UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________________ TO
_____________________________
Commission File Number: 000-24373
GLOBAL IMAGING SYSTEMS, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-3247752
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3820 NORTHDALE BOULEVARD, SUITE 200A
TAMPA, FLORIDA 33624
- ----------------------------------------- ----------------------------------
(Address of Principal executive offices) (Zip Code)
REGISTRANT'S TELEPONE NUMBER, INCLUDING AREA CODE: 813-960-5508
- --------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The registrant had 19,223,491 Shares of Common Stock, $.01 par value,
outstanding as of February 14, 2000.
<PAGE>
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999
(Unaudited) and March 31, 1999 3
Consolidated Statements of Operations for the three
and nine months ended December 31, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended
December 31, 1999 and 1998 (Unaudited) 6
Consolidated Statement of Stockholders' Equity for the nine months
ended December 31, 1999 (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk 17
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 18
Item 2 - Changes in Securities and Use of Proceeds 18
Item 6 - Exhibits and Reports on Form 8-K 19
SIGNATURE 20
EXHIBIT INDEX 21
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
----------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,909 $ 5,175
Accounts receivable, net of allowance for doubtful accounts ($2,053
and $1,353 at December 31, 1999 and March 31, 1999, respectively) 71,828 45,700
Inventories 48,052 36,793
Deferred income taxes 3,025 2,591
Prepaid expenses and other current assets 2,355 1,940
Income taxes receivable 817 --
--------- ---------
Total current assets 131,986 92,199
Rental equipment, net 9,085 4,377
Property and equipment, net 7,886 6,409
Other assets 1,511 829
Intangible assets, net:
Goodwill 266,230 201,307
Noncompete agreements 2,074 1,207
Financing fees 5,518 4,091
--------- ---------
Total assets $ 424,290 $ 310,419
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,745 $ 16,718
Accrued liabilities 7,692 6,709
Accrued compensation and benefits 8,609 5,221
Accrued interest 4,164 874
Current maturities of long-term debt 8,443 176
Deferred revenue 21,711 16,196
Income taxes payable -- 1,383
--------- ---------
Total current liabilities 72,364 47,277
Deferred income taxes 147 142
Long-term debt, less current maturities 237,570 168,101
--------- ---------
Total liabilities 310,081 215,520
Stockholders' equity:
Preferred stock, $.01 par value:
10,000,000 shares authorized: No shares issued -- --
Common stock, $.01 par value:
50,000,000 shares authorized: 19,225,086 and 18,727,436 shares
issued; and 19,223,491 and 18,725,841 shares outstanding at
December 31, 1999 and March 31, 1999, respectively 192 187
Common stock held in treasury, at cost (35) (35)
Additional paid-in capital 91,475 83,817
Retained earnings 22,577 10,930
--------- ---------
Total stockholders' equity 114,209 94,899
--------- ---------
Total liabilities and stockholders' equity $ 424,290 $ 310,419
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
-------- --------
Revenues:
Equipment and supplies sales $ 89,692 $ 58,268
Service and rentals 30,615 17,625
-------- --------
Total revenues 120,307 75,893
Costs and operating expenses:
Cost of equipment and supplies sales 60,432 40,616
Service and rental costs 15,942 8,940
Selling, general and administrative expenses 29,613 16,608
Intangible asset amortization 2,125 1,195
-------- --------
Total costs and operating expenses 108,112 67,359
-------- --------
Income from operations 12,195 8,534
Interest expense 5,971 1,757
-------- --------
Income before income taxes 6,224 6,777
Income taxes 2,800 2,948
-------- --------
Net income $ 3,424 $ 3,829
======== ========
Net income per common share:
Basic $ 0.18 $ 0.21
======== ========
Diluted $ 0.18 $ 0.21
======== ========
Weighted average number of shares outstanding:
Basic 19,133 18,054
Diluted 19,240 18,176
See accompanying notes.
4
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Equipment and supplies sales $ 256,505 $ 153,716
Service and rentals 85,349 47,541
--------- ---------
Total revenues 341,854 201,257
Costs and operating expenses:
Cost of equipment and supplies sales 175,513 109,425
Service and rental costs 42,662 23,495
Selling, general and administrative expenses 79,998 44,057
Intangible asset amortization 5,849 3,039
--------- ---------
Total costs and operating expenses 304,022 180,016
--------- ---------
Income from operations 37,832 21,241
Interest expense 15,731 5,443
--------- ---------
Income before income taxes and extraordinary item 22,101 15,798
Income taxes 9,800 7,044
--------- ---------
Income before extraordinary item 12,301 8,754
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 and $1,241 for 1999 and 1998, respectively (654) (1,817)
--------- ---------
Net income 11,647 6,937
Yield adjustment on Class A common stock and accretions -- (901)
--------- ---------
Net income available to common stockholders $ 11,647 $ 6,036
========= =========
Basic earnings per share:
Income before extraordinary item, including
yield adjustment and accretions $ 0.65 $ 0.50
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 and $1,241 for 1999 and 1998, respectively (0.04) (0.12)
--------- ---------
Net income per share $ 0.61 $ 0.38
========= =========
Diluted earnings per share:
Income before extraordinary item, including
yield adjustment and accretions $ 0.64 $ 0.48
Extraordinary charge for early retirement of debt, net of tax
benefit of $436 and $1,241 for 1999 and 1998, respectively (0.03) (0.11)
--------- ---------
Net income per share $ 0.61 $ 0.37
========= =========
Weighted average number of shares outstanding:
Basic 18,967 15,756
Diluted 19,161 16,144
</TABLE>
See accompanying notes.
5
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 11,647 $ 6,937
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,092 3,324
Amortization 6,486 3,268
Extraordinary charge for early retirement of debt 654 1,817
Deferred income taxes (781) 173
Changes in operating assets and liabilities, net of
amounts acquired in purchase business combinations:
Accounts receivable (14,559) (8,930)
Inventories (4,051) (1,857)
Prepaid expenses and other current assets (193) (1,179)
Other assets 493 595
Accounts payable (2,481) 3,004
Accrued liabilities, compensation and benefits 2,937 (207)
Deferred revenue (12) (94)
Income taxes payable (652) 949
--------- ---------
Net cash provided by operating activities 5,580 7,800
INVESTING ACTIVITIES:
Purchase of property, equipment and rental equipment (5,566) (3,255)
Payment for purchase of businesses, net of cash acquired (69,402) (81,955)
--------- ---------
Net cash used in investing activities (74,968) (85,210)
FINANCING ACTIVITIES:
Borrowings under line of credit 143,000 145,627
Payments under line of credit (69,625) (97,252)
Reduction of other debt (100) (96)
Financing fees (3,153) (632)
Cost of initial public offering -- (979)
Common stock repurchased and retired -- (35,339)
Common stock issued for cash -- 65,832
--------- ---------
Net cash provided by financing activities 70,122 77,161
--------- ---------
Net increase (decrease) in cash and cash equivalents 734 (249)
Cash and cash equivalents, beginning of period 5,175 4,496
--------- ---------
Cash and cash equivalents, end of period $ 5,909 $ 4,247
========= =========
</TABLE>
See accompanying notes.
