hold goods; (vi) unserviceable, obsolete or slow moving Inventory in excess of
corresponding reserves previously established; (vii) Inventory which is not
subject to the first priority, valid and perfected security interest of Lenders;
(viii) returned, damaged and/or defective Inventory; and (ix) Inventory
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purchased or sold on consignment. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in good faith. Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.
"Environmental Laws" means all federal, state, district, local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to Borrower's business and
facilities (whether or not owned by it), including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals, or
hazardous, toxic or dangerous substances, materials or wastes.
"Equity Purchase Agreement" means that certain Equity Purchase
Agreement dated as of June 9, 1994 by and among Global, GTCR IV and certain
other parties thereto, as amended by Amendment No. 1 dated as of the date
hereof.
"Excess Cash Flow" means, for any Fiscal Year, without duplication,
EBITDA for such Fiscal Year, minus the sum of (a) Total Capital Expenditures
made during such Fiscal Year in accordance with Section 4.1 (to the extent made
in cash and not financed by Indebtedness other than the Revolving Loans), (b)
payments of the principal amount of any Indebtedness (other than Indebtedness
represented by the Revolving Loans) actually paid during such Fiscal Year, (c)
the purchase price paid by the Borrower with respect to Acquisitions and all
costs directly associated with such Acquisitions to the extent such purchase
price and costs are not financed by an Additional Term Loan or a Revolving Loan,
(d) Interest Expense, to the extent actually paid in cash during such Fiscal
Year, and (e) taxes based on or measured by net income, required to be paid
during such Fiscal Year, all as determined for the Borrower and its Subsidiaries
on a consolidated basis in accordance with GAAP.
"Expiry Date" means the earlier of (a) the suspension (subject to
reinstatement) of the Revolving Loan Commitment and/or Term Loan Commitment
pursuant to subsection 6.2, (b) the acceleration of the Obligations pursuant to
subsection 6.3 or (c) the Scheduled Maturity Date.
"Fiscal Year" means each year ending March 31.
"Fixed Charges" means for any period, without duplication, Interest
Expense for such period, plus (i) scheduled payments of principal of all
Indebtedness of the Borrower and its
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Subsidiaries during such period (to the extent required to be made during such
period after giving effect to the application of any prepayments of principal
prior to such measurement period, pursuant to the applicable governing
instruments), (ii) without duplication, Restricted Junior Payments made in cash
in compliance with subsection 3.5, and (iii) income and franchise taxes due and
payable for such period of the Borrower and its Subsidiaries.
"Funding Date" shall have the meaning set forth in subsection 7.1.
"GAAP" means generally accepted accounting principles as set forth in
statements from Auditing Standards No. 69 entitled "The Meaning of Present
Fairly in Conformance with Generally Accepted Accounting Principles in the
Independent Auditors Reports" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"General Capital Expenditures" means the expenditures of any Person
which should be capitalized on the balance sheet of such Person in accordance
with GAAP and which are made in connection with the purchase, construction or
improvement of items properly classified on such balance sheet as property,
plant, equipment or other fixed assets or intangibles including Maintenance
Capital Expenditures but excluding Rental Pool Capital Expenditures.
"Global" means Global Imaging Systems Inc. a Delaware corporation.
"GTCR" means Golder, Thoma, Cressey, Rauner, Inc.
"GTCR IV" means Golder, Thoma, Cressey, Rauner Fund IV Limited
Partnership.
"Hazardous Materials" means any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons) ,
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
"Indebtedness", as applied to any Person, means: (a) all indebtedness
for borrowed money including all fees, costs and expenses relating to such
indebtedness; (b) that portion of
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obligations with respect to capital leases that is properly classified as a
liability on a balance sheet in conformity with GAAP; (c) notes payable and
drafts accepted representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all or any part of
the deferred purchase price of property or services (e) the maximum amount of
any obligation of Borrower (including without limitation, obligations owed under
non-compete agreements, promissory notes, earn-outs, consulting agreements or
other similar agreements) to the sellers of businesses heretofore acquired by
Borrower or acquired by Borrower pursuant to the terms of this Agreement to the
extent such amount is reflected on the balance sheet of Borrower in accordance
with GAAP; and (f) all indebtedness secured by any Lien on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person; and (g) the items set forth on Schedule 3.1. Notwithstanding
anything herein to the contrary, Indebtedness shall not include trade payables
arising out of vendor financing for the deferred purchase price of Inventory
provided such payables are paid (or by their terms payable) within 60 days of
the invoice date, provided, however, no Default or Event of Default has occurred
or is continuing.
"Indemnitees" shall have the meaning set forth in subsection 9.1.
"Initial Term Loan" shall have the meaning set forth in subsection
1.1(C) (1).
"Intellectual Property" shall have the meaning set forth in subsection
5.6.
"Interest Expense" means, for any period, total interest expense paid
or accrued with respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries, including, without limitation, that portion of any capitalized
lease obligations attributable to interest expense in accordance with GAAP,
interest rate protection amortization, debt issuance costs and capitalized
interest paid during such period, interest on the Loans (including the Unused
Line Fee), all commissions, discounts and other fees and charges owed with
respect to letters of credit, all as determined for the Borrower and its
Subsidiaries on a consolidated basis for such period in accordance with GAAP.
"Interest Period" means the period commencing on and including the
last Business Day of a calendar month and ending on but excluding the last
Business Day of the next calendar month. In no event shall an Interest Period
extend beyond the Expiry Date.
"Inventory" means all of Borrower's now owned and hereafter existing
photocopiers, facsimile equipment, automated office equipment, office furniture
and related parts and supplies held for resale or lease, or to be furnished
under contracts of
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service, and all other inventory of whatsoever kind or nature, wherever located.
"Investment" means (i) any direct or indirect purchase or other
acquisition by Borrower or any of its Subsidiaries of the assets or any
beneficial interest in, including stock, partnership interest or other equity
securities of, any other Person (other than a Person that prior to the relevant
purchase or acquisition was a Subsidiary of Borrower) or (ii) any direct or
indirect loan, advance or capital contribution by Borrower or any of its
Subsidiaries to any other Person (other than a Subsidiary of Borrower),
including all keepwells, indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that other
Person in the ordinary course of business. The amount of any Investment shall be
the original cost of such Investment plus the cost of all additions thereto less
the return of capital with respect thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Jackson" means Jackson National Life Insurance Company.
"Lender" or "Lenders" means Jackson National Life Insurance Company
together with its successors and assigns.
"Lender Addition Agreement" means an agreement among Agent, a Lender
and such Lender's assignee regarding their respective rights and obligations
with respect to assignments of the Loans, the Commitments and other interests
under this Agreement and the other Loan Documents.
"LIBOR Rate" means, for each Interest Period, or any portion thereof, the
offered rate per annum for deposits of U.S. Dollars for a period equal to the
Interest Period that appears on Telerate Page 3750 as of 11:00 A.M. G.M.T. two
Business Days prior to the commencement of such Interest Period (and with
respect to the initial Interest Period, two Business Days prior to the Closing
Date). If no such offered rate exists, the rate in respect of such Interest
Period will be the rate of interest per annum, as determined by the Agent
(rounded upwards, if necessary, to the nearest 1/16 of 1%) at which deposits of
U.S. Dollars in immediately available and freely transferable funds are offered
at for a one-month period 11:00 A.M. G.M.T. two Business Days prior to the
commencement of such Interest Period by major financial institutions reasonably
satisfactory to the Agent in the London interbank market for a period equal to
such Interest Period and for an amount equal or comparable to the principal
amount of the Term Loan or the Revolving Loan to be made in connection therewith
(as the case may be).
"LIBOR Rate Loans" means Loans bearing interest at rates determined by
reference to the LIBOR Rate.
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"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term Loan
Commitment or the Revolving Loan Commitment.
"Loan Availability" means "Pro Forma Operating Cash Flow" on the date
of determination, multiplied by the applicable Maximum Debt for such period.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Agent Agreement and all other instruments, documents and
agreements executed by or on behalf of any Loan Party and delivered concurrently
herewith or at any time hereafter to or for the benefit of Agent or any Lender
in connection with the Loans and other transactions contemplated by this
Agreement, all as amended, supplemented or modified from time to time.
"Loan Party" means, collectively, Borrower, Borrower's Subsidiaries
and any other Person (other than Agent or any Lender) which is or becomes a
party to any Loan Document.
"Maintenance Capital Expenditures" means the expenditures of any
Person which should be capitalized on the balance sheet of such Person in
accordance with GAAP and which are made in connection with replacing or
repairing existing equipment other than such Person's rental pool of equipment.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of any Loan Party taken as a whole or (b) the impairment of the ability of any
Loan Party to perform its obligations under any Loan Document to which it is a
party or of Agent or any Lender to enforce any Loan Document or collect any of
the Obligations. In determining whether any individual event would result in a
Material Adverse Effect, notwithstanding that such event does not of itself have
such effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events would result
in a Material Adverse Effect.
"Maximum Debt" means Pro Forma Operating Cash Flow of Borrower and its
Subsidiaries for the periods set forth below multiplied by the debt multiple set
forth opposite each such period.
<TABLE>
<CAPTION>
Rolling 12 Month
Period Ended Debt Multiple
---------------- -------------
<S> <C>
July 31, 1997 4.50
July 31, 1998 4.50
</TABLE>
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<TABLE>
<S> <C>
July 31, 1999 4.17
July 31, 2000 3.84
July 31, 2001 3.51
July 31, 2002 3.18
July 31, 2003 2.85
July 31, 2004 -0-
</TABLE>
"Maximum Loan Balance" means, as of any date, an amount equal to the
lesser of: (i) the Maximum Loan Commitment and (ii) Loan Availability less all
outstanding Term Loans and Revolving Loans.
"Maximum Loan Commitment" means $120,000,000 less all Scheduled
Installments paid by Borrower which may not be reborrowed pursuant to the terms
of this Agreement.
"Maximum Revolving Loan Balance" means the lesser of: (i) the
Borrowing Base and (ii) $6,000,000.
"Note" or "Notes" means one or more of the amended and restated notes
of Borrower substantially in the form of Exhibits l.l(D-l) or l.l(D-2), or any
combination thereof.
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Agent or any Lender
under the Loan Documents including, without limitation, the principal amount of
all debts, claims and indebtedness, accrued and unpaid interest and all fees,
costs and expenses, whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing, due or
payable whether before or after the filing of a proceeding under the Bankruptcy
Code by or against Borrower or its Subsidiaries.
"Original Closing Date" means August 14, 1996.
"Payment Account" shall have the meaning set forth in subsection 1.9.
"Permitted Encumbrances" shall have the meaning set forth in
subsection 3.2(A).
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof
and their respective permitted successors and assigns (or in the case of a
governmental person, the successor functional equivalent of such Person).
"Prepayment Fee" shall have the meaning set forth in subsection 1.7.
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"Pro Forma" means the unaudited consolidated balance sheet of Borrower
and its Subsidiaries prepared in accordance with GAAP as of the Closing Date
after giving effect to the Related Transactions. The Pro Forma is annexed hereto
as Schedule 10.1(A).
"Pro Forma EBITDA" means EBITDA for the twelve (12) month period
ending on the date of determination, plus Acquisition EBITDA.
"Pro Forma Operating Cash Flow" means Pro Forma EBITDA for the twelve
(12) month period preceding the date of determination minus "Maintenance Capital
Expenditures" which for purposes of this calculation shall be equal to 4% of Pro
Forma EBITDA for the twelve (12) month period preceding the date of
determination, plus management fees paid to GTCR during the twelve (12) month
period preceding the date of determination, if any, to the extent not already
deducted in determining EBITDA.
"Projections" means Borrower's forecasted consolidated: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all prepared on a division by division and Subsidiary
by Subsidiary basis on a consistent basis with Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions. The Projections represent and will represent as of the
date thereof the good faith estimate of Borrower and its senior management
concerning the most probable course of its business.
"Pro Rata Share" means (a) with respect to matters relating to a
particular Commitment of a Lender (including the making or repayment of Loans
pursuant to that Commitment), the percentage obtained by dividing (i) such
Commitment of that Lender by (ii) all such Commitments of all Lenders and (b)
with respect to all other matters, the percentage obtained by dividing (i) the
Maximum Loan Commitment of a Lender by (ii) the Maximum Loan Commitments of all
Lenders, in either case as such percentage may be adjusted by assignments
permitted pursuant to Section 8.
"Related Transactions" means the execution and delivery of the Related
Transactions Documents, the funding of all Loans on the Closing Date, the
repayment of any Indebtedness identified on Schedule 10.1(B) which is to be paid
in full on the Closing Date, and the payment of all fees, costs and expenses
associated with all of the foregoing.
"Related Transactions Documents" means the Loan Documents, the Stock
Purchase Agreement and all other agreements, instruments and documents executed
or delivered in connection with the Related Transactions.
"Rental Pool Capital Expenditures" means the expenditures of any
Person which shall be capitalized on the balance sheet of such Person in
accordance with GAAP and which are made in
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connection with the acquisition, replacement or repair of any equipment that
will be revenue producing and rented to existing or new customers; provided,
however, at least 85% of such equipment is subject to an existing lease or
rental agreement and all new equipment to be purchased is purchased as a result
of a new lease or rental agreement entered into by Borrower and a new or
existing customer.
"Requisite Lenders" means Lenders having (a) 51% or more of the
Maximum Loan Commitments or, (b) if the Maximum Loan Commitments have been
terminated, 51% or more of the sum of the Revolving Loan Commitments and the
aggregate outstanding principal amount of the Term Loans, if any, or (c) if all
Commitments have been terminated, 51% or more of the aggregate outstanding
principal amount of the Revolving Loans and Term Loans,
"Restricted Junior Payment" means: (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter outstanding except a
dividend payable solely in shares of a class of stock to holders of that class;
(ii) any redemption, conversion, exchange, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
shares of any class of stock, of Borrower or any of its Subsidiaries now or
hereafter outstanding; (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock, of Borrower or any of its Subsidiaries now or
hereafter outstanding; and (iv) any payment or pre-payment of interest on,
principal of, premium, if any, redemption, conversion, exchange, purchase,
retirement, defeasance, sinking fund on similar payment with respect to any
Indebtedness the payment of which is subordinated to the Obligations.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment
of such Lender to make Revolving Loans as set forth on the signature page of
this Agreement opposite such Lender's signature or in the most recent Lender
Addition Agreement, if any, executed by such Lender and (b) as to all Lenders,
the aggregate commitment of all Lenders to make Revolving Loans not to exceed
$6,000,000.
"Revolving Loans" means all advances made by Lenders pursuant to
subsection 1.1(A) herein and subsection 1.1(A) of the 1996 Loan Agreement and
any amounts added to the aggregate principal balance of the Revolving Loans
pursuant to this Agreement .
"Scheduled Installments" shall have the meaning set forth in
subsection 1.1(C) (5).
"Scheduled Maturity Date" means August 14, 2004.
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"Security Documents" means all instruments, documents and agreements
executed by or on behalf of any Loan Party to guaranty or provide collateral
security with respect to the Obligations including, without limitation, any
security agreement or pledge agreement, any guaranty of the Obligations, any
mortgage, and all instruments, documents and agreements executed pursuant to the
terms of the foregoing.
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated
as of August 14, 1996, between the Borrower and Jackson, as such agreement may
hereafter from time to time be amended, modified or supplemented in accordance
with the terms hereof and thereof.
"Stockholders' Agreement" means the Stockholders Agreement, dated as
of August 14, 1996, among Borrower and its stockholders, as such agreement may
hereafter from time to time be amended, modified or supplemented in accordance
with the terms hereof and thereof.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which more than fifty
percent (50%) of the total voting power of shares of stock (or equivalent
ownership or controlling interest) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees (or
power to direct or cause the direction of the management and policies) thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"Term Loans" means all advances made by Lenders pursuant to
subsections 1.1(C) and (2) and shall include the Initial Term Loans and all
Additional Term Loans.
"Term Loan Balance" means, as of any date, the aggregate outstanding
principal amount of the Term Loans.
"Term Loan Commitment" means (a) as to any Lender, the commitment of
such Lender to make Term Loans as set forth on the signature page of this
Agreement opposite such Lender's signature or in the most recent Lender Addition
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make Term Loans.
"Total Capital Expenditures" means General Capital Expenditures and
Rental Pool Capital Expenditures.
10.2 Other Definitional Provisions. References to "Section", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 10.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
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reference. In this Agreement, "whereof", "wherein", "whereto", "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to the
specific section, paragraph or clause in which the respective word appears;
words importing any gender include the other gender; references to "writing"
include printing, typing, lithography and other means of reproducing words in a
tangible visible form; the words "including" "include" and "include" shall be
deemed to be followed by the words "without limitation"; references to
agreements and other contractual instruments shall be deemed to include
subsequent amendments, assignments, and other modifications thereto, but only to
the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan Document; references
to Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; and all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-63-
<PAGE>
Witness the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
GLOBAL IMAGING SYSTEMS INC.
GLOBAL IMAGING OPERATIONS, INC.
GLOBAL IMAGING FINANCE COMPANY
By: /s/ Thomas S. Johnson
----------------------------
Thomas S. Johnson
President
COPY SERVICE AND SUPPLY, INC.
OFFICE FURNITURE CONCEPTS, INC.
FELCO OFFICE SYSTEMS, INC.
BERNEY, INC.
CONWAY OFFICE PRODUCTS, INC.
AMERICAN PHOTOCOPY EQUIPMENT COMPANY
OF PITTSBURGH
SOUTHERN COPY SYSTEMS, INC.
BUSINESS EQUIPMENT UNLIMITED
CAMERON OFFICE PRODUCTS, INC.
SOUTHERN BUSINESS COMMUNICATIONS, INC.
ELECTRONIC SYSTEMS, INC.
EASTERN COPY PRODUCTS, INC.
QUALITY BUSINESS SYSTEMS, INC.
DUPLICATING SPECIALTIES, INC.
