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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 1999
REGISTRATION NO. 333-59909
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONLEY, CANITANO & ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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OHIO 34-1375019 7373
(State or Other Jurisdiction of (I.R.S. Employer (Primary Standard Industrial
Incorporation or Organization) Identification Number) Classification Code Number)
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CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
PAUL A. FARMER
CHIEF FINANCIAL OFFICER
CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies to:
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DAVID P. PORTER, ESQ. ELLEN B. CORENSWET, ESQ.
JONES, DAY, REAVIS & POGUE BABAK YAGHMAIE, ESQ.
NORTH POINT, 901 LAKESIDE AVENUE BROBECK, PHLEGER & HARRISON LLP
CLEVELAND, OHIO 44114 1633 BROADWAY, 47TH FLOOR
NEW YORK, NEW YORK 10019
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED , 1999
PROSPECTUS
, 1999
5,000,000 SHARES
CCAI LOGO
COMMON STOCK
Of the 5,000,000 shares (the "Shares") of common stock, no par value (the
"Common Stock"), being offered hereby (the "Offering"), 4,000,000 shares are
being sold by Conley, Canitano & Associates, Inc. ("CCAi" or the "Company") and
1,000,000 shares are being sold by certain shareholders (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
Prior to the Offering, there has been no public market for the Shares. It
is currently anticipated that the initial offering price will be between $10.00
and $12.00 per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "CCAI."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share.......................... $ $ $ $
Total (3).......................... $ $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $1,500,000, payable by the Company.
(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to an aggregate of 750,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholders will be $ , $ , $ and $ , respectively.
See "Principal and Selling Shareholders" and "Underwriting."
The Shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Shares will be made in New York, New York, on or
about , 1999.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD INVESTMENTS INC.
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
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[INSIDE FRONT COVER]
[Description of graphics: In the top left corner appears the Company's logo. In
the top right corner appears a picture of the Company's headquarters with a
description labeled "Conley-Canitano High Technology Headquarters."]
[STYLIZED TEXT]: "Harnessing the Power of Information Technology"
[TEXT]: "Empowered by a seasoned crew of IT consultants with a blend of
functional and technical experience, Conley-Canitano provides rapid Enterprise
Resource Planning implementation services and a comprehensive range of related
services demanded by middle market organizations."
[STYLIZED TEXT]: "Company of Employees"
[STYLIZED TEXT]: "Extensive Experience"
[STYLIZED TEXT]: "Rapid ERP Implementations"
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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This Prospectus includes forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify forward-
looking statements. These forward-looking statements speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
------------------------
CCAi and FIRM are trademarks of the Company. This Prospectus also includes
names, trademarks, service marks and registered trademarks and service marks of
companies other than the Company.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements and Notes thereto included
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors" beginning on page 8. Unless otherwise
indicated, all information contained in this Prospectus: (i) assumes no exercise
of the Underwriters' over-allotment option and (ii) reflects the conversion of
all of the outstanding shares of the Company's Convertible Preferred Stock,
$0.01 par value per share (the "Convertible Preferred Stock") into 2,504,000
shares of Common Stock and 250,400 shares of Series A Redeemable Preferred
Stock, $0.01 par value per share (the "Redeemable Preferred Stock"), all to be
effected immediately prior to the consummation of the Offering. Unless otherwise
indicated, the terms "Company" and "CCAi" refer to Conley, Canitano &
Associates, Inc.
THE COMPANY
CCAi is a leading provider of rapid implementations of Enterprise Resource
Planning ("ERP") applications. CCAi also offers its clients a comprehensive
range of related services, including post-implementation and platform
independent services, such as network and Windows NT support, custom application
development, mainframe and legacy application support, Year 2000 compliance and
remote support. The Company's services are primarily targeted at middle market
organizations, or divisions of larger organizations, with annual revenues
between $50 million and $2.5 billion. The Company's rapid ERP implementation
services enable its clients to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits. The
Company provides its services to clients across a broad spectrum of industries,
including aerospace, automotive, chemical process, communications, consumer
products, energy, financial and professional services, industrial,
pharmaceutical and health care, publishing, retail, semiconductor and
technology. CCAi's clients include Aluminum Company of America, BP America Inc.,
Brush Wellman Inc., Dow Chemical Co., Eaton Corporation, General Motors
Corporation ("GM"), Goodyear Tire & Rubber Co., KeyCorp, Master Builders, Inc.,
OfficeMax, Inc. and Rockwell Semiconductor Systems, Inc.
CCAi has established strategic relationships with leading software
application vendors, hardware vendors and other information technology ("IT")
service providers, including multinational consulting firms. For example, the
Company has a relationship with SAP America, Inc. ("SAP") dating from 1989 and
has been an SAP National Implementation Partner since 1994. In addition, the
Company is a member of SAP's National Advisory Board and was involved in the
development of SAP's Accelerated SAP methodology ("ASAP"), which has become an
industry standard for rapid SAP implementations. In 1997, the Company became one
of SAP's first ASAP Partners and has since become one of the first organizations
to certify 100 consultants in the ASAP methodology. CCAi recently received the
1998 Partner Award of Excellence from SAP. Also, CCAi has been an Oracle
Corporation ("Oracle") Alliance Member since 1997 and has recently been selected
to become one of 26 Oracle Service Providers in the United States. The Company
utilizes its own rapid implementation methodology, known as Fast Implementation
Roadmap Methodology ("FIRM"), for Oracle ERP applications. In 1998, CCAi was
named by Compaq Computer Corporation ("Compaq") as one of its first regional
configuration support centers to provide rapid implementation and related
services in connection with R/3PAQ, a preconfigured ERP solution jointly
developed by Compaq and SAP. In addition, the Company has been an integral
member of implementation teams managed by Andersen Consulting LLP ("Andersen
Consulting"), Ernst & Young LLP ("Ernst & Young") and SAP.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
Organizations are increasingly using third-party service providers to implement
ERP applications in order to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits.
According to AMR Research, Inc., a market research company, the worldwide market
for ERP applications and services totaled approximately $15 billion in 1998 and
is projected to grow to approximately $52 billion by 2002, representing a
compound annual growth rate of approximately 37%. In addition, according to
industry sources, for every dollar spent on ERP applications, four to six
dollars are spent on ERP implementation and related services. The Company
believes that a large portion of this market is represented by middle market
organizations and that the need for third-party ERP implementation and related
services is
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particularly acute among these organizations. Middle market organizations expect
timely and substantial economic returns from their ERP investments and are
particularly sensitive to the risk of cost overruns and delays associated with
poorly managed ERP implementations. In addition, these organizations are under
growing pressure from their Fortune 500 customers to rapidly implement
compatible ERP applications.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, that in a resource constrained industry, it distinguishes
itself from its competitors by recruiting and retaining consultants with both
practical business and relevant IT experience, thereby enhancing the Company's
ability to identify industry-specific business issues and develop practical IT
solutions to address such issues. CCAi's consultants who perform ERP
implementations generally have 10 to 15 years of business or IT experience,
including three to five years of ERP implementation experience.
The Company's objective is to be a leading provider of IT solutions to the
middle market by continuing to deliver rapid ERP implementations and related
services. CCAi intends to achieve this objective by (i) expanding its base of
highly skilled employees and promoting an entrepreneurial culture; (ii)
leveraging its existing strategic relationships and seeking new relationships
with leading developers of complementary enterprise-wide applications; (iii)
broadening its presence in targeted geographic regions; (iv) expanding its
service offerings; and (v) pursuing strategic acquisitions. In April 1998, the
Company completed the acquisition of Kelly-Levey & Associates, Inc. ("KLA"). In
January 1999, the Company completed the acquisition of Bureau van Dijk Computer
Services, Inc. ("BVD"). These acquisitions enabled the Company to acquire highly
skilled ERP consultants, obtain additional recruiting and sales and marketing
opportunities, gain ERP implementation expertise in the automotive,
semiconductor and financial services industries and enhance its presence in the
Atlanta, Cincinnati and San Diego markets. For a description of the
consideration paid in these acquisitions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Overview."
The Company is an Ohio corporation formed in 1983 and maintains its
principal executive office at the CCAi Renaissance Centre, 5800 Landerbrook
Drive, Mayfield Heights, Ohio 44124. The Company's telephone number is (440)
684-6600.
THE OFFERING
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Common Stock offered by the Company......................... 4,000,000 shares
Common Stock offered by the Selling Shareholders............ 1,000,000 shares
Common Stock to be outstanding after the Offering........... 13,626,950 shares (1)
Use of Proceeds............................................. To repay indebtedness of
approximately $23.3 million, to
redeem all outstanding shares of
Redeemable Preferred Stock for
approximately $15.8 million and
for general corporate purposes,
including working capital. See
"Use of Proceeds."
Nasdaq National Market symbol............................... CCAI
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(1) Excludes (i) 64,734 shares of Common Stock subject to outstanding
compensatory options as of September 30, 1998 issued in connection with the
KLA acquisition (the "KLA Options"); (ii) 195,266 shares of Common Stock
subject to outstanding warrants as of September 30, 1998 issued in
connection with the KLA acquisition (the "KLA Warrants"); (iii) 360,600
shares of Common Stock subject to options outstanding under the Company's
1997 Equity and Performance Incentive Plan (the "1997 Equity and Performance
Plan"); (iv) 2,062,450 additional shares of Common Stock reserved for
issuance under the 1997 Equity and Performance Plan; and (v) 500,000
additional shares of Common Stock reserved for issuance pursuant to the
Company's Employee Stock Purchase Plan (the "Purchase Plan"). See
"Management -- Employee Benefits Plans" and Notes 11 and 12 of Notes to
Financial Statements.
6
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SUMMARY FINANCIAL DATA
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YEARS ENDED DECEMBER 31,
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PRO FORMA
1995 1996 1997 1998 1998(1)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues..................................... $ 11,107 $ 17,994 $ 32,218 $ 50,505 $ 67,500
Cost of revenues............................. 6,985 10,978 19,222 30,462 41,548
Gross profit................................. 4,122 7,016 12,996 20,043 25,952
Income from operations....................... 380 1,135 3,706 4,491 4,779
Net income (loss) per share (prior to
accretion):
Basic...................................... $ 0.01 $ 0.04 $ 0.16 $ 0.18 $ 0.07
Diluted.................................... $ 0.01 $ 0.04 $ 0.15 $ 0.18 $ 0.07
Net income (loss) per share:
Basic...................................... $ 0.01 $ 0.04 $ 0.15 $ 0.14 $ 0.03
Diluted.................................... $ 0.01 $ 0.04 $ 0.15 $ 0.14 $ 0.03
Weighted average shares outstanding:
Basic...................................... 13,836,080 13,836,080 13,579,423 13,326,950 13,626,950
Diluted.................................... 14,098,649 14,098,649 13,841,992 13,589,519 13,889,519
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
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ACTUAL PRO FORMA(2) PRO FORMA
AS ADJUSTED
(UNAUDITED)(3)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 863 $ 1,210 $ 1,605
Working capital.......................................... 2,859 2,692 3,087
Total assets............................................. 19,572 42,795 42,878
Line of credit........................................... 5,500 23,275 --
Redeemable securities.................................... 18,427 18,427 --
Total shareholders' equity (deficit)..................... (11,364) (8,559) 33,226
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(1) The pro forma statement of summary income data for the year ended December
31, 1998 is presented as if the acquisitions of KLA and BVD had been
consummated as of January 1, 1998. See "Unaudited Pro Forma Statements of
Operations Data" and Notes thereto.
(2) The pro forma balance sheet data as of December 31, 1998 is presented as if
the acquisition of BVD had been completed on December 31, 1998.
(3) Pro forma as adjusted to give effect to (i) the acquisition of BVD as if it
had been completed on December 31, 1998; (ii) the conversion of all
outstanding shares of Convertible Preferred Stock into 2,504,000 shares of
Common Stock and 250,400 shares of Redeemable Preferred Stock immediately
prior to the consummation of the Offering; (iii) the sale of 4,000,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $11.00 per share, after deducting estimated underwriting discounts
and commissions and Offering expenses payable by the Company; and (iv) the
application of the estimated net proceeds of the Offering, including the
redemption of the 250,400 shares of Redeemable Preferred Stock. See "Use of
Proceeds" and "Capitalization."
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RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
Dependence on SAP and Other Relationships. The Company has historically
derived, and expects to continue to derive, a significant portion of its
revenues from implementations of SAP's ERP applications and related services.
For the years ended December 31, 1996, 1997 and 1998, approximately 69%, 75% and
80%, respectively, of CCAi's revenues were derived from engagements in which the
Company implemented SAP applications. CCAi's future success depends largely on
its continued relationship with SAP, including its continued status as an SAP
National Implementation Partner and as an ASAP Partner. CCAi's status as an SAP
National Implementation Partner is awarded by SAP on an annual basis pursuant to
contract. To achieve such status, CCAi was required to demonstrate: (i) customer
satisfaction with the Company's SAP-related services; (ii) expertise with SAP
software; and (iii) an employee base containing an appropriate number of SAP-
experienced consultants. Annual renewal of CCAi's contract and its National
Implementation Partner status is subject to SAP's review of the Company's
performance according to certain criteria, including: (i) customer satisfaction;
(ii) number and scope of engagements completed; and (iii) thoroughness of
consultant training. There can be no assurance that the Company's contract and
its National Implementation Partner status will be renewed or amended by SAP on
terms acceptable to the Company, if at all.
The Company has a strategic relationship with Oracle and has been an Oracle
Alliance Member since 1997. The Company has recently been selected to become one
of 26 Oracle Service Providers in the United States. CCAi's future success in
its Oracle-related services depends on its continued relationship with Oracle
and its continued status as an Oracle Alliance Member. This status is awarded by
Oracle pursuant to contract and may be terminated by Oracle upon 30 days' notice
to the Company. The Company also maintains relationships with software and
hardware vendors and other IT service providers, such as multinational
consulting firms. These relationships, whether contractual or otherwise, may be
terminated by either party with little or no notice. There can be no assurance
that CCAi's relationship with Oracle or with these other vendors and IT service
providers will continue under terms acceptable to the Company, if at all.
If CCAi's relationship with SAP, Oracle or the other organizations with
which the Company maintains strategic relationships deteriorates, or if SAP,
Oracle or one of the other organizations with which the Company maintains
strategic relationships elects to compete directly with the Company, the
Company's business, operating results and financial condition could be
materially adversely affected. Moreover, in the event that the demand for such
organizations' products and services lessens or fails to grow, the Company's
business, operating results and financial condition could be materially
adversely affected. The Company also intends to pursue other strategic
relationships with leading client/server software solution providers. There can
be no assurance that CCAi will be successful in establishing relationships with
the vendors of such software or that such relationships will be successful once
established. The Company's failure to establish or maintain any such
relationships could materially adversely affect the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business -- The
CCAi Solution" and " -- Competition."
Dependence on Recruiting and Retaining Consultants. CCAi's business entails
the delivery of professional IT services, and its success depends in large part
upon its ability to recruit, motivate and retain highly skilled consultants with
the functional and technical skills and experience necessary to deliver the
Company's services. Because there is a limited pool of such qualified employee
candidates, competition for such consultants is intense and is likely to remain
so. There can be no assurance that the Company will be able to recruit, motivate
and retain sufficient numbers of highly skilled consultants in the future. A
failure to do so could materially adversely affect the Company's business,
operating results and financial condition, including its ability to secure and
complete engagements. See "Business -- Human Resources" and "-- Competition."
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Management of Growth. CCAi has experienced, and expects to continue to
experience, rapid growth that has challenged, and may continue to challenge, the
Company's managerial and other resources. As of December 31, 1998, the number of
consultants employed by the Company increased to 279 from 191 as of December 31,
1997, and further significant increases are anticipated. In addition, the
Company's revenues increased 56.8% to $50.5 million for the year ended December
31, 1998 from $32.2 million for the year ended December 31, 1997. The Company
has recently opened offices in Cincinnati, Dallas and San Francisco and plans to
open additional offices over the next 12 months. As a result of the acquisition
of BVD, the Company now has an office in Atlanta and an established presence in
San Diego. The Company's inability to generate sufficient additional revenues to
offset the costs associated with such expansion, or to successfully integrate
these offices into the Company's operations, could materially adversely affect
the Company's business, operating results and financial condition. CCAi's
success in managing its growth will depend on its ability to continue to enhance
its operating, financial and managerial resources and to recruit, motivate and
retain its expanding work force. If CCAi is unable to manage growth effectively,
the quality of the Company's services, its ability to retain key employees and
its business, operating results and financial condition could be materially
adversely affected. Moreover, there can be no assurance that CCAi's business
will continue to grow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Strategy" and "-- Human
Resources."
Variability and Seasonality of Quarterly Operating Results. CCAi's revenues
and operating results are subject to significant variation from
quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
client engagements commenced and completed during a quarter, the number of
billable days in a quarter, the timing of office and service expansion and the
timing of expenditures. Because a high percentage of CCAi's expenses are
relatively fixed, a variation in the number of engagements or the timing of the
initiation or the completion of such engagements, particularly at or near the
end of any quarter, can cause significant variations in operating results from
quarter-to-quarter and could result in losses to the Company. In addition,
CCAi's engagements are generally terminable by the client without penalty.
Unanticipated termination of an engagement, a client's decision not to proceed
to the next phase of an engagement as anticipated by the Company, completion
during a quarter of several engagements without the deployment of consultants to
new engagements or expansion of existing engagements could result in the
Company's underutilization of employees and could, therefore, materially
adversely affect the Company's business, operating results and financial
condition. To the extent that increases in the number of employees do not result
in corresponding increases in revenues, the Company's business, operating
results and financial condition could be materially adversely affected. Further,
it is difficult for the Company to forecast the timing of revenues because
engagement cycles depend on factors such as the size and scope of engagements
and circumstances specific to particular clients. Because the Company derives
revenues only when its consultants are billing on engagements, its business,
operating results and financial condition are materially adversely affected due
to vacations, training schedules, sick days, holidays, inclement weather or
other similar events. For example, the Company has historically generated lower
margins during the second and fourth quarters of the year due to a lower number
of billable days resulting from training schedules and the number of vacations
and holidays in those quarters. Given all of the foregoing, the Company believes
that quarter-to-quarter comparisons of its operating results are not necessarily
meaningful, and that such results for one quarter should not be relied upon as
an indication of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
Risks Associated With Acquisition of KLA and BVD. The Company acquired KLA
in April 1998 and BVD in January 1999. The success of these acquisitions will
depend on a number of factors, including the Company's ability to integrate
their businesses and operations with those of the Company, to retain certain key
employees formerly employed by KLA and BVD and to preserve and expand their
businesses and operations. There can be no assurance that the Company will be
able to successfully integrate and operate their businesses or that it will not
experience losses as a result of the acquisitions. Failure to achieve the
anticipated benefits of the acquisitions
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or to successfully integrate the operations of KLA and BVD could materially
adversely affect the business, operating results and financial condition of the
Company. Moreover, goodwill as a result of the acquisitions is being amortized
by the Company on a straight-line basis over 20 years. In accordance with
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of, the Company will continually evaluate whether later events and circumstances
have occurred that indicate the remaining goodwill may warrant revision. There
can be no assurance that the Company will not be required to undertake such
revisions. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Risks of Acquisition Strategy. The Company intends to further expand its
business and operations by pursuing acquisitions of complementary ERP
implementation and IT consulting businesses. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
predicted. CCAi expects to face competition for acquisition candidates, which
may limit the number of acquisition opportunities available to the Company and
may lead to higher purchase prices or transaction costs. There can be no
assurance that CCAi will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses without
substantial costs, including costs in pursuing and negotiating with acquisition
candidates, delays in consummating such acquisitions or other operational or
financial difficulties. In addition, such a strategy involves a number of other
risks, including failure of the acquired businesses to achieve expected results,
diversion of management's attention and resources to acquisitions, failure to
retain key clients or personnel of the acquired businesses and risks associated
with unanticipated events, liabilities or contingencies. Client dissatisfaction
or performance problems relating to an acquired business could negatively affect
the reputation of CCAi as a whole. Acquisitions accounted for under the purchase
method of accounting may result in substantial annual noncash amortization
charges for goodwill and other intangible assets in the Company's statements of
operations. In addition, the Company could be obligated to make substantial cash
payments related to any such acquisition. There can be no assurance that the
Company will derive any value or benefit from any such payments. If CCAi is
unable to acquire complementary ERP implementation and IT consulting businesses
on reasonable terms or successfully integrate and manage acquired companies, or
if performance problems occur at acquired companies, CCAi's business, operating
results and financial condition may be materially adversely affected. See "Use
of Proceeds" and "Business -- Growth Strategy."
Rapid Technological Change; Dependence on New Solutions. The IT industry is
characterized by rapid technological change, evolving industry standards,
changing client preferences and new and frequent product and service
introductions. CCAi's continued success is dependent in part on its ability to
stay abreast of such continuing changes. There can be no assurance that CCAi
will be successful in identifying and addressing these developments on a timely
basis or that, if CCAi does identify and address such developments, CCAi will be
successful in the marketplace. In addition, there can be no assurance that
products, technologies or services developed or offered by others will not
render the Company's services noncompetitive. CCAi's failure to identify and
address these developments could materially adversely affect the Company's
business, operating results and financial condition.
Highly Competitive Information Technology Services Industry. The market for
CCAi's services is highly competitive. CCAi believes that its principal
competitors include the internal information systems groups of its prospective
clients, IT consulting companies, systems integration firms and the consulting
divisions of software applications vendors, some of which are also clients of
the Company. Many of CCAi's competitors have longer operating histories, possess
greater industry and name recognition and have significantly greater financial,
technical and marketing resources than the Company. In addition, there are
relatively low barriers to entry into CCAi's market, and the Company has faced,
and expects to continue to face, additional competition from new entrants into
its market, including new entrants operating offshore who may have lower fixed
operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
CCAi believes that the principal competitive factors in its market include
quality of service, speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes its ability to compete also depends in part on a number of competitive
factors outside its control. These include
10
<PAGE> 13
the ability of its competitors to recruit, motivate and retain project managers
and other senior professionals, develop services that are competitive with the
Company's services and respond to customer needs. There can be no assurance that
the Company will be able to compete successfully with its competitors. See
"Business -- The CCAi Solution" and "-- Competition."
Engagement Risks. Many of CCAi's engagements are critical to the operations
of its clients' businesses and provide benefits that may be difficult to
quantify. The Company's inability to meet a client's expectations in any
engagement, especially in performing mission and time critical projects such as
Year 2000 compliance services, could have a material adverse effect on the
client and, therefore, could give rise to claims against the Company or damage
the Company's reputation, which could in turn materially adversely affect the
Company's business, operating results and financial condition. In addition, most
of the Company's contracts are terminable by its clients with little or no
notice to the Company and without penalty. The cancellation or a significant
change in the scope of engagements could materially adversely affect the
Company's business, operating results and financial condition.
The Company faces increased pressure to undertake engagements on a
fixed-fee basis, instead of on a time and materials basis. The failure of the
Company to complete a fixed-fee engagement within budget could expose the
Company to risks associated with cost overruns, which could materially adversely
affect the Company's business, operating results and financial condition. These
risks may be heightened if the Company acts as a subcontractor on a fixed-fee
engagement because of its limited ability to control engagement variables and to
negotiate directly with the client.
Concentration of Revenues. Since its inception, the Company has derived a
significant portion of its revenues from a relatively limited number of clients.
For example, for the years ended December 31, 1996, 1997 and 1998, the Company's
10 largest clients accounted for approximately 43%, 39% and 43% of its revenues,
respectively. There can be no assurance that these clients will continue to hire
the Company for additional engagements or do so at the same revenue levels.
Clients engage the Company on an engagement-by-engagement basis, and a client
can generally terminate a contract with little or no notice to the Company and
without penalty. The loss of any such client, or a reduction in the scope of
engagements undertaken for such a client, could materially adversely affect the
Company's business, operating results and financial condition. In addition,
there can be no assurance that the portion of the Company's revenues
attributable to a relatively limited number of clients will not increase in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Clients and Representative Engagements."
Reliance on Key Executives. The success of CCAi has been highly dependent
upon certain key executives and senior managers, particularly the Company's
founders, Nicholas A. Canitano, Kenneth L. Conley, Karen M. Conley and Annette
M. Canitano (collectively, the "Founders"). None of these individuals has
entered into an employment agreement with CCAi, and there is no guarantee that
any of these individuals will continue his or her employment with the Company.
The loss of the services of any of these persons for any reason could materially
adversely affect the Company's business, operating results and financial
condition. The Company maintains, and is the beneficiary of, key person life
insurance on the lives of Nicholas A. Canitano and Kenneth L. Conley, each in
the face amount of $2,000,000, and on the lives of Karen M. Conley and Annette
M. Canitano, each in the face amount of $1,000,000. In the event of the death of
any of the Founders, the applicable sum would be paid to the Company to offset
the financial effect of such death. No assurance can be given, however, that
such amount of insurance would be adequate for that purpose. The Company does
not maintain key life insurance on any of its other executive officers or
employees. See "Management."
Government Regulation of Immigration. The Company recruits certain of its
IT professionals from countries outside the United States to avail itself of the
best available consulting talent and, therefore, must comply with the
immigration laws in the countries in which it operates, particularly in the
United States and Canada. There is a limit on the number of new H-1B permits
that may be approved in any year. In years in which this limit is reached, the
Company may be unable to obtain enough H-1B permits to meet its requirements. If
the Company were unable to obtain H-1B permits for its employees in sufficient
quantities or at a sufficient rate, the Company's business, operating results
and financial condition could be materially adversely affected. Further-
11
<PAGE> 14
more, Congress and administrative agencies with jurisdiction over immigration
matters have periodically expressed concerns over the levels of legal and
illegal immigration into the U.S. These concerns have often resulted in proposed
legislation, rules and regulations aimed at reducing the number of work permits
that may be issued. Any changes in such laws and regulations that make it more
difficult to hire foreign nationals or that limit the ability of the Company to
retain employees who are foreign nationals could require the Company to incur
additional unexpected labor costs and other expenses and limit the Company's
ability to implement its expansion strategy. Any such restrictions or
limitations on the Company's ability to hire professionals from countries
outside the United States could materially adversely affect the Company's
business, operating results and financial condition. See "Business -- Human
Resources."
Significant Influence of Principal Shareholders. Upon consummation of the
Offering, the Founders will beneficially own approximately 39% of the
outstanding shares of Common Stock. The Founders anticipate that they will enter
into a shareholders agreement prior to the consummation of the Offering. Under
the proposed shareholders agreement, the Founders would agree to vote all of
their shares of Common Stock as determined by any three of the Founders. In
addition, the Founders would agree to restrictions on the transfer of their
shares. As a result of the shareholders agreement, the Founders could
effectively control the outcome of any matters requiring shareholder approval,
including the election of the members of the Board of Directors. Further, as a
result of the 70% approval requirement for certain transactions contained in the
Company's Second Amended and Restated Articles of Incorporation (the "Articles
of Incorporation"), the Founders, voting together, can block the approval of any
such transactions. This could materially adversely affect the market price of
the Common Stock or delay or prevent a change in control of the Company. See
"Principal and Selling Shareholders."
Dependence on Intellectual Property Rights. CCAi's success is dependent
upon certain methodologies and other proprietary intellectual property rights.