6
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
TREASURY PAID-IN RETAINED
SHARES PAR VALUE STOCK CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1999 18,725,841 $ 187 $ (35) $ 83,817 $ 10,930 $ 94,899
Common stock issued in conjunction
with acquisitions 496,950 5 7,649 7,654
Stock options exercised 700 -- 9 9
Net income 11,647 11,647
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1999 19,223,491 $ 192 $ (35) $ 91,475 $ 22,577 $ 114,209
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
7
<PAGE>
GLOBAL IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except share and per share amounts)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of December 31, 1999,
consolidated statements of operations for the three and nine months ended
December 31, 1999 and 1998, the consolidated statements of cash flows for the
nine months ended December 31, 1999 and 1998, and the consolidated statement of
stockholders' equity for the nine months ended December 31, 1999 are unaudited.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of operations for the
interim periods presented have been reflected herein. The results of operations
for the interim periods are not necessarily indicative of the results which may
be expected for the entire fiscal year. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in Global Imaging Systems, Inc. (together with its
subsidiaries, "Global" or the "Company") Annual Report for the year ended March
31, 1999. Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by
the weighted average number of shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise of stock options or the
conversion of securities into stock.
The following table reconciles the numerators and denominators of the
basic and diluted EPS computations (shares in thousands):
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR NINE MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item $ 3,424 $ 3,829 $ 12,301 $ 8,754
Extraordinary charge for early
retirement of debt, net of tax benefit -- -- (654) (1,817)
-------- -------- -------- --------
Net income 3,424 3,829 11,647 6,937
Yield adjustment on Class A common stock
and accretions -- -- -- (901)
-------- -------- -------- --------
Numerator for basic and diluted earnings
per share-income available to common
stockholders $ 3,424 $ 3,829 $ 11,647 $ 6,036
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share 19,133 18,054 18,967 15,756
Effect of dilutive securities:
Contingent stock-redemption of A shares
in June 1998 -- -- -- 327
Employee stock options 107 122 194 61
-------- -------- -------- --------
Dilutive potential common shares 107 122 194 388
-------- -------- -------- --------
Denominator for diluted earnings per
share-adjusted weighted average shares
and assumed conversions 19,240 18,176 19,161 16,144
======== ======== ======== ========
</TABLE>
8
<PAGE>
NOTE 3. ACQUISITIONS
During the nine months ended December 31, 1999 the Company acquired six
businesses that provide office-imaging solutions and network integration
services. Aggregate consideration for these acquisitions was approximately
$86,029, including $77,130 in cash, plus 496,950 shares of the Company's stock
and acquisition related expenses of $579. Liabilities totaling approximately
$21,163 were assumed by the Company in connection with these acquisitions.
Goodwill of approximately $69,732 was recorded related to these acquisitions.
These acquisitions were accounted for by the purchase method of accounting and
accordingly are included in the results of operations from their dates of
acquisitions.
Under the terms of two of its acquisition agreements entered into
during the nine months ended December 31, 1999, the Company is committed to make
contingent payments (the Earn-out) of up to $16,500 in cash and up to $5,500 in
stock to the former owners of the acquired companies on or before May 31, 2004.
These contingent payments are based on the future profitability, specifically
earnings before interest and taxes, of the acquired company.
The unaudited pro forma results presented below include the effects of
the Company's acquisitions as if they had been consummated as of April 1, 1998.
The unaudited pro forma financial information below is not necessarily
indicative of either future results of operations or results that might have
been achieved had the acquisitions been consummated at the beginning of the year
prior to acquisition.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
NINE MONTHS ENDED DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues ......................................... $ 373,631 $ 348,422
Income before extraordinary item ................. 10,027 6,930
Less extraordinary item .......................... (654) (1,817)
----------- -----------
Net income ....................................... $ 9,373 $ 5,113
=========== ===========
Basic earnings per share:
Income before extraordinary item, including
yield adjustment and accretions ............ $ 0.52 $ 0.35
Net income per share ......................... $ 0.49 $ 0.24
Diluted earnings per share:
Income before extraordinary item, including
yield adjustment and accretions ............ $ 0.52 $ 0.34
Net income per share ......................... $ 0.48 $ 0.24
</TABLE>
NOTE 4. RETIREMENT OF DEBT
In June 1999, the Company retired the balance of $62,000 of long-term
debt outstanding under the previous First Union loan with proceeds from a
replacement credit agreement. The new credit agreement is with a syndicate of
banks and financial institutions with First Union as Administrative Agent (the
"Credit Agreement"). Recognition of deferred financing costs of $1,090 related
to the debt repayment resulted in an extraordinary charge of $654 ($.03 per
share), net of related income tax benefit of $436. The company's new Credit
Agreement consists of a $25,000 five-year senior term loan, a $75,000 seven-year
senior term loan and a $150,000 five-year revolving line of credit. The new
revolving credit line of the senior credit facility and the $25,000 senior term
loan bear interest at rates ranging from 2.00% to 3.00% over LIBOR or from .75%
to 1.75% over a base rate related to prime rate, and will vary according to
Global's ratio of its total funded debt to earnings before interest, taxes,
9
<PAGE>
depreciation and amortization. The $75,000 senior term loan bears interest at a
rate of 3.25% over LIBOR or 2.00% over a base rate related to prime rate.
Amounts borrowed under the revolving credit line of the new senior credit
facility may be repaid and borrowed over the life of the senior credit facility,
with a final maturity date of June 23, 2004. Under the Credit Agreement, the
Company has pledged substantially all of its assets, including the capital stock
of the Company's subsidiaries, to the lenders. Amounts borrowed under the Credit
Agreement may be used to fund working capital and general corporate purposes,
including acquisitions.
In September 1999, the Company entered into an interest rate swap
agreement on a notional amount of $28,000, under which the Company pays a fixed
rate of interest and receives a LIBOR-based floating rate. The interest
differential is accrued for in accrued interest and recorded in interest
expense. In September 1999, an interest rate cap agreement on a notional amount
of $22,000 was entered into which caps the interest rate at a 9% base rate. The
cap's premium is amortized straight-line as interest expense over the cap's
life. The swap and the cap both mature in 2002. The swap and cap are intended to
reduce the Company's exposure to the risks of variable interest rates related to
the credit agreement.
NOTE 5. STOCK OPTION PLAN
The Board of Directors adopted a stock option plan, effective upon the
closing of the initial public offering in June 1998. Under the terms of the
stock option plan 1,820,000 shares of the Company's common stock may be sold
pursuant to stock options or granted or sold as restricted stock to directors,
officers, employees, and consultants to the Company. Under the stock option plan
as of December 31, 1999, options to purchase 1,345,940 shares of the Company
common stock were outstanding. During the nine months ended December 31, 1999,
options to purchase an aggregate of 867,000 shares were granted with exercise
prices ranging from $13.125 to $18.125. In addition to options outstanding under
the plan, 10,000 shares of Global's common stock are issuable upon the exercise
of an option granted outside the plan. This option is exercisable at a price of
$12.00 per share.
NOTE 6. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company has issued $100,000 of 10 3/4% Senior Subordinated Notes,
that are fully and unconditionally guaranteed on a joint and several basis by
all the Company's existing subsidiaries (the Guarantors), each of which is
wholly owned, directly or indirectly, by the Company. The Company is a holding
company all of whose operations are conducted by the Guarantors and the Company
has no operations or assets separate from its investment in its subsidiaries.