By: /s/ Thomas S. Johnson
----------------------------
Thomas S. Johnson
Chairman
CSS LEASING, LLC
By: /s/ Thomas S. Johnson
----------------------------
Thomas S. Johnson
Manager and President
-64-
<PAGE>
COMMITMENTS: JACKSON NATIONAL LIFE INSURANCE
COMPANY, as Lender
Revolving Loan
Commitment: $ 6,000,000 By: PPM America, Inc.,
Attorney-in-Fact
Term Loan
Commitment: $114,000,000 By: /s/ Benjamin James
------------ --------------------------
Total Title: Managing Director
Commitment: $120,000,000
PPM AMERICA, INC., as Agent
By: /s/ Benjamin James
--------------------------
Title: Managing Director
-65-
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT AND LOAN DOCUMENTS
-----------------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND LOAN
DOCUMENTS (this "Amendment") is made and entered into as of December 23, 1997,
by and among GLOBAL IMAGING SYSTEMS INC., a Delaware corporation ("Global"),
GLOBAL IMAGING OPERATIONS, INC., a Delaware corporation ("Operations"), GLOBAL
IMAGING FINANCE COMPANY, a Delaware corporation ("Finance"), COPY SERVICE &
SUPPLY, INC., a North Carolina corporation ("Copy Service"), OFFICE FURNITURE
CONCEPTS, INC., a North Carolina corporation ("Office Concepts"), CSS LEASING,
LLC, a North Carolina limited liability company ("CSS Leasing"), FELCO OFFICE
SYSTEMS, INC., a Texas corporation ("Felco"), BERNEY, INC., an Alabama
corporation ("Berney"), CONWAY OFFICE PRODUCTS, INC. a New Hampshire corporation
("Conway"), AMERICAN PHOTOCOPY EQUIPMENT COMPANY OF PITTSBURGH, a Delaware
corporation ("AMCOM"), SOUTHERN COPY SYSTEMS, INC., an Alabama corporation
("Southern Copy"), BUSINESS EQUIPMENT UNLIMITED, a Maine corporation ("Business
Equipment"), CAMERON OFFICE PRODUCTS, INC., a Massachusetts corporation
("Cameron"), SOUTHERN BUSINESS COMMUNICATIONS, INC., a Georgia corporation
("Southern Business"), ELECTRONIC SYSTEMS, INC., a Virginia corporation
("Electronic Systems"), EASTERN COPY PRODUCTS, INC., a New York corporation
("Eastern Copy"), QUALITY BUSINESS SYSTEMS, INC., a Washington corporation
("Quality Business"), DUPLICATING SPECIALTIES, INC., an Oregon corporation
("Duplicating Specialties"), ELECTRONIC SYSTEMS OF RICHMOND, INC., a Virginia
corporation ("ESR") (Global, Operations, Finance, Copy Service, Office Concepts,
CSS Leasing, Felco, Berney, Conway, AMCOM, Southern Copy, Business Equipment,
Cameron, Southern Business, Electronic Systems, Eastern Copy, Quality Business
and Duplicating Specialties are each individually and collectively referred to
herein as "Original Borrower"; Original Borrower and ESR are herein individually
and collectively referred to herein as "Borrower"), JACKSON NATIONAL LIFE
INSURANCE COMPANY, a Michigan insurance corporation, ("Jackson" or "Lender" and
collectively with all other Lenders, if any, the "Lenders") and PPM AMERICA,
INC., a Delaware corporation, as Agent for the Lenders (the "Agent").
PRELIMINARY STATEMENTS
----------------------
A. Original Borrower, Lenders and Agent are parties to that certain Credit
Agreement, dated as of August 14, 1996 and as amended and restated as of
November 14, 1997 (the "Credit Agreement").
B. Electronic Systems wishes to acquire all of the issued and outstanding
capital stock of ESR (the "ESR Acquisition") pursuant to the terms and
conditions of that certain Stock Purchase Agreement dated as of December 23,
1997 (the "ESR
<PAGE>
Purchase Agreement") by and among Global, Electronic Systems, ESR and certain
shareholders of ESR (the "Sellers").
C. Pursuant to the terms of the Credit Agreement, the Requisite Lenders'
approval is required to consummate the ESR Acquisition.
D. In order to finance the ESR Acquisition, Borrower has requested that
the Lenders make an Additional Term Loan (as defined in the Credit Agreement) to
the Borrower in accordance with the terms of the Credit Agreement in the
principal amount of approximately $8,460,000 and a Revolving Loan in the
aggregate principal amount of $540,000 (the "ESR Revolving Loan").
E. Each of the Borrowers, including ESR, acknowledges that as a direct or
indirect wholly-owned subsidiary of Global, it will receive substantial direct
and indirect benefits by reason of the making of the Additional Term Loan and
the ESR Revolving Loan provided for hereunder.
F. Original Borrower, ESR, Agent and Lenders desire to amend the Credit
Agreement and the other Loan Documents (as defined in the Credit Agreement) as
hereinafter set forth in order to, among other things, include ESR as a borrower
thereunder.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
AGREEMENT
---------
ARTICLE I.
Definitions
-----------
1.01 Capitalized terms used in this Amendment are defined in the Credit
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II.
Amendments to Credit Agreement
------------------------------
2.01 Amendments Generally and References to Borrower. The Credit Agreement
-----------------------------------------------
is hereby amended to include ESR as a Borrower thereunder and all references in
the Credit Agreement to Borrower or Borrowers shall include, individually and
collectively, ESR, including the definition of "Borrower" in Section 10 of the
Credit Agreement with the same force and effect as if ESR had executed the
Credit Agreement.
-2-
<PAGE>
2.02 Amendments to Section 10 - Definitions. Section 10 of the Credit
--------------------------------------
Agreement is hereby amended by adding the following definitions thereto in
alphabetical order:
"First Amendment Agreement" shall mean that certain First Amendment to
-------------------------
Amended and Restated Credit Agreement and Loan Documents, dated December
23, 1997, by and among Agent, Lender and Borrower.
"ESR" shall mean Electronic Systems of Richmond, Inc., a Virginia
---
corporation.
ARTICLE III.
Amendments to Notes
-------------------
3.01 Amendment to Revolving Note. Effective as of the date hereof, the
---------------------------
Amended and Restated Revolving Note dated August 14, 1996, as amended and
restated as of November 14, 1997, in the principal amount of $6,000,000 executed
by the Original Borrowers in favor of Jackson is hereby amended to include ESR
as an obligor thereunder with the same force and effect as if ESR had executed
such Note.
3.02 Amendment to Term Note. Effective as of the date hereof, the Term
----------------------
Note dated August 14, 1996, as amended and restated as of November 14, 1997, in
the principal amount of $114,000,000 executed by the Original Borrowers in favor
of Jackson is hereby amended to include ESR as an obligor thereunder with the
same force and effect as if ESR had executed such Note.
ARTICLE IV.
Representations and Warranties
Relating to the Acquisitions
----------------------------
4.01 Borrower hereby represents and warrants to Agent and Lenders that:
(a) The ESR Purchase Agreement and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance
with their terms by the respective parties thereto in all respects,
including the fulfillment (not merely the waiver, except as may be
disclosed to Agent and consented to in writing by Agent) of all
conditions precedent set forth therein.
(b) After giving effect to the terms of the ESR Purchase Agreement,
Electronic Systems acquired and has good and marketable title to all of
the
-3-
<PAGE>
issued and outstanding capital stock of ESR, free and clear of all
claims, liens, pledges and encumbrances of any kind, except as disclosed
in writing to Agent.
(c) All actions and proceedings required by the ESR Purchase Agreement,
applicable law or regulation (including, but not limited to, compliance
with the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended) have been taken and the transactions required thereunder have
been duly and validly taken and consummated.
(d) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of any of
the transactions described in the ESR Purchase Agreement and no
governmental or other action or proceeding has been threatened or
commenced, seeking any injunction, restraining order or other order which
seeks to void or otherwise modify any of the transactions described in
the ESR Purchase Agreement.
(e) As of and from and after the date of this Amendment and after
giving effect to the consummation of the ESR Acquisition, Borrower and
its Subsidiaries: (a) own and will own assets the fair saleable value of
which, on a going concern basis, are (i) greater than the total amount of
liabilities (including contingent liabilities) of Borrower and its
Subsidiaries and (ii) greater than the amount that will be required to
pay the probable liabilities of Borrower's then existing debts as they
become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to Borrower and its
Subsidiaries; (b) have capital that is not unreasonably small in relation
to their respective businesses as presently conducted or any contemplated
or undertaken transaction; and (c) do not intend to incur and do not
believe that they will incur debts beyond their ability to pay such debts
as they become due.
(f) Attached hereto as Exhibit A is a capitalization schedule setting
forth the ownership of Global's capital stock on a fully diluted basis,
after giving effect to the consummation of the ESR Acquisition.
ARTICLE V.
Approval of the Acquisitions, Additional Term
---------------------------------------------
Loan and Revolving Loan
-----------------------
5.01 Pursuant to Section 3.16 of the Credit Agreement, the Requisite
Lenders have approved the ESR Acquisition. Subject to the terms and conditions
set forth herein and in the Credit Agreement, in order to finance the ESR
Acquisition, the Lenders agree to make an Additional Term Loan in the principal
amount of approximately $8,460,000.
-4-
<PAGE>
5.02 The Borrowers shall repay to the Lenders, within ten days from the
date hereof, the ESR Revolving Loan.
ARTICLE VI.
Conditions
----------
6.01 Conditions to Effectiveness. The effectiveness of this Agreement is
---------------------------
subject to the satisfaction of the following conditions precedent, unless
specifically waived in writing by Lender:
(a) Agent shall have received, in form and substance satisfactory to
Agent:
(i) this Amendment, duly executed by each Borrower;
(ii) the ESR Security Agreement, in the form of Exhibit B attached
---------
hereto, duly executed by ESR;
(iii) a Pledge Agreement in the form of Exhibit C hereto duly
---------
executed by Electronic Systems accompanied by stock
certificate(s) evidencing the capital stock of ESR purchased
pursuant to the ESR Purchase Agreement with duly executed
stock power(s) and an Irrevocable Proxy;
(iv) a Collateral Assignment of Rights under Agreement duly
executed by ESR and Global, the Sellers and the Escrow Agent
in the form of Exhibit D hereto;
---------
(v) a Collateral Assignment of Patents, Trademarks and Copyrights
(Security Agreement) in the form of Exhibit E hereto duly
---------
executed by ESR;
(vi) an Intercreditor Agreement in form and substance satisfactory
to Agent duly executed by Deutsche Financial Services
Corporation and acknowledged by ESR;
(vii) duly executed copies of the ESR Purchase Agreement and all
schedules and exhibits thereto;
(viii) a closing certificate signed by a senior officer of Borrower,
dated as of the date of this Amendment, stating that (A) the
representations and warranties set forth in the Credit
Agreement are true and correct as of such date, (B) Borrower
is on such date in compliance with all the terms and
provisions set
-5-
<PAGE>
forth in the Credit Agreement, as amended by this Amendment,
and (C) on such date no Event of Default or event or
condition which, with notice or passage of time or both,
would constitute an Event of Default, has occurred or is
continuing;
(ix) a company general certificate certified by the Secretary of
each of the Borrowers (A) that its Board of Directors has
adopted and ratified resolutions which authorize the
execution, delivery and performance by it of all Loan
Documents to which it is or is to be a party, and (B) the
names of the officers authorized to sign this Amendment and
each of the other Loan Documents to which it is or is to be a
party, together with specimen signatures of such officers;
(x) UCC-1 financing statements duly executed by ESR;
(xi) an Availability Certificate dated as of the date hereof
indicating sufficient Loan Availability for Lenders to make
the Additional Term Loan and the ESR Revolving Loan; and
(xii) an opinion of counsel to the Borrower, in form and substance
satisfactory to Lender, with respect to the Purchase
Agreement, this First Amendment Agreement and the security
interests and liens of Agent with respect to the Collateral
and such other matters as Lender may request.
(xiii) evidence of insurance by ESR and endorsements thereto naming
Agent as loss payee and additional insured.
(xiv) a financial condition certificate dated as of the date hereof
in the form of Exhibit G attached hereto.
---------
(xv) an Assignment of Deposit Accounts and Bank Agency Agreement
in the form of Exhibit H hereto with respect to all bank
---------
accounts established by or on behalf of ESR.
(xvi) such additional documents, instruments and information as
Agent or its legal counsel may request.
(b) The representations and warranties contained herein, in the Credit
Agreement and in the other Loan Documents, shall be true and correct as of the
date hereof, as if made on the date hereof.
(c) No Event of Default or event or condition which, with notice or
passage of time or both, would constitute an Event of Default, shall have
occurred and be
-6-
<PAGE>
continuing, unless such event, condition or Event of Default has been
specifically waived in writing by Agent or Lenders.
(d) Agent shall have received evidence that Agent has a valid first
priority security interest in the assets of ESR subject only to Permitted
Encumbrances.
6.02 Subsequent Deliveries. Within ninety (90) days of the date hereof,
---------------------
Electronic Systems shall have delivered to the Agent a landlord waiver
satisfactory in form and substance to the Agent, with respect to its property
located at 1051 East Cary Street, Richmond, Virginia.
ARTICLE VIII.
No Waiver
---------
Nothing contained in this Amendment shall be construed as a waiver by Agent
or any Lender of any covenant or provision of the Credit Agreement or the other
Loan Documents or of any other contract or instrument between Borrower and any
Lender or Agent, and the failure of any Lender or Agent at any time or times
hereafter to require strict performance by Borrower of any provision thereof
shall not waive, affect or diminish any right of Lenders or Agent to thereafter
demand strict compliance therewith. Lenders and Agent hereby reserve all rights
granted under the Credit Agreement, the other Loan Documents and any other
contract or instrument between Borrower and any Lender or Agent.
ARTICLE VIII.
Ratifications, Representations and Warranties
---------------------------------------------
8.01 Ratifications. The terms and provisions set forth in this Amendment
-------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Credit Agreement and the other Loan Documents, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the
Credit Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Borrower, Agent and Lenders agree that
the Credit Agreement and the other Loan Documents, as amended hereby, shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.
8.02 Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) the representations and warranties contained in the
Credit Agreement, as amended hereby, and any other Loan Documents are true and
-7-
<PAGE>
correct on and as of the date hereof and on and as of the date of execution
hereof as though made on and as of each such date; (c) no Event of Default or
event or condition which, with notice or passage of time or both, would
constitute an Event of Default under the Credit Agreement, as amended hereby,
has occurred and is continuing; and (d) Borrower is in full compliance with all
covenants and agreements contained in the Credit Agreement and the other Loan
Documents, as amended hereby.
ARTICLE IX.
Miscellaneous Provisions
------------------------
9.01 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in the Credit Agreement or any other Loan Document, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Agent or any Lender or any closing shall
affect the representations and warranties or the right of Agent or Lenders to
rely upon them.
9.02 Reference to Credit Agreement. Each of the Credit Agreement and the
-----------------------------
other Loan Documents, and any and all other agreements, documents or instruments
now or hereafter executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Credit Agreement, as amended hereby, are hereby amended so
that any reference in the Credit Agreement and such other Loan Documents to the
Credit Agreement or any such Loan Documents shall mean a reference to the Credit
Agreement and the other Loan Documents as amended hereby.
9.03 Expenses of Agent. As provided in the Credit Agreement, Borrower
-----------------
agrees to pay on demand all reasonable costs and expenses incurred by Agent in
connection with the preparation, negotiation and execution of this Amendment and
the other Loan Documents executed pursuant hereto, and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
reasonable costs and fees of Agent's legal counsel.
9.04 Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
9.05 Successors and Assigns. This Amendment is binding upon and shall
----------------------
insure to the benefit of Agent, Lenders and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its
-8-
<PAGE>
rights or obligations hereunder without the prior written consent of Agent and
Lenders.
9.06 Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
9.07 Effect of Waiver. No consent or waiver, express or implied, by Agent
----------------
or Lender to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
9.08 Headings. The headings, captions, and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
9.09 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
--------------
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
9.10 Final Agreement. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS,
---------------
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER, AGENT
AND LENDERS.
-9-
<PAGE>
Witness the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
GLOBAL IMAGING SYSTEMS INC.
GLOBAL IMAGING OPERATIONS, INC.
GLOBAL IMAGING FINANCE COMPANY
By: /s/ Thomas S. Johnson
----------------------------------
Thomas S. Johnson
President
COPY SERVICE AND SUPPLY, INC.
OFFICE FELCO CONCEPTS, INC.
FELCO OFFICE SYSTEMS, INC.
BERNEY, INC.
CONWAY OFFICE PRODUCTS, INC.
AMERICAN PHOTOCOPY EQUIPMENT
COMPANY OF PITTSBURGH
SOUTHERN COPY SYSTEMS, INC.
BUSINESS EQUIPMENT UNLIMITED
CAMERON OFFICE PRODUCTS, INC.
SOUTHERN BUSINESS COMMUNICATIONS,
INC.
ELECTRONIC SYSTEMS, INC.
EASTERN COPY PRODUCTS, INC.
QUALITY BUSINESS SYSTEMS, INC.
DUPLICATING SPECIALTIES, INC.
ELECTRONIC SYSTEMS OF RICHMOND, INC.
By: /s/ Thomas S. Johnson
----------------------------------
Thomas S. Johnson
Chairman
CSS LEASING, LLC
By: /s/ Thomas S. Johnson
----------------------------------
Thomas S. Johnson
Manager and President
-10-
<PAGE>
JACKSON NATIONAL LIFE INSURANCE
COMPANY, as Lender.