Software developed by the Company for a client is typically assigned to the
client. CCAi also independently develops certain foundation and application
software products, or software "tools" that remain the property of the Company.
CCAi relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. CCAi enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance that the steps taken by CCAi in this
regard will be adequate to deter misappropriation of the Company's proprietary
information, that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights or that such steps
will prevent the Company's employees from using intellectual property belonging
to others. Although CCAi believes its services do not infringe on the
intellectual property rights of others and it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of claims alleging infringement of third-party intellectual
property rights, including the rights of its clients. Any such claims could
require CCAi to expend significant resources in litigation, pay damages, cease
using infringing intellectual property, develop non-infringing intellectual
property or acquire licenses to the intellectual property that is the subject of
asserted infringement. See "Business -- Intellectual Property Rights."
Risks Associated With Year 2000 Compliance. Many existing computer systems
and applications, and other control devices, use only two digits to identify a
year in the date code field, and were not designed to account for the upcoming
change in the century. As a result, such systems and applications could fail or
create erroneous results unless corrected so that they can process dates in the
Year 2000 and beyond. The Company and its clients rely on their systems,
applications and devices in operating and monitoring all major aspects of their
businesses, including financial systems (such as general ledger, accounts
payable and accounts receivable modules), customer services, infrastructure,
embedded computer chips, networks and telecommunications equipment and end
products. The Company and its clients also rely directly and indirectly, on
external systems of business enterprises such as customers, suppliers,
creditors, financial organizations, and of governmental entities, both domestic
and international, for accurate exchange of data.
12
<PAGE> 15
The Company's Year 2000 assessment is conducted by the Company's IT
department and executive management. The Company's assessment of the Year 2000
issue has been broadly divided among hardware systems, software systems,
telecommunications, data communications, facilities, internal business
applications, external business applications and services offered by CCAi. All
hardware systems are being inventoried, audited and tested for Year 2000
compliance. All personal computer systems are in material compliance or will be
replaced in 1999. Software systems include operating systems, applications and
utilities. All business critical software systems have been assessed and are in
material compliance. The telecommunications systems in use at CCAi are comprised
of voice, facsimile, voice mail and video teleconferencing. All
telecommunications systems have been assessed and are in material compliance.
The data communications systems employed by CCAi include local area as well as
wide area networking. The Company's data communications systems are in material
compliance.
CCAi employs two major internal business applications, which are
significant in its business operations. These applications are its financial and
payroll systems, which are commercial off-the-shelf items and include ongoing
support. Both the systems have been assessed for Year 2000 compliance and are in
material compliance. CCAI has an aggressive training program and has created an
environment in which issues and solutions relating to Year 2000 problems are
exchanged and implemented. The Year 2000 issues with regard to CCAi's facilities
have also been assessed and found to be in material compliance. There is a
combination of hardware, software and communications elements involved with
CCAI's headquarters and other offices. These are broadly grouped into physical
security systems, fire alarm and fire control systems, heating and cooling
systems, elevator systems, irrigation systems, lighting and emergency services.
Based on the information currently available, the Company does not
anticipate any significant investments and therefore, believes that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition. However,
there can be no assurance that the Company, or its clients, will not encounter
unexpected costs or disruption in their businesses as a result of the Year 2000
issue. In addition, even if the internal system of the Company are not
materially affected by the Year 2000 issue, the Company's business, operating
results and financial condition could be materially adversely affected through
disruption in the operation of the enterprises with which the Company interacts.
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Common Stock, and there is no
assurance an active trading market will develop or be sustained after the
Offering. The initial public offering price will be determined through
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the market price of the Common Stock after the
Offering. The trading price of the Common Stock is likely to be highly volatile
and may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to patents, copyrights or proprietary rights,
conditions and trends in the IT consulting industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the public equity markets from time to time have experienced
significant price and volume fluctuations that particularly have affected the
stock prices of technology companies. These broad market fluctuations, as well
as shortfalls in sales or earnings as compared with securities analysts'
expectations, changes in such analysts' recommendations or projections and
general economic and market conditions, may materially adversely affect the
market price of the Common Stock. See "Underwriting."
Certain Anti-Takeover Effects. Certain provisions of the Articles of
Incorporation and Amended and Restated Code of Regulations (the "Code of
Regulations"), as well as Ohio statutes, may be deemed to have certain
anti-takeover effects. Such provisions, including those providing for the
possible issuance of preferred stock, the 70% majority approval requirement for
certain transactions, and the division of the Company's Board of Directors into
two classes of directors, may make it more difficult for other persons, without
the approval of the Company's Board of Directors, to make a tender offer or
acquisitions of substantial amounts of the Common Stock or to launch other
takeover attempts that a shareholder might consider to be in such shareholder's
best interest. These provisions could limit the price that certain investors
might be willing to pay in the future for
13
<PAGE> 16
shares of Common Stock. See "Description of Capital Stock -- Certain Articles of
Incorporation and Code of Regulations Provisions and Ohio Law; Anti-Takeover
Provisions."
Shares Eligible for Future Sale; Registration Rights Agreements. Sales of
significant amounts of Common Stock in the public market after the Offering or
the perception that such sales will occur could materially adversely affect the
market price of the Common Stock or the future ability of the Company to raise
capital through an offering of its equity securities. Of the 13,626,950 shares
of Common Stock to be outstanding upon completion of the Offering, the 5,000,000
shares offered hereby will be eligible for immediate sale in the public market
without restriction unless such Shares are purchased by "affiliates" of the
Company within the meaning of Rule 144 ("Rule 144") under the Securities Act of
1933, as amended (the "Securities Act").
The remaining 8,626,950 shares of Common Stock held by existing
shareholders upon completion of the Offering will be "restricted securities" as
that term is defined in Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Of the restricted securities, 10,000
shares of Common Stock will be available for sale in the public market on the
date of this Prospectus. Directors, officers and certain shareholders of the
Company holding the remaining 8,616,950 shares of Common Stock that are
restricted securities have agreed that they will not sell, directly or
indirectly, any Common Stock without the prior consent of Donaldson, Lufkin &
Jenrette Securities Corporation for a period of 180 days from the date of this
Prospectus (the "Lock-up Agreements"). Subject to these Lock-up Agreements,
additional shares of Common Stock will be available for sale in the public
market (subject in the case of shares held by affiliates in compliance with
certain volume restrictions) as follows: (i) 8,316,950 shares will be eligible
for sale upon the expiration of the Lock-Up Agreements 180 days after the date
of this Prospectus; (ii) 150,000 shares will be eligible for sale after January
2000; and (iii) 150,000 shares will be eligible for sale after January 2001.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 up to 3,000,000 shares of Common
Stock issuable under the 1997 Equity and Performance Plan and the Purchase Plan
(collectively, the "Stock Plans"). Of the 3,000,000 shares of Common Stock
issuable under the Stock Plans, 350,300 shares are subject to outstanding
options as of September 30, 1998, none of which will be exercisable at the time
of the Offering. The Company also has reserved 195,266 shares of Common Stock
for issuance upon exercise of the KLA Warrants and 64,734 shares of Common Stock
for issuance upon exercise of the KLA Options.
Upon completion of the Offering, the holders of 2,873,860 shares of Common
Stock will be entitled to certain registration rights with respect to such
shares. If such holders, by exercising their registration rights, cause a large
number of shares of Common Stock to be registered and sold in the public market,
such sales could have an adverse effect on the market price of the Common Stock.
In addition, if the Company is required, pursuant to such registration rights,
to include shares held by such persons in a registration statement, which the
Company files to raise additional capital, the inclusion of such shares could
adversely affect the Company's ability to raise needed capital. See "Certain
Transactions," "Management -- Employee Benefit Plans," "Shares Eligible for
Future Sale," and "Principal and Selling Shareholders."
Significant Unallocated Net Proceeds. The principal purposes of the
Offering are to obtain additional working capital, create a public market for
the Common Stock, provide liquidity to the Company's shareholders, enhance the
Company's ability to use its Common Stock as a means of recruiting, motivating
and retaining key employees and facilitate the Company's future access to public
equity markets. A substantial portion of the anticipated net proceeds of the
Offering has not been designated for specific uses. CCAi expects to use the net
proceeds from the Offering for: (i) repayment in full of estimated indebtedness
of approximately $23.3 million; (ii) redemption of all outstanding shares of
Redeemable Preferred Stock for approximately $15.8 million; and (iii) general
corporate purposes, including working capital. Although the Company has no
plans, commitments or agreements with respect to any material acquisitions as of
the date of this Prospectus, the Company may seek acquisitions of businesses or
service offerings that are complementary to those of the Company, and a portion
of the net proceeds may be used for such acquisitions. Accordingly, the Company
will have significant flexibility in applying the net proceeds of the Offering.
See "Use of Proceeds."
14
<PAGE> 17
Benefits Of Offering To Current Shareholders. In addition to the Selling
Shareholders receiving an estimated $10.2 million in net proceeds from the
Offering, the Offering will benefit the current shareholders by establishing a
public market for the Common Stock and providing significantly increased
liquidity to current shareholders for the shares of Common Stock they will own
after the Offering. The shares of Common Stock that will be owned by the Selling
Shareholders after this Offering will have a value of approximately $31.6
million, assuming a market price equal to the initial public offering price
(assumed to be $11.00 per share and assuming no exercise of the Underwriters'
over-allotment option). The shares of Common Stock that will be owned by all
executive officers and directors as a group after this Offering will have a
value of approximately $60.0 million, assuming a market price equal to the
initial public offering price (assumed to be $11.00 per share and assuming no
exercise of the Underwriters' over-allotment option). The existing shareholders
acquired their shares of Common Stock for approximately $19.0 million. See
"Dilution" and "Principal and Selling Shareholders."
Dilution. Investors participating in the Offering will incur immediate and
substantial dilution of net tangible book value per share of $10.61 from an
assumed initial public offering price of $11.00 per share. To the extent
outstanding options to purchase shares of Common Stock are exercised, there will
be further dilution to investors participating in the Offering. There can be no
assurance that the Company will not require additional funds to support its
working capital requirements or for other purposes, in which case the Company
may seek to raise such additional funds through public or private equity
financing or from other sources. There can be no assurance that such additional
financing will be available or that, if available, such financing will be
obtained on terms favorable to the Company and would not result in additional
dilution of the Company's shareholders. See "Dilution."
15
<PAGE> 18
USE OF PROCEEDS
The net proceeds to CCAi from the sale of the 4,000,000 shares offered by
the Company pursuant to the Offering are estimated to be approximately $39.4
million ($45.6 million if the Underwriters' over-allotment option is exercised
in full), at an assumed offering price of $11.00 per share after deducting the
estimated underwriting discounts and commissions and Offering expenses payable
by the Company. The principal purposes of the Offering are to obtain additional
working capital, create a public market for the Common Stock, provide liquidity
to the Company's shareholders, enhance the Company's ability to use its Common
Stock as a means of attracting, motivating and retaining key employees and
facilitate the Company's future access to public equity markets. CCAi expects to
use the net proceeds from the Offering: (i) to repay in full existing
indebtedness of approximately $23.3 million (of which approximately $17.8
million was incurred in connection with the acquisition of BVD in January 1999)
under the Company's revolving line of credit with Fleet National Bank ("Fleet
Bank") with an interest rate equal to LIBOR (5.544% at December 31, 1998) plus
up to 3.25% or the bank's prime rate (7.75% at December 31, 1998) plus up to
1.50%; (ii) to redeem all outstanding shares of Redeemable Preferred Stock for
approximately $15.8 million; and (iii) for general corporate purposes, including
working capital. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary businesses or service offerings. Although the
Company may periodically review potential acquisition opportunities, there are
no current agreements with respect to any such transactions. Pending such uses,
the Company intends to invest the net proceeds from the Offering in short-term,
investment-grade, interest-bearing securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any dividends. The Company does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business. The payment of dividends in the future,
if any, will be at the discretion of the Board of Directors.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth as of December 31, 1998 the capitalization
of the Company, the pro forma capitalization of the Company after giving effect
for the BVD acquisition as if the acquisition had been completed on December 31,
1998 and pro forma as adjusted to give effect to (i) the conversion of all
outstanding shares of Convertible Preferred Stock into 2,504,000 shares of
Common Stock and 250,400 shares of Redeemable Preferred Stock immediately prior
to the consummation of the Offering, (ii) the redemption of the 250,400
outstanding shares of Redeemable Preferred Stock to be effected immediately upon
consummation of the Offering, (iii) the acquisition of BVD as if the acquisition
had been completed on December 31, 1998, (iv) the amendment to the Articles of
Incorporation adopted by the Company's Board of Directors and shareholders
increasing the number of authorized shares of preferred stock and Common Stock,
(v) the sale of 4,000,000 shares offered hereby at an assumed initial public
offering price of $11.00 per share, after deducting estimated underwriting
discounts and commissions and Offering expenses payable by the Company and (vi)
the application of the estimated net proceeds of the Offering. See "Use of
Proceeds." The information set forth below should be read in conjunction with
the Financial Statements and related Notes thereto included elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
ACTUAL PRO FORMA PRO FORMA
AS ADJUSTED
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Line of credit............................................ $ 5,500 $ 23,275 $ --
Redeemable securities..................................... 18,427 18,427 --
Shareholders' equity (deficit):
Preferred Stock, voting, $.01 par value, authorized
500,800 shares, 250,400 shares issued and
outstanding, 250,400 shares issued and outstanding -- --
pro forma and no shares outstanding pro forma as
adjusted........................................... --
Preferred Stock, non-voting no par value, authorized
5,000,000 shares, none issued...................... -- -- --
Preferred Stock, voting, no par value, authorized
5,000,000 shares, none issued...................... -- -- --
Common Stock, no par value, authorized 45,000,000
shares, 6,822,950 shares issued and outstanding,
7,122,950 shares issued and outstanding pro forma 8 8
and 13,626,950 shares issued and outstanding pro
forma as adjusted (1).............................. 15
Additional paid-in capital........................... 359 3,164 42,580
Retained earnings (accumulated deficit).............. (11,372) (11,372) (9,010)
Less: note receivable from shareholder............... (359) (359) (359)
-------- -------- -------
Total shareholders' equity (deficit)............... (11,364) (8,559) 33,226
-------- -------- -------
Total capitalization............................ $ 12,563 $ 33,143 $33,226
======== ======== =======
</TABLE>
- ---------------
(1) Excludes (i) 64,734 shares of Common Stock subject to the KLA Options, (ii)
195,266 shares subject to the KLA Warrants, (iii) 360,600 shares of Common
Stock subject to options outstanding under the 1997 Equity and Performance
Plan; (iv) 2,062,450 additional shares of Common Stock reserved for issuance
pursuant to the 1997 Equity and Performance Plan; and (v) 500,000 additional
shares of Common Stock reserved for issuance pursuant to the Purchase Plan.
See "Management -- Employee Benefits Plans" and Notes 11 and 12 of Notes to
Financial Statements.
17
<PAGE> 20
DILUTION
As of December 31, 1998, the pro forma net tangible deficit of the Company
was ($18.0 million) or ($1.87) per share of Common Stock. Pro forma net tangible
book value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding
after giving effect for the BVD acquisition as if it had been completed on
December 31, 1998 and after the conversion of all outstanding shares of
Convertible Preferred Stock into 2,504,000 shares of Common Stock. After giving
effect to the sale by the Company of the 4,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per share,
after deducting the underwriting discounts and commissions and estimated
Offering expenses payable by the Company, after the conversion of all
outstanding shares of Convertible Preferred Stock into 2,504,000 shares of
Common Stock and the redemption of the Redeemable Preferred Stock and after
giving effect for the BVD acquisition, the pro forma as adjusted net tangible
book value of the Company as of December 31, 1998 would have been $5.4 million,
or $0.39 per share of Common Stock. This represents an immediate increase in net
tangible book value of $2.26 per share of Common Stock to existing shareholders
and an immediate dilution of $10.61 per share to new shareholders. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible deficit per share before the
Offering............................................... ($1.87)
Increase per share attributable to new investors.......... 2.26
------
Pro forma as adjusted net tangible book value per share
after the Offering........................................ 0.39
------
Dilution per share to new investors......................... $10.61
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1998, the difference between the existing shareholders (including shares issued
in the BVD transaction and the conversion of the Convertible Preferred Stock)
and new shareholders with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price paid per share by existing shareholders and by new shareholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders.................. 9,626,950 70.6% $19,049,235 30.2% $ 1.98
New shareholders....................... 4,000,000 29.4 44,000,000 69.8 11.00
---------- ----- ----------- -----
Total........................ 13,626,950 100.0% $63,049,235 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables and calculations assume no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants. As of December 31, 1998, there were 64,734 shares of Common Stock
subject to the KLA Options; 195,266 shares of Common Stock subject to the KLA
Warrants; 360,600 shares of Common Stock subject to options outstanding under
the 1997 Equity and Performance Plan; 2,062,450 additional shares of Common
Stock reserved for issuance pursuant to such plan; and 500,000 additional shares
of Common Stock reserved for issuance pursuant to the Purchase Plan. See
"Management -- Employee Benefit Plans," and "Shares Eligible for Future Sale."
18
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the Company's financial
statements and Notes thereto included elsewhere in this Prospectus. The
Statements of Income Data presented below for each of the years in the three
year period ended December 31, 1998 and the Balance Sheet Data, as of December
31, 1996, 1997 and 1998, have been derived from the Company's financial
statements included elsewhere in this Prospectus, which have been audited by
PricewaterhouseCoopers LLP, whose report with respect thereto is included
elsewhere in this Prospectus. The Balance Sheet Data as of December 31, 1995 and
1994 has been derived from audited financial statements not included herein. The
Statements of Income Data for the year ended December 31, 1994 have been derived
from the unaudited financial statements of the Company. In the opinion of
management, the unaudited financial statements include all adjustments
(consisting only of normal and recurring adjustments) necessary for a fair
presentation of its financial position and operating results for such periods.
See the financial statements and the related Notes thereto included elsewhere in
the Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996 1997
(UNAUDITED) 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................................. $6,149 $11,107 $17,994 $32,218 $50,505
Cost of revenues......................... 3,977 6,985 10,978 19,222 30,462
------ ------- ------- ------- -------
Gross profit............................. 2,172 4,122 7,016 12,996 20,043
Selling, general and administrative
expenses.............................. 2,066 3,038 4,204 6,555 10,423
Incentive compensation................... 216 678 1,647 2,700 3,430
Acquisition compensation................. -- -- -- -- 1,179
Depreciation and amortization............ 22 26 30 35 520
------ ------- ------- ------- -------
(Loss) income from operations............ (132) 380 1,135 3,706 4,491
Net interest expense..................... 40 35 83 87 316
------ ------- ------- ------- -------
(Loss) income before provision for income
taxes................................. (172) 345 1,052 3,619 4,175
(Benefit from) provision for income
taxes................................. (80) 180 461 1,495 1,789
------ ------- ------- ------- -------
Net (loss) income........................ $ (92) $ 165 $ 591 $ 2,124 $ 2,386
====== ======= ======= ======= =======
Accretion to redemption value of
redeemable securities................. -- -- -- (92) (457)
------ ------- ------- ------- -------
Net (loss) income available to common
shareholders.......................... $ (92) $ 165 $ 591 $ 2,032 $ 1,929
====== ======= ======= ======= =======
Net (loss) income per share:
Basic................................. $(0.01) $ 0.01 $ 0.04 $ 0.15 $ 0.14
Diluted............................... $(0.01) $ 0.01 $ 0.04 $ 0.15 $ 0.14
Weighted average shares outstanding:
Basic................................. 13,836,080 13,836,080 13,836,080 13,579,423 13,326,950
Diluted............................... 14,098,649 14,098,649 14,098,649 13,841,992 13,589,519
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 109 $ 100 $ 362 $ 2,174 $ 863
Working capital (deficit).............. (142) (170) 429 2,119 2,859
Total assets........................... 1,164 2,054 3,697 7,712 19,572
Line of credit......................... -- -- 704 698 5,500
Redeemable securities.................. -- -- -- 15,970 18,427
Total shareholders' equity (deficit)... (33) (25) 723 (13,264) (11,364)
</TABLE>
19
<PAGE> 22
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
The following Unaudited Pro Forma Statements of Operations Data gives pro
forma effect to the acquisitions of KLA on April 8, 1998 and BVD on January 12,
1999. The Unaudited Pro Forma Statements of Operations Data for the year ended
December 31, 1998 combine the historical statements of income of CCAi and the
historical statements of operations of KLA and BVD as if the acquisitions had
been completed on January 1, 1998. The Unaudited Pro Forma Statement of
Operations Data for the year ended December 31, 1998 reflects the last full
quarter of KLA operations prior to being acquired by CCAi on April 8, 1998 and
the historical statements of operations of BVD for the year ended December 31,
1998. This pro forma data should be read in conjunction with the respective
historical financial statements (including Notes thereto) of CCAi, KLA and BVD,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Notes to Unaudited Pro Forma Statements of Operations Data
presented below and other financial information of CCAi, KLA and BVD appearing
elsewhere herein.
The pro forma adjustments reflecting the consummation of the acquisitions
are based on the purchase method of accounting, available financial information
and certain estimates and assumptions set forth in the Notes to the Unaudited
Pro Forma Statements of Operations Data. The Unaudited Pro Forma Statements of
Operations Data reflects CCAi's best estimates; however, the actual financial
position and results of operations may differ significantly from the pro forma
amounts reflected herein due to various factors, including, without limitation,
access to additional information and changes in value. The pro forma adjustments
do not reflect any operating efficiencies or cost savings that may be achievable
with respect to the combined businesses of CCAi, KLA and BVD.
The following data is not necessarily indicative of the future financial
position or operating results of the combined businesses or the financial
position or operating results of the combined businesses had the acquisition
occurred at the beginning of 1998.
20
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------------------------
KLA BVD BVD
THREE NINE THREE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
MARCH 31, PRO FORMA SEPTEMBER 30, DECEMBER 31, PRO FORMA
CCAI 1998 KLA 1998 1998 BVD PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $50,505 $2,570 $(157)(1) $11,408 $3,174 -- $ 67,500
Cost of revenues....... 30,462 1,542 (157)(1) 7,550 2,151 -- 41,548
------- ------ ----- ------- ------ ------- ----------
Gross profit........... 20,043 1,028 -- 3,858 1,023 -- 25,952
Selling, general and
administrative
expenses............. 10,423 925 (250)(2) 2,814 608 $ (319)(9) 14,201
Incentive
compensation......... 3,430 -- -- -- -- -- 3,430
Acquisition
compensation......... 1,179 -- 646(3,4) -- -- -- 1,825
Depreciation and
amortization......... 520 19 93(5) 36 19 1,030(10) 1,717
------- ------ ----- ------- ------ ------- ----------
Income (loss) from
operations........... 4,491 84 (489) 1,008 396 (711) 4,779
Transaction costs...... -- 302 (302)(6) -- 344 (344)(6) --
Net interest expense
(income)............. 316 4 120(7) (2) -- 1,777(11) 2,215
------- ------ ----- ------- ------ ------- ----------
Income (loss) before
provision for
(benefit from) income
taxes................ 4,175 (222) (307) 1,010 52 (2,144) 2,564
Provision for (benefit
from) income taxes... 1,789 (83) (89)(8) 454 28 (460)(12) 1,639
------- ------ ----- ------- ------ ------- ----------
Net income (loss)...... $ 2,386 $ (139) $(218) $ 556 $ 24 $(1,684) $ 925
======= ====== ===== ======= ====== ======= ==========
Accretion to redemption
value of redeemable
securities........... (457) -- -- -- -- -- (457)
------- ------ ----- ------- ------ ------- ----------
Net income (loss)
available to common
shareholders......... $ 1,929 $ (139) $(218) $ 556 $ 24 $(1,684) $ 468
======= ====== ===== ======= ====== ======= ==========
Net income per share:
Basic................ $ 0.03
Diluted.............. 0.03
Weighted average shares
outstanding:
Basic................ 13,626,950
Diluted.............. 13,889,519
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA:
(1) Reflects the elimination of contractual sales and cost of sales that had
been transacted between CCAi and KLA before the acquisition date.
(2) Reflects the elimination of KLA expenses, which consist of the salary
related to an officer of KLA who was not retained by CCAi and certain
nonrecurring travel expenses incurred by KLA officers and employees, that
will no longer be incurred as a result of the KLA acquisition.
(3) Reflects pro forma adjustment to acquisition compensation in the amount of
$0.1 million for the year ended December 31, 1998 for the amortization of
$0.5 million of compensation expense resulting from the issuance of the KLA
Options. The expense associated with the KLA Options is amortized on a
straight-line basis over the 24 month vesting period for such options. In
connection with the Offering, the KLA Options will fully vest and the
unamortized balance will be included in acquisition compensation. See Note
12 of Notes to Financial Statements.
(4) Reflects pro forma adjustment to acquisition compensation in the amount of
$0.1 million for the year ended December 31, 1998 for bonus retention pool
payments to an escrow account for KLA employees retained by CCAi. See Note
12 of Notes to Financial Statements.
(5) Reflects the pro forma increase in amortization expenses associated with
the amortization of goodwill of $7.5 million resulting from the KLA
acquisition, on a straight-line basis over 20 years. (See Note (13) below).
(6) Reflects transaction costs, which consist of professional services
expenses, incurred by KLA or BVD resulting from the acquisitions.
Transaction costs incurred by CCAi are included in goodwill. Amortization
of goodwill is included in depreciation and amortization.
21
<PAGE> 24
(7) Reflects the pro forma increase in interest expense associated with the
$5.9 million of borrowings by CCAi in connection with the KLA acquisition.
The borrowings are assumed to have an interest rate of 8.5%, which is the
Company's pro forma cost of borrowing in connection with the KLA
acquisition.
(8) Reflects pro forma adjustments to provision for (benefit from) income taxes
after adjusting taxable income for nondeductible goodwill and assuming
CCAi's effective income tax rate of 41.3%. The remaining difference between
the statutory rate and the effective rate is primarily the result of state
taxes.
(9) Reflects pro forma adjustments attributed to royalty expenses, which will
no longer be paid after the acquisition. These royalties were paid to a
company which is partially owned by some of the former shareholders of BVD.
(10) Reflects the pro forma increase in amortization expense associated with the
estimated amortization of goodwill of approximately $20.6 million resulting
from the BVD acquisition, on a straight-line basis over 20 years. (See Note
(13) below).
(11) Reflects the pro forma increase in interest expense associated with the
$17.8 million of borrowings by CCAi in connection with the BVD acquisition.
The borrowings are assumed to have an interest rate of 10.0%, which is the
Company's pro forma cost of borrowing in connection with the BVD
acquisition as if the KLA and BVD transactions had been completed on
January 1, 1998.
(12) Reflects pro forma adjustments to provision for (benefit from) income taxes
after adjusting taxable income for nondeductible goodwill and assuming
CCAi's effective income tax rate of 41.3%. The remaining difference between
the statutory rate and the effective rate is primarily the result of state
taxes.