The aggregate assets, liabilities, earnings and equity of the Guarantors are
substantially equivalent to the aggregate assets, liabilities, earnings and
equity of the Company, on a consolidated basis. Therefore, separate financial
statements of the Guarantors have not been presented. Separate financial
statements and other disclosures concerning the Guarantors and the Company are
not presented because management believes that such information would not be
material to investors.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following discussion and analysis should be read in conjunction
with the accompanying financial statements and related notes included elsewhere
in this Report on Form 10-Q and the Company's annual report for the year ended
March 31, 1999. Much of the discussion in this section involves forward-looking
information. Global's actual results may differ significantly from the results
suggested by these forward-looking statements. Some factors that may cause the
Company's results to differ from these statements are described in the "Risk
Factors" section of the Company's Report on Form 10-K for the year ended March
31, 1999.
OVERVIEW
Global was founded in June 1994 with the goal of becoming a leading
consolidator in the highly fragmented office imaging solutions industry. Global
is a rapidly growing provider of a number of office imaging solutions. This
includes the sale and service of automated office equipment such as copiers,
facsimile machines, printers and duplicators, network integration services,
electronic presentation equipment and document imaging management ("DIM")
systems. From its founding through December 31, 1999, Global has acquired
thirteen core companies in the United States, two stand-alone companies, and 23
additional satellite companies that have been integrated into the core
companies. The first acquisition was completed in August 1994. Management
believes the acquired businesses and other businesses that Global plans to
acquire will benefit from various Global programs and operating strategies.
These benefits include 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.
Global's revenues come from two sources: (1) sales of equipment and
supplies and (2) sales of complementary services and equipment rentals. The
growth of equipment revenues and the complementary supplies, parts and service
revenues depends on several factors, including the demand for equipment,
Global'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 are affected by price, general
economic conditions, service reputation, and competitors' actions in the
marketplace. Revenues from the sale of complementary supplies, parts and
services are also affected by equipment sales and rental volumes.
Gross profit as a percentage of revenues varies from period to period
depending on a number of variables. Those variables include the mix of revenues
from equipment, supplies, service and rentals; the mix of revenues among the
markets served by Global; and the mix of revenues of the businesses acquired. As
Global acquires businesses, the percentage of its revenues from sales of
equipment and supplies, as opposed to service and rentals, fluctuates depending
on whether the businesses acquired are automated office equipment dealers or are
network integrators or electronic presentation systems or DIM systems dealers.
Automated office equipment dealers typically derive a higher percentage of their
revenues from service and rentals, and a lower percentage from sales of
equipment and supplies, than do network integrators, electronic presentation or
DIM systems dealers. Generally, sales of equipment and supplies have lower gross
profit margins than sales of service and rentals. In addition, equipment sales
in the automated office equipment market generally have higher gross profit
margins than equipment sales in the network integration, electronic presentation
systems or DIM systems markets, as these markets are growing faster than the
automated office equipment market. Therefore,
11
<PAGE>
over time a larger percentage of Global's revenues and gross profits may be
derived from sales that have lower gross profit margins than Global's current
gross profit margins.
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. Global depreciates its rental
equipment primarily over a three-year period on a straight-line basis with no
residual value.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated financial
information as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ---------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Equipment and supplies sales .......... 74.6% 76.8% 75.0% 76.4%
Service and rentals ................... 25.4 23.2 25.0 23.6
----- ----- ----- -----
Total revenues .......................... 100.0 100.0 100.0 100.0
Cost and operating expenses:
Cost of equipment and supplies sales .. 50.2 53.5 51.3 54.4
Service and rental costs .............. 13.3 11.8 12.5 11.7
Selling, general, and administrative
expenses ............................ 24.6 21.9 23.4 21.9
Intangible asset amortization ......... 1.8 1.6 1.7 1.5
----- ----- ----- -----
Total costs and operating expenses ...... 89.9 88.8 88.9 89.5
----- ----- ----- -----
Income from operations .................. 10.1 11.2 11.1 10.5
Interest expense ........................ 5.0 2.3 4.6 2.7
----- ----- ----- -----
Income before income taxes and
extraordinary item .................... 5.1 8.9 6.5 7.8
Income taxes ............................ 2.3 3.9 2.9 3.5
----- ----- ----- -----
Income before extraordinary item ........ 2.8 5.0 3.6 4.3
Extraordinary charge for early retirement
of debt, net of tax benefit ........... -- -- (.2) (.9)
----- ----- ----- -----
Net income .............................. 2.8% 5.0% 3.4% 3.4%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1998
REVENUES
Total revenues for the three months ended December 31, 1999 increased
to $120,307, 58.5% higher than total revenues of $75,893 for the same period in
1998. The majority of revenue growth was due to the acquisition of businesses
during 1998 and 1999, with the remainder coming from internal growth.
The revenue growth rate for the three months ended December 31, 1999
decreased from the growth rate for the three months ended December 31, 1998 due
to a decrease in the acquisition rate compared to the revenue base, customer
deferrals of network integration and electronic presentation equipment and
network integration services due to year 2000 uncertainties and increased
competition from direct sources, including internet-based sources for electronic
presentation systems and network integration services.
12
<PAGE>
Sales of equipment and supplies for the three months ended December 31,
1999 increased to $89,692, 53.9% higher than sales of equipment and supplies of
$58,268 for the same period in 1998.
Service and rental revenues for the three months ending December 31,
1999 increased to $30,615, 73.7% higher than service and rental revenues of
$17,625 for the same period in 1998.
GROSS PROFIT
Gross profit for the three months ending December 31, 1999 increased to
$43,933, 66.8% higher than gross profit of $26,337 for the same period in 1998.
When viewed as a percent of total revenue, gross profit was 36.5% for the three
months ending December 31, 1999 versus 34.7% for the same period in 1998. The
change in total gross profit margins was primarily due to the change in the
revenue mix. Office equipment dealers typically receive a higher percentage of
total revenues from service and rentals, while network integration, electronic
presentation systems and DIM systems dealers derive a higher percentage of total
revenues from sales of equipment and supplies. The automated office equipment
component of sales of the businesses acquired in 1998 and 1999 had higher
equipment and supplies gross margins than Global's existing businesses. Combined
service and rental gross profit margins were 47.9% for the three months ended
December 30, 1999 and 49.3% for the same period the previous year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months
ending December 31, 1999 increased to $29,613, 78.3% higher than selling,
general and administrative expenses of $16,608 for the same period in 1998,
while revenues increased 58.5% for the three months ending December 31, 1999
compared to 1998. The increase in expenses was mostly due to the acquisition of
businesses in 1998 and 1999. The increase in expenses as a percentage of
revenues was the result of the number of automated office equipment companies
acquired during the fiscal year ended March 31, 1999 and the first nine months
of the fiscal year ending March 31, 2000. Automated office equipment businesses
typically have higher selling, general and administrative expense to revenue
ratios than do network integration, electronic presentation, or DIM system
dealers.
INTANGIBLE ASSET AMORTIZATION
Intangible asset amortization was $2,125 for the three months ended
December 31, 1999. During the same period in 1998, asset amortization was
$1,195. Asset amortization includes the amortization of goodwill and non-compete
agreements from acquisitions.
INCOME FROM OPERATIONS
Income from operations for the three months ended December 31, 1999 was
$12,195, 42.9% higher than $8,534 from the same period in 1998.
INTEREST EXPENSE
Interest expense for the three months ended December 31, 1999 was
$5,971, 239.8% higher than $1,757 from the same period in 1998. The increase was
due to higher borrowing rates and a higher borrowing base.