By: PPM America, Inc.,
Attorney-in-Fact
By: /s/ Ben James
------------------------------------
Title: Managing Director
PPM AMERICA, INC., as Agent
By: /s/ Ben James
------------------------------------
Title: Managing Director
-11-
<PAGE>
SECOND AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT AND LOAN DOCUMENTS
--------------------------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND LOAN
DOCUMENTS (this "Amendment") is made and entered into as of January 9, 1998, by
and among GLOBAL IMAGING SYSTEMS INC., a Delaware corporation ("Global"), GLOBAL
IMAGING OPERATIONS, INC., a Delaware corporation ("Operations"), GLOBAL IMAGING
FINANCE COMPANY, a Delaware corporation ("Finance"), COPY SERVICE & SUPPLY,
INC., a North Carolina corporation ("Copy Service"), OFFICE FURNITURE CONCEPTS,
INC., a North Carolina corporation ("Office Concepts"), CSS LEASING, LLC, a
North Carolina limited liability company ("CSS Leasing"), FELCO OFFICE SYSTEMS,
INC., a Texas corporation ("Felco"), BERNEY, INC., an Alabama corporation
("Berney"), CONWAY OFFICE PRODUCTS, INC. a New Hampshire corporation ("Conway"),
AMERICAN PHOTOCOPY EQUIPMENT COMPANY OF PITTSBURGH, a Delaware corporation
("AMCOM"), SOUTHERN COPY SYSTEMS, INC., an Alabama corporation ("Southern
Copy"), BUSINESS EQUIPMENT UNLIMITED, a Maine corporation ("Business
Equipment"), CAMERON OFFICE PRODUCTS, INC., a Massachusetts corporation
("Cameron"), SOUTHERN BUSINESS COMMUNICATIONS, INC., a Georgia corporation
("Southern Business"), ELECTRONIC SYSTEMS, INC., a Virginia corporation
("Electronic Systems"), EASTERN COPY PRODUCTS, INC., a New York corporation
("Eastern Copy"), QUALITY BUSINESS SYSTEMS, INC., a Washington corporation
("Quality Business"), DUPLICATING SPECIALTIES, INC., an Oregon corporation
("Duplicating Specialties"), ELECTRONIC SYSTEMS OF RICHMOND, INC., a Virginia
corporation ("ESR"), CONNECTICUT BUSINESS SYSTEMS, INC., a Connecticut
corporation ("CBS"), (Global, Operations, Finance, Copy Service, Office
Concepts, CSS Leasing, Felco, Berney, Conway, AMCOM, Southern Copy, Business
Equipment, Cameron, Southern Business, Electronic Systems, Eastern Copy, Quality
Business, Duplicating Specialties and ESR are each individually and collectively
referred to herein as "Original Borrower"; Original Borrower and CBS are herein
individually and collectively referred to herein as "Borrower"), JACKSON
NATIONAL LIFE INSURANCE COMPANY, a Michigan insurance corporation, ("Jackson" or
"Lender" and collectively with all other Lenders, if any, the "Lenders") and PPM
AMERICA, INC., a Delaware corporation, as Agent for the Lenders (the "Agent").
PRELIMINARY STATEMENTS
----------------------
A. Original Borrower, Lenders and Agent are parties to that Amended and
Restated Credit Agreement, dated as of August 14, 1996 and as amended and
restated as of November 14, 1997 and as further amended pursuant to that certain
First Amendment to Amended and Restated Credit Agreement and Loan Documents
dated as of December 23, 1997 (the "Credit Agreement").
B. Global entered into a contract to acquire all of the issued and
outstanding capital stock of CBS (the "CBS Acquisition") pursuant to the terms
and conditions of that certain Stock
<PAGE>
Purchase Agreement dated as of December 31, 1997 (the "CBS Purchase Agreement")
by and among Global, CBS and certain shareholders of CBS (the "Sellers").
C. Prior to the consummation of the CBS Acquisition, Global assigned its
interests in the CBS Purchase Agreement to its wholly-owned subsidiary, CBSI
Acquisition Corp ("Acquisition Corp.").
D. Immediately after the closing of the transactions contemplated by the
CBS Purchase Agreement, Acquisition Corp. shall merge with and into CBS (the
"Merger").
E. Pursuant to the terms of the Credit Agreement, the Requisite Lenders'
approval is required to consummate the CBS Acquisition.
F. In order to finance the CBS Acquisition, Borrower has requested that
the Lenders make an Additional Term Loan (as defined in the Credit Agreement) to
the Borrower in accordance with the terms of the Credit Agreement in the
principal amount of approximately $10,152,000 and a Revolving Loan in the
aggregate principal amount of $648,000 (the "CBS Revolving Loan").
G. Each of the Borrowers, including CBS, acknowledges that as a direct or
indirect wholly-owned subsidiary of Global, it will receive substantial direct
and indirect benefits by reason of the making of the Additional Term Loan and
the CBS Revolving Loan provided for hereunder.
H. Original Borrower, CBS, Agent and Lenders desire to amend the Credit
Agreement and the other Loan Documents (as defined in the Credit Agreement) as
hereinafter set forth in order to, among other things, include CBS as a borrower
thereunder.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
AGREEMENT
---------
ARTICLE I.
Definitions
-----------
1.01 Capitalized terms used in this Amendment are defined in the Credit
Agreement, as amended hereby, unless otherwise stated.
-2-
<PAGE>
ARTICLE II.
Amendments to Credit Agreement
------------------------------
2.01 Amendments Generally and References to Borrower. The Credit
-----------------------------------------------
Agreement is hereby amended to include CBS as a Borrower thereunder and all
references in the Credit Agreement to Borrower or Borrowers shall include,
individually and collectively, CBS, including the definition of "Borrower" in
Section 10 of the Credit Agreement with the same force and effect as if CBS had
executed the Credit Agreement.
2.02 Amendments to Section 10 - Definitions. Section 10 of the Credit
--------------------------------------
Agreement is hereby amended by adding the following definitions thereto in
alphabetical order:
"Second Amendment Agreement" shall mean that certain Second Amendment to
--------------------------
Amended and Restated Credit Agreement and Loan Documents, dated January 9,
1997, by and among Agent, Lender and Borrower."
"CBS" shall mean Connecticut Business Systems, Inc., a Connecticut
corporation.
ARTICLE III.
Amendments to Notes
-------------------
3.01 Amendment to Revolving Note. Effective as of the date hereof, the
---------------------------
Amended and Restated Revolving Note dated August 14, 1996, as amended and
restated as of November 14, 1997, in the principal amount of $6,000,000 executed
by the Original Borrowers in favor of Jackson is hereby amended to include CBS
as an obligor thereunder with the same force and effect as if CBS had executed
such Note.
3.02 Amendment to Term Note. Effective as of the date hereof, the Term
----------------------
Note dated August 14, 1996, as amended and restated as of November 14, 1997, in
the principal amount of $114,000,000 executed by the Original Borrowers in favor
of Jackson is hereby amended to include CBS as an obligor thereunder with the
same force and effect as if CBS had executed such Note.
ARTICLE IV.
Representations and Warranties
Relating to the Acquisitions
----------------------------
4.01 Borrower hereby represents and warrants to Agent and Lenders that:
(a) The CBS Purchase Agreement and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance
with their terms by the
-3-
<PAGE>
respective parties thereto in all respects, including the fulfillment (not
merely the waiver, except as may be disclosed to Agent and consented to in
writing by Agent) of all conditions precedent set forth therein.
(b) After giving effect to the terms of the CBS Purchase Agreement and
the Merger, Global acquired and has good and marketable title to all of the
issued and outstanding capital stock of CBS, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed in writing to
Agent.
(c) The Merger is valid and effective in accordance with the terms of the
Merger Agreement dated as of the date hereof by and between Acquisition Corp and
CBS (the "Merger Agreement") and the corporate statutes of the state of
Connecticut and CBS is the surviving corporation pursuant to the Merger.
(d) All actions and proceedings required by the CBS Purchase Agreement,
applicable law or regulation (including, but not limited to, compliance with the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) have been
taken and the transactions required thereunder have been duly and validly taken
and consummated.
(e) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of any of the
transactions described in the CBS Purchase Agreement and no governmental or
other action or proceeding has been threatened or commenced, seeking any
injunction, restraining order or other order which seeks to void or otherwise
modify any of the transactions described in the CBS Purchase Agreement.
(f) As of and from and after the date of this Amendment and after giving
effect to the consummation of the CBS Acquisition, Borrower and its
Subsidiaries: (a) own and will own assets the fair saleable value of which, on a
going concern basis, are (i) greater than the total amount of liabilities
(including contingent liabilities) of Borrower and its Subsidiaries and (ii)
greater than the amount that will be required to pay the probable liabilities of
Borrower's then existing debts as they become absolute and matured considering
all financing alternatives and potential asset sales reasonably available to
Borrower and its Subsidiaries; (b) have capital that is not unreasonably small
in relation to their respective businesses as presently conducted or any
contemplated or undertaken transaction; and (c) do not intend to incur and do
not believe that they will incur debts beyond their ability to pay such debts as
they become due.
(g) Attached hereto as Exhibit A is a capitalization schedule setting
forth the ownership of Global's capital stock on a fully diluted basis, after
giving effect to the consummation of the CBS Acquisition.
-4-
<PAGE>
ARTICLE V.
Approval of the Acquisitions, Additional Term Loan and Revolving Loan
---------------------------------------------------------------------
5.01 Pursuant to Section 3.16 of the Credit Agreement, the Requisite
Lenders have approved the CBS Acquisition. Subject to the terms and conditions
set forth herein and in the Credit Agreement, in order to finance the CBS
Acquisition, the Lenders agree to make an Additional Term Loan in the principal
amount of approximately $10,152,000.
5.02 The Borrowers shall repay to the Lenders, within ten days from the
date hereof, the CBS Revolving Loan.
ARTICLE VI.
Conditions
----------
6.01 Conditions to Effectiveness. The effectiveness of this Agreement is
---------------------------
subject to the satisfaction of the following conditions precedent, unless
specifically waived in writing by Lender:
(a) Agent shall have received, in form and substance satisfactory to
Agent:
(i) this Amendment, duly executed by each Borrower;
(ii) the CBS Security Agreement, in the form of Exhibit B attached
---------
hereto, duly executed by CBS;
(iii) an Amendment to Pledge Agreement in the form of Exhibit C
---------
hereto duly executed by Global accompanied by stock
certificate(s) evidencing the capital stock of CBS purchased
pursuant to the CBS Purchase Agreement with duly executed
stock power(s) and an Irrevocable Proxy;
(iv) a Collateral Assignment of Rights under Agreement duly
executed by Global, the Sellers and the Escrow Agent in the
form of Exhibit D hereto;
---------
(v) a Collateral Assignment of Patents, Trademarks and Copyrights
(Security Agreement) in the form of Exhibit E hereto duly
---------
executed by CBS;
(vi) duly executed copies of the CBS Purchase Agreement and the
Merger Agreement and all schedules and exhibits thereto;
(vii) a closing certificate signed by a senior officer of Borrower,
dated as of the date of this Amendment, stating that (A) the
representations and warranties set forth in the Credit
Agreement are true and correct as of such date, (B) Borrower
is on such date in compliance with all the terms and
-5-
<PAGE>
provisions set forth in the Credit Agreement, as amended by
this Amendment, and (C) on such date no Event of Default or
event or condition which, with notice or passage of time or
both, would constitute an Event of Default, has occurred or
is continuing;
(viii) a company general certificate certified by the Secretary of
each of the Borrowers (A) that its Board of Directors has
adopted and ratified resolutions which authorize the
execution, delivery and performance by it of all Loan
Documents to which it is or is to be a party, and (B) the
names of the officers authorized to sign this Amendment and
each of the other Loan Documents to which it is or is to be a
party, together with specimen signatures of such officers;
(ix) UCC-1 financing statements duly executed by CBS;
(x) an Availability Certificate dated as of the date hereof
indicating sufficient Loan Availability for Lenders to make
the Additional Term Loan and the CBS Revolving Loan; and
(xi) an opinion of counsel to the Borrower, in form and substance
satisfactory to Lender, with respect to the Purchase
Agreement and this Second Amendment and such other matters as
Lender may request.
(xii) evidence of insurance by CBS and endorsements thereto naming
Agent as loss payee and additional insured.
(xiii) a financial condition certificate dated as of the date hereof
in the form of Exhibit F attached hereto.
---------
(xiv) an Assignment of Deposit Accounts and Bank Agency Agreement
in the form of Exhibit G hereto with respect to all bank
---------
accounts established by or on behalf of CBS.
(xv) a landlord waiver satisfactory in form and substance to the
Agent with respect to all real property leased by CBS.
(xvi) such additional documents, instruments and information as
Agent or its legal counsel may request.
(b) The representations and warranties contained herein, in the Credit
Agreement and in the other Loan Documents, shall be true and correct as of the
date hereof, as if made on the date hereof.
(c) No Event of Default or event or condition which, with notice or
passage of time or both, would constitute an Event of Default, shall have
occurred and be continuing, unless such event, condition or Event of Default has
been specifically waived in writing by Agent or Lenders.
-6-
<PAGE>
(d) Agent shall have received evidence that Agent has a valid first
priority security interest in the assets of CBS subject only to Permitted
Encumbrances.
6.02 Subsequent Deliveries. Within seven (7) days of the date hereof, CBS
---------------------
shall deliver to Agent a certified copy of the Certificate of Merger evidencing
the Merger.
ARTICLE VII.
No Waiver
---------
Nothing contained in this Amendment shall be construed as a waiver by Agent
or any Lender of any covenant or provision of the Credit Agreement or the other
Loan Documents or of any other contract or instrument between Borrower and any
Lender or Agent, and the failure of any Lender or Agent at any time or times
hereafter to require strict performance by Borrower of any provision thereof
shall not waive, affect or diminish any right of Lenders or Agent to thereafter
demand strict compliance therewith. Lenders and Agent hereby reserve all rights
granted under the Credit Agreement, the other Loan Documents and any other
contract or instrument between Borrower and any Lender or Agent.
ARTICLE VIII.
Ratifications, Representations and Warranties
----------------------------------------------
8.01 Ratifications. The terms and provisions set forth in this Amendment
-------------
shall modify and supersede all inconsistent terms and provisions set forth in
the Credit Agreement and the other Loan Documents, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the
Credit Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Borrower, Agent and Lenders agree that
the Credit Agreement and the other Loan Documents, as amended hereby, shall
continue to be legal, valid, binding and enforceable in accordance with their
respective terms.
8.02 Representations and Warranties. Borrower hereby represents and
------------------------------
warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of Borrower and will not violate the Articles of Incorporation or
Bylaws of Borrower; (b) the representations and warranties contained in the
Credit Agreement, as amended hereby, and any other Loan Documents are true and
correct on and as of the date hereof and on and as of the date of execution
hereof as though made on and as of each such date; (c) no Event of Default or
event or condition which, with notice or passage of time or both, would
constitute an Event of Default under the Credit Agreement, as amended hereby,
has occurred and is continuing; and (d) Borrower is in full compliance with all
covenants and agreements contained in the Credit Agreement and the other Loan
Documents, as amended hereby.
-7-
<PAGE>
ARTICLE IX.
Miscellaneous Provisions
------------------------
9.01 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made in the Credit Agreement or any other Loan Document, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Agent or any Lender or any closing shall
affect the representations and warranties or the right of Agent or Lenders to
rely upon them.
9.02 Reference to Credit Agreement. Each of the Credit Agreement and the
-----------------------------
other Loan Documents, and any and all other agreements, documents or instruments
now or hereafter executed and delivered pursuant to the terms hereof or pursuant
to the terms of the Credit Agreement, as amended hereby, are hereby amended so
that any reference in the Credit Agreement and such other Loan Documents to the
Credit Agreement or any such Loan Documents shall mean a reference to the Credit
Agreement and the other Loan Documents as amended hereby.
9.03 Expenses of Agent. As provided in the Credit Agreement, Borrower
-----------------
agrees to pay on demand all reasonable costs and expenses incurred by Agent in
connection with the preparation, negotiation and execution of this Amendment and
the other Loan Documents executed pursuant hereto, and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
reasonable costs and fees of Agent's legal counsel.
9.04 Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
9.05 Successors and Assigns. This Amendment is binding upon and shall
----------------------
insure to the benefit of Agent, Lenders and Borrower and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations hereunder without the prior written consent of Agent
and Lenders.
9.06 Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument
9.07 Effect of Waiver. No consent or waiver, express or implied, by Agent
----------------
or Lender to or for any breach of or deviation from any covenant or condition by
Borrower shall be deemed a consent to or waiver of any other breach of the same
or any other covenant, condition or duty.
9.08 Headings. The headings, captions, and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
-8-
<PAGE>
9.09 Applicable Law. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
--------------
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).
9.10 Final Agreement. THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS,
---------------
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY BORROWER, AGENT
AND LENDERS.
-9-
<PAGE>
Witness the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
GLOBAL IMAGING SYSTEMS INC.
GLOBAL IMAGING OPERATIONS, INC.
GLOBAL IMAGING FINANCE COMPANY
By: /s/ Thomas S. Johnson
--------------------------------------
Thomas S. Johnson
President
COPY SERVICE AND SUPPLY, INC.
OFFICE FURNITURE CONCEPTS, INC.
FELCO OFFICE SYSTEMS, INC.
BERNEY, INC.
CONWAY OFFICE PRODUCTS, INC.
AMERICAN PHOTOCOPY EQUIPMENT COMPANY
OF PITTSBURGH
SOUTHERN COPY SYSTEMS, INC.
BUSINESS EQUIPMENT UNLIMITED
CAMERON OFFICE PRODUCTS, INC.
SOUTHERN BUSINESS COMMUNICATIONS, INC.
ELECTRONIC SYSTEMS, INC.
EASTERN COPY PRODUCTS, INC.
QUALITY BUSINESS SYSTEMS, INC.
DUPLICATING SPECIALTIES, INC.
ELECTRONIC SYSTEMS OF RICHMOND, INC.
CONNECTICUT BUSINESS SYSTEMS, INC.