(13) The purchase price allocations for BVD and KLA are as follows:
<TABLE>
<CAPTION>
BVD KLA
------- ------
(IN THOUSANDS)
<S> <C> <C>
Assets acquired............................................. $ 2,620 $2,378
Liabilities assumed......................................... (2,643) (3,374)
Goodwill.................................................... 20,603 7,524
Compensatory options........................................ -- 500
Earn-out liability.......................................... -- (1,123)
------- ------
20,580 5,905
Less: equity instruments.................................... 2,805 2,000
------- ------
Cash paid for acquisition................................... $17,775 $3,905
======= ======
</TABLE>
The allocation for BVD is preliminary; however, adjustments to these amounts
are not expected to be material.
22
<PAGE> 25
UNAUDITED PRO FORMA BALANCE SHEET
The following Unaudited Pro Forma Balance Sheet as of December 31, 1998
gives effect to (i) the acquisition of BVD and (ii) the related pro forma
adjustments described in the notes below. This pro forma balance sheet is
presented as if the acquisition had been completed on December 31, 1998.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------------------------------
CCAi BVD PRO FORMA
HISTORICAL(1) HISTORICAL ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 863 $ 347 $ -- $ 1,210
Accounts receivable, net................................. 7,226 1,879 (45)(4) 9,060
Deferred taxes........................................... 723 28 -- 751
Other.................................................... 246 228 -- 474
-------- ------ ------- --------
Total current assets............................... 9,058 2,482 (45) 11,495
Goodwill, net.............................................. 7,251 -- 20,603(2) 27,854
Property and equipment, net................................ 1,912 153 -- 2,065
Other...................................................... 1,351 30 -- 1,381
-------- ------ ------- --------
Total assets....................................... $ 19,572 $2,665 $20,558 $ 42,795
======== ====== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations................. $ 374 $ -- $ -- $ 374
Accounts payable......................................... 1,124 383 -- 1,507
Accrued payroll, taxes and benefits...................... 3,877 1,091 889(4) 5,857
Income taxes payable..................................... 434 71 100(4) 605
Other.................................................... 390 70 -- 460
-------- ------ ------- --------
Total current liabilities.......................... 6,199 1,615 989 8,803
Line of credit............................................. 5,500 -- 17,775(3) 23,275
Deferred taxes............................................. 61 39 -- 100
Long-term obligations, less current portion................ 749 -- -- 749
-------- ------ ------- --------
Total liabilities.................................. 12,509 1,654 18,764 32,927
Commitments and contingencies.............................. -- -- -- --
Redeemable securities...................................... 18,427 -- -- 18,427
Shareholders' equity (deficit):
Preferred stock, voting, $.01 par value, authorized
500,800, shares, 250,400 shares issued and outstanding
as of December 31, 1998................................ -- -- -- --
Preferred stock, non-voting, no par value, authorized
5,000,000 shares, none issued.......................... -- -- -- --
Preferred stock, voting, no par value, authorized
5,000,000 shares, none issued.......................... -- -- -- --
Common stock, no par value, authorized 45,000,000 shares,
6,822,950 shares issued and outstanding at December 31,
1998 and 7,122,950 shares issued and outstanding pro
forma.................................................. 8 -- -- 8
Common stock, no par value, authorized and issued 1,000
shares................................................. -- 300 (300)(5) --
Additional paid-in capital............................... 359 -- 2,805(5) 3,164
Retained earnings (accumulated deficit).................. (11,372) 711 (711)(5) (11,372)
-------- ------ ------- --------
(11,005) 1,011 1,794 (8,200)
Less: note receivable from shareholder................... (359) -- -- (359)
-------- ------ ------- --------
Total shareholders' equity (deficit)............... (11,364) 1,011 1,794 (8,559)
-------- ------ ------- --------
Total liabilities and shareholders' equity
(deficit)........................................ $ 19,572 $2,665 $20,558 $ 42,795
======== ====== ======= ========
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(1) Includes the KLA acquisition, which was consummated in April 1998.
(2) Reflects the estimated goodwill resulting from the BVD acquisition.
(3) Reflects the estimated bank borrowings needed to acquire BVD including
certain costs associated with the acquisition in the amount of $0.3 million.
(4) Reflects adjustments to reconcile accounting policies of BVD and CCAi.
(5) Reflects the required adjustments to eliminate BVD's equity and to record
the 300,000 shares of CCAi's Common Stock issued as part of the purchase
price of BVD at their fair value of $9.35 per share.
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
section, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results,
performance or achievements expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $50 million and $2.5 billion.
The Company's rapid ERP implementation services enable its clients to reduce the
length and risks of implementations, lower overall costs and achieve early
realization of ERP-related benefits. The Company provides its services to
clients across a broad spectrum of industries, including aerospace, automotive,
chemical process, communications, consumer products, energy, financial and
professional services, pharmaceutical and health care, publishing, retail,
semiconductor and technology.
From its inception through 1989, CCAi was engaged in the implementation of
mainframe and minicomputer software applications, as well as the development of
custom applications and software products for mainframe and minicomputer
systems. In 1989, the Company participated in one of the first mainframe SAP
implementations in the U.S. and thereafter continued to provide its clients with
mainframe ERP implementations and related services for SAP applications
throughout the early 1990s. With the advent of network-centric solutions and the
availability of affordable personal computers, the Company began to develop
custom applications for network-centric environments and subsequently began to
participate in SAP client/server ERP implementations undertaken by larger IT
service providers at Fortune 500 companies.
Since 1994, when the Company became an SAP National Implementation Partner,
CCAi has differentiated itself by developing expertise as a provider of rapid
ERP implementation services and developing its own rapid implementation
methodology. The Company was involved in the development of SAP's ASAP
methodology, which has become an industry standard for rapid SAP
implementations. In 1997, CCAi became one of SAP's first ASAP Partners and has
since become one of the first organizations to certify 100 consultants in the
ASAP methodology. Also during 1997, the Company expanded its ERP implementation
capabilities by becoming an Oracle Alliance Member and has since developed its
own proprietary rapid implementation methodology, known as FIRM, for Oracle ERP
applications. The Company has recently been selected to become one of 26 Oracle
Service Providers in the United States. Since 1997, the Company has increasingly
undertaken the management of engagements for middle market clients. With the
continuing growth in demand for ERP solutions among middle market organizations,
the Company has focused on providing rapid ERP implementations and related
services for such organizations. In 1998, the Company was one of the first
organizations named by Compaq as a regional configuration support center to
provide rapid implementation and related services in connection with R/3PAQ, a
preconfigured ERP solution jointly developed by Compaq and SAP.
In April 1998, the Company, in an arms-length transaction with parties not
affiliated with the Company, purchased all of the capital stock of KLA by paying
$3.9 million in cash, by issuing the KLA Warrants and by agreeing to make
additional cash payments of (i) $3.4 million, subject to certain revenue targets
and contribution margins during the two-year period following the acquisition
and (ii) $1.1 million in three equal annual installments beginning April 1999.
In addition, the Company agreed to grant the KLA Options and to pay $3.5 million
in retention bonuses at certain intervals to an escrow account which benefits
former KLA employees who remain employees of the Company at such intervals.
Goodwill of $7.5 million from the KLA acquisition is
24
<PAGE> 27
being amortized on a straight-line basis over 20 years. In January 1999, the
Company, in an arms-length transaction with parties not affiliated with the
Company, purchased all of the capital stock of BVD by paying $17.5 million in
cash and issuing 300,000 shares of restricted Common Stock, which vest in two
equal annual installments. Goodwill of $20.6 million from the BVD acquisition
will be amortized on a straight-line basis over 20 years. In accordance with
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, the Company will continually evaluate whether
later events and circumstances have occurred that indicate the acquired goodwill
may warrant revision. See Note 12 of Notes to Financial Statements.
The Company generates revenues by providing professional services for ERP
implementations and platform independent services. Revenues are recognized as
services are performed. The Company's ERP implementation services are typically
billed at a higher rate than its other services. The Company undertakes
engagements in a variety of roles, including: (i) as the lead consulting firm on
its own engagements; (ii) as a lead consulting firm on a part of larger
engagements undertaken by multinational IT consulting firms or other large
service providers or (iii) as an integral member of a joint engagement team on
such engagements. The Company provides services to its clients predominantly on
a time and materials basis pursuant to written contracts, which can be
terminated with little or no notice, typically not more than 30 days, and
without penalty. The Company typically bills on a bi-weekly basis to monitor
client satisfaction and manage its outstanding accounts receivable balances.
Substantially all of the Company's revenues are derived from clients located in
the U.S. and Canada. Revenues generated in connection with SAP implementations
and related services for the years ended December 31, 1996, 1997 and 1998
accounted for approximately 69%, 75% and 80%, of revenues, respectively.
Revenues derived from services provided to the Company's 10 largest clients for
the years ended December 31, 1996, 1997 and 1998, were approximately 43%, 39%
and 43% of revenues, respectively. During each of the years ended December 31,
1996, 1997 and 1998 none of the Company's clients individually accounted for 10%
or more of the Company's revenues. See "Risk Factors -- Dependence on SAP and
Other Relationships" and "-- Concentration of Revenues."
Gross profit is derived from revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. The Company's
financial performance is primarily based upon billing margin (billable hourly
rate less the consultant's hourly cost) and personnel utilization rates
(billable hours divided by paid hours). Generally, clients are billed for
expenses incurred by the Company on the clients' behalf. To date, the Company
has been able to maintain its billing margins by offsetting increases in
salaries with increases in its hourly rates. Because most of the Company's
engagements are billed on a time and materials basis, increases in its cost of
revenues are generally passed along to the Company's clients. In addition, the
Company closely monitors and attempts to control expenses that are not passed
through to its clients.
The Company continuously monitors its engagements in order to effectively
manage billing and utilization rates. Actual billing rates are established on an
engagement-by-engagement basis. Over the last three years, the Company's average
hourly billing rate has steadily increased. The growth in average hourly billing
rates reflects both an increase in billing rates and a shift towards a higher
percentage of billable hours related to ERP implementations, which command
higher billing rates. The Company assigns consultants to engagements according
to the size, duration, status and degree of complexity of each engagement.
Selling, general and administrative expenses consists of salaries,
benefits, training and travel expenses and other promotional costs. These
expenses are associated with the Company's development of new business and with
the Company's management, finance, marketing and administrative activities.
Incentive compensation consists of amounts paid for non-consultant
discretionary bonuses, sales commissions and company-wide profit sharing to
employees who provide exceptional service to clients or the Company. Incentive
compensation expenses have a large variable component relating to revenue and
profit and, therefore vary based upon the Company's ability to achieve its
operating objectives.
Acquisition compensation consists of bonus retention pool payments to be
made by the Company in connection with the KLA acquisition. In addition,
amortization of the $0.5 million of compensation attributed to the KLA Options
is included in acquisition compensation and is being amortized over the 24 month
vesting period of the options. As a result of the Offering, the KLA Options will
fully vest and, accordingly, the
25
<PAGE> 28
unamortized balance of the compensation will be charged to acquisition
compensation in the quarter in which the Offering is consummated.
RESULTS OF OPERATIONS
The following table sets forth the Statements of Income Data of the
Company, expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues.................................................. 100.0% 100.0% 100.0%
Cost of revenues.......................................... 61.0 59.7 60.3
----- ----- -----
Gross profit......................................... 39.0 40.3 39.7
Selling, general and administrative expenses.............. 23.4 20.3 20.6
Incentive compensation.................................... 9.2 8.4 6.8
Acquisition compensation.................................. -- -- 2.4
Depreciation and amortization............................. 0.1 0.1 1.0
----- ----- -----
Income from operations............................... 6.3 11.5 8.9
Net interest expense...................................... 0.5 0.3 0.6
----- ----- -----
Income before provision for income taxes............. 5.8 11.2 8.3
Provision for income taxes................................ 2.6 4.6 3.6
----- ----- -----
Net income........................................... 3.2% 6.6% 4.7%
===== ===== =====
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Revenues increased 56.8% to $50.5 million for the year ended
December 31, 1998 from $32.2 million for the year ended December 31, 1997. This
increase was predominantly due to the increase in ERP implementation services
provided to clients. The increase in services was made possible through the
increase in the number of consultants to 279 at December 31, 1998 from 191 at
December 31, 1997.
Gross Profit. Gross profit increased 54.2% to $20.0 million for the year
ended December 31, 1998 from $13.0 million for the year ended December 31, 1997.
Gross margin decreased to 39.7% for the year ended December 31, 1998 from 40.3%
for the year ended December 31, 1997. The dollar increase was the result of
increased revenues, partially offset by increased cost of revenues. The decrease
in gross margin was primarily due to lower consultant utilization in the year
ended December 31, 1998 resulting from the time devoted to the KLA acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 59.0% to $10.4 million for the year ended
December 31, 1998 from $6.6 million for the year ended December 31, 1997. As a
percentage of revenues, such expenses increased to 20.6% for the year ended
December 31, 1998 from 20.3% for the year ended December 31, 1997. The dollar
increase was predominantly due to the increased personnel costs needed to
support the increase in revenues. The increase in selling, general and
administrative expenses as a percentage of revenues was primarily due to
increased recruiting and training costs associated with the increase in
personnel during the year ended December 31, 1998.
Incentive Compensation. Incentive compensation increased 27.0% to $3.4
million for the year ended December 31, 1998 from $2.7 million for the year
ended December 31, 1997. As a percentage of revenues, such expenses decreased to
6.8% for the year ended December 31, 1998 from 8.4% for the year ended December
31, 1997. The dollar increase in incentive compensation was due to the increase
in revenues. The decrease in incentive compensation as a percent of revenues was
primarily related to reduced incentive compensation payable to the Founders
since October 1997.
26
<PAGE> 29
Acquisition Compensation. Acquisition compensation in the year ended
December 31, 1998 includes $1.0 million related to the KLA retention pool and
$0.2 million for compensation amortization related to the KLA Options. The KLA
acquisition was completed in April 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$0.5 million for the year ended December 31, 1998 from $35,000 for the year
ended December 31, 1997. The increase was primarily due to goodwill amortization
related to the KLA acquisition. The remaining increase was the result of
depreciation associated with furniture, equipment and leasehold improvements
acquired in conjunction with the Company's relocation to new corporate
facilities in January 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased 79.1% to $32.2 million for the year ended
December 31, 1997 from $18.0 million for the year ended December 31, 1996. This
increase was predominantly due to the increase in ERP implementation services
provided to clients. The increase in services was made possible through the
increase of consultants to 191 at December 31, 1997 from 122 at December 31,
1996.
Gross Profit. Gross profit increased 85.3% to $13.0 million for the year
ended December 31, 1997 from $7.0 million for the year ended December 31, 1996.
Gross margin increased to 40.3% for the year ended December 31, 1997 from 39.0%
for the year ended December 31, 1996. Both the dollar and percentage increases
were the result of increased revenues, partially offset by increased cost of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 55.9% to $6.6 million for the year ended
December 31, 1997 from $4.2 million for the year ended December 31, 1996. As a
percentage of revenues, such expenses decreased to 20.3% for the year ended
December 31, 1997 from 23.4% for the year ended December 31, 1996. The dollar
increase was predominantly due to the increased personnel costs needed to
support the increase in revenues. The decrease in selling, general and
administrative expenses as a percentage of revenues was primarily due to an
increase in revenues.
Incentive Compensation. Incentive compensation increased 63.9% to $2.7
million for the year ended December 31, 1997 from $1.6 million for the year
ended December 31, 1996. As a percentage of revenues, such expenses decreased to
8.4% for the year ended December 31, 1997 from 9.2% for the year ended December
31, 1996. The dollar increase in incentive compensation was due to the increase
in revenues. The decrease in incentive compensation as a percentage of revenues
was primarily due to the increase in revenues.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly operating
results for each of the quarters for the years ended December 31, 1996, 1997 and
1998. In management's opinion, this unaudited information has been prepared on
the same basis as the audited financial statements and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented when read in
conjunction with the financial statements and Notes thereto included elsewhere
in this Prospectus. The
27
<PAGE> 30
Company believes that quarter-to-quarter comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication of
future performance.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $3,926 $3,943 $4,822 $5,302 $6,535 $7,799 $8,871 $9,013 $9,902
Cost of revenues..... 2,255 2,550 2,826 3,347 3,548 4,643 5,181 5,850 5,762
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit......... 1,671 1,393 1,996 1,955 2,987 3,156 3,690 3,163 4,140
Selling, general and
administrative
expenses........... 838 936 1,194 1,236 1,380 1,600 1,949 1,626 2,017
Incentive
compensation....... 433 286 337 591 601 658 932 509 984
Acquisition
compensation....... -- -- -- -- -- -- -- -- --
Depreciation and
amortization....... 7 7 7 9 8 8 9 10 24
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations......... 393 164 458 119 998 890 800 1,018 1,115
Net interest
expense............ 17 25 21 19 31 17 26 13 5
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
provisions for
income taxes....... 376 139 437 100 967 873 774 1,005 1,110
Provision for income
taxes.............. 165 61 192 43 399 361 320 415 471
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income........... $ 211 $ 78 $ 245 $ 57 $ 568 $ 512 $ 454 $ 590 $ 639
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTERS ENDED
-------------------------------
JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998
-------- --------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Revenues............. $12,122 $13,964 $14,517
Cost of revenues..... 7,565 8,166 8,969
------- ------- -------
Gross profit......... 4,557 5,798 5,548
Selling, general and
administrative
expenses........... 2,340 3,097 2,969
Incentive
compensation....... 607 995 844
Acquisition
compensation....... 362 363 454
Depreciation and
amortization....... 151 153 192
------- ------- -------
Income from
operations......... 1,097 1,190 1,089
Net interest
expense............ 112 92 107
------- ------- -------
Income before
provisions for
income taxes....... 985 1,098 982
Provision for income
taxes.............. 434 488 396
------- ------- -------
Net income........... $ 551 $ 610 $ 586
======= ======= =======
</TABLE>
The following table sets forth certain unaudited quarterly operating
results as a percentage of revenues, as applicable, for each of the quarters for
the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues..... 57.4 64.7 58.6 63.1 54.3 59.5 58.4 64.9 58.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit......... 42.6 35.3 41.4 36.9 45.7 40.5 41.6 35.1 41.8
Selling, general and
administrative
expenses........... 21.4 23.7 24.8 23.3 21.1 20.5 22.0 18.0 20.4
Incentive
compensation....... 11.0 7.3 7.0 11.1 9.2 8.4 10.5 5.7 9.9
Acquisition
compensation....... -- -- -- -- -- -- -- -- --
Depreciation and
amortization....... 0.2 0.1 0.1 0.2 0.1 0.2 0.1 0.1 0.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from
operations......... 10.0 4.2 9.5 2.3 15.3 11.4 9.0 11.3 11.3
Net interest
expense............ 0.4 0.7 0.4 0.4 0.5 0.2 0.2 0.2 0.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Income before
provisions for
income taxes....... 9.6 3.5 9.1 1.9 14.8 11.2 8.8 11.1 11.2
Provision for income
taxes.............. 4.2 1.5 4.0 0.8 6.1 4.6 3.7 4.6 4.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income........... 5.4% 2.0% 5.1% 1.1% 8.7% 6.6% 5.1% 6.5% 6.4%
===== ===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
QUARTERS ENDED
-------------------------------
JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998
-------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0%
Cost of revenues..... 62.4 58.5 61.8
----- ----- -----
Gross profit......... 37.6 41.5 38.2
Selling, general and
administrative
expenses........... 19.3 22.2 20.5
Incentive
compensation....... 5.0 7.1 5.8
Acquisition
compensation....... 3.0 2.6 3.1
Depreciation and
amortization....... 1.3 1.1 1.3
----- ----- -----
Income from
operations......... 9.0 8.5 7.5
Net interest
expense............ 0.9 0.6 0.7
----- ----- -----
Income before
provisions for
income taxes....... 8.1 7.9 6.8
Provision for income
taxes.............. 3.6 3.5 2.8
----- ----- -----
Net income........... 4.5% 4.4% 4.0%
===== ===== =====
</TABLE>
28
<PAGE> 31
The Company's quarter-to-quarter increase in revenues was primarily due to
increased business activity. This increase was predominantly due to the increase
in ERP implementation services provided to clients. Cost of revenues increased
due to the growing number of consultants needed to support the growing demand
for the Company's services.
Variable utilization rates and average billing rates cause quarterly
fluctuations in cost of revenues as a percent of revenues. For the quarters
ended June 30, 1996, December 31, 1996, June 30, 1997, December 31, 1997, June
30, 1998 and December 31, 1998, gross margins were adversely affected by lower
utilization rates. Lower utilization rates during the second and fourth quarters
are primarily due to a lower number of billable days resulting from training
schedules and the number of vacations and holidays in those quarters.
Utilization rates may continue to cause gross margins to vary in the future
based on factors such as training schedules, vacations, sick days, holiday
schedules, recruiting requirements, start-up of new engagements and
administrative requirements of the Company's employees.
Selling, general and administrative expenses have increased in absolute
dollars over the quarters presented due to increased salaries, benefits,
training and travel expenses and other promotional costs. Selling, general and
administrative expenses have varied from quarter-to-quarter as a percent of
revenues primarily due to the timing of training or promotional conferences
attended by Company personnel.
CCAi's revenues and operating results are subject to significant variation
from quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
engagements commenced and completed during a quarter, the number of billable
days in a quarter, the timing of office and service expansion, training
schedules and the timing of expenditures. Because a high percentage of CCAi's
expenses are relatively fixed, a variation in the number of engagements or the
timing of the initiation or the completion of engagements, particularly at or
near the end of any quarter, can cause significant variations in operating
results from quarter-to-quarter and could result in losses to the Company. In
addition, CCAi's engagements are generally terminable by the client without
penalty.
Unanticipated termination of an engagement, a client's decision not to
proceed to the next phase of an engagement as anticipated by the Company,
completion during a quarter of several client engagements without the deployment
of consultants to new engagements or expansion of existing engagements could
result in the Company's underutilization of employees and could, therefore,
materially adversely affect the Company's business, operating results and
financial condition. To the extent that increases in the number of consultants
do not result in corresponding increases in revenues, the Company's business,
operating results and financial condition could be materially adversely
affected. Further, it is difficult for the Company to forecast the timing of
revenues because engagement cycles depend on factors such as the size and scope
of assignments and circumstances specific to particular clients. Because the
Company derives revenues only when its consultants are billing on engagements,
its business, operating results and financial condition are materially adversely
affected due to vacations, training schedules, holidays, inclement weather or
other similar events. For example, the Company has generated lower operating
margins during the second and fourth quarters of the year due to a lower number
of billable days resulting from training schedules and the number of vacations
and holidays in those quarters. Given all of the foregoing, the Company believes
that quarter-to-quarter comparisons of its operating results of preceding
quarters are not necessarily meaningful, and that such results for one quarter
should not be relied upon as an indication of future performance.
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations primarily through internally
generated funds. Working capital needs have been periodically supplemented by
borrowings under the Company's revolving credit facilities. Working capital was
$0.4 million, $2.1 million and $2.9 million at December 31, 1996, 1997 and 1998,
respectively.
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<PAGE> 32
Net cash provided by operating activities was $0.2 million, $2.1 million
and $1.4 million for the years ended December 31, 1996, 1997 and 1998,
respectively. The increase in cash provided by operating activities in the years
ended December 31, 1997 and 1998 compared to the year ended December 31, 1996
was primarily the result of the increased net income and due to increases in
accruals and other current liabilities, partially offset by increases in
accounts receivable. Accounts receivable increased from December 31, 1997 to
December 31, 1998 primarily as a result of increased revenue and the timing of
billings.
Net cash used in investing activities was $51,700, $0.4 million and $5.2
million for the years ended December 31, 1996, 1997 and 1998, respectively.
During 1998, the KLA acquisition required a net cash outlay of $3.9 million. See
Note 12 of Notes to Financial Statements. During the years ended December 31,
1997 and 1998, net cash used in investing activities reflected the Company's use
of $0.4 million and $1.3 million, respectively, of funds for furniture,
equipment and leasehold improvements primarily in a new corporate facility.
In January 1999, in order to finance the BVD acquisition, the Company
refinanced its then existing revolving credit facility with Fleet Bank. The
Fleet Bank line of credit permits the Company to borrow up to $27.5 million and
is collateralized by substantially all of CCAi's assets. Borrowings under the
line of credit are limited to 80% of qualified receivables plus $20.0 million
and to multiples of the Company's latest aggregated four quarters' earnings
before interest, taxes, depreciation, amortization and other non-cash expenses.
The interest rate is LIBOR (5.544% at December 31, 1998) plus up to 3.25% to the
extent the Company borrows funds for a certain period of time, and the bank's
prime rate (7.75% at December 31, 1998) plus up to 1.50%, on the remaining
outstanding balance. The line of credit contains various financial and operating
covenants and restricts, among other things, the Company's ability to incur
additional indebtedness, sell or transfer assets or make investments and pay
dividends. At December 31, 1998, $5.5 million was outstanding under the Fleet
Bank line of credit. In January 1999, the Company borrowed $17.8 million for the
BVD acquisition. The Company intends to use a portion of the net proceeds of the
Offering to repay amounts outstanding under the line of credit. See "Use of
Proceeds" and Note 4 of Notes to Financial Statements.
Net cash provided by financing activities totaled $0.1 million, $0.1
million and $2.5 million for the years ended December 31, 1996, 1997 and 1998,
respectively. In October 1997, the Company sold certain shares of Common Stock
and Convertible Preferred Stock for an aggregate purchase price of $17.5 million
($15.9 million, net of $1.6 million of transaction expenses). Contemporaneously
with such sale, the Company paid $15.9 million to purchase shares of Common
Stock from affiliates of the Founders. See "Certain Transactions" and Note 9 of
Notes to Financial Statements.
The Company believes that the proceeds from the sale of the Shares offered
hereby together with the cash provided from the operations will be sufficient,
based on the Company's current operating plans, to meet the Company's working
capital and capital expenditure requirements for the next 24 months. At December
31, 1998, the Company had no material commitments for capital expenditures. To
the extent the Company is unable to fund its operations from cash flows, the
Company may need to obtain financing from external sources in the form of either
additional equity or indebtedness. There can be no assurance that additional
financing will be available at all, or that, if available, such financing will
be obtainable on terms favorable to the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 ("SFAS 128") Earnings per Share, which changes the method of
calculating earnings per share. SFAS 128 requires the presentation of "basic"
earnings per share and "diluted" earnings per share on the face of the income
statement. Basic earnings per share is computed by dividing the net income
available to common shareholders by the weighted average shares of outstanding
common stock. The calculation of diluted earnings per share is similar to basic
earnings per share except that the denominator includes dilutive common stock
equivalents such as stock options and warrants. The statement is effective for
financial statements for periods ending after December 15, 1997 and has been
adopted by the Company in the quarter ended December 31, 1997. The Company
adopted SFAS No. 128 for all periods reported herein.