13
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INCOME TAXES
The provision for income taxes for the three months ended December 31,
1999 was $2,800, 5.0% less than $2,948 from the same period in 1998. The
decrease in income taxes was primarily due to decreased pre-tax income. The
effective income tax rate increased from 43.5% for the three months ending
December 31, 1998 to 45.0% for the three months ended December 31, 1999. The
effective income tax rate for 1998 and 1999 was higher than the federal
statutory rate of 35.0% plus state and local taxes, primarily due to
non-deductible goodwill amortization relating to businesses acquired.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1998
REVENUES
Total revenues for the nine months ended December 31, 1999 increased to
$341,854, 69.9% higher than total revenues of $201,257 for the same period in
1998. The majority of revenue growth was due to the acquisition of businesses
during 1998 and 1999, with the remainder coming from internal growth.
The revenue growth rate for the nine months ended December 31, 1999
decreased from the growth rate for the nine months ended December 31, 1998 due
to a decrease in the acquisition rate compared to the revenue base, customer
deferrals of network integration and electronic presentation equipment and
network integration services due to year 2000 uncertainties and increased
competition from direct sources, including internet-based sources for electronic
presentation systems and network integration services.
Sales of equipment and supplies for the nine months ended December 31,
1999 increased to $256,505, 66.9% higher than sales of equipment and supplies of
$153,716 for the same period in 1998.
Service and rental revenues for the nine months ending December 31,
1999 increased to $85,349, 79.5% higher than service and rental revenues of
$47,541 for the same period in 1998.
GROSS PROFIT
Gross profit for the nine months ending December 31, 1999 increased to
$123,679, 81.0% higher than gross profit of $68,337 for the same period in 1998.
When viewed as a percent of total revenue, gross profit was 36.2% for the nine
months ending December 31, 1999 versus 34.0% for the same period in 1998. The
change in total gross profit margins was primarily due to the change in the
revenue mix. Office equipment dealers typically receive a higher percentage of
total revenues from service and rentals, while network integration, electronic
presentation systems and DIM systems dealers derive a higher percentage of total
revenues from sales of equipment and supplies. The automated office equipment
component of sales of the businesses acquired in 1998 and 1999 had higher
equipment and supplies gross margins than Global's existing businesses. Combined
service and rental gross profit margins were 50.0% for the nine months ended
December 31, 1999 and 50.6% for the same period the previous year.
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the nine months ending
December 31, 1999 increased to $79,998, 81.6% higher than selling, general and
administrative expenses of $44,057 for the same period in 1998, while revenues
increased 69.9% for the nine months ending December 31, 1999 compared to 1998.
The increase in expenses was mostly due to the acquisition of businesses in 1998
and 1999. The increase in expenses as a percentage of revenues was the result of
the number of automated office equipment companies acquired during the fiscal
year ended March 31, 1999. Automated office equipment businesses typically have
higher selling, general and administrative expense to revenue ratios than do
network integration, electronic presentation, or DIM system dealers.
INTANGIBLE ASSET AMORTIZATION
Intangible asset amortization was $5,849 for the nine months ended
December 31, 1999. During the same period in 1998, asset amortization was
$3,039. Asset amortization includes the amortization of goodwill and non-compete
agreements from acquisitions.
INCOME FROM OPERATIONS
Income from operations for the nine months ended December 31, 1999 was
$37,832, 78.1% higher than $21,241 from the same period in 1998.
INTEREST EXPENSE
Interest expense for the nine months ended December 31, 1999 was
$15,731, 189.0% higher than $5,443 from the same period in 1998. The increase
was due to higher borrowing rates and a higher borrowing base.
INCOME TAXES
The provision for income taxes for the nine months ended December 31,
1999 was $9,800, 39.1% higher than $7,044 from the same period in 1998. The
increase in income taxes was primarily due to increased pre-tax income resulting
from the inclusion of businesses acquired during 1998 and 1999. The effective
income tax rate decreased from 44.6% for the nine months ending December 31,
1998 to 44.3% for the nine months ended December 31, 1999. The effective income
tax rate for 1998 and 1999 was higher than the federal statutory rate of 35.0%
plus state and local taxes, primarily due to non-deductible goodwill
amortization relating to businesses acquired.
EXTRAORDINARY CHARGES
In June 1999, the Company retired $62,000 of long-term debt payable
under the First Union Credit Agreement due in 2003. The write off of the
deferred financing costs of $1,090 related to the retired debt resulted in an
extraordinary charge of $654 ($.03 per share), net of the related income tax
benefit of $436.
During June and July 1998, the Company retired $97,300 of long-term
debt payable to Jackson National Life due in 2004. The write off of the
prepayment penalty of $250 and deferred financing costs of $2,808 related to the
retired debt resulted in an extraordinary charge of $1,817 ($.11 per share), net
of the related income tax benefit of $1,241.
15
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LIQUIDITY AND CAPITAL RESOURCES
Historically, Global has financed its operations primarily through
internal cash flow, sales of stock and bank financing, including the financing
facilities described below. These sources of funds have been used to fund
Global's growth both internally and through acquisitions. Global is pursuing an
acquisition strategy and expects to acquire more businesses. As Global continues
to acquire more businesses it is likely that Global will incur additional debt
and seek additional equity capital.
In June 1999, the Company repaid the balance of $62,000 due under a
loan from First Union with proceeds from a replacement credit agreement. The new
credit agreement is with a syndicate of banks and financial institutions with
First Union serving as Administrative Agent (the "Credit Agreement"). The
Company's new Credit Agreement consists of a $150,000 five-year senior secured
revolving line of credit, a $25,000 five-year senior term loan, and a $75,000
seven-year senior term loan. The new revolving credit line of the senior credit
facility and the $25,000 senior term loan bear interest at rates ranging from
2.00% to 3.00% over LIBOR or from .75% to 1.75% over a base rate related to
prime rate, and will vary according to Global's ratio of its total funded debt
to earnings before interest, taxes, depreciation and amortization. The $75,000
senior term loan bears interest at a rate of 3.25% over LIBOR or 2.00% over a
base rate related to prime rate. The senior credit facilities provide for an
unused commitment fee payable to the lenders and certain other fees payable by
Global and its Material Subsidiaries (the "borrowers"). Amounts borrowed under
the revolving credit line of the new senior credit facility may be repaid and
borrowed over the life of the senior credit facility, with a final maturity date
of June 23, 2004. The terms of the senior credit facility require strict
compliance with numerous affirmative, negative and financial covenants. Amounts
borrowed under the revolving line of credit may be used to fund working capital
and general corporate purposes, including acquisitions, subject to the lenders
approval in the case of acquisitions with a cash purchase price of over $25,000
or an aggregate purchase price (cash, stock or other consideration) of over
$50,000.
In September 1999, the Company entered into an interest rate swap
agreement on a notional amount of $28,000, under which the Company pays a fixed
rate of interest and receives a LIBOR-based floating rate. The interest
differential is accrued for in accrued interest and recorded in interest
expense. In September 1999, an interest rate cap agreement on a notional amount
of $22,000 was entered into which caps the interest rate in September 1999 at
9%. The cap's premium is amortized straight-line as interest expense over the
cap's life. The swap and the cap both mature in 2002. The swap and cap are
intended to reduce the Company's exposure to the risks of variable interest
rates related to the credit agreement.