By: /s/ Thomas S. Johnson
--------------------------------------
Thomas S. Johnson
Chairman
CSS LEASING, LLC
By: /s/ Thomas S. Johnson
--------------------------------------
Thomas S. Johnson
Manager and President
-10-
<PAGE>
JACKSON NATIONAL LIFE INSURANCE
COMPANY, as Lender
By: PPM America, Inc.,
Attorney-in-Fact
By: /s/ Ben James
-----------------------------------
Title: Managing Director
PPM AMERICA, INC., as Agent
By: /s/ Ben James
-----------------------------------
Title: Managing Director
-11-
<PAGE>
*** PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A
COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.***
STOCK PURCHASE AGREEMENT
By and Among
GLOBAL IMAGING SYSTEMS INC.,
SOUTHERN BUSINESS COMMUNICATIONS
OF D.C., INC.
and
GEORGE GOUGH,
MARK M. LLOYD
and
ARTHUR E. KREPS
DATED NOVEMBER 13, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
1.1 Definitions........................................................ 1
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 Agreement to Sell and Purchase..................................... 4
2.2 Purchase Price..................................................... 4
2.3 Payment of Purchase Price.......................................... 5
2.4 Closing............................................................ 5
2.5 Purchase Price Adjustment.......................................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLER
3.1 Capitalization..................................................... 5
3.2 No Liens on Shares................................................. 5
3.3 Other Rights to Acquire Capital Stock.............................. 5
3.4 Due Organization................................................... 6
3.5 No Subsidiaries.................................................... 6
3.6 Due Authorization.................................................. 6
3.7 Financial Statements............................................... 6
3.8 Certain Actions.................................................... 7
3.9 Properties......................................................... 8
3.10 Licenses and Permits............................................... 8
3.11 Intellectual Property.............................................. 8
3.12 Compliance with Laws............................................... 9
3.13 Insurance.......................................................... 9
3.14 Employee Benefit Plans............................................. 9
(a) Employee Welfare Benefit Plans................................. 9
(b) Employee Pension Benefit Plans................................. 10
(c) Employment and Non-Tax Qualified Deferred Compensation
Arrangements................................................... 10
3.15 Contracts and Agreements........................................... 10
3.16 Claims and Proceedings............................................. 11
3.17 Taxes.............................................................. 11
3.18 Personnel.......................................................... 12
3.19 Business Relations................................................. 12
-i-
<PAGE>
3.20 Accounts Receivable .............................................. 13
3.21 Bank Accounts .................................................... 13
3.22 Warranties........................................................ 13
3.23 Brokers........................................................... 13
3.24 Interest in Competitors, Suppliers, Customers, Etc ............... 13
3.25 Indebtedness To and From Officers, Directors, Shareholders,
and Employees..................................................... 13
3.26 Undisclosed Liabilities .......................................... 14
3.27 Information Furnished ............................................ 14
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
4.1 Due Organization.................................................. 14
4.2 Due Authorization................................................. 14
4.3 No Brokers........................................................ 15
4.4 Investment........................................................ 15
ARTICLE V
COVENANTS OF THE COMPANY AND SELLER
5.1 Consents of Others................................................ 15
5.2 Seller's Efforts.................................................. 15
5.3 Powers of Attorney................................................ 15
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General........................................................... 15
6.2 Transition........................................................ 16
6.3 Confidentiality................................................... 16
6.4 Covenant Not to Compete........................................... 16
6.5 Section 339(h)(10) Election....................................... 17
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's Obligations ............................... 17
(a) Covenants, Representations and Warranties.................... 17
(b) Consents..................................................... 18
(c) Lease........................................................ 18
(d) Discharge of Indebtedness and Liens.......................... 18
(e) Material Adverse Change...................................... 18
(f) Transfer Taxes............................................... 18
(g) Documents to be Delivered by Sellers and the Company......... 18
(i) Opinion of Seller's Counsel ............................ 18
(ii) Certificates ........................................... 18
-ii-
<PAGE>
(iii) Release................................................ 19
(iv) Stock Certificates..................................... 19
7.2 Conditions to Sellers and the Company's Obligations................ 19
(a) Covenants, Representations and Warranties..................... 19
(b) Consents...................................................... 19
(c) Documents to be Delivered by Global........................... 19
(i) Opinion of Global's Counsel ........................... 19
(ii) Certificates........................................... 19
(iii) Purchase Price ........................................ 20
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global ......................................... 20
8.2 Indemnification of Seller ......................................... 20
ARTICLE IX
MISCELLANEOUS
9.1 Modifications...................................................... 20
9.2 Notices............................................................ 20
9.3 Counterparts....................................................... 21
9.4 Expenses........................................................... 22
9.5 Binding Effect; Assignment......................................... 22
9.6 Entire and Sole Agreement.......................................... 22
9.7 Governing Law ..................................................... 22
9.8 Survival of Representations, Warranties and Covenants.............. 22
9.9 Invalid Provisions................................................. 22
9.10 Public Announcements............................................... 23
9.11 Remedies Cumulative ............................................... 23
9.12 Waiver ............................................................ 23
-iii-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Office Lease
Exhibit B Opinion of Sellers' Counsel
Exhibit C Sellers' Certificates
Exhibit D Release
Exhibit E Global Certificates
Exhibit F Opinion of Global's Counsel
LIST OF SCHEDULES
Schedule 2.3 Sellers' Accounts
Schedule 2.5 Holders of Funded Indebtedness
Schedule 3.1 Ownership of Shares
Schedule 3.4 Articles and Bylaws
Schedule 3.7 Financial Statements
Schedule 3.8A Certain Actions
Schedule 3.8B Material Changes
Schedule 3.9 Properties
Schedule 3.10 Licenses and Permits
Schedule 3.11 Patents and Trademarks
Schedule 3.13 Insurance
Schedule 3.14 Employee Benefit Plans
Schedule 3.15 Contracts and Agreements
Schedule 3.16 Claims and Proceedings
Schedule 3.18 Personnel
Schedule 3.20 Accounts Receivable
Schedule 3.21 Bank Accounts
Schedule 3.22 Warranties
Schedule 3.25 Indebtedness with Officers, Directors and Shareholders
Schedule 3.26 Undisclosed Liabilities
Schedule 3.27 Information Furnished
Schedule 7.1(d) Indebtedness
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. Global will provide these exhibits
and schedules upon the request of the Securities and Exchange Commission.
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
November 13, 1996 but effective as of September 30, 1996, by and among GLOBAL
IMAGING SYSTEMS INC., a Delaware corporation ("Global"), SOUTHERN BUSINESS
COMMUNICATIONS OF D.C., INC., a Georgia corporation (the "Company") and GEORGE
GOUGH, MARK M. LLOYD and ARTHUR E. KREPS (each individually a "Seller" and
collectively "Sellers").
WITNESSETH:
WHEREAS, the Company is engaged in the electronic presentation, image
processing, and network services industry in McLean, Virginia (the "Business");
and
WHEREAS, Sellers own an aggregate of 10,000 shares of the outstanding
Common Stock, no par value per share, of the Company (the "Shares"), which
Shares constitute all of the issued and outstanding capital stock of the
Company; and
WHEREAS, Global desires to purchase from Sellers and Sellers desire to
sell to Global hereby of the Shares owned by Sellers, all on the terms and
subject to the conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto covenant and agree
as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. In this Agreement, the following terms have the
-----------
meanings specified or referred to in this Section 1.1 and shall be equally
-----------
applicable to both the singular and plural forms. Any agreement referred to
below shall mean such agreement as amended, supplemented and modified from time
to time to the extent permitted by the applicable provisions thereof and by this
Agreement.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"ATS" means ATS-Atlanta One, L.L.C., a Georgia limited liability
company.
"Building" shall mean the Company's office building located at
8301 Greensboro Drive, Suite 110, McLean, Virginia.
<PAGE>
"Business" has the meaning specified in the first recital of
the Agreement.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. (S)(S) 9601 et seq., any amendments thereto, any
-- ---
successor statutes, and any regulations promulgated thereunder.
"Closing" means the closing of the transfer of the Shares from the
Sellers to Global.
"Closing Date" has the meaning specified in Section 2.4.
-----------
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning specified in the first paragraph of this
Agreement.
"Confidential Information" means all confidential information and
trade secrets of the Company including, without limitation, the identity, lists
or descriptions of any customers, referral sources or organizations; financial
statements, cost reports or other financial information; contract proposals, or
bidding information; business plans and training and operations methods and
manuals; personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals. Confidential Information shall
not include any information (i) which is disclosed pursuant to subpoena or other
legal process, (ii) which has been publicly disclosed, (iii) which subsequently
becomes known to a third party not subject to a confidentiality agreement with
Global or the Company, or (iv) which is subsequently disclosed by any third
party not in breach of a confidentiality agreement.
"Contracts" has the meaning specified in Section 3.15.
------------
"Court Order" means any judgment, order, award or decree of any
foreign, federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Encumbrance" means any lien, claim, charge, security interest,
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions, of any kind.
"Environmental Obligations" has the meaning specified in Section 3.12.
------------
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Financial Statements" has the meaning specified in Section 3.7.
-----------
"Funded Indebtedness" means all (i) indebtedness of such Person for
borrowed money or other interest-bearing indebtedness; (ii) capital lease
obligations of such
-2-
<PAGE>
Person; (iii) obligations of such Person to pay the deferred purchase or
acquisition price for goods or services, other than trade accounts payable or
accrued expenses in the ordinary course of business; or (iv) indebtedness of
others guaranteed by such Person or secured by an Encumbrance on such Person's
property.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Global" has the meaning specified in the first paragraph of this
Agreement.
"Governmental Body" means any foreign, federal, state, local or
other governmental authority or regulatory body.
"Governmental Permits" has the meaning specified in Section 3.10.
------------
"Indemnifiable Costs" has the meaning specified in Section 8.1.
-----------
"Indemnified Parties" has the meaning specified in Section 8.1.
-----------
"Intellectual Property" has the meaning specified in Section 3.11.
------------
"IRS" means the Internal Revenue Service.
"Material Adverse Change" or "Material Adverse Effect" means a
material adverse change or effect on the assets, properties, Business or the
operations, liabilities, or conditions (financial or otherwise) of the Company.
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
(S)(S) 651 et seq., any amendment thereto, and any regulations promulgated
-- ---
thereunder.
"Permitted Exception" means (a) liens for Taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in die ordinary course of business for
sums not yet due and payable, (c) other liens or imperfections on property which
are not material in amount or do not materially detract from the value of or
materially the existing use of the property affected by such lien or
imperfection, (d) such statement of facts shown on any customary title insurance
policies delivered to Global and (e) purchase money security interest liens in
favor of Canon U.S.A., Inc.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"Purchase Price" has the meaning specified in Section 2.2.
-----------
-3-
<PAGE>
[***Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.***]
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
(S)(S) 6901 et seq., and any successor statute, and any regulations promulgated
-- ---
thereunder.
"Requirements of Laws" means any foreign, federal, state and local
laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued
or promulgated by any Governmental Body (including, without limitation, those
pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements) or common law.
"SBC" means Southern Business Communications, Inc., a Georgia
corporation.
"SBC Purchase Agreement" shall mean that certain Stock Purchase
Agreement of even date herewith among SBC, Global and each of the Sellers other
than George Gough whereby Global shall acquire all of the capital stock of SBC.
"Seller" or "Sellers" have the meanings set forth in the first
paragraph of this Agreement.
"Shares" means all of the issued and outstanding shares of the
capital stock of the Company.
"Tax" or "Taxes" means any federal, state, local or foreign income,
alternative or add-on minimum, gross income, gross receipts, windfall profits,
severance, property, production, sales, use, transfer, gains, license, excise,
employment, payroll, withholding or minimum tax, transfer, goods and services,
or any other tax, custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental Body.
"Tax Return" means any return, report or similar statement required to
be filed with respect to any Taxes (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return and declaration of estimated Tax.
ARTICLE II
AGREEMENT OF PURCHASE AND SALE; CLOSING
2.1 Agreement to Sell and Purchase. Upon the basis of the
------------------------------
representations and warranties, for the consideration, and subject to the terms
and conditions set forth in this Agreement, Sellers agree to sell the Shares to
Global and Global agrees to purchase the Shares from Sellers.
2.2 Purchase Price. The total purchase price for the Shares (the
--------------
"Purchase Price") shall be equal to [* *] and as otherwise adjusted pursuant to
Section 2.5 below.
- -----------
-4-
<PAGE>
[***Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.***]
2.3 Payment of Purchase Price. The Purchase Price shall be payable by
-------------------------
Global at the Closing (hereinafter defined) will be paid in cash by wire
transfer of funds or by cashier's checks to the Sellers' accounts specified in
Schedule 2.3 (including the payment of [**] for the covenant not to compete
- ------------
provided in Section 6.4.
-----------
2.4 Closing. The Closing of the purchase and sale of the Shares
-------
contemplated by this Agreement shall take place at the offices of Rowe, Foltz &
Martin, P.C. in Atlanta, Georgia. For purposes of this Agreement and the
transactions contemplated hereby, the Closing shall be deemed to take place on
September 30, 1996 (the "Closing Date").
2.5 Purchase Price Adjustment. The Purchase Price payable pursuant to
-------------------------
Section 2.3 above will be reduced by the total amount of Funded Indebtedness
- -----------
assumed or paid in cash by wire transfer of funds to the accounts of the holders
of Funded Indebtedness listed on Schedule 2.5 hereto to satisfy the Company's
------------
Funded Indebtedness with such institutions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SELLERS
The Company and Sellers, jointly and severally, represent and warrant
to Global that:
3.1 Capitalization. The authorized capital stock of the Company
--------------
consists of 10,000 shares of Common Stock, no par value per share, all of which
are issued and outstanding. All of the Shares are duly authorized, validly
issued, fully paid, and nonassessable. All of the Shares are owned of record and
beneficially by Sellers in the amounts specified in Schedule 3.1 hereto. None of
------------
the Shares was issued or will be transferred under this Agreement in violation
of any preemptive or preferential rights of any Person. The Sellers own all of
the issued and outstanding capital stock of the Company.
3.2 No Liens on Shares. Sellers collectively own the Shares, free and
------------------
clear of any Encumbrances other than the rights and obligations arising under
this Agreement, and none of the Shares is subject to any outstanding option,
warrant, call, or similar right of any other Person to acquire the same, and
none of the Shares is subject to any restriction on transfer thereof except for
restrictions imposed by applicable federal and state securities laws. Sellers
have full power and authority to convey good and marketable title to the Shares,
free and clear of any Encumbrances.
3.3 Other Rights to Acquire Capital Stock. Except as set forth in this
-------------------------------------
Agreement, there are no authorized or outstanding warrants, options, or rights
of any kind to acquire from the Company any equity or debt securities of the
Company, or securities convertible into or exchangeable for equity or debt
securities of the Company, and there are no shares of capital stock of the
Company reserved for issuance for any purpose nor any contracts, commitments,
understandings or arrangements which require the Company to issue, sell or
deliver any additional shares of its capital stock.
-5-
<PAGE>
3.4 Due Organization. The Company is a corporation duly organized,
----------------
validly existing, and in good standing under the laws of the State of Georgia
and has full corporate power and authority to carry on the Business as now
conducted and as proposed to be conducted through the date hereof. Complete and
correct copies of the Certificate of Incorporation and Bylaws of the Company,
and all amendments thereto, have been heretofore delivered to Global and are
attached hereto as Schedule 3.4. The Company is qualified to do business in
------------
Virginia and in each other jurisdiction in which the nature of the Business or
the ownership of its properties requires such qualification except where the
failure to be so qualified does not and would not have a Material Adverse
Effect.
3.5 No Subsidiaries. The Company does not directly or indirectly have
---------------
any subsidiaries or any direct or indirect ownership interests in any Person.
Except for SBC and ATS, the Sellers do not own any other Person engaged in the
Business.
3.6 Due Authorization. The Company and the Sellers each has full power
-----------------
and authority to execute. deliver and perform this Agreement and to carry out
the transactions contemplated hereby. The execution, delivery, and performance
of this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action of the Company. This
Agreement has been duly and validly executed and delivered by the Company and
Sellers and constitutes the valid and binding obligations of the Company and
Sellers, enforceable in accordance with its terms. The execution, delivery, and
performance of this Agreement (as well as all other instruments, agreements,
certificates, or other documents contemplated hereby) by the Company and
Sellers, do not (a) violate any Requirements of Laws or any Court Order of any
Governmental Body applicable to the Company or Sellers, or their respective
property, (b) violate or conflict with, or permit the cancellation of, or
constitute a default under, any agreement to which the Company or Sellers are a
party, or by which any of them or any of their respective property is bound, (c)
permit the acceleration of the maturity of any indebtedness of, or indebtedness
secured by the property of, the Company or Sellers, or (d) violate or conflict
with any provision of the charter or bylaws of the Company.
3.7 Financial Statements. The following Financial Statements (herein
--------------------
so called) of the Company have been delivered to Global by Sellers and the
Company:
Reviewed balance sheets of the Company as of December 31, 1993,
December 31, 1994 and December 31, 1995 and internally prepared
monthly balance sheets for each month end from August 31, 1995 to
August 31, 1996, and
Reviewed statements of income of the Company for the fiscal years
ended December 31, 1993, December 31, 1994 and December 31, 1995 and
internally prepared income statements for month and year-to-date for
each month commencing August 31, 1995 through the month ending August
31, 1996.
Except as disclosed on Schedule 3.7, the Financial Statements have been
------------
prepared in accordance with GAAP throughout the periods indicated and fairly
present the financial position, results of operations and changes in financial
position of the Company as of the indicated dates and for
-6-
<PAGE>
the indicated periods, subject (in the case of the monthly internally prepared
Financial Statements) to year end accruals made in the ordinary course of the
Business which are not adversely material and which are consistent with past
practices. Except to the extent reflected or provided for in the Financial
Statements or the notes thereto and except as disclosed in Schedule 3.7, the
------------
Company has no liabilities, nor any obligations (whether absolute, contingent,
or otherwise) which are (individually or in the aggregate) material (in amount
or to the conduct of the Business); and neither the Company nor Sellers have
knowledge of any basis for the assertion of any such liability or obligation.
Since August 31, 1996, there has been no Material Adverse Change, and neither
the Company nor Seller have any reason to believe there has been any Material
Adverse Change in the prospects of the Company.