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), Reporting
Comprehensive Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an
Enterprise and Related Information. SFAS 130
30
<PAGE> 33
establishes standards for reporting comprehensive income and SFAS 131
establishes standards for reporting information about operating segments. In
February 1998, the FASB issued Statement No. 132 ("SFAS 132"), Employers'
Disclosures about Pension and Other Postretirement Benefits. SFAS 132
establishes standards for reporting information regarding disclosures about
pensions and other postretirement benefits. The Company is required to adopt
these statements in 1998. In June 1998, the FASB issued Statement No. 133 ("SFAS
133"), Accounting for Derivative Instruments and Hedging Activities. SFAS 133
establishes standards for reporting derivative instruments and hedging
activities. The Company does not believe the adoption of the above SFAS
statements will have a significant impact on the Company's financial statements
or related disclosures.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date code field, and were not
designed to account for the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process dates in the Year 2000 and beyond. The Company and its
clients rely on their systems, applications and devices in operating and
monitoring all major aspects of their businesses, including financial systems
(such as general ledger, accounts payable and accounts receivable modules),
customer services, infrastructure, embedded computer chips, networks and
telecommunications equipment and end products. The Company and its clients also
rely directly and indirectly, on external systems of business enterprises such
as customers, suppliers, creditors, financial organizations, and of governmental
entities, both domestic and international, for accurate exchange of data.
The Company's Year 2000 assessment is conducted by the Company's IT
department and executive management. The Company's assessment of the Year 2000
issue has been broadly divided among hardware systems, software systems,
telecommunications, data communications, facilities, internal business
applications, external business applications and services offered by CCAi. All
hardware systems are being inventoried, audited and tested for Year 2000
compliance. All personal computer systems are in material compliance or will be
replaced in 1999. Software systems include operating systems, applications and
utilities. All business critical software systems have been assessed and are in
material compliance. The telecommunications systems in use at CCAi are comprised
of voice, facsimile, voice mail and video teleconferencing. All
telecommunications systems have been assessed and are in material compliance.
The data communications systems employed by CCAi include local area as well as
wide area networking. The Company's data communications systems are in material
compliance.
CCAi employs two major internal business applications, which are
significant in its business operations. These applications are its financial and
payroll systems, which are commercial off-the-shelf items and include ongoing
support. Both the systems have been assessed for Year 2000 compliance and are in
material compliance. CCAI has an aggressive training program and has created an
environment in which issues and solutions relating to Year 2000 problems are
exchanged and implemented. The Year 2000 issues with regard to CCAi's facilities
have also been assessed and found to be in material compliance. There is a
combination of hardware, software and communications elements involved with
CCAi's headquarters and other offices. These are broadly grouped into physical
security systems, fire alarm and fire control systems, heating and cooling
systems, elevator systems, irrigation systems, lighting and emergency services.
Based on the information currently available, the Company does not
anticipate any significant investments and therefore, believes that the costs
associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition. However,
there can be no assurance that the Company, or its clients, will not encounter
unexpected costs or disruption in their businesses as a result of the Year 2000
issue. In addition, even if the internal system of the Company are not
materially affected by the Year 2000 issue, the Company's business, operating
results and financial condition could be materially adversely affected through
disruption in the operation of the enterprises with which the Company interacts.
31
<PAGE> 34
BUSINESS
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $50 million and $2.5 billion.
The Company's rapid ERP implementation services enable its clients to reduce the
length and risks of implementations, lower overall costs and achieve early
realization of ERP-related benefits.
CCAi has established numerous strategic relationships with leading software
application vendors, hardware vendors and other IT service providers, including
multinational consulting firms. The Company has a relationship with SAP dating
from 1989 and has been an SAP National Implementation Partner since 1994. In
addition, the Company is a member of SAP's National Advisory Board and was
involved in the development of ASAP, which has become an industry standard for
rapid SAP implementations. In 1997, the Company became one of SAP's first ASAP
Partners and has since become one of the first organizations to certify 100
consultants in SAP's ASAP methodology. CCAi recently received the 1998 Partner
Award of Excellence from SAP. Also, CCAi has been an Oracle Alliance Member
since 1997 and utilizes its own rapid implementation methodology, known as FIRM,
for Oracle ERP applications. The Company has recently been selected to become
one of 26 Oracle Service Providers in the United States. In addition, the
Company has been an integral member of implementation teams managed by Andersen
Consulting, Ernst & Young and SAP. In 1998, the Company was one of the first
organizations named by Compaq as a regional configuration support center to
provide rapid implementation and related services in connection with R/3PAQ, a
preconfigured ERP solution jointly developed by Compaq and SAP.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, in a resource constrained industry, it distinguishes itself
from its competitors by recruiting and retaining consultants with practical
business and relevant IT experience, which enhance the Company's ability to
identify industry-specific business issues and develop practical IT solutions to
address such issues. CCAi's consultants who perform ERP implementations
generally have 10 to 15 years of business or IT experience, including three to
five years of ERP implementation experience.
INDUSTRY BACKGROUND
Today's global business environment is rapidly changing due to increased
competition, deregulation and technological advances. In this environment,
organizations are constantly assessing the need for fundamental improvements in
such core business functions as product development, service delivery,
manufacturing, human resources, finance and accounting. To meet this need and
succeed in the marketplace, organizations are increasingly turning to IT
solutions that can be easily adapted to changing business requirements in order
to improve the quality of products and services, shorten time to market and
reduce costs. As a result, IT-related decisions have become mission critical
within an organization's overall strategy.
Recent technological advancements have caused many organizations to migrate
from legacy mainframe systems running proprietary software to open systems and
scalable client/server architectures based on personal computers using local and
wide area networks, running shared databases and packaged software applications.
For many organizations, an integral part of this migration is the implementation
of complementary, fully-integrated, enterprise-wide applications developed and
marketed by leading vendors such as SAP and Oracle. ERP applications address
enterprise-wide management needs, including product development, distribution
and logistics, finance and accounting, human resources and electronic data
interchange. ERP applications greatly enhance operational efficiencies by
enabling an organization to access and utilize information across the
enterprise. Moreover, when implemented successfully, ERP applications enable the
cost-effective redesign of critical business processes.
According to International Data Corp., a market research company, the
worldwide market for IT services is estimated to be $250 billion in 1997 and is
projected to increase to over $370 billion by 2000. According to industry
sources, the demand for ERP applications and services represent two of the
fastest growing segments of
32
<PAGE> 35
this market. According to AMR Research, Inc., a market research company, the
worldwide market for ERP applications and services totaled approximately $15
billion in 1998 and is projected to grow to approximately $52 billion by 2002,
representing a compound annual growth rate of approximately 37%. In addition,
according to industry sources, for every dollar spent on ERP applications, four
to six dollars are spent on ERP implementation and related services. The Company
believes that a large portion of this growth is represented by middle market
companies.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
In addition, ERP implementations and related services typically require a large
number of highly specialized consultants with industry and ERP application
knowledge necessary to successfully configure the application to the
organization's needs. Implementations also require ongoing modifications to
continuously support an organization's evolving business processes. Generally,
internal IT departments do not have the resources required to successfully
manage the complex task of implementing and supporting such industry specific IT
solutions. Moreover, external competitive pressures are driving many
organizations to focus on their critical business processes and to control
expenses, including those associated with IT. As a result, organizations are
increasingly using third-party service providers to implement ERP applications
in order to reduce the length and risks of implementations, lower overall costs
and achieve early realization of ERP-related benefits.
The Company believes the need for third-party ERP implementation and
related services is particularly acute among middle market organizations. Such
organizations are directing substantial resources to their ERP implementations
and are particularly sensitive to the risk of cost overruns and delays
associated with poorly managed ERP implementations. Such organizations expect
timely and substantial economic returns from their ERP investments in the form
of lower costs and early realization of ERP-related benefits. In addition, these
organizations are under growing pressure from their Fortune 500 customers to
rapidly implement compatible ERP solutions. As a result, middle market
organizations are selective in identifying third-party ERP implementation
partners. Large IT service providers, such as multinational consulting firms,
however, typically do not target middle market organizations, but instead focus
on system implementations and related consulting engagements with Fortune 500
companies and other large organizations. Conversely, most small IT service
providers lack sufficient breadth of services, ERP implementation expertise,
financial resources or industry knowledge to adequately address the needs of
middle market organizations.
THE CCAi SOLUTION
CCAi provides its clients with a broad range of highly specialized IT
solutions that enable the rapid and cost-effective implementation of ERP
applications and facilitate the early realization of ERP-related benefits. Key
elements of the CCAi solution include the following:
Rapid, Cost-Effective Implementations. The Company uses rapid SAP
implementation methodologies and experienced consultants to deliver on-time and
on-budget implementations. The Company's consultants combine both ERP
implementation expertise and industry knowledge to deliver rapid configurations
and implementations that address each client's particular needs. The Company has
focused on providing ERP implementation services since 1994 when it developed
its own rapid implementation methodology. More recently, CCAi was involved in
the development of SAP's ASAP methodology, which has become an industry standard
for rapid SAP implementations. CCAi utilizes the ASAP methodology for
predominantly all of the SAP implementations it manages, and the Company
believes, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP implementation consultants. In addition, in
1997, the Company became an Oracle Alliance Member and now utilizes its own
rapid implementation methodology, known as FIRM, for Oracle ERP implementations.
Highly Skilled Functional and Technical Consultants. The Company provides
value-added ERP implementation and related services through a combination of
highly skilled functional and technical consultants. CCAi's functional
consultants typically have 10 to 15 years of business experience in areas such
as finance, accounting, logistics, manufacturing, operations and engineering,
including three to five years of ERP implementation experience. CCAi's technical
consultants typically have 10 to 15 years of IT experience, including IT
33
<PAGE> 36
management, programming, systems analysis, application development and ERP
implementation. The Company assigns its consultants to engagements that leverage
their industry, implementation and technical experience to reduce ERP
implementation times, lower overall engagement costs and increase returns on ERP
investments.
Strong Strategic Relationships. CCAi has strong strategic relationships
with some of the world's leading developers of software applications, hardware
vendors, and other IT service providers, such as multinational consulting firms.
The Company's relationships with organizations such as SAP, Oracle, Microsoft
Corporation ("Microsoft"), Compaq, Data General Corp. ("Data General") and
Sterling Software, Inc. provide it with early exposure to new products, services
and enhancements in implementation methodologies and enable the Company to offer
its clients a greater variety of services. For example, the Company was named by
Compaq as one of its first regional configuration support centers to provide
rapid implementation services in connection with R/3PAQ, a preconfigured ERP
solution jointly developed by Compaq and SAP. In addition, the Company's
relationships with other IT service providers offer the Company early exposure
to evolving business processes as tested and adopted in the Fortune 500
marketplace, which in turn allows the Company to offer such services on a more
cost-effective basis to its middle market clients.
Employee Focused, Scalable Business Model. CCAi is a "company of employees"
and has adopted a scalable business model focused on supporting long-term
relationships with its employees. The Company has developed a flat, flexible and
scalable management organization designed to provide each CCAi consultant with
access to substantial administrative and practice support resources and training
and career development guidance. The Company believes it has a lower consultant
turnover rate than the industry average and accordingly is able to offer its
clients a stable team of consultants that provide superior services and greatly
enhance client satisfaction. As a result, the Company rarely utilizes
independent contractors.
Broad Range of Complementary Services. CCAi provides a broad range of
complementary services. The Company's consultants have expertise in IT services
ranging from the implementations of SAP and Oracle applications, including
interface design and development and process re-engineering, to an array of
post-implementation and platform independent services, such as network and
Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance, on-site knowledge transfer, systems
level technical support, network level technical and installation support and
remote support.
GROWTH STRATEGY
CCAi's objective is to be a leading provider of IT solutions to the middle
market by continuing to deliver rapid ERP implementations and related services.
CCAi's growth strategy emphasizes the following key elements:
Expand Base of Highly Skilled Employees. The Company believes significant
demand exists for its ERP implementation and related services. In order to meet
such demand, CCAi intends to continue to invest significant financial and
management resources to expand its base of highly skilled employees. By
continuing to promote and enhance a corporate culture that rewards creativity
and an entrepreneurial spirit, the Company believes it can recruit and retain
the employees required to meet its clients' growing demands. Key elements of the
Company's recruiting and retention package include competitive base salary and
incentive compensation. In addition, the Company's flexible and scalable
management organization is designed to provide consultants with administrative
and practice support resources as well as training and career development
guidance.
Leverage Strategic Relationships. The Company intends to leverage its
strategic relationships with its clients and leading software and hardware
vendors to maximize marketing and sales opportunities, refine rapid
implementation and pre-configured ERP methodologies and enhance its consultants'
relevant technical knowledge. For example, CCAi often participates with software
vendors such as SAP and Oracle in pre-sale activities and in the design of
appropriate ERP solutions. The Company intends to form similar relationships
with other software developers of complementary enterprise-wide applications,
including supply chain management, sales force automation and process control
automation. In addition, the Company intends to continue to leverage its
relationships with other IT service providers to pursue opportunities within
market segments that may not otherwise be available to the Company on its own.
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<PAGE> 37
Broaden Geographic Presence. The Company intends to establish offices in
targeted geographic regions where CCAi has established a significant local
presence in terms of consultants, clients, or both. The Company has recently
opened offices in Atlanta, Cincinnati, Dallas, San Diego and San Francisco and
plans to open additional offices over the next 12 months. As a result of the
acquisition of BVD, the Company now has an office in Atlanta and has also
established a presence in San Diego. CCAi believes that establishing and
maintaining local offices will help the Company recruit and retain consultants
with strong ties to local markets, as well as attracting clients who prefer to
engage a services firm with a local presence. The Company also believes a local
presence in these markets will enable it to strengthen relationships with local
representatives of SAP, Oracle and other software application vendors, as well
as hardware vendors. The Company's new offices will be organized to provide
sales, marketing and recruiting support services for its consultants in the
targeted regions.
Expand Service Offerings. The Company believes it can increase revenues
from existing clients and attract new clients by selectively expanding its
service offerings. In order to capitalize on the full advantages of
enterprise-wide capabilities, organizations are seeking complementary
applications such as supply chain management, sales force automation, customer
resource management, process control automation and e-commerce. The Company
intends to offer additional value-added services to assist its clients in
adopting such applications. The Company also believes it can leverage its
relationships with industry-leading companies in the automotive, aerospace and
financial services industries to provide implementation and related services to
such companies' supply chain. For example, CCAi believes that its experience in
assisting in the implementation of SAP at GM provides CCAi with a competitive
advantage in obtaining implementations for GM's direct and indirect vendors. The
Company intends to offer prospective clients in such industries, particularly
suppliers of its clients, the latest in pre-configured ERP applications and
standardized implementation services for such industries.
Pursue Strategic Acquisitions. The Company intends to continue to pursue
strategic acquisitions that will provide additional well-trained, high-quality
professionals, new service offerings, additional industry expertise, a broader
client base and an expanded geographic presence. The Company recently completed
the acquisitions of KLA and BVD, which enabled the Company to acquire highly
skilled ERP consultants, obtain additional recruiting and sales and marketing
opportunities, gain SAP implementation expertise in the automotive,
semiconductor and financial services industries, and enhance its presence in the
Atlanta, Cincinnati and San Diego markets.
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<PAGE> 38
SERVICES
CCAi's services are focused on reducing the time and cost associated with
implementing and integrating IT solutions. CCAi undertakes engagements in a
variety of roles including: (i) as the lead consulting firm on its own
engagements, (ii) as the lead consulting firm on a part of larger engagements
undertaken by multinational IT consulting firms or other large service providers
or (iii) as an integral member of a joint engagement team on such engagements.
In almost all cases, the Company provides its services on a time and materials
basis. The Company's services include:
<TABLE>
<CAPTION>
CCAi SERVICES DESCRIPTION
<S> <C> <C> <C>
Engagement Management - Develop engagement scope and budget
- Manage implementation engagements and budgets
Process Re-engineering - Analyze and prioritize current business
processes
- Focus clients on processes yielding greatest
business benefits
- Map to proven solutions and best business
practices
- Provide functional consulting expertise
Interface Design and Development - Analyze existing legacy applications
- Design database conversion interfaces
On-site Knowledge Transfer and Training - Create knowledge transfer programs for clients'
employees
- Develop customized training programs
- Provide product training
Systems Level Technical Support - Coordinate hardware and operating system
installations
- Provide system upgrades and configurations
- Integrate back-office products with ERP
solutions
Network Level Technical Support - Install and configure networks
- Manage installed networks
Programming Services - Provide services for full range of programming
languages, including Visual Basic, C, C++ and
COBOL
- Provide experts in use of various tools and
database products, including Access,
PowerBuilder, Developer 2000 and COOL:Gen
- Develop Internet-based applications utilizing
HTML, ActiveX and Java
- Support legacy applications
Outsourced/Remote Support - Offer support center based implementation teams
- Offer help-desk and upgrade support
- Provide platform outsourcing
</TABLE>
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<PAGE> 39
CCAi offers its clients ERP implementation and platform independent
services. The following is a description of such services:
ERP Implementation Services. The Company provides a full range of ERP
implementation services in both rapid and traditional ERP engagements. The
Company has a relationship with SAP dating from 1989 and has been an SAP
National Implementation Partner since 1994. In addition, the Company is a member
of SAP's National Advisory Board and was involved in the development of SAP's
ASAP methodology, which has become an industry standard for rapid SAP
implementations. In 1997, the Company became one of SAP's first ASAP Partners
and has since become one of the first organizations to certify 100 consultants
in the ASAP methodology. In addition to rapid implementations, the Company also
performs traditional ERP implementation engagements, which typically are
conducted over a more extended period of time, with larger teams of consultants
and greater customization.
Rapid ERP implementation has become a central focus of CCAi's service
offerings and has been a growing part of its business since 1994. Because of the
importance of rapid ERP implementations to the Company's middle market clients,
CCAi has consultants with expertise in Oracle's FastForward methodology and
SAP's ASAP methodology. The Company utilizes its own rapid implementation
methodology, known as FIRM, for Oracle ERP applications. CCAi utilizes the ASAP
methodology for predominantly all the SAP implementations it manages and
believes that, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP consultants.
CCAi's ASAP implementations utilize SAP's five-phased ASAP approach. The
first phase, Project Preparation, provides initial planning and preparation for
SAP's R/3 implementation. The second phase, Business Blueprint, involves the
detailed documentation of the business process requirements of the client. In
the third phase, Realization, all of the business and process requirements are
implemented in two work packages. The fourth phase, Final Preparation, entails
complete testing, end-user training, system management and cut over activities
and resolution of all critical open issues. In phase five, Go Live and Support,
the project is transitioned to a live, productive operation.
Platform Independent Services. The Company provides platform independent
services both on a stand-alone basis and in conjunction with ERP
implementations. These services are designed to assist organizations in software
application design, development and maintenance across a broad spectrum of
computing environments. These services span client/server, midrange, mainframe
and Internet-based solutions. The Company's consultants and software developers
typically are engaged for part or all of the lifecycle of application
development, from requirements analysis and systems planning through coding,
testing, deployment and maintenance. The Company uses rapid prototyping and
application development tools, commercially available database software and
other standard development tools.
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<PAGE> 40
The following chart details the Company's platform independent services:
<TABLE>
<CAPTION>
CCAi SERVICES DESCRIPTION
<S> <C> <C> <C>
IT Consulting - Assist organizations in reengineering business
processes
- Plan migration of clients' legacy systems to
networked, distributed, client/server
architectures
- Model core systems, including architecture,
design, gap analysis, testing and engagement
management functions
Application Development - Develop software applications in a full range
of programming languages including Visual
Basic, C, C++ and COBOL
- Design systems using rapid prototyping and
application development tools (Developer 2000
and COOL:Gen), database software (Access and
SQL Server) and standard development tools
(PowerBuilder)
- Upgrade and maintain software applications
Outsourcing, Training and Remote Support - Augment clients' internal resources with
skilled IT professionals
- Provide outsourced IT support
- Provide consulting services for Year 2000
compliance
- Support databases and operating systems
- Train clients' personnel in packaged and custom
software applications
</TABLE>
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<PAGE> 41
CLIENTS AND REPRESENTATIVE ENGAGEMENTS
CCAi provides its services to a diverse group of organizations across a
broad spectrum of industries. These clients generally have substantial recurring
requirements for IT services and products and have typically maintained ongoing,
long-term relationships with the Company. The Company had no client that
represented more than 10% of its annual revenues in each of the three years
ended December 31, 1996, 1997 and 1998. The following table presents a
representative list of clients that have directly engaged CCAi to perform a
variety of IT services:
<TABLE>
<CAPTION>
AEROSPACE AND AUTOMOTIVE CHEMICAL PROCESS COMMUNICATIONS
------------------------ ---------------- --------------
<S> <C> <C>
Aircraft Braking Systems Corp. Akzo Nobel N.V. GTE Corp.
Aluminum Company of America Dow Chemical Co. Reltec Corp.
General Motors Corporation Henkel Corp. Voice-Tel Enterprises, Inc.
Lockheed Martin Energy
Research Corp.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL AND PROFESSIONAL
CONSUMER PRODUCTS ENERGY SERVICES
----------------- ------ --------------------------
<S> <C> <C>
American Greetings Corp. BP America Inc. Andersen Consulting LLP
ChemRex, Inc. Lockheed Martin Energy Ernst & Young LLP
Master Builders, Inc. Systems, Inc. KeyCorp
</TABLE>
<TABLE>
<CAPTION>
PHARMACEUTICAL AND
HEALTH CARE INDUSTRIAL PUBLISHING
------------------ ---------- ----------
<S> <C> <C>
Medical Mutual of Ohio Alcan Aluminum Company Antioch Publishing Co.
University Hospitals of Cleveland Brush Wellman Inc. Simon & Schuster Inc.
UCB Pharma, Inc. Continental General Tire Bantam Doubleday Dell Publishing
Pyxis Corporation Inc. Group Inc.
Eaton Corporation
Goodyear Tire & Rubber Co.
OwensCorning
Tremco, Inc.
USS/Kobe Steel Co.
</TABLE>
<TABLE>
<CAPTION>
RETAIL TECHNOLOGY SEMICONDUCTOR
------ ---------- -------------
<S> <C> <C>
Cole National Corp. Compaq Computer Burr Brown Corporation
OfficeMax, Inc. Corporation Rockwell Semiconductor Systems,
Hewlett-Packard Inc.
Company Triquint Semiconductor Inc.
SAP America, Inc.
</TABLE>
Three examples of the Company's engagements include the following:
SAP Implementation and Platform Independent Services. A manufacturer of
specialty metals and alloys, with approximately $400 million in annual revenues,
engaged CCAi to revitalize its implementation initiative. The SAP implementation
was complex because of the involvement of four service centers, two large
manufacturing plants, four specialty division sites, a mining operation and the
corporate headquarters. CCAi was engaged because of its implementation plan
using SAP's ASAP methodology and its stable team of highly-skilled consultants.
The initial implementation phase included traditional financials and logistics
modules along with more complex modules such as variant configuration, product
costing and process industry production. The client currently has five of its
facilities live on SAP and is on-time and on-budget to complete the
implementation for the entire organization during the first quarter of 1999.
CCAi also provided the client with Year 2000 compliance services with respect to
the client's AS400 legacy system.
ASAP Implementation. CCAi successfully implemented SAP in one of the first
ASAP implementations in the Midwest. The client is a manufacturer of concrete
add mixtures and specialty sealants with approximately
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<PAGE> 42
$250 million in annual revenues. To support its growth strategy, the client
needed to replace a customized legacy system. CCAi was engaged to help implement
SAP's R/3 on a new HP-Unix platform. Besides the standard suite of applications,
this implementation included the new environmental, health and safety module as
well as plant maintenance, quality management and process industry production
modules. Over an eight month period, eight to 10 CCAi consultants implemented
the applications on-time and on-budget, earning a performance bonus.
ASAP Implementation. CCAi successfully implemented SAP utilizing the ASAP
implementation methodology at a Midwest publisher of non-literary products. With
revenues of over $150 million, the client installed SAP's R/3 to be better
positioned for its anticipated growth and the complexities that its legacy
systems were unable to handle. Phase one of the project was installed by a
global SAP implementation partner. The project was running past schedule and
over budget by 150%. As a result, in February 1998, CCAi was engaged to
implement the second phase of the project as the lead implementor, including an
additional plant and corporate wide financials. CCAi completed the blueprinting
phase of the project on-time and SAP R/3 was implemented on-time and on-budget.
HUMAN RESOURCES
CCAi's success depends in large part upon its ability to recruit, motivate
and retain highly skilled IT professionals. These professionals are in great
demand and are likely to remain a limited resource for the foreseeable future.
As of December 31, 1998, the Company had 339 employees, 279 of whom were
consultants. Upon completion of the BVD acquisition on January 12, 1999, the
Company had 397 employees, 331 of whom were consultants. The Company believes
that its employee-focused culture and organization, including its recruiting,
training, compensation, support and mentoring programs, are directly related to
its ability to recruit, train, motivate and retain its consultants.
Recruiting. CCAi dedicates significant resources to recruiting highly
motivated and skilled consultants with functional, consulting and technology
business experience. The Company recruits and employs consultants with a range
of diverse business backgrounds, including accounting, finance, engineering,
logistics, manufacturing and operations. The technical experience of the
Company's consultants is equally wide ranging, covering areas such as IT
management, programming, systems analysis and application development. CCAi
maintains a rigorous hiring program administered by its in-house recruiters.
Before employment determinations are made, applicants are screened in a highly
selective process by several levels of management for technical skills,
functional business expertise and cultural fit.
Compensation. The Company offers competitive base salary and incentive
compensation packages. As part of their compensation package, the Company's
consultants are eligible for monthly and quarterly cash bonuses and participate
in the 1997 Equity and Performance Plan. The cash bonuses earned by the
Company's consultants are based on a percentage of the revenue the individual
consultant contributes to the Company. See "Management -- Employee Benefit
Plans."
Career Development, Support and Training. The Company focuses significant
resources on the career development of its consultants. The Company has
developed a flat, flexible and scalable management organization designed to
provide each CCAi consultant with access to substantial administrative and
practice support resources and training and career development guidance. The
Company is organized so that each consultant is mentored and supervised by two
senior consultants: a Managing Associate, who focuses on the consultant's
performance and administrative needs, and an Advisory Associate, who provides
technical expertise and guidance and focuses on the consultant's training and
career development needs. Each CCAi consultant is also assigned an Advocate
responsible for assisting the consultant with travel arrangements, time and
expense reports and other administrative matters. The Company provides an
extensive training program for its consultants focused on "best of breed"
technologies and practices. The program includes in-house instruction and
external training often offered in conjunction with one of the software
application vendors with whom the Company maintains a strategic relationship.
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Quality Assurance. CCAi has developed a formal quality assurance program
led by a full-time quality program manager. The program, which is fully
automated, measures both client and employee satisfaction and is a tool used for
employee and manager performance reviews. The quality assurance process
commences at the beginning of an engagement. The Account Executives and project
managers assigned to a particular engagement work closely with the client to
document the clients' expectations for the engagement. Subsequently, performance
audits of each consultant assigned to such engagement are conducted every 90
days. These audits are then used in each consultant's annual performance review.
CCAi recently received the 1998 Partner Award of Excellence from SAP.
SALES AND MARKETING
CCAi markets and sells its ERP implementation and related services
predominantly in the U.S. and Canada through its network of strategic
relationships and its direct sales force. The Company's sales organization
leverages CCAi's referenceable client portfolio to acquire new clients. Multiple
engagements from current or prior clients, and the reputation of CCAi's
consultants and management, are also meaningful sources of new business for the
Company.
Strategic Relationships. The Company has established a number of formal and
informal marketing relationships with leading software and hardware vendors.
CCAi derives a substantial number of leads for new engagements from such
relationships. In addition, its strategic relationships with SAP and Oracle
involve coordinated sales and marketing efforts, as well as trade show
activities specifically targeted to the ERP implementation industry. The
Company's other strategic relationships with Compaq, Data General, Microsoft and
Sterling Software, Inc. also offer opportunities for joint marketing activities.