Under the terms of four of its acquisition agreements, Global may be
required to make additional payments of up to $19,750 in cash and up to $5,500
in stock over the next five years to certain former owners of the businesses it
has acquired based on the profitability of those businesses during such time
period.
For the nine months ended December 31, 1999 the net cash provided by
operations was $5,580 and for the nine months ended December 31, 1998 the net
cash provided by operations was $7,800. For the nine months ended December 31,
1999 and for the nine months ended December 31, 1998 Global's net cash used in
investing activities was $74,968 and $85,210, respectively, primarily for the
purchase of businesses. For the nine months ended December 31, 1999 and the nine
months ended December 31, 1998, Global's net cash provided by financing
activities was $70,122 and $77,161, respectively. Net cash provided by financing
activities consists of equity capital provided by the initial public offering in
1998 and net borrowings.
16
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YEAR 2000 ISSUES
By late 1999, Global had completed our year 2000 readiness plan to
address issues that could result from computer programs being written using two
digits to define the applicable year rather than four to define the applicable
year and century. As a result, we were well prepared for the transition to the
year 2000 and did not experience any significant year 2000 problems with respect
to our mission critical information technology ("IT") or non-IT systems,
applications or infrastructure. During the actual date rollover to the year
2000, we implemented and monitored our millennium rollover plan and were ready
to conduct business on Monday, January 3, 2000.
Since January 3, 2000, our information systems, including our mission
critical systems, which in the event of a year 2000 failure would have the
greatest impact on our operations, have functioned properly. In addition, we
have not experienced any significant year 2000 issues related to interactions
with our material business partners. We have experienced no disruption in our
ability to service customers, process financial transactions, report accurate
data to management or any other business interruptions due to year 2000 issues.
While we will continue to monitor our systems and those of our material business
partners closely to ensure that no unexpected year 2000 issues develop, we have
no reason to expect any such issues.
The costs of the year 2000 project consist of internal personnel and
external costs such as replacement software and hardware. The costs of the year
2000 project are expensed as incurred. The project is funded through internally
generated funds. Through December 31, 1999, we have incurred and expensed
approximately $100 in related costs.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued a
Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
as amended, which is required to be adopted in years beginning after June 15,
2000. This statement established requirements for accounting and reporting of
derivative instruments and hedging activities. Management has not completed an
analysis to determine the future impact of this statement on the Company's
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to changes in interest rates, primarily from the
senior credit agreement with First Union. The Company uses interest rate cap and
swap agreements to reduce certain exposures to interest rate fluctuations. The
Company also has long-term debt that bears a fixed rate. There is a risk that
market rates will decline and the required payments will exceed those based on
current market rates on the long-term debt.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On December 29, 1999, the Company, and its subsidiary, Eastern Copy
Products, Inc., entered into arbitration proceedings against De Lage Landen
Financial Services, Inc. The Company and Eastern assert claims arising from De
Lage Landen's alleged breach of a contractural agreement pursuant to which
Global assigned equipment leases to De Lage Landen, and from De Lage Landen's
alleged wrongful interference with Global and Eastern's present and prospective
business relationships. Global and Eastern seek declaratory relief requiring De
Lage Landen to permit Global's customers to fully perform their lease
obligations early and return leased equipment to De Lage Landen and also seek
damages of up to $25 million. De Lage Landen has asserted counterclaims for
breach of contract and interference with business relationships, and seeks
damages of $2 million. Global denies the merit of these counterclaims and is
vigorously defending against them. Global cannot predict what the outcome of
these arbitration proceedings will be.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) On October 19, 1999, the Company issued 66,555 shares of Common
Stock to the stockholders of Office Tech, Inc. ("Office Tech") as payment for
16% of the outstanding stock of Office Tech. The offer and sale of the Company's
Common Stock was made to accredited investors and was exempt from registration
under the Securities Act of 1933 as amended pursuant to Rule 506 thereunder.
On November 8, 1999, the Company issued 86,578 shares of Common Stock
to the stockholders of Column Office Equipment ("Column") as payment for 13% of
the outstanding stock of Column. The offer and sale of the Company's Common
Stock was made to accredited investors and was exempt from registration under
the Securities Act of 1933 as amended pursuant to Rule 506 thereunder.
On November 30, 1999, the Company issued 46,387 shares of Common Stock
to the stockholders of State Wide Photocopy Corp. ("State Wide") as payment for
10% of the outstanding stock of State Wide. The offer and sale of the Company's
Common Stock was made to accredited investors and was exempt from registration
under the Securities Act of 1933 as amended pursuant to Rule 506 thereunder.
18
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
NUMBER EXHIBIT
- ------ -------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
4.1 Specimen Common Stock Certificate (1)
4.2 Indenture dated as of March 8, 1999 between Global, the subsidiary
guarantors and United States Trust Company of New York, as Trustee,
relating to the 10 3/4% Senior Subordinated Notes Due 2007 (2)
4.3 Schedule of Supplemental Indentures adding additional subsidiary
guarantors. (Form of Supplemental Indenture is included in Indenture
filed as Exhibit 4.2.)
4.4 Credit Agreement, dated as of June 23, 1999, by and among the
Company and certain of its subsidiaries, as Borrowers, the Lenders
referred to therein, First Union National Bank, as Administrative
Agent, Key Corporate Capital Inc., as Syndication Agent, and
ScotiaBanc, Inc., as Documentation Agent (3)
10.1 Executive Agreement, dated as of April 1, 1999, as amended, by and
among Global and Thomas S. Johnson *
11.1 Statement of Computation of Per Share Earnings (4)
27.1 Financial Data Schedule
- ----------------------
* Management or compensatory contract.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, No. 333-48103, which was declared effective by the Securities
and Exchange Commission on June 17, 1998.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-4, No. 333-78093, as filed on May 7, 1999.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-4, No. 333-78093, as filed on July 27, 1999.
(4) See Note 2 to the Notes to Consolidated Financial Statements.
(B) REPORTS ON FORM 8-K.
The Company did not file any Current Reports on Form 8-K during the
three months ended December 31, 1999.
19
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Global Imaging Systems, Inc.
-----------------------------------------
(Registrant)
February 14, 2000 /s/ RAYMOND SCHILLING
- ---------------------------------- -----------------------------------------
Date Raymond Schilling
Chief Financial Officer, Secretary, and
Treasurer, (Duly Authorized Officer and
Principal Financial and Accounting Officer)
20
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EXHIBIT INDEX
(Pursuant to item 601 of Regulation S-K)
NUMBER EXHIBIT
- ------ -------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
4.1 Specimen Common Stock Certificate (1)
4.2 Indenture dated as of March 8, 1999 between Global, the subsidiary
guarantors and United States Trust Company of New York, as Trustee,
relating to the 10 3/4% Senior Subordinated Notes Due 2007 (2)
4.3 Schedule of Supplemental Indentures adding additional subsidiary
guarantors. (Form of Supplemental Indenture is included in Indenture
filed as Exhibit 4.2.)
4.4 Credit Agreement, dated as of June 23, 1999, by and among the Company
and certain of its subsidiaries, as Borrowers, the Lenders referred
to therein, First Union National Bank, as Administrative Agent, Key
Corporate Capital Inc., as Syndication Agent, and ScotiaBanc, Inc.,
as Documentation Agent (3)
10.1 Executive Agreement, dated as of April 1, 1999, as amended, by and
among Global and Thomas S. Johnson *
11.1 Statement of Computation of Per Share Earnings (4)
27.1 Financial Data Schedule
- -----------------------
* Management or compensatory contract.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, No. 333-48103, which was declared effective by the Securities and
Exchange Commission on June 17, 1998.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-4, No. 333-78093, as filed on May 7, 1999.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-4, No. 333-78093, as filed on July 27, 1999.