3.8 Certain Actions. Since August 31, 1996, the Company has not, except
---------------
as disclosed on Schedule 3.8A hereto: (a) discharged or satisfied any
-------------
Encumbrance or paid any obligation or liability, absolute or contingent, other
than current liabilities incurred and paid in the ordinary course of the
Business; (b) paid or declared any dividends or distributions, or purchased,
redeemed, acquired, or retired any stock or indebtedness from any stockholder
other than (i) the personal vehicles listed on Schedule 3.8A hereto and (ii) the
-------------
office furniture listed on Schedule 3.8A hereto, each as agreed to by Global;
-------------
(c) made or agreed to make any loans or advances or guaranteed or agreed to
guarantee any loans or advances to any party whatsoever; (d) suffered or
permitted any Encumbrance to arise or be granted or created against or upon any
of its assets, real or personal, tangible or intangible; (e) cancelled, waived,
or released or agreed to cancel, waive, or release any of its debts, rights, or
claims against third parties in excess of $10,000 individually or $50,000 in the
aggregate; (f) sold, assigned, pledged, mortgaged, or otherwise transferred or
suffered any damage, destruction, or loss (whether or not covered by insurance)
to, any assets (except in the ordinary course of the Business); (g) amended its
charter or bylaws; (h) paid or made a commitment to pay any severance or
termination payment to any employee or consultant; (i) made any change in its
method of management or operation or method of accounting; (j) made any capital
expenditures, including, without limitation, replacements of equipment in the
ordinary course of the Business, or entered into commitments therefor, except
for capital expenditures or commitments therefor which do not, in the aggregate,
exceed $50,000; (k) made any investment or commitment therefor in any Person;
(1) made any payment or contracted for the payment of any bonus, gratuity, or
other compensation or personal expenses, other than (A) wages and salaries and
business expenses paid in the ordinary course of the Business, and (B) wage and
salary adjustments made in the ordinary course of the Business for employees who
are not officers, directors, or shareholders of the Company; (m) made, amended,
or entered into any written employment contract or created or made any material
change in any bonus, stock option, pension, retirement, profit sharing or other
employee benefit plan or arrangement; (n) amended or experienced a termination
of any material contract, agreement, lease, franchise or license to which the
Company is a party, except in the ordinary course of the Business; or (o)
entered into any other material transactions except in the ordinary course of
the Business. Since August 31, 1996, except as disclosed an Schedule 3.8B
-------------
hereto, there has not been (a) any Material Adverse Change including, but not
limited to, the loss of any customer of the Company who paid the Company in
excess of $50,000 during the twelve months ended August 31, 1996, or the loss of
any supplier of the Company to whom the Company paid more than $40,000 during
the twelve months ended August 31, 1996, or in any material assets of the
Company, (b) any extraordinary contracts, commitments, orders or
-7-
<PAGE>
rebates, (c) any strike, material slowdown, or demand for recognition by a labor
organization by or with respect to any of the employees of the Company, or (d)
any shutdown, material slow-down, or cessation of any material operations
conducted by, or constituting part of, the Company, nor has the Company agreed
to do any of the foregoing.
3.9 Properties. Attached hereto as Schedule 3.9 is a list containing a
---------- ------------
description of all interests in real property (including, without limitation,
leasehold interests) and personal property utilized by the Company in the
conduct of the Business having a book value in excess of $15,000 as of the date
hereof. Except as expressly set forth on Schedule 3.9, such real and personal
------------
properties are free and clear of Encumbrances. Sellers and the Company have
delivered to Global a lien search of all of the Company's real and personal
property in the State of Virginia. All of the properties and assets necessary in
the Business as currently conducted (including, without limitation, all books,
records, computers and computer software and data processing systems) are owned,
leased or licensed by the Company and are suitable for the purposes for which
they are currently being used. With the exception of used equipment and
inventory valued at no more than $1.00 on the Company's Financial Statements,
the physical properties of the Company, including the real properties leased by
the Company, are in good operating condition and repair, normal wear and tear
excepted, and are free from any defects of a material nature. Except as
otherwise set forth on Schedule 3.9, the Company has full and unrestricted legal
------------
and equitable title to all such properties and assets. The operation of the
properties and Business of the Company in the manner in which they are now and
have been operated does not violate any zoning ordinances, municipal
regulations, or other Requirements of Laws, except for any such violations which
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth on Schedule 3.9, no covenants, easements, rights-of-way, or
------------
regulations of record impair the uses of the properties of the Company for the
purposes for which they are now operated. All leases of real or personal
property by the Company are legal, valid, binding, enforceable and in full force
and effect and will remain legal, valid, binding, enforceable and in full force
and effect on identical terms immediately following date hereof. All facilities
owned or leased by the Company have received all approvals of any Governmental
Body (including Governmental Permits) required in connection with the operation
thereof and have been operated and maintained in accordance with all
Requirements of Laws.
3.10 Licenses And Permits. Attached hereto as Schedule 3.10 is a list
-------------------- -------------
of all licenses, certificates, privileges, immunities approvals, franchises,
authorizations and permits held or applied for by the Company from any
Governmental Body (herein collectively called "Governmental Permits") the
absence of which to the best knowledge of Sellers could have a Material Adverse
Effect. The Company has complied in all material respects with the terms and
conditions of all such Governmental Permits, and no violation of any such
Governmental Permit or the Requirements of Laws governing the issuance or
continued validity thereof has occurred other than violations (if any) which
would not individually or in the aggregate have a Material Adverse Effect. No
additional Government Permit is required from any Governmental Body thereof in
connection with the conduct of the Business which Governmental Permit, if not
obtained, would have a Material Adverse Effect.
3.11 Intellectual Property. Attached hereto as Schedule 3.11 is a list
--------------------- -------------
and brief description of all patents, trademarks, tradenames, copyrights,
licenses, computer software or
-8-
<PAGE>
data (other than general commercial software), trade secrets, or applications
therefor owned by or registered in the name of the Company or in which the
Company has any rights, licenses, or immunities (collectively, the "Intellectual
Property"). The Company has furnished Global with copies of all license
agreements to which the Company is a party, either as licensor or licensee, with
respect to any Intellectual Property. Except as described on Schedule 3.11
-------------
hereto, the Company has good and marketable title to or the right to use such
Intellectual Property and all inventions, processes, designs, formulae, trade
secrets and know-how necessary for the conduct of their Business, in their
Business as presently conducted without the payment of any royalty or similar
payment, and the Company is not infringing on any patent right, tradename,
copyright or trademark right or other Intellectual Property right of others, and
neither the Company nor Sellers are aware of any infringement by others of any
such rights owned by the Company.
3.12 Compliance With Laws. The Company has (i) complied in all material
--------------------
respects with all Requirements of Laws, Governmental Permits and Court Orders
applicable to the Business and has filed with the proper Governmental Bodies all
statements and reports required by all Requirements of Laws, Governmental
Permits and Court Orders to which the Company or any of its employees (because
of their activities on behalf of the Company) are subject and (ii) conducted the
Business and are in compliance in all material respects with all federal, state
and local energy, public utility, health, safety and environmental Requirements
of Laws, Governmental Permits and Court Orders including the Clean Air Act, the
Clean Water Act, RCRA, the Safe Drinking Water Act, CERCLA, OSHA, the Toxic
Substances Control Act and. any similar state, local or foreign laws
(collectively "Environmental Obligations") and all other federal, state, local
or foreign governmental and regulatory requirements, except where any such
failure to comply would not, in the aggregate, have a Material Adverse Effect.
No claim has been made by any Governmental Body (and, to the best knowledge of
the Company and Sellers, no such claim is anticipated) to the effect that the
Business fails to comply, in any respect, with any Requirements of Laws,
Governmental Permit or Environmental Obligation or that a Governmental Permit or
Court Order is necessary in respect thereto.
3.13 Insurance. Attached hereto as Schedule 3.13 is a list of all
--------- -------------
policies of fire, liability, or other forms of insurance and all fidelity bonds
held by or applicable to the Company, which Schedule sets forth in respect of
each such policy the policy name, policy number, carrier, term, type of
coverage, deductible amount or self-insured retention amount, limits of coverage
and annual premium. Copies of all such insurance policies have been delivered to
Global. To the best of Sellers' and the Company's knowledge, no event relating
to the Company has occurred which will result in (i) cancellation of any such
insurance policies; (ii) a retroactive upward adjustment of premiums under any
such insurance policies; or (iii) any prospective upward adjustment in such
premiums. To the best of Sellers' and the Company's knowledge after due inquiry,
all of such insurance policies will remain in full force and effect following
the Closing.
3.14 Employee Benefit Plans.
----------------------
(a) Employee Welfare Benefit Plans. Except as disclosed on Schedule
------------------------------ --------
3.14, the Company does not maintain or contribute to any "employee welfare
- ----
benefit plan" as such term is defined in Section 3(l) of ERISA. With respect to
each such plan, (i) the plan is
-9-
<PAGE>
in material compliance with ERISA; (ii) the Plan has been administered in
accordance with its governing documents; (iii) neither the plan, nor any
fiduciary with respect to the plan, has engaged in any "prohibited transaction"
as defined in Section 406 of ERISA other than any transaction subject to a
statutory or administrative exemption; (iv) except for the processing of routine
claims in the ordinary course of administration, there is no material
litigation, arbitration or disputed claim outstanding; and (v) all premiums due
an any insurance contract through which the plan is funded have been paid.
(b) Employee Pension Benefit Plans. Except as disclosed in Schedule
------------------------------ --------
3.14, the Company does not maintain or contribute to any arrangement that is or
- ----
may be an "employee pension benefit plan" relating to employees, as such term is
defined in Section 3(2) of ERISA. With respect to each such plan: (i) the plan
is qualified under Section 401(a) of the Code, and any trust through which the
plan is funded meets the requirements to be exempt from federal income tax under
Section 501(a) of the Code; (ii) the plan is in material compliance with ERISA;
(iii) the plan has been administered in accordance with its governing documents
as modified by applicable law: (iv) the plan has not suffered an "accumulated
funding deficiency" as defined in Section 412(a) of the Code; (v) the plan has
not engaged in, nor has any fiduciary with respect to the plan engaged in, any
"prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of
the Code other than a transaction subject to statutory or administrative
exemption; (vi) the plan has not been subject to a "reportable event" (as
defined in Section 4043(b) of ERISA), the reporting of which has not been waived
by regulation of the Pension Benefit Guaranty Corporation; (vii) no termination
or partial termination of the plan has occurred within the meaning of Section
411(d)(3) of the Code; (viii) all contributions required to be made to the
plan or under any applicable collective bargaining agreement have been made to
or on behalf of the plan; (ix) there is no material litigation, arbitration or
disputed claim outstanding; and (x) all applicable premiums due to the Pension
Benefit Guaranty Corporation for plan termination insurance have been paid in
full on a timely basis.
(c) Employment and Non-Tax Qualified Deferred Compensation
------------------------------------------------------
Arrangements. Except as disclosed in Schedule 3.14, the Company does not
- ------------ -------------
maintain or contribute to any retirement or deferred or incentive compensation
or stock purchase, stock grant or stock option arrangement entered into between
the Company and any current or former officer, consultant, director or employee
of the Company that is not intended to be a tax qualified arrangement under
Section 401(a) of the Code.
3.15 Contracts And Agreements. Attached hereto as Schedule 3.15 is a
----------------------- -------------
list and brief description of all written or oral contracts, commitments,
leases, and other agreements (including, without limitation, promissory notes,
loan agreements, and other evidences of indebtedness, guarantees, agreements
with distributors, suppliers, dealers, franchisors and customers, and service
agreements) to which the Company is a party or by which the Company or its
properties are bound which either (i) require performance by either party
exceeding one year; (ii) are contracts (other than vendor contracts) pursuant to
which the Company shall pay or receive more than $10,000 over the life of such
contract, or (iii) are vendor contracts pursuant to which SBC's sales of
products obtained pursuant to such contract exceeds $100,000 (collectively,
the "Contracts"). The Company is not and, to the best knowledge of Sellers and
the Company, no other party thereto is in default (and no event has occurred
which, with the
-10-
<PAGE>
passage of time or the giving of notice, or both, would constitute a default)
under any of the Contracts, and the Company has not waived any right under any
of the Contracts. Except as set forth on Schedule 3.15, all of the Contracts to
-------------
which the Company is a party are legal, valid, binding and enforceable against
the Company and, to the best of the Company's and Sellers' knowledge, against
each other party thereto, and in full force and effect and will remain legal,
valid, binding and enforceable against the Company and, to the best of the
Company's and Sellers' knowledge, against each other party thereto, and in full
force and effect on identical terms immediately after the Closing. Except as set
forth in Schedule 3.15, the Company has not guaranteed any obligations of any
-------------
other Person.
3.16 Claims And Proceedings. Attached hereto as Schedule 3.16 is a list
---------------------- -------------
and brief description of all claims, actions, suits, proceedings, or
investigations pending or, to Sellers' and the Company's knowledge, threatened
against or affecting the Company or any of its properties or assets, at law or
in equity, or before or by any court, municipality or other Governmental Body.
Except as set forth on Schedule 3.16 none of such claims, actions, suits,
-------------
proceedings, or investigations is presently expected by Sellers to result in any
liability or loss to the Company. The Company has not been and the Company is
not now, subject to any Court Order, stipulation, or consent of or with any
court or Governmental Body. No inquiry, action or proceeding has been asserted,
threatened or instituted to restrain or prohibit the carrying out of the
transactions contemplated by this Agreement or to challenge the validity of such
transactions or any part thereof or seeking damages on account thereof. To the
best knowledge of the Company and Sellers, except as set forth on Schedule 3.16,
-------------
there is no basis for any such valid claim or action.
3.17 Taxes.
------
(a) All Federal, foreign, state, county and local income, gross
receipts, excise, property, franchise, license, sales, use, withholding, and
other Taxes and all Tax Returns which are required to be filed by the Company on
or before the date hereof have been filed within the time and in the manner
provided by law, and all such Tax Returns are true and correct and accurately
reflect the Tax liabilities of the Company. No Tax Returns of the Company or any
of the Sellers are presently subject to an extension of the time to file. All
Taxes, assessments, penalties, and interest of the Company which have become due
as shown on such Tax Returns or any assessments received have been paid or
adequately accrued on the Company's Financial Statements. The provisions for
Taxes reflected on the balance sheets contained in the Financial Statements are
adequate to cover all of the Company's Tax liabilities for the respective
periods then ended and all prior periods. The Company has not executed any
presently effective waiver or extension of any statute of limitations against
assessments and collection of Taxes, and there are no pending or threatened
claims, assessments, notices, proposals to assess, deficiencies, or audits with
respect to any such Taxes. For Governmental Bodies with respect to which the
Company does not file Tax Returns, to Sellers' and the Company's knowledge, no
such government body has claimed that any of the Company is or may be subject to
taxation by that government body. The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, shareholder, creditor, independent contractor or other party.
There are no tax liens on any of the property or assets of the Company.
-11-
<PAGE>
(b) Neither the Company nor any other corporation has filed an
election under Section 341(f) of the Code that is applicable to the Company or
any assets held by the Company. The Company has not made any payments, is not
obligated to make any payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Sec. 280G. The Company has not been a United States real
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). The Company is
not a party to any Tax allocation or sharing agreement. The Company has not and
has never been (nor does the Company have any liability for unpaid Taxes because
it once was) a member of an affiliated group during any part of which return
year any corporation other than the Company also was a member of the affiliated
group. The Company has made an election to be taxed under subchapter S of the
Code and such election is valid, binding and in full force and effect.
(c) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer taxes, real
estate transfer taxes or similar taxes will be imposed upon the transfer and
sale of the Shares pursuant to this Agreement.
3.18 Personnel. Attached hereto as Schedule 3.18 is a list of the names
--------- -------------
and annual rates of compensation of the directors and executive officers of the
Company, and of the employees of the Company whose annual rates of compensation
during the fiscal year ended December 31, 1995 (including base salary, bonus and
incentive pay) exceed (or by December 31, 1996 are expected to exceed) $60,000.
Schedule 3.18 also summarizes the bonus, profit sharing, percentage
- -------------
compensation, company automobile, club membership, and other like benefits, if
any, paid or payable to such directors, officers, and employees during the
Company's fiscal year ended October 31, 1995 and to the date hereof. Schedule
--------
3.18 also contains a brief description of all material terms of employment
- ----
agreements to which the Company is a party and all severance benefits which any
director, officer or employee of the Company is or may be entitled to receive.
The employee relations of the Company are good and there is no pending or, to
the best knowledge of Sellers or the Company, threatened labor dispute or union
organization campaign. None of the employees of the Company are represented by
any labor union or organization. The Company is in compliance in all material
respects with all Requirements of Laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, and are not
engaged in any unfair labor practices. Neither the Company or Sellers have been
advised, or has any reason to believe, that any of the persons whose names are
set forth on Schedule 3.18 or any other employee will not agree to remain
-------------
employed by the Company after the consummation of the transactions contemplated
hereby. There is no unfair labor practice claim against the Company before the
National Labor Relations Board, or any strike, dispute, slowdown, or stoppage
pending or, to the best knowledge of the Company and Sellers, threatened against
or involving the Company, and none has occurred.
3.19 Business Relations. Neither the Company nor Sellers knows or has
------------------
any reason to believe that any customer or supplier of the Company will cease to
do business with the Company after the consummation of the transactions
contemplated hereby in the same manner and at the same levels as previously
conducted with the Company except for any
-12-
<PAGE>
reductions which do not result in a Material Adverse Change. Except for
disruptions in deliveries from suppliers in the ordinary course of business,
neither Sellers or the Company have received any notice of any material
disruption (including delayed deliveries or allocations by suppliers) in the
availability of any material portion of the materials used by the Company nor
are the Company or Sellers aware of any facts which could lead them to believe
that the Business will be subject to any such material disruption.
3.20 Accounts Receivable. All of the accounts, notes, and loans
-------------------
receivable that have been recorded on the books of the Company are bona fide and
represent amounts validly due for goods sold or services rendered. Except as
disclosed on Schedule 3.20 hereto (a) all of such accounts, notes, and loans
-------------
receivable are free and clear of any Encumbrances; (b) none of such accounts,
notes, or loans receivable is subject to any offsets or claims of offset; and
(c) none of the obligors of such accounts, notes, or loans receivable has given
notice that it will or may refuse to pay the full amount or any portion thereof.