The Company also has strategic relationships with multinational consulting firms
and other IT service providers. These relationships give CCAi access to
engagement opportunities in geographic locations and within certain market
segments that might otherwise be unavailable to the Company.
Direct Sales. The Company's direct sales force includes account executives
who are responsible for developing, maintaining and managing long-term client
and strategic relationships. The account executives are also responsible for
identifying new engagement opportunities directly with clients or through
strategic relationships. Account executives rely on continual communications
with clients, prospective clients and the organizations with which the Company
maintains strategic relationships to build CCAi's relationships and also work
with CCAi's consultants to analyze prospective client needs and demonstrate the
Company's services.
Marketing. The Company supports its sales efforts with a comprehensive
marketing program that features its alliances with SAP, Oracle and Microsoft and
includes trade shows, contributing articles to industry publications, public
relations, ERP industry meetings and conferences, the creation of collateral
marketing materials and the Company's Internet site. The program is designed to
strengthen the CCAi brand name and generate new client and strategic
relationships.
COMPETITION
The market for CCAi's services is highly competitive. CCAi believes that
its principal competitors include the internal information systems groups of its
prospective clients, IT consulting companies, systems integration firms and the
consulting divisions of software applications vendors, some of which are also
clients of the Company. Many of CCAi's competitors have longer operating
histories, possess greater industry and name recognition and have significantly
greater financial, technical and marketing resources than the Company. In
addition, there are relatively low barriers to entry into CCAi's market, and the
Company has faced, and expects to continue to face, additional competition from
new entrants into its market, including new entrants offshore who may have lower
fixed operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
CCAi believes that the principal competitive factors in its market include
quality of service, speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes
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<PAGE> 44
its ability to compete also depends in part on a number of competitive factors
outside its control. These include the ability of its competitors to recruit,
motivate and retain project managers and other senior professionals, develop
services competitive with the Company's services and respond to customer needs.
There can be no assurance that the Company will be able to compete successfully
with its competitors. See "Business -- The CCAi Solution" and "Risk
Factors -- Highly Competitive Information Technology Services Industry."
INTELLECTUAL PROPERTY RIGHTS
CCAi's success is dependent upon certain methodologies and other
proprietary intellectual property rights. Software developed by the Company for
a client is typically assigned to the client. CCAi also independently develops
certain foundation and application software products, or software "tools," that
remain the property of the Company. CCAi relies upon a combination of
nondisclosure and other contractual arrangements and trade secret, copyright and
trademark laws to protect its proprietary rights and the proprietary rights of
third parties from whom the Company licenses intellectual property. CCAi enters
into confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by CCAi
in this regard will be adequate to deter misappropriation of the Company's
proprietary information, that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights or
that such steps will prevent the Company's employees from using intellectual
property belonging to others. Although CCAi believes that its services do not
infringe on the intellectual property rights of others and it has all rights
necessary to utilize the intellectual property employed in its business, the
Company is subject to the risk of claims alleging infringement of third-party
intellectual property rights, including the rights of its clients. Any such
claims could require CCAi to expend significant resources in litigation, pay
damages, cease using infringing intellectual property, develop non-infringing
intellectual property or acquire licenses to the intellectual property that is
the subject of asserted infringement. See "Risk Factors -- Dependence on
Intellectual Property Rights."
PROPERTY
The Company's corporate headquarters is located in Mayfield Heights, Ohio.
Currently, the Company's lease on these premises covers approximately 27,000
square feet and expires in June 2003, with three renewal options for five years
each. The lease provides for payments of approximately $607,000 annually. The
Founders have a 30% ownership interest in the entity that owns the Company's
corporate headquarters. The Company also leases additional facilities in
Atlanta, Cincinnati, Cleveland, Dallas and San Francisco. The Company believes
that its properties are adequate for its needs and suitable additional or
replacement space will be available when required on terms acceptable to the
Company. See "Certain Transactions -- Corporate Headquarters Lease."
LEGAL PROCEEDINGS
The Company is not involved in any legal proceeding that the Company's
management believes is likely to have a material adverse effect on the Company.
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MANAGEMENT
The directors, executive officers and other senior managers of the Company
and their respective ages as of December 31, 1998, and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors and Executive Officers:
Nicholas A. Canitano...................... 50 Chairman of the Board and Chief Executive
Officer
Kenneth L. Conley......................... 54 President, Chief Operating Officer and Director
Karen M. Conley........................... 43 Executive Vice President, Treasurer and
Director
Annette M. Canitano....................... 48 Executive Vice President, Secretary and
Director
Paul A. Farmer............................ 40 Chief Financial Officer and Vice President
A. Bruce Johnston (1)(2).................. 38 Director
Kenneth T. Schiciano (1)(2)............... 36 Director
Ivan J. Winfield (1)(2)................... 64 Director
Other Senior Managers:
Jack L. Rhyne............................. 51 Vice President of Enterprise Systems
Ronnie K. Crumpler........................ 50 Vice President of Vertical Market Development
Luc P. De Groof........................... 51 Regional Vice President
Timothy S. Flowers........................ 43 Vice President of Sales and Marketing
Susan V. Lebas............................ 38 Vice President of Recruiting
Timothy M. May............................ 39 Vice President of Sales and Marketing
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
Nicholas A. Canitano is currently serving in the capacity of Chairman and
Chief Executive Officer of the Company and has held various management positions
with the Company since its inception in 1983. Prior to founding CCAi, he was
employed in a variety of information systems managerial positions.
Kenneth L. Conley is currently serving in the capacity of President and
Chief Operating Officer of the Company and has held various management positions
with the Company since its inception. Prior to founding CCAi, he was employed by
International Business Machines Corporation ("IBM") in a variety of sales and
marketing positions.
Karen M. Conley is currently serving in the capacity of Executive Vice
President and Treasurer and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by IBM as
a Marketing Representative.
Annette M. Canitano is currently serving in the capacity of Executive Vice
President and Secretary and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by a
financial services company.
Paul A. Farmer joined the Company in April 1998 as the Chief Financial
Officer and also currently serves as Vice President, Assistant Secretary and
Assistant Treasurer. Mr. Farmer is a certified public accountant and, prior to
joining CCAi, held various positions, including Chief Financial Officer, Chief
Administrative Officer, Treasurer and Secretary with TCSI Corporation, a
telecommunications software service provider, from 1993 to 1997; Vice President,
Secretary, Treasurer and Corporate Controller with Technology Solutions Company,
an IT consulting firm, from 1990 to 1993; and Senior Audit Manager with Price
Waterhouse from 1982 to 1990.
A. Bruce Johnston has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1996. Mr. Johnston
was a Vice President of TA Associates, a venture capital firm,
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<PAGE> 46
from June 1992 to December 1995. Mr. Johnston serves as Director of Expert
Software Inc., a software company, Restrac Inc., a software company, and several
privately-held companies.
Kenneth T. Schiciano has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1995. Mr. Schiciano
was a Vice President of TA Associates from August 1989 to December 1994. Mr.
Schiciano serves as a Director of Galaxy Telecom LP, a cable television
multi-systems operator, and several privately held companies.
Ivan J. Winfield has served as a Director of the Company since August 1998
and is currently Associate Professor and Executive in Residence at Baldwin
Wallace College in Berea, Ohio. Mr. Winfield retired as a partner from Coopers &
Lybrand, L.L.P. in 1994 where he practiced since 1970. He is also a Director of
OfficeMax, Inc., a discount office product merchandiser, Rainbow Rentals, Inc.,
a consumer product merchandiser, Boykin Lodging Company, a real estate
investment trust, HMI Industries, Inc., primarily a manufacturer of consumer
products, and International Total Service, Inc., a provider of aviation contract
support services.
Jack L. Rhyne joined CCAi in 1994 as the Manager of SAP Enterprise Systems
and is currently Vice President of Enterprise Systems. Prior to joining CCAi,
Mr. Rhyne was employed by ICI Explosives Environmental Co., a chemical and
explosives company, from 1990 to 1994 in a variety of positions including as a
Technical Project Manager implementing SAP solutions at various sites in the
U.S. and Canada. Prior to 1990, Mr. Rhyne held a variety of executive positions
in IT-related companies, OEM distributors and software development
organizations.
Ronnie K. Crumpler joined CCAi in April 1998 as part of the acquisition of
KLA and is currently the Company's Vice President of Vertical Market
Development. Prior to joining CCAi, Mr. Crumpler was Chairman of the Board and
Chief Operating Officer of KLA from November 1996 to April 1998. Prior to his
employment with KLA, Mr. Crumpler held a variety of positions with several
management consulting firms, including A.T. Kearney from January 1996 to
November 1996, Enterprise Solutions Management Consulting from June 1995 to
January 1996 and Ernst & Young from June 1993 to June 1995. Prior to this, Mr.
Crumpler served as president of a private consulting firm and held a variety of
positions with Dow Chemical Co. for 19 years.
Luc P. De Groof joined CCAi in January 1999 as part of the acquisition of
BVD and is currently the Company's Regional Vice President of the Southeast. Mr.
De Groof was serving in the capacity of President and Chief Executive Officer of
BVD. Prior to founding BVD in the US, he was a Services Manager with SAP Belgium
from 1992 to 1993 and held various management positions with major Belgian IT
consulting firms, including Bureau van Dijk Computer Services, S.A. (Europe)
from January 1989 to December 1991 and SEMA Group from September 1977 to
December 1988.
Timothy S. Flowers joined CCAi in 1990 and is currently a Vice President of
Sales and Marketing. Prior to joining CCAi, Mr. Flowers was employed by
Automated Data Processing, Inc., a payroll services provider, from 1982 to 1989
in a variety of management and marketing positions, including Technical Support
and Implementation Manager for a variety of accounting software products.
Susan V. Lebas joined CCAi in 1987 and is currently the Vice President of
Recruiting. Prior to joining CCAi, Ms. Lebas served in a variety of industries
in an administrative capacity.
Timothy M. May joined CCAi in 1995 and is currently a Vice President of
Sales and Marketing for the Company. From 1994 to 1995, Mr. May was the Vice
President of Marketing for Enterprise Network Services, Inc., a network
management provider. From 1992 to 1994, Mr. May was employed as an Area Sales
Manager by Global Software, Inc., a software company. Prior to 1992, Mr. May was
employed by IBM for 10 years in a variety of marketing positions.
BOARD OF DIRECTORS
The Company's Articles of Incorporation and Code of Regulations provide
that the Company's Board of Directors be comprised of not less than six and not
more than 16 directors. The Board is currently comprised of
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seven members. The Company's Board of Directors is divided into two classes and
the Company intends to designate the terms of each of the Directors prior to the
consummation of the Offering. Each director holds office until his or her
successor is duly elected and qualified, or until such Director's earlier death,
resignation or removal.
Two of the Company's current directors, Messrs. Johnston and Schiciano,
were nominated and elected to the Company's Board of Directors as designees of
TA Associates in accordance with a voting agreement contained in the Stock
Purchase and Shareholders Agreement dated October 15, 1997. The voting
provisions of this agreement terminate upon consummation of the Offering.
Executive officers of the Company are appointed by, and serve at the discretion
of, the Board of Directors. Nicholas A. Canitano and Annette M. Canitano are
husband and wife, and Kenneth L. Conley and Karen M. Conley are husband and
wife. See "Certain Transactions."
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Messrs. Johnston,
Schiciano and Winfield, makes recommendations concerning the engagement of
independent public accountants, reviews the scope and results of the audit with
the independent public accountants, reviews the Company's annual operating
results with management and the independent accountants, considers the adequacy
of the internal accounting procedures and considers the effect of such
procedures on the accountants' independence.
The Compensation Committee, consisting of Messrs. Johnston, Schiciano and
Winfield, reviews and recommends the compensation arrangements for officers and
other employees, determines the options or stock to be granted to eligible
persons under the 1997 Equity and Performance Plan and takes such other actions
as may be required in connection with the Company's compensation and incentive
plans.
DIRECTOR COMPENSATION
The Code of Regulations provide that the non-employee directors may receive
compensation and expense reimbursement for serving on the Company's Board of
Directors, including committees thereof, and for other services related to a
director's membership.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation earned for the years ended December 31, 1997
and December 31, 1998 for the Company's Chief Executive Officer and the
Company's three other executive officers during 1997 and the Company's four
other executive officers during 1998 (the "Named Executive Officers"):
45
<PAGE> 48
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
---------------------------------------- RESTRICTED ALL OTHER
SALARY BONUS STOCK AWARD COMPENSATION(2)
------------------- ------------------ ------------- ---------------
NAME AND POSITION 1997 1998 1997 1998(1) 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nicholas A. Canitano............. $224,200 $250,562 $466,194 -- -- -- $4,750 $5,000
Chairman of the Board and Chief
Executive Officer
Kenneth L. Conley................ 197,579 247,117 476,486 -- -- -- 4,750 5,000
President and Chief Operating
Officer
Karen M. Conley.................. 211,352 155,303 93,959 -- -- -- 4,750 3,510
Executive Vice President and
Treasurer
Annette M. Canitano.............. 185,620 151,923 103,362 -- -- -- 4,750 4,510
Executive Vice President and
Secretary
Paul A. Farmer (3)............... -- 103,844 -- -- -- -- -- --
Chief Financial Officer and Vice
President
</TABLE>
- ---------------
(1) In 1998, the Company accrued bonuses to each of the Named Executive
Officers, which will be paid in January 1999, as follows: Nicholas A.
Canitano -- $125,000; Kenneth L. Conley -- $125,000; Karen M.
Conley -- $75,000; Annette M. Canitano -- $75,000; and Paul A.
Farmer -- $82,500.
(2) Represents matching payments under the Company's 401(k) Plan.
(3) Mr. Farmer joined the Company in April 1998. In May 1998, Mr. Farmer was
issued 76,950 shares of restricted Common Stock under the 1997 Equity and
Performance Plan. On each anniversary of the grant date, one third of Mr.
Farmer's restricted stock will vest. Mr. Farmer paid the purchase price for
the restricted stock by executing and delivering to the Company a promissory
note in the principal amount of $359,356. No dividends will be paid on these
shares of restricted Common Stock.
EMPLOYEE BENEFIT PLANS
1997 Equity and Performance Incentive Plan. Upon the consummation of the
Offering, the Company will have an aggregate of 2,072,750 shares of Common Stock
reserved for issuance under the 1997 Equity and Performance Plan, which may be
granted to directors, consultants, key employees and officers of the Company.
The 1997 Equity and Performance Plan is administered by the Compensation
Committee and provides for awards, including restricted shares of Common Stock,
deferred shares of Common Stock and options to purchase shares of Common Stock,
including Incentive Stock Options ("ISOs") (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")).
The exercise price for options may be paid as follows: (i) in cash or check
payable to the Company; (ii) by actual or constructive transfer to the Company
of Common Stock owned by the optionee having a value at the time of exercise
equal to the option price and which have been held by the optionee for at least
six months; or (iii) by a combination of such methods of payment. In the case of
a stock option that is not an ISO, the exercise price per share of Common Stock
may be less than the fair market value per share of Common Stock on the date of
the grant. Any grant may provide for payment of the option price in
installments, upon terms determined by the Board of Directors, including,
without limitation, pursuant to a promissory note. ISOs to be granted under the
1997 Equity and Performance Plan must be exercised within 10 years from the date
of grant. Each option will become exercisable over a period of time as the
optionee provides services to the Company; provided, however, that each option
will accelerate in the event of a sale of a majority of the outstanding Common
Stock of the Company, a sale of substantially all of the Company's assets or
other similar transactions and events as determined by the Board of Directors of
the Company (a "Change in Control"). Each grant or sale of restricted stock will
vest over a period of not less than two years to be determined by the Board of
Directors at the date of the grant or issuance; provided, however, that the
Board of Directors of the Company may accelerate vesting upon a Change in
Control or public offering. Each grant or sale of deferred shares of Common
Stock entitles the
46
<PAGE> 49
recipient to receive Common Stock (or equivalent in other property, including
cash) upon the fulfillment of specified objectives over a period of not less
than one year, except, if the Board of Directors so determines, each payment may
be accelerated in the event of a Change in Control or public offering.
The Board of Directors can amend or terminate the 1997 Equity and
Performance Plan at any time. In the event of any change in the capital
structure of the Company, such as a stock dividend or stock split, the Board of
Directors may make equitable adjustments to outstanding unexercised awards and
to the provisions of the 1997 Equity and Performance Plan so that the net value
of the award is not changed. If the Company becomes a party to a merger,
reorganization, liquidation or similar transaction, the Board of Directors may
make such arrangements it deems advisable regarding outstanding awards, such as
substituting new awards for outstanding awards, assuming outstanding awards or
terminating or paying for outstanding awards.
No awards were made under the 1997 Equity and Performance Plan in 1997, and
none were outstanding at December 31, 1997. At December 31, 1998, options for
360,600 shares were outstanding under the 1997 Equity and Performance Plan.
Currently, no grants or issuances under the 1997 Equity and Performance
Plan have been made to executive officers other than Paul A. Farmer. On May 11,
1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock under the
1997 Equity and Performance Plan for a purchase price of $4.67 per share. See
"Certain Transactions."
401(k) Plan. The Company maintains a 401(k) profit sharing and defined
contribution plan (the "401(k) Plan"). All employees of the Company who have
reached 21 years of age and have completed six months of service are eligible to
participate in the 401(k) Plan, pursuant to which each participant may
contribute up to 15% of eligible compensation (up to a statutorily prescribed
annual limit of $10,000 in 1998). The Company currently matches contributions
made by employees to the 401(k) Plan. The amount of the match is determined at
the discretion of the Company. A profit sharing contribution may also be made
each year at the discretion of the Company. All amounts contributed by employee
participants and earnings on these contributions are fully vested at all times.
Employee participants may elect to invest their account balances in various
established funds. During 1997, each of the Named Executive Officers
participated in the 401(k) Plan as indicated in the Summary Compensation Table.
1998 Employee Stock Purchase Plan. In December 1998, the Company
established the Purchase Plan and reserved an aggregate of 500,000 shares of
Common Stock for issuance under the Purchase Plan. Currently, no shares of
Common Stock have been issued under the Purchase Plan. The Purchase Plan will be
intended to qualify under Section 423 of the Code and will permit eligible
employees of the Company whose customary employment is a minimum of 20 hours per
week to purchase shares of Common Stock through payroll deductions of up to 10%
of the employee's gross regular earnings on an annualized basis, provided that
no employee may purchase more than 5,000 shares of Common Stock on any Purchase
Date (as defined in the Purchase Plan), with the first offering period
commencing on the first day of the first quarter following the Offering. The
price of shares of Common Stock purchased under the Purchase Plan will be 85% of
the fair market value of the Common Stock (as calculated in the Purchase Plan).
The Purchase Plan will be administered by the Compensation Committee. The Board
of Directors will be able to amend or terminate the Purchase Plan at any time.
Other. The Company maintains customary health and benefit plans for its
employees. The Company does not maintain any defined benefit pension plans.
BONUSES
The Company grants annual bonuses to its executive officers. These bonuses
are determined by the Compensation Committee of the Board of Directors of the
Company and are based on the attainment of individual performance targets and
the financial performance of the Company.
47
<PAGE> 50
CERTAIN TRANSACTIONS
The 1997 Transactions. In July 1997, the Company repurchased 509,130 shares
of Common Stock owned by Joseph Minadeo for an aggregate amount of $171,429. Mr.
Minadeo is the brother of Annette M. Canitano, the Company's Executive Vice
President, Secretary and a Director, and was an original investor in the
Company.
In October 1997, the Company entered into a series of transactions
(collectively, the "1997 Transactions") wherein TA Associates, including the
following affiliated groups: TA/Advent VIII L.P., Advent Atlantic and Pacific
III, L.P. and TA Venture Investors Limited Partnership (collectively, the "TA
Investors"), and McDonald & Company Securities, Inc., including the following
affiliated groups: McD Venture Capital Fund, L.P. and GHK Investments, L.L.C.
(collectively, the "McDonald Investors") purchased a total of 250,400 shares of
Convertible Preferred Stock and 1,350,000 shares of Common Stock from the
Company for an aggregate purchase price of $17.5 million ($15.9 million, net of
$1.6 million of transaction expenses). Immediately prior to the consummation of
the Offering, the Convertible Preferred Stock sold by the Company in the 1997
Transactions will be converted into 2,504,000 shares of Common Stock and 250,400
shares of Redeemable Preferred Stock. Upon consummation of the Offering, the
Redeemable Preferred Stock will be redeemed for $15.8 million, using a portion
of the net proceeds from the Offering. See "Use of Proceeds."
As part of the 1997 Transactions and under the terms of the Stock Purchase
and Shareholders Agreement, dated October 15, 1997 (the "1997 Agreement"), among
TA Investors, McDonald Investors, the Founders, NAC Enterprises, Inc., CKCK
Enterprises, Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust and the Company, each of TA Investors and McDonald
Investors was granted certain demand and "piggyback" registration rights and
certain other preferential rights, including: (i) rights to participate in sales
of additional shares; and (ii) rights of first refusal and co-sale involving the
Company's securities. In addition, TA Investors, McDonald Investors, the Company
and the Founders entered into a voting agreement whereby the parties agreed to
vote all shares of the Company's capital stock held by them (and any other
securities over which the Founders exercise voting control) as to cause the
Board of Directors of the Company to include Messrs. Johnston and Schiciano (so
long as each remains in the employ of TA Associates) and one independent
director nominated by TA Associates. Except for the registration rights granted
to each of TA Investors and McDonald Investors, the preferential rights
contained in the 1997 Agreement terminate upon consummation of the Offering.
Also as part of the 1997 Transactions, the Company repurchased an aggregate
of 1,350,000 shares of Common Stock for $15.9 million from the Founders,
including: (i) 675,000 shares of Common Stock from NAC Enterprises, Inc., of
which the Annette M. Canitano Trust and the Nicholas A. Canitano Trust,
affiliates of Mr. and Mrs. Canitano, directors of the Company, are the sole
shareholders; (ii) 610,000 shares of Common Stock from CKCK Enterprises, Inc.,
of which the Karen M. Conley Trust and the Kenneth L. Conley Trust, affiliates
of Mr. and Mrs. Conley, directors of the Company, are the sole shareholders;
(iii) 32,500 shares of Common Stock from the Kenneth L. Conley Charitable
Remainder Trust, a charitable remainder trust established by Kenneth L. Conley,
a director of the Company; and (iv) 32,500 shares of Common Stock from the Karen
M. Conley Charitable Remainder Trust, a charitable remainder trust established
by Karen M. Conley, a director of the Company.
Upon the consummation of the 1997 Transactions, the Company paid Mr.
Minadeo an additional $205,000 in accordance with the terms of certain change of
control provisions contained in the documentation of the July 1997 repurchase of
shares of Common Stock from Mr. Minadeo.
Employment Agreement. The Company is party to an employment agreement with
Paul A. Farmer, pursuant to which Mr. Farmer serves as Chief Financial Officer
and Vice President of the Company. The agreement provides for an annual base
salary of $165,000, an annual bonus up to a maximum of 50% of base salary to be
determined by the Compensation Committee, benefits under the Company's benefit
plans and payment of all reasonable relocation costs incurred by Mr. Farmer.
Although Mr. Farmer's employment may be terminated at any time, the agreement
also provides that upon the termination of Mr. Farmer's employment with the
Company, other than for cause or retirement, the Company shall pay Mr. Farmer an
amount equal to the greater of six months' salary, or the value of his unvested
restricted stock at the time of the termination. Mr. Farmer is also subject to
noncompetition, nondisclosure and nonsolicitation covenants.
48
<PAGE> 51
In May 1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock
under the 1997 Equity and Performance Plan. On each anniversary of the grant
date, one third of Mr. Farmer's restricted stock will vest. Mr. Farmer paid the
purchase price for the restricted stock by executing and delivering to the
Company a promissory note (the "Note") in the principal amount of $359,356. The
Note is due and payable on May 11, 2004, and accrues interest on the unpaid
principal amount at 6% per annum until the Note is paid in full. Accrued
interest is payable in June and December of each year during the term of the
Note, including May 11, 2004. The Note also becomes due and payable six months
after any date on which Mr. Farmer ceases to be employed for any reason by the
Company. See "Management -- Employee Benefit Plans."
Employment of Related Individuals. Brian Conley, Kenneth L. Conley's son,
who is an employee working as an ERP implementation consultant to the Company's
clients, received cash compensation of $125,400 in 1997 and $133,000 in 1998 as
well as options to purchase 1,500 shares of Common Stock under the 1997 Equity
and Performance Plan. Linda Neumann, Karen M. Conley's sister, who serves as the
Company's Controller, received cash compensation of $88,200 in 1997 and $102,500
in 1998 as well as options to purchase 2,000 shares of Common Stock under the
1997 Equity and Performance Plan. Donald Neumann, Linda Neumann's husband, who
is an employee working as an ERP implementation consultant with the Company to
the Company's clients, received cash compensation of $36,500 in 1997 and $42,300
in 1998 as well as options to purchase 1,500 shares of Common Stock under the
1997 Equity and Performance Plan.
Loans. Various other loans have periodically been made by the Company to
the Founders. In April 1997, the Company made loans to Nicholas A. and Annette
M. Canitano and Kenneth L. and Karen M. Conley each in an amount of $44,500. In
March 1998, the Company made loans to Mmes. Canitano and Conley, each in an
amount of $64,092. Each such loan bore interest at 10% and such loans have been
repaid in full.
Corporate Headquarters Lease. The Company leases its corporate headquarters
in Mayfield Heights, Ohio, from an entity that is 30% owned by the Founders with
rental payments of approximately $607,000 annually. The term of the lease, which
commenced in January 1998, expires in June 2003 and includes three five-year
renewal options. The Company believes that the terms of the lease are no less
favorable to the Company than those that could have been obtained from an
independent third party lessor at the time the lease was executed. See
"Business -- Property."
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<PAGE> 52
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of February 1,
1999, after giving effect to the conversion of Convertible Preferred Stock into
shares of Common Stock, by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock; (ii) each
of the Company's executive officers; (iii) each director of the Company; and
(iv) all directors and executive officers of the Company as a group. The address
of each of the officers and directors of the Company is c/o Conley, Canitano &
Associates, Inc., CCAi Renaissance Centre, 5800 Landerbrook Drive, Mayfield
Heights, Ohio 44124.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (1) NUMBER AFTER OFFERING
--------------------- OF SHARES ---------------------
NUMBER BEING NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT OFFERED OF SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Nicholas A. Canitano (2)............... 1,739,000 18.1% -- 1,739,000 12.8%
Kenneth L. Conley (3).................. 1,697,750 17.6 -- 1,697,750 12.5
Karen M. Conley (4).................... 1,397,750 14.5 -- 1,397,750 10.3
Annette M. Canitano (5)................ 1,349,000 14.0 -- 1,349,000 9.9
Paul A. Farmer (6)..................... 76,950 * -- 76,950 *
A. Bruce Johnston (7).................. 8,960 * -- 8,960 *
Kenneth A. Schiciano (8)............... 10,560 * -- 10,560 *
TA Associates, Inc. (9)................ 3,743,890 38.9 952,137 2,791,753 20.5
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
McDonald Investments Inc.(10).......... 110,110 1.1 28,003 82,107 *
Other Selling Shareholders as a group
(6 persons)(11)...................... -- -- 19,860 -- --
All executive officers and directors as
a group (7 persons).................. 5,454,970 56.7% -- 5,454,970 40.0%
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1.0% of the outstanding Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of stock options or exercisable within 60 days hereof are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except for shares held jointly with a person's spouse
or subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
the sole voting and disposition power with respect to all shares of Common
Stock shown as beneficially owned by such shareholder.