(4) See Note 2 to the Notes to Consolidated Financial Statements.
21
EXHIBIT 4.3
SCHEDULE OF SUPPLEMENTAL INDENTURES
SUPPLEMENTAL
NEW NOTE GUARANTOR INDENTURE DATE
- ------------------ --------------
ARMDAP, Inc. (d/b/a Advanced Business Machines) December 29, 1999
AVPresentations, Inc. January 31, 2000
Brinckmann & Associates, Inc. January 31, 2000
Column Office Equipment, Inc. November 30, 1999
Daniel Communications, Inc. July 20, 1999
ecom-division, Inc. January 24, 2000
Global Operations Texas, L.P. June 30, 1999
Lewan & Associates, Inc. June 24, 1999
Office Tech Incorporated October 19, 1999
EXHIBIT 10.1
SENIOR EXECUTIVE AGREEMENT
THIS AGREEMENT is made effective as of April 1, 1999, between GLOBAL
IMAGING SYSTEMS, INC., a Delaware corporation (the "COMPANY"), and THOMAS S.
JOHNSON ("EXECUTIVE").
RECITALS
A. The Company and Executive desire to enter into an agreement pursuant
to which Executive will be employed as the President and Chief Executive Officer
of the Company on the terms and conditions set forth in this Agreement.
B. Certain definitions are set forth in SECTION 4 of this Agreement.
AGREEMENT
The parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby engages Executive to serve as the
President and Chief Executive Officer of the Company, and Executive agrees to
serve the Company, during the Service Term (as defined in SECTION 1(D) hereof)
in the capacities, and subject to the terms and conditions, set forth in this
Agreement.
(A) SERVICES. During the Service Term, Executive, as President and
Chief Executive Officer of the Company, shall have all the duties and
responsibilities customarily rendered by Presidents and Chief Executive Officers
of companies of similar size and nature and as may be reasonably assigned from
time to time by the Board. Executive will devote his best efforts and
substantially all of his business time and attention (except for vacation
periods and periods of illness or other incapacity) to the business of the
Company and its Affiliates. Notwithstanding the foregoing, and provided that
such activities do not interfere with the fulfillment of Executive's obligations
hereunder, Executive may (A) serve as an officer, director or trustee of any
charitable or non-profit entity; (B) own up to 5% of the outstanding voting
securities of any company; or (C) serve as a director of up to three other
companies so long as such companies do not directly compete with the Company.
Unless the Company and Executive agree to the contrary, Executive's place of
employment shall be at the Company's principal executive offices in Tampa,
Florida; PROVIDED, HOWEVER, that Executive will travel to such other locations
of the Company and its Affiliates as may be reasonably necessary and/or as
required by the Board in its sole discretion in order to discharge his duties
hereunder.
<PAGE>
(B) SALARY, BONUS AND BENEFITS.
(I) SALARY AND BONUS. During the Service Term, the Company will pay
Executive a base salary (the "ANNUAL BASE SALARY") as the Board may
designate from time to time, at the rate of not less than $300,000 per
annum; PROVIDED, HOWEVER, that the Annual Base Salary shall be subject to
review annually by the Board for upward increases thereon. The Executive
will be eligible to receive an annual bonus in an amount of up to 50% of
Executive's Annual Base Salary for such year, as determined by the Board
based upon the Company's achievement of budgetary and other objectives set
by the Board in good faith and consistent with past practice in
consultation with the Executive, which objectives shall be reasonable in
light of the Company's past year's performance and shall be communicated to
Executive by the Board prior to the start of the Company's fiscal year;
provided, however, that Executive shall also be eligible for an additional
50% bonus, in the event that the Company achieves performance and/or
substantial increases in the value of the Company's stock for the prior
fiscal year well in excess of the plan as determined by the Board in good
faith and consistent with past practice. The annual bonus, if any, shall be
due and payable to Executive prior to June 30 of the following fiscal year.
(II) BENEFITS. During the Service Term, Executive will be entitled
to such other benefits approved by the Board including those made available
to the Company's other senior executives, including participation in the
Company's healthcare plan. Executive shall be reimbursed for customary
travel, civic and luncheon club dues and other expenses, subject to
standard and reasonable documentation requirements. In addition, Executive
will receive a stipend of $1,500 per month for lease of an automobile and
other related expenses during the Service Term. Executive shall also be
eligible to receive four weeks paid vacation per annum. Any unused vacation
time during each fiscal year shall be "rolled-over" to the following fiscal
year to the extent permitted by the Company's policies for other senior
executives of the Company.
(III) OPTIONS. As of the effective date hereof, Executive shall
receive a stock option grant for the purchase of 100,000 shares of the
common stock of the Company at an exercise price equal to the closing price
of the Company's common stock on the NASDAQ National Market System as of
the date hereof. In addition, Executive shall receive additional grants of
stock options for the purchase of 100,000 shares of the common stock of the
Company on each anniversary of the date hereof, to the extent he remains an
employee of the Company as of such anniversary dates. All options shall
(i) be exercisable at the fair market value of the Company's common stock
on the date of grant; (ii) vest annually over a five-year period (subject
to accelerated vesting upon a change of control or permanent disability to
the extent permitted by the Company's stock option plan); and (iii) expire
not later than the tenth anniversary of the date of grant. The terms and
conditions of the stock options shall otherwise be those set
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<PAGE>
forth under the Company's stock option plan and shall be consistent with
the terms contained in stock option agreements provided to other key
executives of the Company.
(IV) BOARD MEMBERSHIP. So long as Executive remains employed by
the Company, the Company shall use its best efforts to nominate the
Executive to be a member of the Company's Board of Directors.
(C) TERMINATION.
(I) EVENTS OF TERMINATION. Executive's employment with the Company
shall cease upon:
(A) Executive's death.
(B) Executive's voluntary retirement.
(C) Executive's disability, which means his incapacity due to
physical or mental illness such that he is unable to perform the
essential functions of his previously assigned duties for a period
of six months in any twelve month period and such incapacity has
been determined to exist by either (x) the Company's disability
insurance carrier or (y) by the Board in good faith based on
competent medical advice in the event that the Company does not
maintain disability insurance on the Executive.
(D) Termination by the Company by the delivery to Executive of
a written notice from the Board that Executive has been terminated
("NOTICE OF TERMINATION") with or without Cause. "CAUSE" shall mean:
(1) Executive's (aa) conviction of a felony or Executive's
commission of any other material act or omission involving
dishonesty or fraud with respect to the Company or any of its
Affiliates or any of their customers, vendors or suppliers or
involving harassment or discrimination with respect to the
employees of the Company or its Subsidiaries or (bb)
misappropriation of material funds or assets of the Company for
personal use;
(2) Executive's continued substantial and repeated neglect
of his duties, after written notice thereof from the Board, and
such neglect has not been cured within 30 days after Executive
receives notice thereof from the Board;
-3-
<PAGE>
(3) Executive's gross negligence or willful misconduct in
the performance of his duties hereunder that results, or is
reasonably expected to result, in material damage to the
Company; or
(4) Executive's engaging in conduct constituting a breach
of SECTIONS 2 or 3 hereof within 15 days of any notice of
default thereof from the Company.