3.21 Bank Accounts. Attached hereto as Schedule 3.21 is a list of all
------------- -------------
banks or other financial institutions with which the Company have an account or
maintain a safe deposit box, showing the type and account number of each such
account and safe deposit box and the names of the persons authorized as
signatories thereon or to act or deal in connection therewith.
3.22 Warranties. Except as Set forth on Schedule 3.22 and except for
---------- -------------
warranty claims that are typical and in the ordinary course of the Business, no
claim for breach of product or service warranty to any customer has been made
against the Company since January 1, 1996. To the best knowledge of Sellers and
the Company, no state of facts exists, and no event has occurred, which may form
the basis of any present claim against the Company for liability on account of
any express or implied warranty to any third party in connection with products
sold or services rendered by the Company.
3.23 Brokers. Neither the Company nor Sellers have engaged, or caused to
-------
be incurred any liability to any finder, broker, or sales agent in connection
with the origin, negotiation, execution, delivery, or performance of this
Agreement or the transactions contemplated hereby.
3.24 Interest In Competitors Suppliers, Customers, Etc. No officer,
-------------------------------------------------
director, or shareholder of the Company or any affiliate of any such officer,
director, or shareholder, has any ownership interest in any competitor,
supplier, or customer of the Company (other than ownership of securities of a
publicly-held corporation of which such Person owns, or has real or contingent
rights to own, less than one percent of any class of outstanding securities) or
any property used in the operation of the Business.
3.25 Indebtedness To And From Officers, Directors, Shareholders, And
---------------------------------------------------------------
Employees. Attached hereto as Schedule 3.25 is a list and brief description of
- --------- -------------
the payment terms of all indebtedness of the Company to officers, directors,
shareholders, and employees of the Company and all indebtedness of officers,
directors, shareholders, and employees of the Company to the Company, excluding
indebtedness for travel advances or similar advances for
-13-
<PAGE>
expenses incurred on behalf of and in the ordinary course of the Business,
consistent with past practices.
3.26 Undisclosed Liabilities. Effective as of August 31, 1996 and
-----------------------
except as indicated in Schedule 3.26 and the other Schedules hereto, the Company
-------------
did not have any material liabilities (whether absolute, accrued, contingent or
otherwise), of a nature required by GAAP to be reflected on a corporate balance
sheet or disclosed in the notes thereto, except such liabilities which were
accrued or reserved against in the Company's financial statements as of such
date or disclosed in the notes thereto, including without limitation any
accounts payable or service liabilities of the Company incurred prior to August
31, 1996.
3.27 Information Furnished. The Company and Sellers have made available
---------------------
to Global true and correct copies of all material corporate records of the
Company and all agreements, documents, and other items listed on the Schedules
to this Agreement or referred to in Article III of this Agreement.
-----------
In making the representations and warranties set forth above, the term
"material" shall be deemed to mean an amount of money greater than $15,000, the
terms "material adverse change," "material adverse trend," "material adverse
effect," or any other term of like import shall mean the occurrence of any
single event, or any series of related events, or set of related circumstances,
which proximately causes an actual, direct economic loss to the Company, taken
as a whole, in excess of $15,000 per occurrence or $20,000 in the aggregate. The
term "knowledge" shall mean actual knowledge after reasonable investigation.
ARTICLE IV
GLOBAL'S REPRESENTATIONS AND WARRANTIES
Global represents and warrants to Sellers as follows:
4.1 Due Organization. Global is a corporation duly organized, validly
----------------
existing, and in good standing under the laws of the State of Delaware and has
full corporate power and authority to enter into and perform this Agreement.
4.2 Due Authorization. The execution, delivery and performance of this
-----------------
Agreement has been duly authorized by all necessary corporate action of Global,
and the Agreement, and all other agreements or instruments contemplated hereby
which have been or will be executed by Global, have been duly and validly
executed and delivered by Global and constitute the valid and binding obligation
of Global, enforceable in accordance with their respective terms. The execution,
delivery, and performance of this Agreement (as well as all other instruments,
agreements, certificates or other documents contemplated hereby) by Global, will
not (a) violate any Requirements of Laws or Court Order of any Governmental Body
applicable to Global or its property, (b) violate or conflict with, or permit
the cancellation of, or constitute a default under any agreement to which Global
is a party or by which it or its property is bound, (c) permit the acceleration
of the maturity of any indebtedness of, or any
-14-
<PAGE>
indebtedness secured by the property of, Global, or (d) violate or conflict with
any provision of the charter or bylaws of Global.
4.3 No Brokers. Global has not engaged, or caused to be incurred any
----------
liability to any finder, broker or sales agent in connection with the origin,
negotiation, execution, delivery, or performance of this Agreement or the
transactions contemplated hereby.
4.4 Investment. Global will acquire the Shares for investment and for
----------
its own account and not with a view to the distribution thereof.
ARTICLE V
COVENANTS OF THE COMPANY AND SELLERS
5.1 Consents Of Others. Prior to the Closing, the Company and Sellers
------------------
shall use their best efforts to obtain and to cause the Company to obtain all
authorizations, consents and permits required of the Company and Sellers to
permit them to consummate the transactions contemplated by this Agreement.
5.2 Seller's Efforts. The Company and Sellers shall use all reasonable
----------------
efforts to cause all conditions for the Closing to be met.
5.3 Powers Of Attorney. The Company and Sellers shall cause the Company
------------------
to terminate at or prior to Closing all powers of attorney granted by the
Company, other than those relating to service of process, qualification or
pursuant to governmental regulatory or licensing agreements, or representation
before the IRS or other government agencies.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General. In case at any time after the Closing any further action is
-------
legally necessary or reasonably desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
party reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor under
Article VIII below). The Sellers acknowledge and agree that from and after the
- ------------
Closing Global will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to the Company, which shall
be maintained at the chief executive office of the Company; provided, however,
-------- -------
that Sellers shall be entitled to reasonable access to and to make copies of
such books and records at their sole cost and expense and Global will maintain
the books, records and material financial data relating to the Company for a
period of at least three (3) years. After such date, the Company will offer such
documentation to Sellers before disposal thereof.
-15-
<PAGE>
[***Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.***]
6.2 Transition. For a period of three (3) years following Closing, the
----------
Sellers will not take any action that primarily is designed or intended to have
the effect of discouraging any lessor, licensor, customer, supplier, or other
business associate of the Company from maintaining the same business relations
with the Company after the Closing as it maintained with the Company prior to
the Closing. For a period of three (3) years following Closing, the Sellers will
refer all customer inquiries relating to the Business to the Company or Global.
6.3 Confidentiality. The Sellers will treat and hold as such all
---------------
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement for a period of three (3) years from
the Closing, and deliver promptly to Global or destroy, at the request and
option of Global, all tangible embodiments (and all copies) of the Confidential
Information which are in its possession except as otherwise permitted herein. In
the event that any Seller is requested or required (by oral question or request
for information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information, that Seller will notify Global promptly of the request or
requirement.
6.4 Covenant Not to Compete. For and in consideration of the
-----------------------
allocation of [**] of the Purchase Price paid to the Sellers by Global, Sellers
each covenant and agree, for a period of three years from and after the Closing
Date, that they will not, individually or jointly, directly or indirectly, nor
with any member of their immediate family, without the prior written consent of
Global, for or on behalf of any entity:
(a) become interested or engaged in any manner, directly or
indirectly, or become a shareholder, bondholder, creditor, officer, director,
partner, agent, contractor with, employer or representative of, or in any manner
associated with, or give financial, technical or other assistance to, any
Person, firm or corporation for the purpose of engaging in the Business within
the greater of (i) a 100 mile radius of the Company's office facility in McLean,
Virginia or (ii) in any geographic area in which the Company and/or its
subsidiaries currently conduct business; provided, however, that no owner of
-------
less than 1% of the outstanding stock of any publicly-traded corporation (other
than Global) shall be deemed to be so engaged solely by reason thereof in the
Business;
(b) enter into any agreement with, service, assist or solicit the
business of any customers of the Company for the purpose of providing equipment
sales, systems or service related to the Business to such customers or to cause
them to reduce or end their business with the Company; or
(c) enter into any agreement with, or solicit the employment of
employees, consultants or representatives of the Company for the purpose of
causing them to leave the employment of the Company.
Notwithstanding the foregoing, nothing herein shall prevent Arthur E. Kreps from
fulfilling the terms of his Consulting Agreement or Mark M. Lloyd from
fulfilling the terms of his Executive Agreement.
-16-
<PAGE>
6.5 Section 338(h)(10) Election. At Global's option, Sellers and Global
----------------------------
shall join in making a timely election (but in no event later than 120 days
following the Closing) under Section 338(h)(10) of the Code (including the
prerequisite election under Section 338 of the Code) and any similar state law
provisions in all applicable states, with respect to the sale and purchase of
the Shares pursuant to this Agreement, and each party shall provide to the other
all necessary information to permit such elections to be made. Global and
Sellers shall, as promptly as practicable following the Closing Date, take all
actions necessary and appropriate (including filing such forms, returns,
schedules and other documents as may be required) to effect and preserve timely
elections. Sellers shall be made whole by Global for any additional Taxes or
other costs associated with such Section 338(h)(10) elections. In connection
with such elections, within 120 days following the Closing Date, Global and
Sellers shall act together in good faith to determine and agree upon the "deemed
sale price" to be allocated to each asset of Global in accordance with Treasury
Regulation Section 1.339(h)(10)-l(f) and the other regulations under Section 339
of the Code. Both Global and Sellers shall report the tax consequences of the
transactions contemplated by this Agreement consistently with such allocations
and shall not take any position inconsistent with such allocations in any Tax
Return or otherwise. In the event that Global and Sellers are unable to agree as
to such allocations, Global's reasonable positions with respect to such
allocations shall control. Sellers shall be liable for, and shall indemnify and
hold Global and the Company harmless against, any Taxes or other costs
attributable to a failure on the part of Sellers to take all actions required of
them under this Section 6.5.
------------
ARTICLE VII
CONDITIONS TO OBLIGATION OF PARTIES TO CONSUMMATE CLOSING
7.1 Conditions to Global's Obligations. The obligation of Global under
-----------------------------------
this Agreement to consummate the closing is subject to the conditions that:
(a) Covenants, Representations and Warranties. The Company and Seller
------------------------------------------
shall have performed in all material respects all obligations and agreements and
complied in all material respects with all covenants contained in this Agreement
to be performed and complied with by each of them prior to or at the Closing
Date.
(b) Consents. All statutory requirements for the valid consummation by
---------
the Company and Sellers of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents and approvals, including
those of all federal, state, local and foreign governmental agencies and
regulatory authorities required to be obtained in order to permit the
consummation of the transactions contemplated hereby shall have been obtained in
form and substance reasonably satisfactory to Global unless such failure shall
not have a Material Adverse Effect. All approvals of the Board of Directors and
shareholders of the Company necessary for the consummation of this Agreement and
the transactions contemplated hereby shall have been obtained.
-17-
<PAGE>
(c) Lease. The Company's lease of the Building shall be on terms
------
reasonably acceptable to Global in the form of Exhibit A hereto and shall be
---------
unaffected by the transactions contemplated hereby.
(d) Discharge of Indebtedness and Lien. Sellers and the Company shall
-----------------------------------
have provided for the payment in full of all Funded Indebtedness of the Company
and all extended credit from vendors at the Closing or such indebtedness shall
be assumed by Global and the Purchase Price shall be reduced in accordance with
Section 2.5 hereof. Such Funded Indebtedness as of September 30, 1996, is listed
- -----------
on Schedule 7. 1(d) hereto. Sellers shall have also provided for the
----------------
termination of all Encumbrances of record on the properties of the Company,
except for Permitted Encumbrances (other than the modification of the Canon UCC
filing).
(e) Material Adverse Change There has been no Material Adverse
-----------------------
Change.
(f) Transfer Taxes. Sellers shall be responsible for and shall have
---------------
paid or set aside sufficient funds to pay all stock transfer taxes incurred in
connection with this Agreement.
(g) Documents to be Delivered by Sellers and the Company. The
-----------------------------------------------------
following documents shall be delivered at the Closing by Sellers and the
Company:
(i) Opinion of Seller's Counsel. Global shall have received an opinion
----------------------------
of Rowe, Foltz & Martin, P.C., counsel to Sellers, dated as of the date hereof,
in substantially the same form as the form of opinion that is Exhibit B hereto.
---------
(ii) Certificates. Global shall have received an officer's certificate
-------------
and a secretary's certificate of the Company executed by officers of the
Company, dated as of the date hereof, in substantially the same forms as the
forms of certificates that are Exhibit C hereto.
---------
(iii) Release. Sellers shall have furnished the Company with a general
--------
release of liabilities, excluding compensation and employee benefits as well as
obligations pursuant to this Agreement, in the form attached as Exhibit D
---------
hereto.
(iv) Stock Certificates. Sellers shall have delivered the Shares
-------------------
accompanied by duly executed stock powers, together with any stock transfer
stamps or receipts for any transfer taxes required to be paid thereon.
7.2 Conditions to Sellers and the Company's Obligations. The
----------------------------------------------------
obligation of Sellers and the Company under this Agreement to consummate the
Closing is subject to the conditions that:
-18-
<PAGE>
(a) Covenants, Representations and Warranties. Global shall have
------------------------------------------
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants contained in this Agreement to be
performed and complied with by Global prior to or at the Closing.
(b) Consents. All statutory requirements for the valid consummation by
---------
Global of the transactions contemplated by this Agreement shall have been
fulfilled and all authorizations, consents and approvals, including those of all
federal, state, local and foreign governmental agencies and regulatory
authorities required to be obtained in order to permit the consummation by
Global of the transactions contemplated hereby shall have been obtained unless
such failure shall not have a material adverse effect on the Business. Global
shall have used its reasonable best efforts to have obtained the release of the
Seller from all personal guarantees with respect to the Company.
(c) Documents to be Delivered by Global. The following documents
------------------------------------
shall be delivered at the Closing by Global:
(i) Opinion of Global's Counsel. Sellers shall have received an opinion
----------------------------
of Davis, Graham & Stubbs LLP, counsel to Global, dated as of the date hereof,
in substantially the same form as the form of opinion that is Exhibit E hereto.
----------
(ii) Certificates. Sellers shall have received an officers' certificate
-------------
and a secretary's certificate executed by officers of Global, dated as of the
date hereof, in substantially the same forms as the forms of certificates that
are Exhibit F hereto.
---------
(iii) Purchase Price. Sellers shall have received the Purchase Price
---------------
for the Shares.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification of Global. Sellers agree to individually indemnify
--------------------------
and hold harmless Global and each officer, director, and affiliate of Global,
including without limitation The Company or any successor of the Company
(collectively, the "Indemnified Parties") from and against any and all damages,
losses, claims, liabilities, demands, charges, suits, penalties, costs and
expenses (including court costs and reasonable attorneys' fees and expenses
actually incurred in investigating and preparing for any litigation or
proceeding) (collectively, the "Indemnifiable Costs") which any of the
Indemnified Parties may sustain, or to which any of the Indemnified Parties may
be subjected, arising out of any misrepresentation, breach or default by such
Seller with respect to such Seller under the representations and warranties made
by him individually in Sections 3.1. 3.2. 3.3 or 3.6 of the Agreement.
------------- ---- --- ----
-19-
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1 Modifications Any amendment, change or modification of this
-------------
Agreement shall be void unless in writing and signed by all parties hereto, No
failure or delay by any party hereto in exercising any right, power or privilege
hereunder (and no course of dealing between or among any of the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or other
default. No single or partial exercise of any such right, power or privilege
shall preclude the further or full exercise thereof.
9.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given when personally delivered,
or 72 hours after deposited in the United States mail, first-class, postage
prepaid, or 24 hours after transmission by facsimile addressed to the respective
parties hereto as follows:
Global:
- -------
Global Imaging Systems Inc.
P.O. Box 273478
Tampa, Florida 33688-3479
Attention: Thomas S. Johnson, President
Fax No.: (813) 264-7977
Tel No.: (813) 960-5508
With a copy to:
Davis, Graham & Stubbs LLP
1314 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Christopher J. Hagan
Fax No.: (202) 293-4794
Tel No.: (202) 822-8660
The Company or Sellers:
- -----------------------
c/o Southern Business Communications, Inc.
3175 Corners North Court
Norcross, Georgia 30071
Attention: Mark M. Lloyd
Arthur E. Kreps
George Gough
Fax No.: (770) 449-0188
Tel No.: (770) 449-4088
-20-
<PAGE>
With a copy to:
Rowe, Foltz & Martin. P.C.
Five Piedmont Center, Suite 750
Atlanta, Georgia 30305-1509
Attention: Paul Shlanta, Esq.
Fax No.: (404) 237-1659
Tel No.: (404) 231-9397
or to such other address as to any party hereto as such party shall designate by
like notice to the other parties hereto.
9.3 Counterparts. This Agreement may be executed in several
-------------
counterparts, each of which shall be deemed an original but all of which
counterparts collectively shall constitute one instrument, and in making proof
of this Agreement, it shall never be necessary to produce or account for more
than one such counterpart.
9.4 Expenses. Each of the parties hereto will bear all costs, charges
---------
and expenses incurred by such party in connection with this Agreement and the
consummation of the transactions contemplated herein, provided, however, that
Sellers shall bear all costs and expenses of any broker involved in this
transaction and the Company shall bear all legal expenses of Sellers or the
Company with respect to this Agreement and the transactions contemplated hereby.
9.5 Binding Effect; Assignment. This Agreement shall be binding upon
---------------------------
and inure to the benefit of the Company, Global and Sellers, their heirs,
representatives, successors, and permitted assigns, in accordance with the terms
hereof. This Agreement shall not be assignable by the Company or Sellers without
the prior written consent of Global. This Agreement shall be assignable by
Global to a wholly-owned subsidiary of Global without the prior written consent
of Sellers.
9.6 Entire and Sole Agreement. This Agreement and the other schedules
--------------------------
and agreements referred to herein, constitute the entire agreement between the
parties hereto and supersede all prior agreements, representations, warranties,
statements, promises, information, arrangements and understandings, whether oral
or written, express or implied, with respect to the subject matter hereof.