(2) Nicholas A. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which he is trustee and has sole power of voting
and for which Annette M. Canitano, his wife, has sole power of disposition
and 400,000 shares held in trusts for which he is trustee and has sole
power of disposition. Except as noted, the shares shown do not include
shares owned by Annette M. Canitano.
(3) Kenneth L. Conley has beneficial ownership of 300,000 shares of Common
Stock held in trust for which he is trustee and has sole power of voting
and for which Karen M. Conley, his wife, has sole power of disposition,
400,000 shares held in trusts for which he has sole power of disposition
and 125,000 shares held in trust for which he has shared power of
disposition with Karen M. Conley. Except as noted, the shares shown do not
include shares owned by Karen M. Conley.
(4) Karen M. Conley has beneficial ownership of 300,000 shares of Common Stock
held in trust for which she is trustee and has sole power of disposition
and 125,000 shares held in trusts for which she has shared power of
disposition with Kenneth L. Conley. Except as noted, the shares shown do
not include shares owned by Kenneth L. Conley.
(5) Annette M. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which she is trustee and has sole power of
disposition and for which Nicholas A. Canitano, her husband, has sole power
of voting. Except as noted, the shares shown do not include shares owned by
Nicholas A. Canitano.
50
<PAGE> 53
(6) All shares owned by Mr. Farmer are restricted Common Stock issued pursuant
to the Company's 1997 Equity and Performance Plan. See "Certain
Transactions."
(7) Includes 8,960 shares of Common Stock beneficially owned by Mr. Johnston
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Johnston
disclaims beneficial ownership.
(8) Includes 10,560 shares of Common Stock beneficially owned by Mr. Schiciano
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Schiciano
disclaims beneficial ownership.
(9) Includes shares of Common Stock beneficially owned by affiliates of TA
Associates as follows: (i) 61,980 shares held by TA Venture Investors
Limited Partnership; (ii) 3,100,070 shares held by TA/Advent VIII L.P.; and
(iii) 581,840 shares held by Advent Atlantic and Pacific III, L.P.
(10) Includes (i) 77,090 shares of Common Stock held by McDonald Investments
Inc.; (ii) 22,020 shares held by McD Venture Capital Fund, L.P., an
affiliate of McDonald Investments Inc.; and (iii) 11,000 shares held by GHK
Investments, L.L.C., an affiliate of McDonald Investments Inc.
(11) Each other Selling Shareholder beneficially owns less than 1% of the
outstanding shares of Common Stock. All of such other Selling Shareholders
hold KLA Options which will be exercised for shares of Common Stock
immediately prior to the Offering.
SHAREHOLDERS AGREEMENT
The Founders anticipate that they will enter into a shareholders agreement
prior to the consummation of the Offering. Under the proposed shareholders
agreement, all of the founders would agree to vote all of their shares of Common
Stock as determined by any three of the Founders. In addition, the Founders
would agree to restrictions on the transfer of their shares. See "Risk
Factors -- Significant Influence of Principal Shareholders."
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the consummation of the Offering, the Articles of Incorporation will
provide that the Company may issue up to 45,000,000 shares of Common Stock, and
(i) 500,800 shares of preferred stock, par value $.01 per share, (ii) 5,000,000
shares of non-voting "preferred stock", no par value, and (iii) 5,000,000 shares
of voting preferred stock, no par value (collectively, the "Preferred Stock").
As of February 1, 1999, there were 7,122,950 shares of Common Stock issued and
outstanding which were held by 53 shareholders of record, and there were 250,400
shares of Convertible Preferred Stock issued and outstanding which were held by
six shareholders of record.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the shareholders and do not
have preemptive rights. The Articles of Incorporation do not provide for
cumulative voting for the election of directors. Subject to preferences that may
be applicable to any outstanding shares of Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors of the Company out of funds legally
available therefor. All outstanding shares of Common Stock are, and the Common
Stock to be sold in the Offering, when issued and paid for, will be, fully paid
and nonassessable. In the event of any liquidation, dissolution or winding-up of
the affairs of the Company, holders of Common Stock are entitled to share
ratably in the assets of the Company remaining after payment or provision for
payment of all of the Company's debts and obligations and liquidation payments
to holders of outstanding shares of Preferred Stock. See "Dividend Policy" and
"Description of Capital Stock -- Ohio Law and Certain Articles of Incorporation
and Code of Regulations Provisions; Anti-Takeover Effects."
51
<PAGE> 54
PREFERRED STOCK
Shares of Preferred Stock may be issued by the Company in series with such
preferences and designations as the Board of Directors of the Company may from
time to time determine. The Board of Directors of the Company can, without
shareholder approval, issue Preferred Stock with voting, dividend, liquidation
and conversion rights, which could dilute the voting strength of the holders of
the Common Stock and may assist management in impeding a takeover or attempted
change in control. In connection with the 1997 Transactions, the Board of
Directors of the Company created the Convertible Preferred Stock. Immediately
prior to consummation of the Offering, the 250,400 issued and outstanding shares
of Convertible Preferred Stock will automatically convert into 2,504,000 shares
of Common Stock and 250,400 shares of Redeemable Preferred Stock. Upon
consummation of the Offering, all 250,400 then issued and outstanding shares of
Redeemable Preferred Stock will immediately be redeemed by the Company for
approximately $15.8 million using a portion of the net proceeds of the Offering.
As a result, subsequent to the Offering, there will be no shares of Preferred
Stock outstanding. See "Use of Proceeds."
CERTAIN ARTICLES OF INCORPORATION AND CODE OF REGULATIONS PROVISIONS AND OHIO
LAW; ANTI-TAKEOVER EFFECTS
Certain Articles of Incorporation and Code of Regulations Provisions. The
Articles of Incorporation provide for a classified Board of Directors. Other
than those who may be expressly elected by virtue of the terms of any preferred
stock designation, the directors are divided into two classes. The directors are
elected for terms that are staggered so that the terms of one-half of the
directors expire each year. Except as may be provided in any preferred stock
designation, the Code of Regulations do not permit the shareholders to remove a
director.
The Articles of Incorporation also provide that a 70% majority of the
voting power of the Company is required to approve, among other things, certain
strategic transactions including mergers, consolidations, the sale, lease or
exchange of substantialy all the Company's assets, control share acquisitions,
or any other transaction requiring shareholder approval under Ohio law.
The above-described provisions of the Articles of Incorporation and Code of
Regulations may have certain anti-takeover effects. Such provisions, in addition
to the provisions described below and the possible issuance of Preferred Stock
discussed above, may make it more difficult for other persons, without the
approval of the Company's Board of Directors, to make a tender offer or
acquisitions of substantial amounts of the Common Stock or to launch other
takeover attempts that a shareholder might consider to be in such shareholder's
best interests.
Ohio Law. The Company is subject to several anti-takeover provisions under
Ohio law that apply to Ohio public corporations. These provisions make it more
difficult for other persons, without the approval of the Company's Board of
Directors, to make a tender offer or acquisitions of substantial amounts of the
Common Stock or to launch other takeover attempts that a shareholder might
consider in such shareholder's best interests.
Ohio Control Share Acquisition Act. Under Ohio's Control Share Acquisition
Act (the "Acquisition Act"), any "control share acquisition" of an Ohio public
corporation may be made only with the prior authorization of the shareholders of
the corporation in accordance with the provisions of the Acquisition Act. A
"control share acquisition" is defined under the Acquisition Act to mean the
acquisition, directly or indirectly, by any person of shares of a public
corporation that, when added to all other shares of the corporation such person
owns, would entitle such person, directly or indirectly, to exercise voting
power in the election of directors within the following ranges: more than 20%,
more than 33% and a majority.
The Acquisition Act further specifies that the shareholders of the
corporation must approve the proposed control share acquisition by certain
percentages at a special meeting of shareholders at which a quorum is present.
In order to comply with the Acquisition Act, the acquiring person may only
acquire the stock of the Ohio public corporation upon the affirmative vote of:
(i) a majority of the voting power of the corporation that is represented in
person or by proxy at the special meeting (increased to a majority of 70% of
such voting power, in the case of the Company, by the Articles of
Incorporation); and (ii) a majority of the voting power of the corporation that
is
52
<PAGE> 55
represented in person or by proxy at the special meeting, excluding those shares
of the corporation deemed to be "interested shares" for purposes of the
Acquisition Act.
"Interested shares" are defined under the Acquisition Act to mean shares in
respect of which the voting power is controlled by any of the following persons:
(i) an acquiring person; (ii) any officer of the Ohio public corporation; and
(iii) any employee who is also a director of the corporation. "Interested
shares" also include shares of the corporation that are acquired by any person
after the date of the first public disclosure of the proposed acquisition and
prior to the record date for the applicable special meeting, if either (i) the
aggregate consideration paid by such person, and any person acting in concert
with him or her, for such shares of the Ohio public corporation exceeds $250,000
or (ii) the number of shares acquired by such person, and any person acting in
concert with him or her, exceeds 1.5% of the outstanding shares of the
corporation, or if shares are acquired after the record date for the applicable
special meeting accompanied by the voting power for such special meeting.
Ohio Merger Moratorium Act. The Company is also subject to Ohio's Merger
Moratorium Act. The Merger Moratorium Act generally prohibits a wide range of
business combinations and other transactions (including mergers, consolidations,
asset sales, loans, disproportionate distributions of property and
disproportionate issuances or transfers of shares or rights to acquire shares)
between an Ohio corporation and a person that owns beneficially (within the
meaning of the Securities Act), alone or with other related parties, shares
representing at least 10% of the voting power of the corporation (an "Interested
Shareholder") for a period of three years after such person becomes an
Interested Shareholder, unless, prior to the date that the Interested
Shareholder became such, the directors approve either the transaction or the
acquisition of the corporation's shares that resulted in the person becoming an
Interested Shareholder. Following the three-year moratorium period, the
corporation may engage in covered transactions with an Interested Shareholder
only if, among other things, (i) the transaction receives the approval of the
holders of two-thirds of all the voting shares and the approval of the holders
of a majority of the voting shares held by persons other than an Interested
Shareholder or (ii) the remaining shareholders receive an amount for their
shares equal to the higher of the highest amount paid in the past by the
Interested Shareholder for the corporation's shares or the amount that would be
due the shareholders if the corporation were to dissolve.
Ohio Control Bid Statute. The Company is also subject to Ohio's Control Bid
Statute. Ohio's Control Bid Statute provides that no offeror may make a "control
bid" pursuant to a tender offer or a request or invitation for tenders unless,
on the day the offeror commences a control bid, it files with the Ohio Division
of Securities (the "Securities Division") and the target company certain
information in respect of the offeror, his or her ownership of the corporation's
shares and his or her plans for the corporation (including, among other things,
plans to terminate employee benefits plans, close any plant or facility or
reduce the work force). If the Securities Division determines that the offeror's
disclosures are inadequate, it must act within five calendar days from the date
of the offeror's filing to issue a suspension order. If a bid is suspended, a
hearing must be held within 10 calendar days from the date of the Securities
Division's suspension order. The hearing procedure must be completed no later
than 14 calendar days after the date on which the suspension was imposed.
A "control bid" under Ohio's Control Bid Statute is defined as the purchase
of or an offer to purchase an equity security of an issuer with certain
connections to Ohio from a resident of Ohio if (i) after the purchase of such
security, the offeror would directly or indirectly be the beneficial owner of
more than 10% of any class of the issued and outstanding equity securities of
the issuer or (ii) the offeror as the issuer, there is a pending control bid by
a person other than the issuer and the number of issued and outstanding shares
of the corporation will be reduced by more than 10%.
Fiduciary Duty Statute. Ohio law also provides for the right of the Board
of Directors to consider the interests of various constituencies, including
employees, customers, suppliers and creditors of the Company, as well as the
communities in which the Company is located, in addition to the interest of the
Company and its shareholders, in discharging their duties in determining what is
in the Company's best interests.
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<PAGE> 56
LIMITATION OF LIABILITY AND INDEMNIFICATION
Generally, a director of an Ohio corporation will not be found to have
violated his fiduciary duties unless there is proof by clear and convincing
evidence that the director has not acted in good faith, in a manner such
director reasonably believes to be in or not opposed to the best interests of
the corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In general, a director is liable
for monetary damages for any action or omission as a director only if it is
approved by clear and convincing evidence that such act or omission was
undertaken either with deliberate intent to cause injury to the corporation or
with reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation must indemnify its directors, as well as its
offices, employees and agents, against expenses where any such person is
successful on the merits or otherwise in defense of an action, suit or
proceeding. A corporation may indemnify such persons in actions, suits and
proceedings (including derivative suits) if the individual has acted in good
faith and in a manner that such director believes to be in or not opposed to the
best interests of the corporation. In the case of a criminal proceeding, the
individual must also have no reasonable cause to believe that his or her conduct
was unlawful. Indemnification may be made only if ordered by a court or if
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such a determination may be made by a majority of the
disinterested directors, by independent legal counsel or by the shareholders. In
order to obtain reimbursement for expenses in advance of the final disposition
of any action, the individual must provide an undertaking to repay the amount if
it is ultimately determined that such director is not entitled to be
indemnified.
In general, Ohio law requires that all expenses, including attorneys fees,
incurred by a director in defending any action, suit or proceeding to be paid by
the corporation as they are incurred in advance of final disposition if the
director agrees to repay such amounts if it is proved by clear and convincing
evidence that his action or omission was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation and if the director reasonably cooperates with the
corporation concerning the action, suit or proceeding.
The Code of Regulations provides for indemnification, which is coextensive
with that permitted under Ohio law. These provisions do not alter a director's
liability under federal securities laws. The Code of Regulations authorizes the
Company to enter into indemnification agreements with each present and future
director and such officers, employees or agents as specified in the Code of
Regulations. The Code of Regulations also authorizes the Company to enter into
agreements to indemnify such persons to the maximum extent permitted by
applicable law.
REGISTRATION RIGHTS
Under the terms of the 1997 Agreement, at any time after the earlier of
December 31, 1998 or the effective date of an initial public offering by the
Company, the holders of at least 50% of registrable securities (as defined in
the 1997 Agreement), including any shares of Common Stock or any securities
convertible into shares of Common Stock, have the right to require the Company
to register under the Securities Act any or all of such registrable securities,
subject to the conditions and limitations contained in the 1997 Agreement. In
addition, under the terms of the 1997 Agreement, each of TA Investors and
McDonald Investors was granted demand registration rights once the Company
becomes eligible to register securities on Form S-3 under the Securities Act,
subject to conditions and limitations contained in the 1997 Agreement. Also,
each of TA Investors and McDonald Investors was granted certain "piggyback"
registration rights, subject to the conditions and limitations contained in the
1997 Agreement, at any time that the Company undertakes a public offering.
In connection with the KLA acquisition, the Company entered into Warrant
Agreements, dated April 3, 1998 (the "1998 Warrant Agreements") with each of
Ronnie Crumpler, Gary Levey and Anthony Kelly (individually, a "Warrant Holder"
and collectively, the "Warrant Holders") granting the Warrant Holders the right
to purchase an aggregate of 195,266 shares of Common Stock at $0.001 per share.
Upon consummation of the Offering, the Warrants will be exercisable until April
2008. In addition, under the 1998 Warrant Agreements, each Warrant Holder was
granted certain "piggyback" registration rights, subject to the conditions and
limitations contained in the 1998 Warrant Agreements, at any time the Company
undertakes a public offering.
54
<PAGE> 57
Subsequent to the KLA acquisition, the Company granted the KLA Options to
certain employees of the Company formerly employed by KLA (individually, an
"Option Holder" and collectively, the "Option Holders"). Pursuant to the Option
Agreements (the "Option Agreements" and together with the 1997 Agreement and the
1998 Warrant Agreements, the "Registration Agreements"), the Option Holders were
granted options to purchase an aggregate of 64,734 shares of Common Stock at a
price of $0.001 per share. Upon the consummation of the Offering, the options
will be exercisable. In addition, each Option Holder was granted certain
"piggyback" registration rights, subject to the conditions and limitations
contained in the Option Agreements, at any time the Company undertakes a public
offering.
Pursuant to the Registration Agreements, but subject to the conditions and
limitations set forth in such agreements, the Company is required to: (i) pay
registration expenses (exclusive of underwriting discounts and commissions) in
connection with certain registrations of the Company's securities; (ii) use its
best efforts to effect such registrations; and (iii) indemnify TA Investors,
McDonald Investors, the Warrant Holders and the Option Holders, including
certain of their affiliates, against certain liabilities, including liabilities
under the Securities Act, in connection with the registration of their shares of
Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is National
City Bank in Cleveland, Ohio.
55
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have an aggregate of
13,626,950 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants to purchase shares of Common Stock. Of these shares of Common Stock,
the 5,000,000 shares sold in the Offering are freely tradeable without
restriction or further registration under the Securities Act, except that any
Shares held by "affiliates" of the Company, as that term is defined in Rule 144,
may generally be sold only in compliance with the limitations of Rule 144
described below.
SALES OF RESTRICTED SHARES
The remaining 8,626,950 shares of Common Stock are deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Of the restricted securities, 10,000
shares of Common Stock will be available for sale in the public market on the
date of this Prospectus. Subject to the Lock-Up Agreements described below, an
additional 8,616,950 shares of Common Stock will be available for sale in the
public market (subject in the case of shares held by affiliates to compliance
with certain volume restrictions) as follows: (i) 8,316,950 shares will be
eligible for sale upon the expiration of the Lock-up Agreements 180 days after
the date of this Prospectus, (ii) 150,000 shares will be eligible for sale after
January 2000; and (iii) 150,000 shares will be eligible for sale after January
2001.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately 145,000 shares immediately after the Offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person, who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations described above.
An employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits non-affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this Prospectus.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common
Stock, and no precise prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares of Common
Stock for sale will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sale of substantial amounts of Common Stock in the
public market could adversely effect prevailing market prices and could impair
the Company's future ability to raise capital through the sale of its equity
securities.
LOCK-UP AGREEMENTS
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to
56
<PAGE> 59
be settled by the delivery of Common Stock, or such other securities, in cash or
otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, during such period, the Company has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and certain shareholders of Company (including the Selling
Shareholders) has agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock without
Donaldson, Lufkin & Jenrette Securities Corporation's prior written consent.
57
<PAGE> 60
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
January , 1999 (the "Underwriting Agreement"), the Underwriters named
below, who are represented by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), BancBoston Robertson Stephens Inc., Lehman Brothers Inc.
and McDonald Investments Inc. (collectively, the "Representatives"), have
severally agreed to purchase from the Company the respective number of shares of
Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancBoston Robertson Stephens Inc...........................
Lehman Brothers Inc.........................................
McDonald Investments Inc....................................
Total............................................. 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.
The Company and certain shareholders of the Company have granted to the
Underwriters an option, exercisable within 30 days after the date of this
Prospectus, to purchase, from time to time, in whole or in part, up to an
aggregate of 750,000 additional shares of Common Stock at the initial public
offering price less underwriting discounts and commissions. The Underwriters may
exercise such option solely to cover overallotments, if any, made in connection
with the Offering. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase its pro rata portion of such additional shares based on such
Underwriter's percentage underwriting commitment as indicated in the preceding
table.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
McDonald Investments Inc., one of the Representatives, and one of its
affiliates, are among the Selling Shareholders.
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell,
58
<PAGE> 61
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written consent of DLJ. In addition, during such period, the
Company has also agreed not to file any registration statement with respect to,
and each of its executive officers, directors and certain shareholders of
Company (including the Selling Shareholders) has agreed not to make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the prospects for future earnings of the Company,
the recent market prices of securities of generally comparable companies and the
general condition of the securities markets at the time of the Offering.
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The legality of the issuance of the Shares offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain
legal matters will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, New York, New York.
EXPERTS
The Financial Statements of the Company as of December 31, 1997 and
December 31, 1998 and for each of the years in the three year period ended
December 31, 1998 included herein and elsewhere in the Registration Statement
and the Financial Statements of KLA as of December 31, 1996 and December 31,
1997 and for each of the years in the two year period ended December 31, 1997
included herein and elsewhere in the Registration Statement, have been included
herein in reliance upon the reports of PricewaterhouseCoopers LLP, independent
59
<PAGE> 62
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
The Financial Statements of BVD as of December 31, 1996, December 31, 1997
and September 30, 1998 and for each of the years in the two year period ended
December 31, 1997 and for the nine months ended September 30, 1998 included
herein and elsewhere in the Registration Statement have been included herein in
reliance upon the reports of Langford de Kock & Co., independent certified
public accountants, appearing elsewhere herein, and upon the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission Registration Statements on Form
S-1 under the Securities Act, with respect to the Shares. This Prospectus does
not contain all of the information set forth in the Registration Statements,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statements,
including the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract, agreement or any other document
referred to herein are not necessarily complete; with respect to each such
contract, agreement or document filed as an exhibit to the Registration
Statements, reference is made to such exhibit for a more complete description of
the matters involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statements, including the exhibits
and schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of
either of them or any part thereof may be obtained from such office, upon
payment of the fees prescribed by the Commission. The Registration Statements,
including the exhibits and schedules thereto, are also available on the
Commission's Web site at http://www.sec.gov.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy materials and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Company's Common Stock is listed in the Nasdaq
National Market, and such reports, proxy materials and other information can
also be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20549.
Copies of reports, proxy and information statements and other information
regarding registrants that file electronically are available on the Commission's
Web site.
60
<PAGE> 63
CONLEY, CANITANO & ASSOCIATES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REGISTRANT
Conley, Canitano & Associates, Inc.
Report of Independent Certified Public Accountants........ F-2
Balance Sheets -- December 31, 1997 and 1998 and pro forma
December 31, 1998 (unaudited).......................... F-3
Statements of Income -- For the years ended December 31,
1996, 1997 and 1998.................................... F-4
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1996, 1997 and 1998........... F-5
Statements of Cash Flows -- For the years ended December
31, 1996, 1997 and 1998................................ F-6
Notes to Financial Statements............................. F-7
BUSINESS ACQUIRED IN 1998
Kelly-Levey & Associates, Inc.
Report of Independent Certified Public Accountants........ F-16
Balance Sheets -- December 31, 1996 and 1997 and March 31,
1998 (unaudited)....................................... F-17
Statements of Operations -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 (unaudited) and 1998 (unaudited).............. F-18
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1998 (unaudited).......... F-19
Statements of Cash Flows -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 (unaudited) and 1998 (unaudited).............. F-20
Notes to Financial Statements............................. F-21
BUSINESS ACQUIRED IN 1999
Bureau van Dijk Computer Services, Inc.
Independent Auditors' Report.............................. F-24
Balance Sheets -- December 31, 1996 and 1997 and September
30, 1998............................................... F-25
Statements of Income and Retained Earnings -- For the
years ended December 31, 1996 and 1997 and for the nine
months ended September 30, 1997 (unaudited) and 1998... F-26
Statements of Cash Flows -- For the years ended December
31, 1996 and 1997 and for the nine months ended
September 30, 1997 (unaudited) and 1998................ F-27
Notes to Financial Statements............................. F-28
UNAUDITED FINANCIAL STATEMENTS:
Balance Sheet -- December 31, 1998........................ F-32
Statement of Income and Retained Earnings -- For the year
ended December 31, 1998................................ F-33
Statement of Cash Flows -- For the year ended December 31,
1998................................................... F-34
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
CONLEY, CANITANO & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Conley, Canitano &
Associates, Inc. as of December 31, 1997 and 1998, and the related statements of
income, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Conley, Canitano &
Associates, Inc. as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Cleveland, Ohio
January 29, 1999
F-2
<PAGE> 65
CONLEY, CANITANO & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1998
PRO FORMA
1998 (UNAUDITED)
1997 ACTUAL (NOTE 1)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,174 $ 863 $ 863
Accounts receivable, less allowance for doubtful accounts
of $175 in 1997 and $327 in 1998....................... 4,281 7,226 7,226
Deferred taxes............................................ 384 723 723
Other..................................................... 88 246 246
-------- ------- -------
Total current assets................................... 6,927 9,058 9,058
Goodwill, net............................................... -- 7,251 7,251
Property and equipment, net................................. 549 1,912 1,912
Other....................................................... 236 1,351 1,039
-------- ------- -------
Total assets........................................... $ 7,712 $19,572 $19,260
======== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ $ 698 $ -- $ --
Current portion of long-term obligations.................. 100 374 374
Accounts payable.......................................... 457 1,124 1,124
Accrued payroll, taxes and benefits....................... 2,773 3,877 3,877
Income taxes payable...................................... 468 434 434
Other..................................................... 312 390 390
-------- ------- -------
Total current liabilities.............................. 4,808 6,199 6,199
Line of Credit.............................................. -- 5,500 5,500
Deferred taxes.............................................. 32 61 61
Long-term obligations, less current portion................. 196 749 749
-------- ------- -------
Total liabilities...................................... 5,036 12,509 12,509
-------- ------- -------
Commitments and contingencies............................... -- -- --
Redeemable securities (Note 9).............................. 15,970 18,427 15,750
-------- ------- -------
Shareholders' equity (deficit):
Preferred Stock, voting, $.01 par value, authorized
500,800 shares, 250,400 issued and outstanding as of
December 31, 1998...................................... -- -- --
Preferred Stock, non-voting no par value, authorized
5,000,000 shares, none issued.......................... -- -- --
Preferred Stock, voting, no par value, authorized
5,000,000 shares, none issued.......................... -- -- --
Common stock, no par value, authorized 45,000,000 shares,
issued and outstanding 6,746,000 shares at December 31,
1997, 6,822,950 shares at December 31, 1998 and
9,326,950 shares pro forma............................. 7 8 11
Additional paid-in capital................................ -- 359 359
Retained earnings (accumulated deficit)................... (13,301) (11,372) (9,010)
-------- ------- -------
(13,294) (11,005) (8,640)
Less: note receivable from shareholder.................... -- (359) (359)
-------- ------- -------
Total shareholders' equity (deficit)................... (13,294) (11,364) (8,999)
-------- ------- -------
Total liabilities and shareholders' equity (deficit)... $ 7,712 $19,572 $19,260
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 66
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues................................................. $ 17,994 $ 32,218 $ 50,505
Cost of revenues......................................... 10,978 19,222 30,462
---------- ---------- ----------
Gross profit........................................ 7,016 12,996 20,043
Selling, general and administrative expenses............. 4,204 6,555 10,423
Incentive compensation................................... 1,647 2,700 3,430
Acquisition compensation................................. -- -- 1,179
Depreciation and amortization............................ 30 35 520
---------- ---------- ----------
Income from operations.............................. 1,135 3,706 4,491
Net interest expenses.................................... 83 87 316
---------- ---------- ----------
Income before provision for income taxes............ 1,052 3,619 4,175
Provision for income taxes............................... 461 1,495 1,789
---------- ---------- ----------
Net income.......................................... $ 591 $ 2,124 $ 2,386
========== ========== ==========
Accretion to redemption value of redeemable securities... -- (92) (457)
---------- ---------- ----------
Net income available to common shareholders......... $ 591 $ 2,032 $ 1,929
========== ========== ==========
Net income per share:
Basic.................................................. $ 0.04 $ 0.15 $ 0.14
Diluted................................................ $ 0.04 $ 0.15 $ 0.14
Weighted average shares outstanding:
Basic.................................................. 13,836,080 13,579,423 13,326,950
Diluted................................................ 14,098,649 13,841,992 13,589,519
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 67
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK NOTE
(AT STATED VALUE) ADDITIONAL RETAINED RECEIVABLE
------------------ PAID-IN EARNINGS FROM
SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDER
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995.................... 7,255,130 $ 8 $ -- $ 124 $ --
Net income................ 591
--------- --- ---- -------- -----
Balance, December 31,
1996.................... 7,255,130 8 -- 715 --
Purchase and retirement of
common stock............ (509,130) (1) (171)
Treasury shares
purchased...............