In order for the termination to be effective: Executive must be
notified in writing (which writing shall specify the cause in
reasonable detail) of any termination of his employment for Cause.
Executive will then have the right, within ten days of receipt of such
notice, to file a written request for review by the Company. In such
case, Executive will be given the opportunity to be heard, personally
or by counsel, by the Board and a majority of the Directors must
thereafter confirm that such termination is either for Cause. If the
Directors do not provide such confirmation, the termination shall be
treated as other than for Cause. Notwithstanding anything to the
contrary contained in this paragraph, Executive shall have the right
after termination has occurred to appeal any determination by the Board
to arbitration in accordance with the provisions of SECTION 3(g)
hereof.
The delivery by the Company of notice to Executive that it
does not intend to renew this Agreement as provided in SECTION 1(D)
shall constitute a termination by the Company without Cause unless such
notice fulfills the requirements of SECTION 1(c)(i)(D)(1), (2), (3) or
(4) above.
(E) Executive's voluntary resignation by the delivery to the
Board of at least 45 days written notice from Executive that Executive
has resigned with or without Good Reason. "GOOD REASON" shall mean
Executive's resignation from employment with the Company within 45 days
after the occurrence of any one of the following:
(1) the failure of the Company to pay an amount owing to
Executive hereunder after Executive has provided the Company
with written notice of such failure and such payment has not
thereafter been made within 15 days of the delivery of such
written notice;
(2) any material reduction or diminution in the
Executive's title, duties or responsibilities without his
consent after Executive has provided the Company with written
notice within 30 days thereafter of such reduction and such
reduction has not thereafter been rescinded within 15 days of
the delivery of such written notice;
-4-
<PAGE>
(3) the Executive's resignation within one year after the
Effective Date of a Change of Control (as defined in SECTION 6
hereof); or
(4) the requested relocation of Executive from the Tampa,
Florida metropolitan area without his consent.
The delivery by the Executive of notice to the Company that he
does not intend to renew this Agreement as provided in SECTION 1(d)
shall constitute a resignation by the Executive without Good Reason
unless such notice fulfills the requirements of SECTION 1(c)(i)(E)(1)
(2), (3) or (4) above.
(II) RIGHTS ON TERMINATION.
(A) In the event that termination is by the Company without
Cause (including by operation of the last paragraph of SECTION 1(C)
(I)(D)), the Company will continue to pay Executive a monthly
portion of the Annual Base Salary plus a monthly portion of the
Executive's bonus for the prior year for a period equal to 24-months
commencing on the date of termination on regular salary payment
dates. In the event that termination is by Executive with Good
Reason, the Company will continue to pay Executive the monthly
portion of the Annual Base Salary plus the monthly portion of the
Executive's bonus for the prior year for a period equal to
twenty-four months commencing on the date of termination on regular
salary payment dates. The payments to Executive pursuant to the
foregoing two sentences are referred to as the "SEVERANCE PAYMENTS."
In either event, the Company will continue to provide Executive with
healthcare coverage for at least 24 months following the date of
termination.
(B) If the Company terminates Executive's employment for
Cause, if Executive retires or if Executive resigns without Good
Reason (including by operation of the last paragraph of SECTION 1(c)
(i)(E)), the Company's obligations to pay any compensation or
benefits under this Agreement will cease effective as of the date of
termination. Executive's right to receive any other health or other
benefits will be determined under the provisions of applicable
plans, programs or other coverages.
(C) If Executive's employment terminates because of
Executive's death or disability, the Company will pay Executive or
his estate an amount, if any, equal to his bonus for the current
year prorated to reflect the number of days Executive has worked
during the year in which he dies or becomes disabled (such amount to
be paid after the end of such year when bonuses are normally paid to
other senior executives of the Company).
-5-
<PAGE>
Notwithstanding the foregoing, the Company's obligation to Executive
for severance pay or other rights under either SUBPARAGRAPHS (A) or (B) above
(the "SEVERANCE PAY") shall cease if Executive is in violation of the provisions
of SECTIONS 2 OR 3 hereof. Until such time as Executive has received all of his
Severance Payments, he will be entitled to continue to receive any health, life,
accident and disability insurance benefits provided by the Company to Executive
under this Agreement. If Executive dies or is permanently disabled, then
Executive or his estate shall be entitled to any disability income or life
insurance payments from any insurance policies paid for by the Company or its
Affiliates as specified in such policies.
(D) TERM OF EMPLOYMENT. Unless Executive's employment under this
Agreement is sooner terminated as a result of Executive's termination in
accordance with the provisions of SECTION 1(c) above, Executive's employment
under this Agreement shall commence on April 1, 1999 and shall terminate on the
third anniversary of the date hereof (the "SERVICE TERM"); PROVIDED, HOWEVER,
that Executive's employment under this Agreement, and the Service Term, shall be
automatically renewed for three-year periods commencing on the each anniversary
of the date hereof and, thereafter, on each successive anniversary of such date
unless either the Company or Executive notifies the other party in writing
within sixty (60) days prior to any such anniversary that it or he desires to
terminate Executive's employment under this Agreement. All references herein to
"SERVICE TERM" shall include any renewals thereof after the third anniversary of
the date hereof.
2. CONFIDENTIAL INFORMATION AND GOODWILL; INVENTIONS. Executive
acknowledges and agrees that:
(A) As a necessary function of Executive's employment hereunder,
Executive will have access to and utilize Confidential Information which
constitutes a valuable and essential asset of the Company's business.
(B) The Confidential Information, observations and data obtained by
him during the course of his performance under this Agreement concerning the
business and affairs of the Company are the property of the Company, including
information concerning the acquisition opportunities in or reasonably related to
the Business of which Executive becomes aware during the Service Term.
Therefore, Executive agrees that he will not disclose to any unauthorized person
or use for his own account any of the Confidential Information without the
Board's written consent. Executive agrees to deliver to the Company at the
termination of his employment, or at any other time the Company may request, all
memoranda, notes, plans, records, reports and other documents (including copies
thereof) relating to the Company, the Business or any other Confidential
Information.
(C) All inventions, innovations, developments, improvements,
methods, designs, analyses, drawings, software, reports and all similar or
related information (whether or not patented or patentable) developed by
Executive during the Service Term which (i) directly or indirectly relate to the
Company or its Affiliates or the Business, or (ii) result from any work
performed by Executive while employed by the Company or its Affiliates shall
belong to the Company and its Affiliates. Executive shall promptly disclose all
such inventions to the
-6-
<PAGE>
Board and perform all actions reasonably requested by the Board
(whether during or after the Service Term) to establish and confirm
such ownership (including, without limitation, assignments, consents,
powers of attorney and other instruments).