9.7 Governing Law. This Agreement and its validity, construction,
--------------
enforcement, and interpretation shall be governed by the substantive laws of the
State of Georgia.
9.8 Survival or Representations, Warranties and Covenants. Regardless
------------------------------------------------------
of any investigation at any time made by or on behalf of any party hereto or of
any information any party may have in respect thereof, all covenants,
agreements, representations, and warranties and the related indemnities made
hereunder or pursuant hereto or in connection with the transactions contemplated
hereby shall survive the Closing for a period of one year, provided
-21-
<PAGE>
(a) the representations and warranties contained in Sections 3.14 and 3.17 of
-------------- ----
this Agreement, and the related indemnities, shall survive the Closing until the
expiration of the applicable statutes of limitations for determining or
contesting Tax liabilities; (b) the representations and warranties contained in
Sections 3.1. 3.2 and 3.3 of this Agreement, and the related indemnities, shall
- --------------------------
survive the Closing indefinitely; and (c) the representations and warranties
contained in Section 3.2 of the Agreement, and the related indemnities, shall
------------
survive the Closing until June 30, 1999.
9.9 Invalid Provisions. If any provision of this Agreement is deemed or
--------------------
held to be illegal, invalid or unenforceable, this Agreement shall be considered
divisible and inoperative as to such provision to the extent it is deemed to be
illegal, invalid or unenforceable, and in all other respects this Agreement
shall remain in full force and effect; provided, however, that if any provision
of this Agreement is deemed or held to be illegal, invalid or unenforceable
there shall be added hereto automatically a provision as similar as possible to
such illegal, invalid or unenforceable provision and be legal, valid and
enforceable. Further, should any provision contained in this Agreement ever be
reformed or rewritten by any judicial body of competent jurisdiction, such
provision as so reformed or rewritten shall be binding upon all parties hereto.
9.10 Public Announcements. Neither party shall make any public
----------------------
announcement of the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
9.11 Remedies Cumulative. The remedies of the parties under this
--------------------
Agreement are cumulative and shall not exclude any other remedies to which any
party may be lawfully entitled.
9.12 Waiver. No failure or delay on the part of any party in exercising
--------
any right, power, or privilege hereunder or under any of the documents delivered
in connection with this Agreement shall operate as a waiver of such right,
power, or privilege; nor shall any single or partial exercise of any such right,
power, or privilege preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-22-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date and year first above written.
GLOBAL:
-------
GLOBAL IMAGING SYSTEMS INC.
By: /s/ Ray Schilling, Attorney-in-Fact
-----------------------------------
Thomas S. Johnson
President and Chief Executive Officer
THE COMPANY:
-----------
SOUTHERN BUSINESS COMMUNICATIONS OF D.C., INC.
By: /s/ Mark M. Lloyd
-----------------------------------
Title: V.P.
-----------------------------
SELLERS:
--------
/s/ George Gough
-----------------------------------------
George Gough
/s/ Mark M. Lloyd
-----------------------------------------
Mark M. Lloyd
/s/ Arthur E. Kreps
-----------------------------------------
Arthur E. Kreps
-23-
<PAGE>
*** PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[...]") OR OTHERWISE
IDENTIFIED HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A
COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.***
STOCK PURCHASE AGREEMENT
By and Among
GLOBAL IMAGING SYSTEMS INC.,
SOUTHERN BUSINESS COMMUNICATIONS
OF D.C., INC.
and
GEORGE GOUGH,
MARK M. LLOYD
and
ARTHUR E. KREPS
DATED NOVEMBER 13, 1996
<PAGE>
EXHIBIT 10.29
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
as of the ___th day of May, 1998, by and between GLOBAL IMAGING SYSTEMS, INC., a
Delaware corporation (the "Company"), and the undersigned, a director of the
Company ("Indemnitee"). For the purposes of this Agreement, all references to
the "Company" shall include all subsidiaries, affiliates, partnerships,
enterprises, employee benefit plans or other entities on behalf of which
Indemnitee serves or will serve at the Company's request as an officer,
director, trustee, partner, employee or agent or in a related capacity.
WHEREAS, Indemnitee has agreed to serve, at the request of the Company, as
a director of the Company; and
WHEREAS, Indemnitee is willing to serve on behalf of the Company on the
condition that he be indemnified.
NOW, THEREFORE, in consideration of Indemnitee's agreement to serve as
a director of the Company, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. General Indemnity Provisions. To the maximum extent that Delaware
----------------------------
law in effect from time to time permits, the Company shall indemnify Indemnitee
against liability to the Company or to the Company's shareholders for money
damages (unless the liability arises from a proceeding initiated by the
Indemnitee and unauthorized by the Company's Board of Directors (the "Board")).
In the absence of any Delaware statute limiting the liability of directors of a
<PAGE>
Delaware corporation for money damages in a suit by or on behalf of the Company
or by any shareholder of the Company, Indemnitee shall not be liable to the
Company or to the Company's shareholders for money damages except to the extent
that (i) Indemnitee actually received an improper benefit or profit in money,
property, or services, for the amount of the benefit or profit in money,
property, or services actually received, or (ii) a judgment or other final
adjudication adverse to Indemnitee is entered in a proceeding based on a finding
in the proceeding that Indemnitee's action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
2. Express Exculpatory Clauses in Instruments. Indemnitee shall not
------------------------------------------
be liable under any written instrument creating an obligation of the Company by
reason of his being a director of the Company, and all persons shall look solely
to the Company for the payment of any claim under or for the performance of that
instrument. The omission of the foregoing exculpatory language from any
instrument shall not affect the validity or enforceability of such instrument
and shall not render Indemnitee liable thereunder to any third party, nor shall
Indemnitee be liable to anyone as a result of such omission.
3. Indemnification. The Company shall indemnify Indemnitee, whether
---------------
serving the Company or at its request any other entity, to the full extent
required or permitted by the laws of the State of Delaware applicable to
business corporations now or hereafter in force, including the advance for
expenses under the procedures and to the full extent permitted by such laws,
except with respect to indemnification for liability arising from a proceeding
initiated by the Indemnitee and unauthorized by the Board. Nothing contained
herein shall be construed to protect Indemnitee against any liability to the
extent such protection would violate Delaware statutory or decisional law
applicable to business corporations organized
-2-
<PAGE>
under Title 8 of the Delaware Code Annotated or any successor provisions
("Delaware Corporate Law"). No amendment of the Company's Amended and Restated
Certificate of Incorporation or repeal of any of its provisions shall limit or
eliminate the rights of indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.
4. Expenses Incurred by Indemnitee to Enforce this Agreement.
---------------------------------------------------------
Expenses incurred by Indemnitee in connection with his request for
indemnification hereunder shall be borne by the Company to the full extent
required or permitted by Delaware Corporation Law, unless Indemnitee is
determined not to be entitled to indemnification for any liability or expense
hereunder. In the event that Indemnitee is a party or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company
and shall be indemnified by the Company against any expenses actually and
reasonably incurred by him.
5. Termination of Service. Indemnitee's right to indemnification
----------------------
pursuant to this Agreement shall continue regardless of whether Indemnitee has
ceased for any reason to be an officer, trustee, director, partner, employee or
agent of the Company and shall inure to the benefit of the heirs of Indemnitee
or the executors or administrators of Indemnitee's estate.
6. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any action to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
by-law provision or otherwise) of the amounts otherwise indemnifiable hereunder.
-3-
<PAGE>
7. Non-Exclusivity. Indemnitee's rights under this Agreement shall
---------------
be in addition to, and not in lieu of, any other rights Indemnitee may have,
whether under the Company's Bylaws, the Company's Amended and Restated
Certificate of Incorporation, Delaware Corporate Law, or any other agreements or
contracts with the Company, or pursuant to any directors or officers liability
insurance. Nothing in this Agreement shall be deemed to diminish or otherwise
restrict Indemnitee's right to indemnification under any provision of the
Company's Bylaws, the Company's Amended and Restated Certificate of
Incorporation, Delaware Corporate Law, or any other agreement or contract with
the Company, or pursuant to any directors and officers liability insurance.
8. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by merger or
consolidation), heirs, executors and administrators.
9. Governing Law. This Agreement shall be deemed to be made in, and
-------------
in all respects shall be interpreted, construed, and governed by and in
accordance with the laws of the State of Delaware.
10. Severability. The Company and Indemnitee agree that the
------------
agreements and provisions contained in this Agreement are severable and
divisible, that each such agreement and provision does not depend upon any other
provision or agreement for its enforceability, and that each such agreement and
provision set forth herein constitutes an enforceable obligation between the
Company and Indemnitee. Consequently, the parties hereto agree that neither the
invalidity nor the unenforceability of any provision of this Agreement shall
affect the other provisions hereof, and this Agreement shall remain in full
force and effect and be construed in all respects as if such invalid or
unenforceable provision were omitted.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first above written.
----------------------------------------
[Name]:
Director
GLOBAL IMAGING SYSTEMS, INC.
By:
--------------------------------------
Thomas S. Johnson
President and Chief Executive Officer
-5-
<PAGE>
EXHIBIT 10.30
***PORTIONS OF THIS EXHIBIT MARKED BY BRACKETS ("[***]") OR OTHERWISE IDENTIFIED
HAVE BEEN OMITTED PUSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. A COMPLETE
VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***
[FIRST UNION LETTERHEAD] April 22, 1998
Global Imaging Systems, Inc.
13902 N. Dale Mabry, Suite 300
Tampa, Florida 33618
Attention: Ray Schilling
Chief Financial Officer
Re: Commitment for Arrangement of Facility and Financing
----------------------------------------------------
Dear Ray:
You have advised us that Global Imaging Systems, Inc. (the "Company") seeks
financing for itself and its material subsidiaries (collectively, on a joint and
several basis, the "Borrowers"), to refinance certain existing indebtedness, for
ongoing working capital requirements and other general corporate purposes of the
Borrowers, including permitted acquisitions. Attached hereto is a Summary of
Terms and Conditions (the "Term Sheet") describing the general terms and
conditions for an aggregate $175 million senior secured revolving credit
facility (the "Facility").
Based upon and subject to the terms and conditions set forth herein, in the
Term Sheet and in the fee letter of even date (the "Fee Letter"), First Union
National Bank ("First Union") is pleased to advise you of its commitment to
provide the Facility in favor of the Borrowers and act as Administrative Agent
in respect thereof. Although First Union is committing to provide the entire
Facility on the terms set forth herein and in the Term Sheet and Fee Letter,
First Union expects to act as Administrative Agent for a syndicate of financial
institutions (collectively, the "Lenders") to provide a portion of the Facility.
First Union Capital Markets Group, a division of Wheat First Securities, Inc.
("Capital Markets"), hereby agrees to act as Arranger for the Facility in
connection with any such syndication.
The commitments of First Union and Capital Markets hereunder are based upon
the financial and other information regarding the Company and its subsidiaries
previously provided to First Union and Capital Markets. Accordingly, the
commitments hereunder are subject to the condition, among others, that (i) there
shall not have occurred after March 31, 1998 any material adverse change in the
business, assets, liabilities (actual or contingent), operations or condition
(financial or otherwise) of the Company or its subsidiaries taken as a whole,
(ii) First Union and Capital Markets continue to be satisfied with the business,
assets, liabilities (actual or contingent), operations and condition (financial
or otherwise) of the Company and its subsidiaries taken as a whole, (iii) the
information concerning the Company and its subsidiaries shall not differ in any
material respect from the information previously provided to First Union and
Capital Markets by or on behalf of the Company, (iv) the determination of First
Union and Capital Markets that, prior
<PAGE>
Global Imaging Systems, Inc.
Page 2
to and during the primary syndication of the Facility, there shall be no
competing issuance of debt, securities or commercial bank facilities of the
Company or any of its subsidiaries being offered, placed or arranged (other than
the Initial Public Offering as set forth in the Term Sheet) except with the
prior written consent of First Union and Capital Markets and (v) First Union and
Capital Markets shall have completed, to their satisfaction, all legal, business
and other due diligence review of the business, assets, liabilities, operations
and condition (financial or otherwise) of the Company and its subsidiaries.
Further, the commitments of First Union and Capital Markets are subject to there
not having occurred any material disruption or adverse change in the financial,
banking or capital markets that could, in the reasonable judgment of First Union
or Capital Markets, materially impair the syndication of the Facility.
You agree to actively assist Capital Markets (including after the closing
of the Facility) in achieving a syndication of the Facility that is satisfactory
to Capital Markets and you. Such syndication may be accomplished by a variety of
means, including direct contact during the syndication between senior
management and advisors of the Company and its subsidiaries, and the proposed
syndicate members. To assist Capital Markets in the syndication efforts you
hereby agree (i) to provide and cause your advisors to provide Capital Markets
and the other syndicate members upon request with all information deemed
reasonably necessary by Capital Markets to complete the syndication, including
but not limited to information and evaluations prepared by you and any of your
subsidiaries and their advisors, or on their behalf, relating to the
transactions comtemplated hereby, (ii) to assist Capital Markets upon its
reasonable request in the preparation of an Information Memorandum to be used in
connection with the syndication of the Facility and (iii) to otherwise assist
Capital Markets in its syndication efforts, including making officers and
advisors of the Company and its subsidiaries available from time to time to
attend and make presentations regarding the business and prospects of the
Company and its subsidiaries, as appropriate, at a meeting or meetings of
Lenders or prospective Lenders.
It is understood and agreed that Capital Markets, after consultation with
you, will manage and control all aspects of the syndication, including decisions
as to the selection of proposed Lenders and any titles offered to proposed
Lenders, when commitments will be accepted and the final allocations of the
commitments among the Lenders.
You agree to afford First Union and its affiliates an opportunity to offer
proposals to provide, arrange, underwrite or administer (i) any interest rate
caps, currency swaps or other hedging transactions to be entered into by you or
any of your subsidiaries or affiliates, (ii) any cash management, funds
transfer, trade, corporate trust and securities services to be obtained by you
or any of your subsidiaries or affiliates and (iii) any public or private debt
or equity instruments or securities to be issued by you or any of your
subsidiaries or affiliates.
You hereby represent and covenant that to the best of your knowledge (i)
all information, other than Projections (as defined below), which has been or is
hereafter made available to First Union, Capital Markets or the Lenders by you
or any of your representatives in connection with the transactions contemplated
hereby ("Information") is and will be complete and correct in all material
-----------
respects and does not and will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements contained
therein not materially misleading and (ii) all financial projections concerning
the Company and its subsidiaries that have
<PAGE>
Global Imaging Systems, Inc.
Page 3
been or are hereafter made available to First Union, Capital Markets or the
Lenders by you (the "Projections") have been or will be prepared in good faith
-----------
based upon reasonable assumptions. You agree to supplement the Information and
the Projections from time to time until the closing date so that the
representation and warranty in the preceding sentence is correct on the closing
date. In arranging and syndicating the Facility, First Union and Capital Markets
will be using and relying on the Information and the Projections.
By executing this letter agreement, you agree to reimburse First Union and
Capital Markets from time to time on demand for all reasonable out-of-pocket
fees, syndication expenses and other expenses (including, but not limited to,
the reasonable fees, disbursements and other charges of Kennedy Covington
Lobdell & Hickman, L.L.P., as counsel to First Union and Capital Markets, and
professional fees of any local counsel and other consultants) incurred in
connection with the Facility, including the preparation of definitive
documentation for the Facility and the other transactions contemplated hereby.
By executing this letter agreement, you further agree to indemnify and hold
harmless First Union, Capital Markets, each other Lender and each director,
officer, employee, attorney and affiliate of First Union, Capital Markets and
each other Lender (each such person or entity referred to hereafter in this
paragraph as an "Indemnified Person") from any losses, claims, costs, damages,
------------------
expenses or liabilities (or actions, suits or proceedings, including any inquiry
or investigation, with respect thereto) to which any Indemnified Person may
become subject, insofar as such losses, claims, costs, damages, expenses or
liabilities (or actions, suits, or proceedings, including any inquiry or
investigation, with respect thereto) arise out of, in any way relate to, or
result from, this letter, the Facility or the other transactions contemplated
hereby and thereby and to reimburse upon demand each Indemnified Person for any
and all legal and other expenses incurred in connection with investigating,
preparing to defend or defending any such loss, claim, cost, damage, expense or
inquiry or investigation, with respect thereto; provided, that you shall have no
--------
obligation under this indemnity provision for liabilities resulting from gross
negligence or willful misconduct of any Indemnified Person. The foregoing
provisions of this paragraph shall be in addition to any right that an
Indemnified Person shall have at common law or otherwise. No Indemnified Person
shall be responsible or liable for consequential damages which may be alleged as
a result of this letter.
The provisions of the immediately preceding two paragraphs shall remain in
full force and effect regardless of whether definitive financing documentation
shall be executed and delivered and notwithstanding the termination of this
letter agreement or the commitment of First Union or Capital Markets hereunder.
You acknowledge and agree that the services of Capital Markets as Arranger
will be on an exclusive basis during the term of this letter and that, during
such term, no other bank or other financial institution will be engaged or
otherwise consulted or contacted by you regarding any other purposed senior bank
facility for the Company or its subsidiaries.
Except as required by applicable law, this letter and the contents hereof
shall not be disclosed by you to any third party without the prior consent of
First Union and Capital Markets, other than to your attorneys, financial
advisors and accountants, in each case in connection with your evaluation hereof
and to the extent necessary in your reasonable judgment. You acknowledge
<PAGE>
Global Imaging Systems, Inc.
Page 4
and agree that First Union and Capital Markets may share with their respective
affiliates any information relating to the Facility, the Company and its
subsidiaries. You further acknowledge and agree to the disclosure by First Union
and Capital Markets of information relating to the Facility to Gold Sheets and
-----------
other similar bank trade publications, with such information to consist of deal
terms and other information customarily found in such publications.
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet and the Fee
Letter of even date herewith, embodies the entire agreement and understanding
between First Union, Capital Markets and the Company with respect to the
specific matters set forth above and supersedes all prior agreements and
understandings relating to the subject matter hereof. No party has been
authorized by First Union or Capital Markets to make any oral or written
statements inconsistent with this letter.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW.