Redeemable securities
issued.................. (15,877)
Accretion to redemption
value of redeemable
securities.............. (92)
Net income................ 2,124
--------- --- ---- -------- -----
Balance, December 31,
1997.................... 6,746,000 7 -- (13,301) --
Sale of shares to
officer................. 76,950 1 359
Note receivable from
shareholder............. (359)
Accretion to redemption
value of redeemable
securities.............. (457)
Net income................ 2,386
--------- --- ---- -------- -----
Balance, December 31,
1998.................... 6,822,950 $ 8 $359 $(11,372) $(359)
========= === ==== ======== =====
Pro forma balance,
December 31, 1998 (Note
1) (unaudited).......... 9,326,950 $11 $359 $ (9,010) $(359)
========= === ==== ======== =====
<CAPTION>
TOTAL
TREASURY STOCK SHAREHOLDERS'
---------------------- EQUITY
SHARES AMOUNT (DEFICIT)
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, December 31,
1995.................... -- $ -- $ 132
Net income................ 591
---------- -------- --------
Balance, December 31,
1996.................... -- -- 723
Purchase and retirement of
common stock............ (172)
Treasury shares
purchased............... (1,350,000) (15,877) (15,877)
Redeemable securities
issued.................. 1,350,000 15,877 --
Accretion to redemption
value of redeemable
securities.............. (92)
Net income................ 2,124
---------- -------- --------
Balance, December 31,
1997.................... -- -- (13,294)
Sale of shares to
officer................. 360
Note receivable from
shareholder............. (359)
Accretion to redemption
value of redeemable
securities.............. (457)
Net income................ 2,386
---------- -------- --------
Balance, December 31,
1998.................... -- $ -- $(11,364)
========== ======== ========
Pro forma balance,
December 31, 1998 (Note
1) (unaudited).......... -- $ -- $ (8,999)
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 68
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 591 $ 2,124 $ 2,386
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 30 35 520
Deferred taxes....................................... (83) (223) (260)
Incentive option amortization........................ -- -- 188
Change in assets and liabilities:
Accounts receivable................................ (1,147) (1,488) (783)
Other assets....................................... (58) (87) 13
Accounts payable................................... (66) 220 (320)
Accrued payroll, taxes and benefits................ 790 1,027 (370)
Income taxes payable............................... 139 232 15
Other liabilities.................................. 4 289 3
-------- -------- --------
Net cash provided by operating activities....... 200 2,129 1,392
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment...................... (52) (434) (1,335)
Acquisition of KLA...................................... -- -- (3,905)
-------- -------- --------
Net cash used in investing activities........... (52) (434) (5,240)
-------- -------- --------
Cash flows from financing activities:
Proceeds from line of credit............................ 18,681 28,785 39,199
Payments on line of credit.............................. (18,463) (28,792) (35,397)
(Payments on) proceeds from long-term obligations....... -- 296 (296)
Net proceeds from sale of redeemable securities......... -- 15,877 --
Purchase of common stock................................ -- (16,049) --
Public offering expenses................................ -- -- (969)
Other................................................... (104) -- --
-------- -------- --------
Net cash provided by financing activities....... 114 117 2,537
-------- -------- --------
Net (decrease) increase in cash and cash equivalents...... 262 1,812 (1,311)
Cash and cash equivalents, at beginning of period......... 100 362 2,174
-------- -------- --------
Cash and cash equivalents, at end of period............... $ 362 $ 2,174 $ 863
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................. $ 93 $ 109 $ 116
======== ======== ========
Taxes................................................ $ 431 $ 1,485 $ 2,049
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 69
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Conley, Canitano & Associates, Inc. (the "Company") is a provider of rapid
implementations of Enterprise Resource Planning applications. The Company also
offers its clients a comprehensive range of related services. The Company
provides its services predominately in the United States and Canada. For the
years ended December 31, 1996, 1997 and 1998, approximately 69%, 75% and 80%,
respectively, of the Company's revenues were derived from engagements in which
the Company implemented SAP applications. The Company's results of operations
include those of Kelly-Levey & Associates, Inc. ("KLA") since April 8, 1998 (See
Note 12).
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable
includes services performed but not yet billed of $418 and $1,348 as of December
31, 1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents
The Company considers all restricted cash and money market funds with an
original maturity of three months or less to be cash equivalents. The carrying
amount of these instruments approximates fair value.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding accounts receivable.
Amounts related to doubtful accounts that were charged to expense for the
years ended December 31, 1996, 1997 and 1998 totaled $40, $109 and $45,
respectively.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 10 years
Computer equipment and software............................. 3 to 6 years
Leasehold improvements...................................... 10 years
</TABLE>
Goodwill
Goodwill resulting from the April 1998 acquisition of KLA is amortized over
20 years which represents management's estimate of the customer relationships
and industry expertise acquired, using the straight-line method. For the year
ended December 31, 1998, amortization expense was $273. The Company will
continually
F-7
<PAGE> 70
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
evaluate whether later events and circumstances have occurred that indicate the
remaining goodwill may warrant revision.
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of the Company's
assets and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Earnings Per Share
Computations of basic and diluted earnings per share of common stock have
been made in accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings
Per Share. Basic earnings per share is computed by dividing income available to
common shareholders (the numerator) by the weighted average number of common
shares outstanding (the denominator) during the period. Shares issued during the
period are weighted for the portion of the period that they are outstanding. The
computation of diluted earnings per share is similar to the computation of basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
Earnings per common share ("EPS") were computed as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
<S> <C> <C> <C>
Net income.................................................. $ 591 $ 2,124 $ 2,386
Accretion to redemption value............................... -- (92) (457)
---------- ---------- ----------
Net income available to common shareholders................. $ 591 $ 2,032 $ 1,929
========== ========== ==========
Basic EPS:
Weighted average common shares outstanding................ 13,836,080 13,579,423 13,326,950
========== ========== ==========
Earnings per share........................................ $ 0.04 $ 0.15 $ 0.14
========== ========== ==========
Diluted EPS:
Weighted average common shares outstanding................ 13,836,080 13,579,423 13,326,950
Shares applicable to dilutive options and warrants........ 262,569 262,569 262,569
---------- ---------- ----------
Shares applicable to diluted earnings..................... 14,098,649 13,841,992 13,589,519
========== ========== ==========
Earnings per share........................................ $ 0.04 $ 0.15 $ 0.14
========== ========== ==========
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other
liabilities, a line of credit and long-term debt. The fair value of these
financial instruments approximates their carrying value.
Accretion to Redemption Value of the Redeemable Securities
As more fully discussed in Note 9, redeemable securities includes 250,400
shares of Convertible Preferred Stock and 1,350,000 shares of Common Stock with
put rights. The 250,400 shares of Convertible Preferred Stock are convertible
into 250,400 shares of Redeemable Preferred Stock and 2,504,000 shares of Common
Stock with put rights, which can be exercised at various times after 2001, 2002
and 2003. All such rights terminate upon the consummation of the proposed
initial public offering of the Company's Common Stock (the "Offering").
F-8
<PAGE> 71
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accretion to redemption value represents accretion to the redemption dates
utilizing the interest method from October 1997 (See Note 9).
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000. All such put rights terminate upon the
consummation of the Offering. The warrants are exercisable 24 months after the
closing of the KLA acquisition or upon the consummation of the Offering. The
acquisition compensation expense related to the compensatory options is being
amortized over a 24 month vesting period. The compensatory options vest upon the
consummation of the Offering.
Total accretion for the years ended December 31, 1997 and 1998 was $92 and
$457, respectively.
Unaudited Pro Forma Balance Sheet
In conjunction with the Offering, all of the 250,400 shares of Convertible
Preferred Stock will convert into 2,504,000 shares of Common Stock and 250,400
shares of Redeemable Preferred Stock (See Note 9). The unaudited pro forma
balance sheet as of December 31, 1998 reflects the reclassification of the
1,350,000 shares of Common Stock included in the redeemable securities to
shareholders equity as a result of the termination of the put rights and as a
result of the conversion of the Convertible Preferred Stock into 2,504,000
shares of Common Stock and 250,400 shares of Redeemable Preferred Stock. The
unaudited pro forma balance sheet assumes the redemption of the 250,400 shares
of the Redeemable Preferred Stock to be redeemed upon the consummation of the
Offering for $62.90 per share.
Also upon the Offering, the remaining compensatory options (See Note 12)
fully vest and therefore the related unamortized acquisition compensation
recorded in other assets in the amount of $312 has been expensed for purposes of
the December 31, 1998 pro forma balance sheet presentation.
2. NOTES RECEIVABLE
The Company has a $359 promissory note receivable due from an officer of
the Company. The note was issued in exchange for Restricted Stock (See Note 11)
and is treated as a non-cash item for purposes of the statements of cash flow.
Interest at 6% per annum and principal are due and payable on June 30, 2004. The
note provides for accelerated payment if the officer ceases to be employed by
the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1997 1998
<S> <C> <C>
Furniture and fixtures...................................... $ 382 $ 995
Computer equipment.......................................... 492 941
Leasehold improvements and other............................ 223 333
------ ------
1,097 2,269
Less: accumulated depreciation.............................. 548 357
------ ------
Property and equipment, net................................. $ 549 $1,912
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997 and 1998
was $30, $35 and $247.
F-9
<PAGE> 72
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LINE OF CREDIT
Prior to April 8, 1998, the Company had a $2,500 bank line of credit
expiring May 31, 1998. Interest was payable monthly at the bank's prime rate
(8.25% and 8.5% at December 31, 1996 and 1997, respectively) plus 1.75% through
December 31, 1996 and 1.5% thereafter.
On April 8, 1998, the Company refinanced the line of credit with a line of
credit/term note from another bank simultaneously with the acquisition of KLA
(See Note 12). In January 1999, the Company refinanced the line of credit/term
note to finance the acquisition of Bureau van Dijk Computer Services, Inc.
("BVD") (See Note 14). The January 1999 line of credit/term note is
collateralized by substantially all the Company's assets. The borrowings are
limited to the lesser of $27,500 or 80% of eligible receivables plus $20,000 or
a multiple of the latest aggregated four quarters' EBITDA as defined in the
agreement. The interest rate is LIBOR (5.544% at December 31, 1998) plus up to
3.25% or the bank's prime rate (7.75% at December 31, 1998) plus up to 1.50%.
The line of credit/term note contains various covenants that restrict, among
other things, the Company's ability to incur additional indebtedness, sell or
transfer assets, make investments and pay dividends and requires the Company to
meet various financial covenants. The term portion matures as follows: $500,000
quarterly on September 30, 1999 through June 30, 2000; $750,000 quarterly on
September 30, 2000 through June 30, 2001; $1,000,000 on September 30, 2001 and
December 31, 2001; $1,250,000 on March 31, 2002 and June 30, 2002; $1,500,000
quarterly on September 30, 2002 through June 30, 2003; $2,250,000 on September
30, 2003 and the remainder on December 31, 2003. The balance of the revolving
line of credit is due by June 30, 2001.
5. LONG-TERM OBLIGATIONS
On June 25, 1997, the Company entered into a variable rate note agreement
with a bank for up to $700 at the bank's prime rate (8.5% at December 31, 1997).
Interest only was paid on this note through March 31, 1998 in accordance with
the terms of the note. The Company repaid the note in April 1998.
As part of the KLA acquisition, the Company agreed to pay $1,123 to one of
the KLA majority shareholders in three equal annual installments beginning on
April 3, 1999.
6. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
<S> <C> <C> <C>
Current:
Federal............................................. $426 $1,332 $1,597
State and local..................................... 118 386 452
---- ------ ------
544 1,718 2,049
Deferred.............................................. (83) (223) (260)
---- ------ ------
$461 $1,495 $1,789
==== ====== ======
</TABLE>
F-10
<PAGE> 73
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company estimates the effective income tax rate quarterly using
annualized estimated financial data. A reconciliation of the provision for
income taxes at the federal statutory rate to that included in the statements of
income is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1996 1997 1998
<S> <C> <C> <C>
Tax at federal statutory rate............................. 34.0% 34.0% 34.0%
Increases in taxes resulting from:
State income taxes, net of federal benefit.............. 6.2 6.1 6.2
Goodwill amortization................................... -- -- 2.2
Meals and entertainment................................. 3.6 1.1 1.3
Other................................................... 0.0 0.1 (0.9)
---- ---- ----
43.8% 41.3% 42.8
==== ==== ====
</TABLE>
The components of the net deferred tax asset are comprised of the
following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------
1997 1998
<S> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts........................... $ 71 $124
Accrued compensation and benefits......................... 232 449
Other..................................................... 81 150
---- ----
Deferred tax assets............................... 384 723
---- ----
Gross deferred tax liability:
Depreciation.............................................. (32) (61)
---- ----
Deferred tax liability............................ (32) (61)
---- ----
Deferred tax asset, net..................................... $352 $662
==== ====
</TABLE>
7. PROFIT SHARING AND 401(k) SAVINGS PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code (the "401(k) Plan") that covers
substantially all the employees of the Company. Under the 401(k) Plan, the
Company may make a matching contribution as well as a discretionary
contribution. The Company's contributions totaled $303, $596 and $564 for the
years ended December 31, 1996, 1997 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES
As of December 31, 1998, the Company leased office space and certain
equipment under various noncancelable operating leases. Lease payments for the
years ended December 31, 1996, 1997 and 1998, were $253, $358 and $688,
respectively. On January 3, 1997, the Company entered into an additional office
lease, with a leasing company partially owned by affiliates of the Company's
management and principal shareholders. This lease extends through December 31,
2002. The lease provides for three successive renewal periods of 60 months each
at the Company's option. The monthly lease payment will be adjusted prior to
each annual anniversary date
F-11
<PAGE> 74
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of the lease based on increases in the consumer price index. The maximum annual
increase is 2%. Future minimum lease payments as of December 31, 1998 required
under all operating leases are as follows:
<TABLE>
<S> <C>
1999.............................................. $ 876
2000.............................................. 653
2001.............................................. 619
2002.............................................. 613
2003.............................................. 305
------
$3,066
======
</TABLE>
9. REDEEMABLE SECURITIES
On October 15, 1997, the Company's Amended and Restated Articles of
Incorporation ("Articles") were amended to authorize 500,800 shares of $0.01 par
value Preferred Stock.
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain shareholders for $15,877. The Company then issued 250,400
shares of Convertible Preferred Stock for $17,500 and 1,350,000 shares of Common
Stock for $1, for an aggregate consideration of $17,501 ($15,877, net of $1,624
of related expenses). The 1,350,000 shares of Common Stock may be put back to
the Company on or after October 15, 2003, if the Company has not completed an
offering, for the greater of $0.4541 per share or fair market value. The Company
accounted for these transactions using the cost method.
The 250,400 shares of Convertible Preferred Stock have certain voting and
other rights and privileges set forth in the Company's Articles. On or after
October 15, 2001 and October 15, 2002, 50% and 100% of the shares, respectively,
can be redeemed by the Company at the option of the holders for the greater of
$69.89 per share or their fair market value as provided for in the Articles.
Holders of Convertible Preferred Stock are entitled to receive dividends, if
declared by the Board of Directors, on an equal basis with the holders of Common
Stock. In connection with the Offering, the 250,400 shares of Convertible
Preferred Stock automatically convert into 2,504,000 shares of Common Stock and
250,400 shares of Redeemable Preferred Stock, and the Redeemable Preferred Stock
will be redeemed for $62.90 per share.
The authorized Preferred Stock also includes 250,400 shares of Redeemable
Preferred Stock that contain similar voting and liquidation preferences as the
Convertible Preferred Stock. The Redeemable Preferred Stock will pay cumulative
dividends at the per share rate per annum of 7% of $62.90. None of the
Redeemable Preferred Stock has been issued.
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000 and accordingly have been included in
redeemable securities at their fair value of $2,000. All such put rights
terminate upon the consummation of the Offering at which time the $2,000 will be
included in equity. The warrants are exercisable 24 months after the closing of
the KLA acquisition or upon the consummation of the Offering. The acquisition
compensation expense related to the compensatory options is being amortized over
a 24 month vesting period. The compensatory options vest upon the consummation
of the Offering.
10. COMMON STOCK
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a shareholder for $171. The Company subsequently retired these shares.
In October 1997, the Company effected a 6,364.151-for-1 common stock split.
In addition, in July 1998, the Company effected a 10-for-1 common stock split.
All share and per share amounts herein have been restated to reflect such stock
splits.
F-12
<PAGE> 75
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In July 1998, the Company's shareholders granted approval to increase
authorized shares of stock to the following:
<TABLE>
<S> <C>
Common Stock, no par value..................... 45,000,000
</TABLE>
11. STOCK OPTIONS AND WARRANTS
During October 1997, the Company and its shareholders adopted the 1997
Equity and Performance Incentive Plan (the "Plan") to attract and retain
directors, officers, employees and consultants. Under the terms of the Plan,
2,072,750 shares of the Company's Common Stock are available for grant. Future
grants, and the provisions thereof, are at the discretion of the Company's Board
of Directors (See Note 14).
On May 11, 1998, options were granted under the Plan to purchase 321,400
shares of Common Stock at $4.67 per share. At various dates from August 15, 1998
through December 31, 1998, options were granted under the Plan to purchase
58,300 shares of Common Stock at $9.35 per share. Options vest evenly over three
to five-year periods.
In May 1998, an officer of the Company was granted 76,950 shares of
Restricted Stock under the Plan at a purchase price of $4.67 per share. The
officer paid for the shares with a promissory note (See Note 2).
In December 1998, the Company's Board of Directors authorized an increase
in Company common shares available for grant under the Company's 1997 Equity and
Performance Incentive Plan to 2,500,000 shares.
In December 1998, the Company established the 1998 Employee Stock Purchase
Plan, which reserves an aggregate of 500,000 shares of Common Stock for issuance
under the plan. No shares have been issued under this plan.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations in accounting for its
stock option plan and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-
Based Compensation.
Had compensation cost been determined based on the estimated fair value at
the grant date consistently with the provisions of SFAS No. 123, net income and
net income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Net income available to common shareholders -- as
reported.................................................. $1,929
Net income available to common shareholders -- pro forma.... $1,801
Net income per share -- as reported:
Basic..................................................... $ 0.14
Diluted................................................... $ 0.14
Net income per share -- pro forma:
Basic..................................................... $ 0.14
Diluted................................................... $ 0.13
</TABLE>
The fair value of each option grant and restricted share is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for the grant: dividend yield of 0%;
expected volatility of 47%; risk-free interest rate of 5%; and expected lives of
the options of five years from the date of vesting.
F-13
<PAGE> 76
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of stock options is presented below:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
-----------------------------
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, beginning of period...................... -- $ --
Granted............................................... 379,700 5.39
Exercised and converted............................... -- --
Forfeited............................................. 19,100 5.16
--------- -----
Outstanding, end of period............................ 360,600 5.40
Options available for grant, end of period............ 2,062,450 --
--------- -----
Options exercisable, end of period.................... -- --
========= =====
</TABLE>
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). The warrants and compensatory options are exercisable
at $0.001 per share of Common Stock 24 months after the closing of the KLA
acquisition or upon the consummation of the Offering. The acquisition
compensation expense related to the compensatory options is being amortized over
a 24 month vesting period. The compensatory options vest upon the consummation
of the Offering.
12. KLA ACQUISITION
On April 8, 1998, the Company purchased all of the outstanding capital
stock of KLA for a purchase price consisting of $3,552 in cash, the issuance of
warrants to purchase 195,265.98 shares of Common Stock and certain other
consideration. Of the total consideration, $3,377 is subject to certain revenue
targets and contribution margins during the two-year period following April 8,
1998 and $1,123 is payable in three equal annual installments beginning April 3,
1999. In addition, the Company agreed to grant the KLA compensatory options and
to pay $3,500 in retention bonuses at certain intervals to an escrow account
which benefits former KLA employees who remain employees of the Company at such
intervals.
The purchase price has been allocated as follows:
<TABLE>
<S> <C>
Assets acquired............................................. $2,378
Liabilities assumed......................................... (3,374)
Goodwill.................................................... 7,524
Compensatory options........................................ 500
Earn-out liability.......................................... (1,123)
------
5,905
Less: non-cash warrants and options......................... 2,000
------
Cash paid for acquisition................................... $3,905
======
</TABLE>
Compensatory options are amortized on a straight-line basis over their 24
month vesting period. Amortization expense for the year ended December 31, 1998
was $188 and is included in acquisition compensation. In connection with the
Offering, the compensatory options will fully vest, and the unamortized balance
will be included in acquisition compensation. The warrants and options are
included in redeemable securities at their fair value of $2,000 (see Note 9).
F-14
<PAGE> 77
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the Company was obligated to make retention bonus
payments to the escrow account as follows:
<TABLE>
<S> <C>
April 3, 1999............................................... $ 875
April 3, 2000............................................... 875
October 3, 2000............................................. 1,050
------
$2,800
======
</TABLE>
Compensation expense is recorded as the bonuses are earned. Compensation
expense for these retention bonuses for the year ended December 31, 1998 was
$991 and is included in acquisition compensation.
13. RELATED PARTY TRANSACTIONS
The Company has a $359 promissory note receivable due from an officer of
the Company (See Note 2).
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a related party (See Note 10).
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain majority shareholders. Simultaneously, the Company issued
1,350,000 shares of its Common Stock and 250,400 shares of Convertible Preferred
Stock (See Note 9).
The Company leases office space from a company owned partially by the
Company's management and principal shareholders (See Note 8).
14. SUBSEQUENT EVENTS
The Company's Board of Directors has authorized management of the Company
to file a Registration Statement with the Securities and Exchange Commission to
sell up to 4,000,000 shares of the Company's Common Stock in the Offering. CCAi
expects to use the net proceeds from the Offering to repay in full existing
indebtedness (See Note 4), to redeem all outstanding shares of Redeemable
Preferred Stock (See Note 9) and for general corporate purposes, including
working capital. The Company may also use a portion of the net proceeds to fund
acquisitions of complementary businesses and service offerings. Although the
Company may periodically review potential acquisition opportunities, there are
no current agreements with respect to any such transactions. Pending their
application as described above, the proceeds will be invested in short-term,
investment grade, interest-bearing securities.
In January 1999, the Company completed the acquisition of BVD for $17,500
in cash and 300,000 shares of Common Stock, which will vest in two equal annual
installments. The acquisition will be accounted for as a purchase. Goodwill from
the acquisition will be amortized over 20 years. The purchase price will be
allocated as follows:
<TABLE>
<S> <C>
Assets acquired............................................. $ 2,620
Liabilities assumed......................................... (2,643)
Goodwill.................................................... 20,603
-------
20,580
Less: restricted common stock............................... 2,805
-------
Cash paid for acquisition................................... $17,775
=======
</TABLE>
F-15
<PAGE> 78
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE OWNERS
KELLY-LEVEY & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Kelly-Levey &
Associates, Inc. as of December 31, 1996 and 1997, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kelly-Levey & Associates,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
On April 8, 1998, all of the Kelly-Levey & Associates, Inc. common stock
was acquired by Conley, Canitano & Associates, Inc. (See Note 7).
PricewaterhouseCoopers LLP
Cleveland, Ohio
June 8, 1998
F-16
<PAGE> 79
KELLY-LEVEY & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------ MARCH 31,
1996 1997 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 54 $ 176 $ --
Accounts receivable, less allowance for doubtful accounts
of $125 in 1998........................................ 882 1,764 2,425
Deferred taxes............................................ 50
Other..................................................... -- 12 39
---- ------ ------
Total current assets.............................. 936 1,952 2,514
Property and equipment, net................................. 33 262 266
Deferred taxes.............................................. -- 16 49
Other....................................................... 4 11 2
---- ------ ------
Total assets...................................... $973 $2,241 $2,831
==== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ $ -- $ 298 $1,000
Accounts payable.......................................... 41 447 1,012
Accrued payroll, taxes and benefits....................... 676 1,419 878
Income taxes payable...................................... 48 -- --
Other..................................................... -- 1 --
---- ------ ------
Total current liabilities......................... 765 2,165 2,890
Shareholders' equity (deficit):
Common stock, no par value, authorized 1,000,000 shares,
issued and outstanding 321,200 shares at December 31,
1996, issued 329,550 and outstanding 322,850 shares at
December 31, 1997 and issued 331,900 shares and
outstanding 325,200 shares at March 31, 1998........... 2 24 28
Retained earnings (deficit)............................... 206 66 (73)
Treasury stock, 6,700 shares at cost...................... -- (14) (14)
---- ------ ------
Total shareholders' equity (deficit).............. 208 76 (59)
---- ------ ------
Total liabilities and shareholders' equity
(deficit)....................................... $973 $2,241 $2,831
==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 80
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE THREE MONTHS
ENDED DECEMBER 31, ENDED MARCH 31,
------------------ --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................... $3,951 $8,726 $1,819 $2,570
Cost of revenues................................... 2,727 6,589 1,434 1,542
------ ------ ------ ------
Gross profit..................................... 1,224 2,137 385 1,028
Selling, general and administrative expenses....... 838 2,238 429 925
Depreciation....................................... 27 74 17 19
------ ------ ------ ------
Income (loss) from operations.................... 359 (175) (61) 84
Transaction costs.................................. -- -- -- 302
Interest expense................................... -- 29 16 4
------ ------ ------ ------
Income (loss) before provision for (benefit from)
income taxes.................................. 359 (204) (77) (222)
Provision for (benefit from) income taxes.......... 153 (64) (28) (83)
------ ------ ------ ------
Net income (loss)................................ $ 206 $ (140) $ (49) $ (139)
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 81
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
(AT STATED VALUE) RETAINED TREASURY STOCK TOTAL
------------------ EARNINGS --------------- SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) SHARES AMOUNT EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......... 321,200 $ 2 $ 53 -- $ -- $ 55
Dividends........................... (53) (53)
Net income.......................... 206 206
------- --- ---- ----- ---- ----
Balance, December 31, 1996.......... 321,200 2 206 -- -- 208
Sale of common shares to
employees......................... 8,350 22 22
Treasury shares purchased from
employees......................... 6,700 (14) (14)
Net loss............................ (140) (140)
------- --- ---- ----- ---- ----
Balance, December 31, 1997.......... 329,550 24 66 6,700 (14) 76
Sale of common shares to employees
(unaudited)....................... 2,350 4 4
Net loss (unaudited)................ (139) (139)
------- --- ---- ----- ---- ----
Balance, March 31, 1998
(unaudited)....................... 331,900 $28 $(73) 6,700 $(14) $(59)
======= === ==== ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 82
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $ 206 $ (140) $ (49) $ (139)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation.................................. 27 74 18 19
Deferred taxes................................ -- (16) (29) (83)
Change in assets and liabilities:
Accounts receivable......................... (763) (882) (254) (661)
Other assets................................ (1) (19) 2 (18)
Accounts payable............................ (4) 406 314 565
Accrued payroll, taxes and benefits......... 588 743 80 (541)
Income taxes payable........................ 48 (48) (48) --
Other liabilities........................... -- 1 -- (1)
----- ------- ----- -------
Net cash provided by (used in) operating
activities............................. 101 119 34 (859)
----- ------- ----- -------
Cash flows from investing activities:
Purchase of property and equipment............... (59) (303) (56) (23)
----- ------- ----- -------
Net cash used in investing activities.... (59) (303) (56) (23)
----- ------- ----- -------
Cash flows from financing activities:
Proceeds from line of credit..................... -- 5,079 350 1,868
Payments on line of credit....................... -- (4,781) (350) (1,166)
Purchase of common stock......................... -- (14) -- --
Proceeds from sale of common stock............... -- 22 -- 4
Dividends paid................................... (53) -- -- --
----- ------- ----- -------
Net cash (used in) provided by financing
activities............................. (53) 306 -- 706
----- ------- ----- -------
Net (decrease) increase in cash.................... (11) 122 (22) (176)
Cash, at beginning of period....................... 65 54 54 176
----- ------- ----- -------
Cash, at end of period............................. $ 54 $ 176 $ 32 $ --
===== ======= ===== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest...................................... $ -- $ 26 $ 16 $ 4
===== ======= ===== =======
Taxes......................................... $ 57 $ 5 $ 48 $ --
===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 83
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 are Unaudited)
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Kelly-Levey & Associates, Inc. ("KLA") is a Kentucky-based provider of
Enterprise Resource Planning implementation services. KLA provides services to
clients predominately in the United States. Substantially all of KLA's revenues
are derived from services provided as a contractor or a subcontractor to
Electronic Data Systems Corporation ("EDS") and its affiliates for the years
ended December 31, 1996 and 1997 and for the three months ended March 31, 1997
and 1998.