3. NONCOMPETITION AND NONSOLICITATION.
(A) NONCOMPETITION. Executive acknowledges that in the course of his
employment with the Company he will become familiar with the Company's and its
Affiliates' trade secrets and with other confidential information concerning the
Company and that his services will be of special, unique and extraordinary value
to the Company and its Affiliates. Therefore, Executive agrees that, during the
Service Term and for a period equal to the greater of (i) the term of all
Severance Payments received by the Executive and (ii) one (1) year after
termination of Executive's employment with the Company (collectively, the
"NONCOMPETE PERIOD"), he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the business of the Company and its Subsidiaries or
any businesses with which the Company or its Subsidiaries have firm plans to
engage in at the time of the termination of the Executive's employment with the
Company; provided, however, that nothing contained herein shall prohibit
Executive from (i) owning up to five percent (5%) of the outstanding securities
of a publicly-held company or (ii) engaging in the Executive's prior consulting
business so long as such consulting business is limited to providing advice to
copier/office equipment dealers in markets not serviced by the Company at the
time of Executive's termination.
(B) NONSOLICITATION. During the Noncompete Period and for a period of
one (1) year thereafter, Executive shall not directly or indirectly through
another entity (i) induce or attempt to induce any senior management employee of
the Company or any Subsidiary or, to the actual knowledge of the Executive, any
other employee of the Company or any Subsidiary, to leave the employ of the
Company or such Subsidiary, or in any way interfere with the relationship
between the Company or any Subsidiary and any employee thereof or (ii) induce or
attempt to induce any customer, supplier, vendor, licensee or other business
relation of the Company or any Subsidiary to cease doing business with the
Company or such Subsidiary, or to modify its business relationship with the
Company in a manner materially adverse to the Company or any Subsidiary, or in
any way materially disparage the Company or its Subsidiaries to any such
customer, supplier, vendor, licensee or business relation of the Company or any
Subsidiary.
(C) ENFORCEMENT. The Executive understands and agrees the terms and
conditions of Executive's employment hereunder are in consideration for
Executive's covenants contained in SECTION 2 and 3 of this Agreement. If, at the
time of enforcement of SECTION 2 or 3 of this Agreement, a court holds that the
restrictions stated herein are unreasonable under circumstances then existing
the parties hereto agree that the maximum duration, scope or geographical area
reasonable under such circumstances shall be substituted for the stated period,
scope or area and that the court shall be allowed to revise the restrictions
contained herein to cover the maximum duration, scope and area permitted by law.
Because Executive's services are unique and because Executive has access to
confidential information, the parties hereto agree that
-7-
<PAGE>
money damages would be an inadequate remedy for any breach of this Agreement.
Therefore, in the event a breach or threatened breach of this Agreement, the
Company or its successors or assigns may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provisions hereof (without posting a bond or
other security).
GENERAL PROVISIONS
4. DEFINITIONS.
"AFFILIATE" of any Person means any other Person which directly or
indirectly controls, is controlled by or is under common control with such
Person.
"BOARD" means the Company's board of directors or the board of
directors or similar management body of any successor of the Company.
"BUSINESS" means any business of the Company or its Subsidiaries now
or hereafter engaged in, including without limitation the business of
distributing, selling and servicing office equipment in the United States.
"CHANGE OF CONTROL PERIOD" shall mean the period commencing on the
Effective Date and ending on the first anniversary of the Effective Date.
"COMPETITIVE ACTIVITY" means any business or activity of Executive
or any third party that is the same as the Business or competitive with the
Business.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Company and its Affiliates including, without limitation,
the following: the identity, written 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; training and operations methods and manuals; personnel records; fee
structures; and management systems, policies or procedures, including related
forms and manuals. "Confidential Information" shall not include any information
or knowledge which: (a) is in the public domain other than by Executive's breach
of this Agreement; (b) is disclosed to Executive lawfully by a third party who
is not under any obligation of confidentiality; (c) is otherwise generally known
by persons engaged in the Business; or (d) was known by Executive prior to his
employment with the Company.
"EFFECTIVE DATE" shall mean the first date on which a Change of
Control (as defined in SECTION 6) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated within twelve months prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
-8-
<PAGE>
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "EFFECTIVE DATE" shall
mean the date immediately prior to the date of such termination of employment.
"ORGANIZATION" means any organization that has contracted with the
Company for the performance of services in connection with the Business.
"PERSON" means an individual, a partnership, a limited liability
company, 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.
"SUBSIDIARY" means any corporation of which the Company owns
securities having a majority of the ordinary voting power in electing the board
of directors directly or through one or more subsidiaries.
5. NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class United
States mail (postage prepaid, return receipt requested) or sent by reputable
overnight courier service (charges prepaid) or by facsimile to the recipient at
the address below indicated:
IF TO THE EXECUTIVE:
-------------------
Thomas S. Johnson
c/o Global Imaging Systems, Inc.
13902 North Dale Mabry Road, Suite 300
Tampa, Florida 33618
Tel No.: (888) 628-7834
Fax No.: (813) 264-7877
and to:
5050 Pinelake Road
Wesley Chapel, Florida 33543
IF TO THE COMPANY:
-----------------
13902 North Dale Mabry Road, Suite 300
Tampa, Florida 33618
Attention: _________________
Tel No.: (888) 628-7834
Fax No.: (813) 264-7877
-9-
<PAGE>
WITH A COPY TO:
--------------
Hogan & Hartson, LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Christopher J. Hagan
Tel No.: (202) 637-5771
Fax No.: (202) 637-5910
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
6. CHANGE OF CONTROL. For the purpose of this Agreement, a "CHANGE OF
CONTROL" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person"), other than Golder, Thoma,
Cressey, Rauner Fund IV, L.P. and its Affiliates, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either (i) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company approved by the Board and Executive, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (iv) any acquisition by any corporation pursuant
to a transaction which complies with clauses (i), (ii) and (iii) of subsection
(c) of this SECTION 6(a); or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or
-10-
<PAGE>
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then-outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
7. GENERAL PROVISIONS.
(a) EXPENSES. Each party shall bear his or its own expenses in
connection with the negotiation and execution of this Agreement and the
consummation of the transactions contemplated by this Agreement.
(b) SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) COMPLETE AGREEMENT. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
-11-
<PAGE>
(d) COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by
Executive, the Company and their respective successors and assigns; PROVIDED
THAT the rights and obligations of Executive under this Agreement shall not be
assignable.
(f) CHOICE OF LAW. This Agreement will be governed by and construed
in accordance with the internal laws of the State of Florida, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Florida or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida.
(g) REMEDIES AND ARBITRATION. Each of the parties to this Agreement
will be entitled to enforce its rights under this Agreement to recover damages
and costs (including reasonable attorney's fees) caused by any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. Except for the remedies of the Company provided in Section 3(c) hereof,
the parties hereto agree to submit any disputes arising out of or relating to
this Agreement to binding arbitration in Tampa, Florida administered by the
American Arbitration Association under its Commercial Arbitration Rules, before
a panel of three arbitrators, and judgment on the award rendered by the
arbitrators may be entered into any court having jurisdiction thereof. The
prevailing party in any arbitration shall be entitled to recover its reasonable
attorneys' fees and costs from the other party or parties.
(h) AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
Executive.
(i) BUSINESS DAYS. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or holiday in the
state in which the Company's chief executive office is located, the time period
shall be automatically extended to the business day immediately following such
Saturday, Sunday or holiday.
(j) TERMINATION. This Agreement (except for the provisions of
SECTION 1) shall survive the termination of Executive's employment with the
Company and shall remain in full force and effect after such termination.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
GLOBAL IMAGING SYSTEMS, INC.
By: /s/ CARL D. THOMA
--------------------------------
Carl D. Thoma
Chairman
/s/ THOMAS S. JOHNSON
--------------------------------
THOMAS S. JOHNSON
-13-
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