This letter may not be assigned by the Company without the prior written
consent of First Union and Capital Markets.
[Signature Page Follows]
<PAGE>
Global Imaging Systems, Inc.
Page 5
If you are in agreement with the foregoing, please execute the enclosed
copy of this letter and the Fee Letter no later than the close of business on
April 27, 1998. This letter will become effective upon your delivery to us of
executed counterparts of this letter and the Fee Letter. This Commitment Letter
shall terminate if not so accepted by you prior to that time. Following
acceptance by you, this Commitment Letter shall expire at 5:00 p.m. on July 15,
1998 unless the Facility is closed by such time.
Very truly yours,
FIRST UNION NATIONAL BANK
By: /s/ Kevin McCarthy
----------------------------------
Name: Kevin McCarthy
--------------------------------
Title: V.P./Director
-------------------------------
FIRST UNION CAPITAL MARKETS GROUP, a
division of Wheat First Securities, Inc.
By: /s/ James R. Zilisch
----------------------------------
Name: James R. Zilisch
--------------------------------
Title: Vice President
-------------------------------
COMMITMENT ACCEPTED AND AGREED
TO THIS 29TH DAY OF APRIL, 1998:
GLOBAL IMAGING SYSTEMS, INC.,
on behalf of itself and any other Borrowers
By: /s/ Thomas S. Johnson
------------------------------
Name: THOMAS S. JOHNSON
----------------------------
Title: PRESIDENT & CEO
---------------------------
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
SUMMARY OF TERMS AND CONDITIONS
APRIL 22, 1998
BORROWERS: Global Imaging Systems, Inc. (the "Company") and all present
and future Material Subsidiaries (to be defined in a manner
reasonably acceptable to the Administrative Agent and the
Borrowers) thereof on a joint and several basis.
ADMINISTRATIVE
AGENT: First Union National Bank ("First Union" or the
"Administrative Agent").
ARRANGER: First Union Capital Markets Group, a division of Wheat First
Securities, Inc. (the "Arranger").
LENDERS: A syndicate of lenders (the "Lenders") arranged by the
Arranger, such lenders to be reasonably satisfactory to the
Company.
FACILITY: $175,000,000 five year Revolving Credit Facility with
sublimits for Letters of Credit and Swingline Loans in
amounts to be negotiated (the "Facility"). Letters of Credit
issued under the Facility shall have a term of no more than
one year (not to extend beyond the maturity date of the
Facility).
MATURITY: Five years from the closing date.
PURPOSE: To refinance certain existing indebtedness, to fund working
capital and for general corporate purposes, including
permitted acquisitions.
SECURITY: The Facility shall be secured by the grant of a first
priority lien in favor of the Administrative Agent, for the
ratable benefit of itself and the Lenders, on all tangible
and intangible assets of the Borrowers, including, but not
limited to, all receivables, all equipment, all inventory,
all intellectual property and other general intangibles and
a pledge of 100% of the capital stock, partnership
<PAGE>
interests or other ownership interests of each subsidiary of
the Company that is a Borrower.
INTEREST RATE
OPTIONS: The Borrowers' option of:
(1) Base Rate Option: The Base Rate plus an applicable margin
----------------
as set forth in the pricing grid on Exhibit 1 hereto.
---------
The Base Rate shall mean the greater of (i) the prime rate
announced by the Administrative Agent or (ii) the
overnight federal funds rate plus 0.5%. The Prime Rate is
an index or base rate and shall not necessarily be its
lowest or best rate charged to its customers or other
banks.
(2) LIBOR Rate Option: LIBOR plus an applicable margin as set
-----------------
forth in the pricing grid on Exhibit 1 hereto.
---------
The LIBOR Rate Option is available for Interest Periods of
1, 2, 3 or 6 months. No more than six (6) Interest Periods
may be in effect at any time.
LIBOR shall mean LIBOR as set forth on Telerate Page 3750
or as determined by the Administrative Agent if such
information is not available. The LIBOR Rate shall be
adjusted for FDIC and regulatory reserve requirements.
LIBOR Rate interest and all fees shall be calculated on a
360 day basis, while Base Rate interest shall be
calculated on a 365/366 day basis.
LOANS UNDER THE
CREDIT FACILITY: Borrowings may be requested upon three business days
notice for LIBOR Loans and same business day notice for
Base Rate Loans. Notice must be given to the Agent by
11:00 a.m., Charlotte, North Carolina time, on the day on
which such notice is required. The aggregate of all
outstanding LIBOR Loans, Base Rate Loans, Swingline Loans
and Letters of Credit will be considered usage for
purposes of determining availability under the Facility.
DEFAULT RATE: Upon the occurrence and during the continuance of an Event
of Default, at the Administrative Agent's option, (i) the
Borrowers shall no longer have the option to request LIBOR
Rate Loans, (ii) all amounts due and payable with respect
to LIBOR Rate Loans shall bear interest at a rate per
annum two percent (2%) in excess
2
<PAGE>
of the rate then applicable to LIBOR Rate Loans until the
end of the applicable Interest Period and thereafter at a
rate equal to two percent (2%) in excess of the rate then
applicable to Base Rate Loans and (iii) all amounts due and
payable with respect to Base Rate Loans shall bear interest
at a rate per annum equal to two percent (2%) in excess of
the rate then applicable to Base Rate Loans.
INTEREST
PAYMENTS: Interest on Base Rate Loans will be due and payable
quarterly in arrears. Interest on LIBOR Rate Loans will be
due and payable at the earliest of the end of each
applicable Interest Period or quarterly in arrears.
LETTER OF
CREDIT FEES: Letter of Credit Fee: At a rate equal to the then applicable
--------------------
margin for LIBOR Rate Loans multiplied by the face amount of
each Letter of Credit, payable to the Administrative Agent,
for the account of the Lenders, quarterly in arrears.
Fronting Fee: 0.125% multiplied by the face amount of each
------------
Letter of Credit, payable to the Administrative Agent (as
Issuing Lender), for its own account, on the date such
letter of credit is issued.
Administrative Costs: All normal costs and expenses of the
--------------------
Administrative Agent (as Issuing Lender) in connection with
the issuance, transfer or other administration of the
Letters of Credit.
UNUSED FEE: At the rate set forth in the pricing grid on Exhibit 1
---------
hereto on the average daily unused portion of the Facility,
payable quarterly, in arrears.
UNDERWRITING FEE: As set forth in the Fee Letter of even date herewith among
the Borrowers, the Administrative Agent and the Arranger.
ADMINISTRATIVE
AGENT'S FEE: As set forth in the Fee Letter of even date herewith among
the Borrowers, the Administrative Agent and the Arranger.
3
<PAGE>
OPTIONAL
PREPAYMENTS/
COMMITMENT
REDUCTIONS: The Borrowers may voluntarily reduce the Facility commitment
in increments of $5,000,000 upon three business days notice
to the Administrative Agent. Any such reduction shall be
accompanied by the prepayment of any excess Loans. Base Rate
Loans may be prepaid at any time without penalty. LIBOR Rate
Loans may be prepaid at the end of the applicable Interest
Period without penalty. Any optional or mandatory prepayment
of the LIBOR Rate Loans prior to the end of the applicable
Interest Period are subject to payment of any funding
losses. Notwithstanding the foregoing, the Facility
commitment cannot be reduced to an amount less than the
amount of the then outstanding Letters of Credit.
CONDITIONS
PRECEDENT: Customary for facilities of this nature, including, but not
limited to, the following:
1. definitive credit documentation satisfactory to the
Administrative Agent;
2. all governmental, shareholder, corporate and third
party consents shall have been obtained;
3. no material adverse change including no material
pending or threatened litigation, bankruptcy or other
proceeding;
4. satisfactory review of all corporate documentation,
legal compliance and other legal due diligence;
5. the receipt of (a) at least $85 million in net proceeds
from an initial public equity offering and consummation
of the related redemption and recapitalization
transactions (the "Initial Public Offering") or (b) at
least $75 million but less than $85 million of such net
proceeds; provided that if clause (b) is applicable,
the Arranger shall have the right to increase the
applicable margin and underwriting fee payable with
respect to the Facility to levels to be determined
solely by the Arranger.
6. payment of all fees and expenses due to the
Administrative Agent and the Administrative Agent's
counsel;
7. repayment and termination of the existing credit
facility with Jackson National Life Insurance Company
(and payment of any required termination fee) and
certain other existing indebtedness; and
4
<PAGE>
8. any additional closing conditions deemed
reasonably necessary by the Administrative Agent
and in the context of the proposed transaction.
REPRESENTATIONS
AND WARRANTIES: Customary for facilities of this nature, including, but
not limited to, corporate existence; corporate and
governmental authorization; enforceability; financial
information; no material adverse changes; compliance
with laws and agreements (including environmental
laws); compliance with ERISA; no material litigation;
payment of taxes; financial condition; full disclosure;
and any additional representations and warranties
deemed reasonably necessary by the Administrative Agent
and in the context of the proposed transaction.
AFFIRMATIVE
COVENANTS: Customary for facilities of this nature, including, but
not limited to, receipt of financial information;
notification of litigation, investigations and other
adverse changes; payment and performance of
obligations; conduct of business; maintenance of
existence; maintenance of property and insurance
(including hazard and business interruption coverage);
maintenance of records and accounts; inspection of
property and books and records; compliance with laws
(including environmental laws); payment of taxes;
ERISA; Year 2000 compliance; and joinder of any future
Material Subsidiaries to the loan and security
documents.
FINANCIAL
COVENANTS: Financial covenants shall include, but not be limited
to, the following:
. Maximum Total Funded Debt to Pro Forma Adjusted
-----------------------------------------------
EBITDA Ratio: The Borrowers shall not permit the
------------
ratio of (a) Total Funded Debt as of any fiscal
quarter end to (b) Pro Forma Adjusted EBITDA for
the period of four (4) consecutive fiscal quarters
ending on such date to be greater 4.50 to 1.00 on
the closing date of the Facility (with stepdowns
to be determined).
. Maximum Senior Funded Debt to Pro Forma Adjusted
------------------------------------------------
EBITDA Ratio: The Borrowers shall not permit the
------------
ratio of (a) Senior Funded Debt as of any fiscal
quarter end to (b) Pro Forma Adjusted EBITDA for
the period of four (4) consecutive fiscal quarters
ending on such date to be
5
<PAGE>
[***Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.***]
greater than 3.75 to 1.00 on the closing date of the
Facility (with stepdowns to the determined).
. Fixed Charge Coverage Ratio: The Borrowers shall not
---------------------------
permit the ratio of (a) Pro Forma Adjusted EBITDA for
the period of four (4) consecutive fiscal quarters
ending as of any fiscal quarter end to (b) Fixed
Charges for such period of four (4) consecutive fiscal
quarters to be less than a ratio to be determined (such
determination to be reasonably acceptable to the
Administrative Agent and the Borrowers).
. Maximum Funded Debt to Capitalization Ratio: The
-------------------------------------------
Borrowers shall not permit the ratio of (a) Total
Funded Debt as of any fiscal quarter end to (b) Total
Capitalization as of such date to be greater than a
ratio to be determined (such determination to be
reasonably acceptable to the Administrative Agent and
the Borrowers).
As used herein, Pro Forma Adjusted EBITDA shall mean the
trailing four (4) fiscal quarter consolidated EBITDA for the
Borrower and its subsidiaries calculated on a pro forma
basis to include the EBITDA of any Permitted Acquisition for
the same four (4) fiscal quarter period. The EBITDA of
acquired companies may be adjusted in a manner satisfactory
to the Administrative Agent to reflect any non-recurring or
extraordinary administrative expenses incurred prior to the
acquisition.
As used herein, Fixed Charges shall mean, for any period,
the sum of the following determined on a consolidated basis,
without duplication, for the Borrowers and their
subsidiaries in accordance with generally accepted
accounting principles: (a) all principal and cash interest
payments, (b) maintenance capital expenditures and (c) cash
taxes.
NEGATIVE
COVENANTS: Customary for facilities of this nature, including, but not
limited to, restrictions and limitations on indebtedness
[**] of the Company on terms and conditions satisfactory to
the Administrative Agent and Required Lenders); liens;
contingent obligations; changes in business; mergers; sales
of assets; dividends and restricted payments; loans and
investments; transactions with affiliates; sale and
leaseback transactions; optional prepayment of and material
amendments to indebtedness; restrictive agreements; changes
in fiscal year or accounting method; and other negative
covenants deemed reasonably
6
<PAGE>
necessary by the Administrative Agent in the context of the
proposed transaction.
PERMITTED
ACQUISITIONS: Acquisitions of entities or net assets in the same or
similar lines of business shall be permitted subject to no
default, joinder of acquired entities to the loan and
securities documents and delivery of required information
and documentation. The Borrowers must obtain the approval of
the Required Lenders for any single acquisition with a cash
purchase price in excess of $15 million and an aggregate
purchase price in excess of $40 million.
EVENTS OF
DEFAULT: Customary for facilities of this nature, including, but not
limited to, failure to pay any interest, principal or fees
under the Facility when due; failure to perform any covenant
or agreement; invalidity of any loan documents,
subordination provisions or security interests; inaccurate
or false representation or warranties; cross default;
insolvency or bankruptcy; ERISA; judgment defaults; change
in control; and any other events of default deemed
reasonably necessary by the Administrative Agent in the
context of the proposed transaction.
ASSIGNMENTS &
PARTICIPATIONS: Assignments shall be permitted in minimum amounts of
$5,000,000 subject to the consent of the Administrative
Agent and subject (so long as no default or event of default
has occurred and is continuing) to consent of the Borrowers,
such consents not to be unreasonably withheld or delayed.
Participations shall be permitted in minimum amounts of
$5,000,000.
INCREASED COSTS/
CHANGE OF
CIRCUMSTANCES: Provisions customary in facilities of this type protecting
the Lenders in the event of unavailability of funding,
illegality, capital adequacy requirements, increased costs,
withholding taxes and funding losses.
REQUIRED
LENDERS: On any date of determination, those Lenders who collectively
hold at least 51% of outstandings, or if no outstandings,
those Lenders who collectively hold at least 51% of the
aggregate commitment of the Lenders.
7
<PAGE>
WAIVER OF
JURY TRIAL,
GOVERNING LAW: Waiver of jury trial, submission to jurisdiction and
mandatory binding arbitration in Charlotte, North Carolina.
North Carolina law (without reference to choice of law
provisions) to govern.
COUNSEL TO
ARRANGER AND
ADMINISTRATIVE
AGENT: Kennedy Covington Lobdell & Hickman, L.L.P.
MISCELLANEOUS: This summary of terms and conditions is intended as an
outline only and does not constitute a commitment to lend
nor purport to summarize all the conditions, covenants,
representations, warranties and other provisions which would
be contained in definitive credit documentation for the
Facility contemplated hereby.
8
<PAGE>
EXHIBIT 1
TO
GLOBAL IMAGING SYSTEMS, INC.
SUMMARY OF TERMS AND CONDITIONS
APPLICABLE MARGIN AND COMMITMENT FEE PERCENTAGE
-----------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Ratio of Total Funded Commitment
Debt to EBITDA LIBOR + Base Rate + Fee
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
greater than or equal to 3.50 1.500% 0.500% 0.275%
- -------------------------------------------------------------------------------------------
greater than or equal to 3.00 but less than 3.50 1.250% 0.250% 0.275%
- -------------------------------------------------------------------------------------------
greater than or equal to 2.50 but less than 3.00 1.000% 0.000% 0.250%
- -------------------------------------------------------------------------------------------
greater than or equal to 1.50 but less than 2.50 0.750% 0.000% 0.250%
- -------------------------------------------------------------------------------------------
less than 1.50 0.625% 0.000% 0.225%
- -------------------------------------------------------------------------------------------
</TABLE>
The applicable margin and the commitment fee percentage shall be determined by
reference to the ratio of Total Funded Debt to Pro Forma Adjusted EBITDA as of
the end of each fiscal quarter and as of the closing date of any Permitted
Acquisition.
<PAGE>
Exhibit 23.1
We consent to the reference of our firm under the caption "Experts" and to the
use of our reports dated February 13, 1998 (except for Note 12, as to which the
date is ____________), in Amendment No. 2 to the Registration Statement (Form S-
1 No. 333-48103) and related Prospectus of Global Imaging Systems, Inc. for the
registration of 8,050,000 shares of its common stock.
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ ERNST AND YOUNG LLP
Tampa, FL
May 8, 1998
<PAGE>
EXHIBIT 23.11
Consent of Pacific Media Associates
We consent to the use of data provided by us regarding the size of the
electronic presentations market and the top five vendors (as attached) in the
Registration Statement (Form S-1; File No. 333-48103), any Registration
Statement relating to such Registration Statement under Rule 462 under the
Securities Act of 1933, as amended, and any related Prospectus of Global
Imaging Systems, Inc. for the registration of its common stock.
City, State: Mountain View, CA Name: W.L. Coggshall
---------------------- --------------------------
Date: 5/1/98 Signature: /s/ W.L. Coggshall
----------------------------- ---------------------
<PAGE>
EXHIBIT 23.12
Consent of International Data Corporation
We consent to the use of data provided by us regarding the size of the network
integration and management services markets (as attached) in the Registration
Statement (Form S-1; File No. 333-48103), any Registration Statement relating to
such Registration Statement under Rule 462 under the Securities Act of 1933, as
amended, and any related Prospectus of Global Imaging Systems, Inc. for the
registration of its common stock.
City, State: Framingham, MA Name: Michael Melenovsky
------------------- ----------------------------
Date: 5-4-98 Signature: /s/ Michael Melenovsky
-------------------------- -----------------------
"The network consulting and integration services market generated sales in the
U.S. of approximately $5.8 billion in 1996 and is expected to grow to
approximately $12.4 billion in 2001, according to International Data
Corporation. In addition, the network management services market (as a discrete
segment) generated sales in the U.S. of approximately $1.5 billion in 1996 and
is expected to grow to approximately $3.7 billion in 2001, according to
International Data Corporation.
/s/ Michael Melenovsky