Interim Unaudited Financial Information
The interim statements of operations, shareholders' equity (deficit) and
cash flows of KLA for the three month periods ended March 31, 1997 and 1998 have
been prepared without audit. These interim financial statements reflect all
normal and recurring adjustments, which in the opinion of KLA management, are
necessary for a fair presentation of the financial position of KLA and its
results of operations for the interim periods set forth herein. The results for
the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable
includes services performed but not yet billed of $354 and $43 as of December
31, 1996 and 1997, respectively, and $332 as of March 31, 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding receivables.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5 years
Equipment......................................... 3 years
</TABLE>
F-21
<PAGE> 84
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of KLA's assets
and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
KLA's financial instruments consist principally of cash, accounts
receivable, accounts payable, accrued expenses and other liabilities, a line of
credit and long-term debt. The fair value of these financial instruments
approximates their carrying value.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Furniture and fixtures..................................... $11 $ 32 $ 32
Equipment.................................................. 53 334 357
--- ---- ----
64 366 389
Less: accumulated depreciation............................. 31 104 123
--- ---- ----
Property and equipment, net................................ $33 $262 $266
=== ==== ====
</TABLE>
3. LINE OF CREDIT
As of March 31, 1998, KLA had a $1,000 bank line of credit. Interest was
payable monthly at the lending bank's prime rate (8.5% at December 31, 1997 and
March 31, 1998), plus 0.75%. Borrowings under the line of credit were due on
demand, were personally guaranteed by the shareholders and were collateralized
by substantially all assets of KLA. The line of credit contained restrictive
terms and covenants which imposed certain maintenance of asset requirements.
This line of credit was repaid and cancelled (See Note 8).
4. INCOME TAXES
The provision for (benefit from) income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE THREE
ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------- --------------
1996 1997 1997 1998
<S> <C> <C> <C> <C>
Current:
Federal.............................................. $126 $(39) $ -- $ --
State and Local...................................... 27 (9) -- --
---- ---- ---- ----
153 (48) -- --
Deferred............................................... -- (16) (28) (83)
---- ---- ---- ----
$153 $(64) $(28) $(83)
==== ==== ==== ====
</TABLE>
KLA estimates the effective income tax rate quarterly using annualized
estimated financial data. The estimated effective income tax rate for the three
months ended March 31, 1997 and 1998 was 37.3% and 32.6%,
F-22
<PAGE> 85
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. A reconciliation of the provision for (benefit from) income taxes
at the federal statutory rate to that included in the Statements of Operations
is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
--------------
1996 1997
<S> <C> <C>
Tax (benefit) at federal statutory rate..................... 34.0% (34.0)%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit................ 4.9 (4.5)
Meals and entertainment................................... 3.6 5.6
Other..................................................... 0.2 1.4
---- ------
42.7% (31.5)%
==== ======
</TABLE>
The components of deferred tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------ MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $-- $-- $50
Operating loss carryforwards.............................. -- 15 48
Other..................................................... -- 1 1
-- --- ---
Deferred tax assets............................... $-- $16 $99
== === ===
</TABLE>
Operating loss carryforwards are available through December 2017.
5. PROFIT SHARING AND 401(K) SAVINGS PLAN
KLA maintains a qualified cash or deferred compensation plan under section
401(k) of the Internal Revenue Code that covers substantially all the employees
of KLA. Under the Plan, KLA may make a matching contribution as well as a
discretionary contribution. KLA's contributions totaled $46 and $344 for the
years ended December 31, 1996 and 1997, respectively, and $75 for the three
months ended March 31, 1997. No contributions were made during the three months
ended March 31, 1998.
6. COMMITMENTS AND CONTINGENCIES
As of March 31, 1998, KLA leased office space and certain equipment under
various noncancelable operating leases. Lease expense for the years ended
December 31, 1996 and 1997 was $8 and $38, respectively, and for the three
months ended March 31, 1997 and 1998 was $6 and $14, respectively. Future
minimum lease payments required under all operating leases are as follows:
<TABLE>
<S> <C>
1998 (9 months)................................. $ 71
1999............................................ 68
2000............................................ 55
2001............................................ 18
--------
$ 212
========
</TABLE>
7. SUBSEQUENT EVENT
On April 8, 1998, Conley, Canitano & Associates, Inc. purchased all of the
capital stock of KLA.
F-23
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Bureau van Dijk Computer Services, Inc.:
We have audited the accompanying balance sheets of Bureau van Dijk Computer
Services, Inc. as of December 31, 1996 and 1997 and September 30, 1998, and the
related statements of income and retained earnings, and cash flows for the years
ended December 31, 1996 and 1997 and the nine months ending September 30, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bureau van Dijk Computer
Services, Inc. as of December 31, 1996 and 1997 and September 30, 1998, and the
results of its operations and its cash flows for the years ended December 31,
1996 and 1997 and the nine months ending September 30, 1998, in conformity with
generally accepted accounting principles.
We did not audit the statement of income and retained earnings and cash
flow information for the nine months ended September 30, 1997, and accordingly,
we do not express an opinion on them.
Langford de Kock & Co.
Atlanta, Georgia
January 11, 1998.
F-24
<PAGE> 87
BUREAU VAN DIJK COMPUTER SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
--------------------- SEPTEMBER 30,
1996 1997 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 456 $ 504 $ 180
Accounts receivable:
Trade, net of bad debt allowance of $23 at September
30, 1998.......................................... 2,140 1,280 1,206
Related parties...................................... 28 1,733 1,087
Investment................................................ 100 -- --
Prepaid expenses.......................................... 39 28 8
Deferred taxes............................................ 25 50 28
------ ------ ------
Total current assets.............................. 2,788 3,595 2,509
Property and equipment, net................................. 265 345 391
Other assets................................................ 40 43 33
------ ------ ------
Total assets...................................... $3,093 $3,983 $2,933
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 871 $ 656 $ 728
Accrued compensation and benefits......................... 1,228 885 778
Due to related parties.................................... 387 794 249
Dividends payable......................................... -- 587 --
Loans from employees...................................... -- 172 --
Income taxes.............................................. 106 423 152
------ ------ ------
Total current liabilities......................... 2,592 3,517 1,907
Deferred taxes.............................................. 31 35 39
------ ------ ------
Total liabilities................................. 2,623 3,552 1,946
------ ------ ------
Commitments and contingencies
Shareholders' equity:
Common stock, 1,000 shares, authorized and issued with no
par value.............................................. 300 300 300
Retained earnings......................................... 170 131 687
------ ------ ------
Total shareholders' equity........................ 470 431 987
------ ------ ------
Total liabilities and shareholders' equity........ $3,093 $3,983 $2,933
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 88
BUREAU VAN DIJK COMPUTER SERVICES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.......................................... $13,806 $14,415 $10,322 $11,408
Cost of revenue.................................. 8,413 8,918 6,348 7,550
------- ------- ------- -------
Gross profit................................... 5,393 5,497 3,974 3,858
Operating expenses............................... 5,138 4,479 3,659 2,850
------- ------- ------- -------
Income from operations......................... 255 1,018 315 1,008
Interest income, net............................. 33 10 14 2
------- ------- ------- -------
Income before provisions for income taxes...... 288 1,028 329 1,010
Provision for income taxes....................... 160 480 154 454
------- ------- ------- -------
Net income..................................... 128 548 175 556
RETAINED EARNINGS -- BEGINNING................... 42 170 170 131
DIVIDENDS........................................ -- (587) -- --
------- ------- ------- -------
RETAINED EARNINGS -- ENDING...................... $ 170 $ 131 $ 345 $ 687
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 89
BUREAU VAN DIJK COMPUTER SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- -------------------------
1996 1997 1997 1998
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 128 $ 548 $ 175 $ 556
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation................................... 18 33 24 36
Deferred taxes................................. 24 (21) (3) 26
Change in assets and liabilities:
Trade receivables........................... (675) 860 685 74
Related party receivables................... (28) (1,705) (945) 646
Prepaid expenses and advances............... (4) 11 (3) 20
Deposits.................................... (2) (3) (3) 10
Accounts payable............................ 477 (215) (3) 72
Accrued compensation and benefits........... 1,031 (343) (626) (107)
Due to related parties...................... (356) 407 480 (545)
Income taxes................................ 88 317 24 (271)
------ ------- ----- -----
Net cash (used in) provided by operating
activities.................................. 701 (111) (195) 517
Cash flows from investing activities:
Purchases of property and equipment............ (130) (113) (97) (82)
Purchases of investments....................... (100) -- -- --
Proceeds on sale of investments................ -- 100 100 --
------ ------- ----- -----
Net cash (used in) provided by investing
activities.................................. (230) (13) 3 (82)
Cash flows from financing activities:
Proceeds from line of credit................... 115 100 100 600
Repayments on line of credit................... (290) (100) (100) (600)
Proceeds from loans from employees............. -- 242 242 --
Repayments on loans from employees............. -- (70) (29) (172)
Dividends paid................................. -- -- -- (587)
------ ------- ----- -----
Net cash (used in) provided by financial
activities.................................. (175) 172 213 (759)
Net increase (decrease) in cash.................. 296 48 21 (324)
Cash and cash equivalents, at beginning of
period......................................... 160 456 456 504
------ ------- ----- -----
Cash and cash equivalents, at end of period...... $ 456 $ 504 $ 477 $ 180
====== ======= ===== =====
Supplemental disclosure of cash flow information:
Cash paid for Interest......................... $ 4 $ 1 $ 1 $ 4
====== ======= ===== =====
Taxes.......................................... $ 42 $ 186 $ 134 $ 719
====== ======= ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 90
BUREAU VAN DIJK COMPUTER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Nine Months
Ended September 30, 1997 are Unaudited)
(In thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Bureau van Dijk Computer Services, Inc. (the "Company") is a service
provider for implementations of Enterprise Resource Planning applications from
SAP. The Company provides its services predominately in the United States. For
the years ended December 31, 1996 and 1997, one customer accounted for
approximately 52% and 16% of the total revenue, respectively. Amounts due from
this customer included in trade accounts receivable at December 31, 1996 and
1997 is $546 and $185, respectively. For the nine months ended September 30,
1998 two customers accounted for 22% of total revenues. Amounts due from these
two customers at September 30, 1998 is $506.
The Company has significant transactions with related parties (see Note 7).
Interim Unaudited Financial Information
The interim statement of income and retained earnings of the Company for
the nine month period ended September 30, 1997 has been prepared without audit.
This interim financial statement reflects all normal and recurring adjustments,
which in the opinion of Company management, are necessary for a fair
presentation of the financial position of the Company and its results of
operations for the interim period set forth herein.
Revenue Recognition
Revenues are recognized as services are performed. Accounts receivable at
December 31, 1996 and 1997 and September 30, 1998 do not include any unbilled
services.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Cash and Cash Equivalents
The Company considers all restricted cash and money market funds with an
original maturity of three months or less to be cash equivalents. The carrying
amount of these instruments approximates fair value.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding accounts receivable.
Amounts related to doubtful accounts that were charged to expense for the
years ended December 31, 1996 and 1997 totaled $125 and $0, respectively, and
for the nine months ended September 30, 1998 totaled $23.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
F-28
<PAGE> 91
Depreciation is provided using straight-line methods over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7 years
Computer equipment and software............................. 5 years
Leasehold improvements...................................... 10 years
</TABLE>
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of the Company's
assets and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------- SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Art......................................................... $167 $182 $228
Furniture and fixtures...................................... 92 104 107
Computer equipment and software............................. 37 124 148
Leasehold improvements...................................... 2 2 2
Vehicle..................................................... -- -- 9
---- ---- ----
298 412 494
Less: accumulated depreciation.............................. (33) (67) (103)
---- ---- ----
Property and equipment, net................................. $265 $345 $391
==== ==== ====
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
The Company had a $600 bank line of credit expiring July 31, 1998. Interest
was payable monthly at the bank's prime rate (7.5% and 8.5% at December 31, 1996
and 1997, respectively) plus 1.75%.
On August 5, 1998, the Company secured a $800 line of credit, expiring July
31, 1999, for the purpose of providing short-term working capital. The line of
credit is collateralized by a blanket lien on all accounts receivable of the
Company. The interest rate is the bank's prime rate (8.25% at September 30,
1998) plus 0.5%. This line of credit contains various covenants that restrict,
among other things; the Company's ability to sell or transfer assets; making
changes in the Company's ownership (Note 10); entering into a merger or
consolidation. In addition, the line of credit requires the Company to meet
various financial covenants.
The Company is self-insured for errors and omissions in the performance of
services. No provision has been made for any losses that may arise from such
actions.
4. PROFIT SHARING AND 401(K) SAVINGS PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code (the "401(k) Plan") that covers
substantially all the employees of the Company. Under the 401(k) Plan, the
Company may make a discretionary contribution which becomes progressively fully
vested after 6 years of employee service. The Company's contributions totaled
$62 and $74, for the years ended December 31, 1996 and 1997, respectively, and
$88 for the nine months ended September 30, 1998.
5. LEASE COMMITMENTS
As of September 30, 1998, the Company leased office space and certain
equipment under various noncancelable operating leases. The lease for one of the
office spaces was renewed during 1998 for an additional 5 years ending March
2004. Lease payments under this renewal increase approximately 2.5% per year.
Lease payments for the years ended December 31, 1996 and 1997, were $313 and
$312, respectively, and $253 for the
F-29
<PAGE> 92
nine months ended September 30, 1998. Future minimum lease payments required
under all operating leases are as follows:
<TABLE>
<S> <C>
1998 (3 months)............................................. $ 47
1999........................................................ 266
2000........................................................ 233
2001........................................................ 160
2002........................................................ 129
Thereafter.................................................. 117
----
$952
====
</TABLE>
6. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
YEARS ENDED MONTHS
DECEMBER 31, ENDED
------------ SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Current:
Federal................................................... $106 $418 $360
State and local........................................... 30 83 68
---- ---- ----
136 501 428
Deferred.................................................... 24 (21) 26
---- ---- ----
$160 $480 $454
==== ==== ====
</TABLE>
During 1997, the Company's 1995 U.S. income tax return was audited by the
Internal Revenue Service (IRS). The IRS disallowed certain royalty expenses and
additional taxes of $31 were assessed and paid in 1997.
The Company estimates the effective income tax rate quarterly using
annualized estimated financial data. The estimated effective income tax rate for
the nine months ended September 30, 1998 was 45%. A reconciliation of the
provision for income taxes at the federal statutory rate to that included in the
statements of income is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
------------------
1996 1997
<S> <C> <C>
Tax at federal statutory rate............................... 34.0% 34.0%
Increases in taxes resulting from:
State income taxes, net of federal benefit................ 6.9 5.4
Meals and entertainment................................... 7.1 2.5
Club dues................................................. 2.6 1.6
Royalties................................................. 5.1 --
IRS adjustment............................................ -- 3.0
Other..................................................... (0.1) 0.2
---- ----
55.6% 46.7%
==== ====
</TABLE>
F-30
<PAGE> 93
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------ SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Current deferred taxes:
Current assets:
Accrued expenses.............................. $25 $51 $28
Current liabilities:
Prepaids and other............................ -- (1) --
--- --- ---
Net current deferred assets...................... $25 $50 $28
=== === ===
Non-current deferred taxes:
Non-current liabilities:
Depreciation.................................. $31 $35 $39
=== === ===
</TABLE>
7. RELATED PARTY TRANSACTIONS
The dividends payable at December 31, 1997 reflects dividends declared for
the year ending December 31, 1997. These dividends were paid in 1998.
The Company entered into royalty agreements with two related parties at a
combined rate of 10% on gross revenue plus chargeable expenses. One of these
royalty agreements expired at December 31, 1996. The second royalty agreement
was modified to a rate of 4% and 2% on gross revenue plus chargeable expenses
for the years ending December 31, 1997 and 1998, respectively. This royalty
agreement expires December 31, 1998.
The Company subcontracts employees to and from various related parties.
Transactions with related parties are summarized as follows:
<TABLE>
<CAPTION>
FOR THE
YEARS ENDED FOR THE NINE
DECEMBER 31, MONTHS ENDED
---------------- SEPTEMBER 30,
1996 1997 1998
<S> <C> <C> <C>
Royalty expenses incurred to related parties............. $1,434 $ 602 $ 249
Revenue earned from subcontracts with related parties.... -- 2,320 4,423
Cost of revenue incurred with related parties............ 39 168 --
Reimbursement to related parties for operating expenses
incurred............................................... 82 193 43
</TABLE>
8. LOANS TO EMPLOYEES
During 1997 two employees advanced a total of $242 to the Company. These
loans were unsecured, interest free, due and paid in April 1998.
9. INVESTMENT
Short term certificate of deposit with a bank maturing in May 1997,
accruing interest at 5.04%.
10. SUBSEQUENT EVENTS
The Shareholders of the Company are in negotiations to sell their shares to
an unrelated third party. Substantial cost including legal and other consulting
costs will be incurred in connection therewith. Management is unable to estimate
the amount of these costs and no provision has been made for such costs in the
accompanying statements.
F-31
<PAGE> 94
BUREAU VAN DIJK COMPUTER SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1998
------------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 347
Accounts receivable, net of bad debt allowance of $23..... 1,879
Deferred taxes............................................ 28
Other..................................................... 228
------
Total current assets.............................. 2,482
Property and equipment, net................................. 153
Other assets................................................ 30
------
Total assets...................................... $2,665
======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 383
Accrued compensation and benefits......................... 1,091
Income taxes.............................................. 71
Other..................................................... 70
------
Total current liabilities......................... 1,615
Deferred taxes.............................................. 39
------
Total liabilities................................. 1,654
------
Commitments and contingencies
Shareholders' equity:
Common stock, 1,000 shares, authorized and issued with no
par value.............................................. 300
Retained earnings......................................... 711
------
Total shareholders' equity........................ 1,011
------
Total liabilities and shareholders' equity........ $2,665
======
</TABLE>
F-32
<PAGE> 95
BUREAU VAN DIJK COMPUTER SERVICES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
-----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Revenue..................................................... $14,582
Cost of revenue............................................. 9,701
-------
Gross profit.............................................. 4,881
Operating expenses.......................................... 3,821
-------
Income from operations.................................... 1,060
Interest income, net........................................ 2
-------
Income before provisions for income taxes................. 1,062
Provision for income taxes.................................. 482
-------
Net income................................................ 580
RETAINED EARNINGS -- BEGINNING.............................. 131
-------
RETAINED EARNINGS -- ENDING................................. $ 711
=======
</TABLE>
F-33
<PAGE> 96
BUREAU VAN DIJK COMPUTER SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1998
-----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 580
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.............................................. 55
Deferred taxes............................................ 26
Change in assets and liabilities:
Accounts receivables................................... 1,134
Other assets........................................... 13
Accounts payable....................................... (273)
Accrued compensation and benefits...................... (416)
Income taxes........................................... (352)
Other liabilities...................................... (102)
-------
Net cash provided by operating activities................. 665
Cash flows from investing activities:
Purchases of property and equipment....................... (63)
-------
Net cash used in investing activities..................... (63)
Cash flows from financing activities:
Proceeds from line of credit.............................. 600
Repayments on line of credit.............................. (600)
Repayments on loans from employees........................ (172)
Dividends paid............................................ (587)
-------
Net cash used in financing activities..................... (759)
Net decrease in cash........................................ (157)
Cash and cash equivalents, at beginning of period........... 504
-------
Cash and cash equivalents, at end of period................. $ 347
=======
</TABLE>
F-34
<PAGE> 97
[INSIDE BACK COVER]
[Description of graphics: In the top left corner appears the Company's logo.]
[STYLIZED TEXT:] "Harnessing the Power of Information Technology"
[STYLIZED TEXT:] "Extensive Experience"
[Description of graphics: A configuration of five computers, each consisting of
a monitor, keyboard, and hard-drive, are connected to one line that stretches
across the page. The computers are labeled: "Human Resources," "Inventory,"
"Payroll," "General Ledger," and "Operations."]
[STYLIZED TEXT:] "Rapid ERP Implementations"
[STYLIZED TEXT:] "Company of Employees"
<PAGE> 98
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 5
Risk Factors.............................. 8
Use of Proceeds........................... 16
Dividend Policy........................... 16
Capitalization............................ 17
Dilution.................................. 18
Selected Financial Data................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 24
Business.................................. 32
Management................................ 43
Certain Transactions...................... 48
Principal and Selling Shareholders........ 50
Description of Capital Stock.............. 51
Shares Eligible for Future Sale........... 56
Underwriting.............................. 58
Legal Matters............................. 59
Experts................................... 59
Additional Information.................... 60
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
5,000,000 SHARES
CCAI LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD INVESTMENTS INC.
DLJDIRECT INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the Common Shares being
registered hereby.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 18,376
NASD filing fee............................................. 6,729
NASDAQ National Market listing fee.......................... 88,000
Printing engraving, postage and mailing costs............... 300,000
Accounting fees and expenses................................ 550,000
Legal fees and expenses..................................... 500,000
Transfer agent fees and expenses............................ 5,000
Miscellaneous expenses...................................... 31,895
----------
Total............................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Code of Regulations, consistent with that permitted by the General
Corporation Law of the State of Ohio, as the same may be amended from time to
time, contains provisions eliminating a director's personal liability for
monetary damages resulting from certain breaches of fiduciary duty. These
provisions do not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief, such as an injunction or recision, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
Section 1701.13(E) of the Ohio Revised Code provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
limited liability company, or a partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgement, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of it self, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, if he
II-1
<PAGE> 100
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to
the corporation unless, and only to the extent that, the court of common
pleas or the court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the Securities Action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, member, manager, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
division (E)(1) or (2) of this section. Such determination shall be made as
follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened
with any such action, suit, or proceeding referred to in division (E)(1) or
(2) of this section;
(b) If the quorum described in division (E)(4) (a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the Securities
Action, suit, or proceeding referred to in division (E)(1) or (2) of this
section was brought.
Any determination made by the disinterested directors under division (E)(4)
(a) or by independent legal counsel under division (E)(4)(b) of this section
shall be promptly communicated to the person who threatened or brought the
Securities Action or suit by or in the right of the corporation under division
(E)(2) of this section, and within ten days after receipt of such notification,
such person shall have the right to petition the court of common pleas or the
court in which such action or suit was brought to review the reasonableness of
such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding refereed to in division (E)(1) or (2)
of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
Securities Action, suit, or proceeding shall be paid by the corporation as they
are incurred, in advance of the final disposition of the Securities Action,
suit, or proceeding upon receipt of an undertaking by or on behalf of the
director in which be agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing evidence
in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause
injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
Securities Action, suit, or proceeding.
II-2
<PAGE> 101
(b) Expenses, including attorney's fees, incurred by a director, trustee,
officer, employee, member, manager, or agent in defending any action, suit, or
proceeding referred to in division (E)(1) or (2) of this section, may be paid by
the corporation as they are incurred, in advance of the final disposition of the
Securities Action, suit, or proceeding, as authorized by the directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee, member, manager, or agent to repay such amount, if
it ultimately is determined that he is not entitled to be indemnified by the
corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to any other rights granted to those seeking
indemnification under the articles or the regulations, any agreement, a vote of
shareholders or disinterested directors, or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
their offices or positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of credit, or
self-insurance, on behalf of or for any person who is or was a director,
officer, employee, member, manager, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
this section. Insurance may be purchased from or maintained with a person in
which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of expenses as
they are incurred, indemnification, insurance, or other protection that may be
provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions
(E) (1) and (2) of this section do not create any obligation to repay or return
payments made by the corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entities, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee, trustee, member, manager, or agent of another corporation,
domestic or foreign, nonprofit or for profit, limited liability company, or
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
would if he had served the new or surviving corporation in the same capacity.
Prior to the consummation of the Offering, the Company anticipates it will
obtain directors' and officers' liability insurance that covers certain
liabilities and expenses of the Company's directors and officers.
In addition, Section 30 of the Code of Regulations provides that expenses
incurred in defending a civil, criminal or administrative action, suit or
proceeding will be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company, which were not registered under the
Securities Act, have been issued or sold by the Company within the past three
years, except as follows:
(a) On October 15, 1997 the Company sold to TA Investors 243,246
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $17 million, and 1,311,430 shares of Common Stock for an
aggregate purchase price of approximately $1,311. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the
Securities Act.
(b) On October 15, 1997 the Company sold to McDonald Investors 7,154
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $500,000, and 38,570 shares of Common
II-3
<PAGE> 102
Stock for an aggregate purchase price of approximately $38. These
transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(c) Pursuant to the terms of the 1998 Warrant Agreements, on April 3,
1998 the Company granted the Warrant Holders the right to purchase an
aggregate of 195,264 shares of Common Stock at an exercise price of $0.001
per share. Upon consummation of the Offering, the KLA Warrants will be
exercisable. These transactions were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(d) Pursuant to the terms of the Option Agreements , on April 3, 1998
the Company granted employees of the Company previously employed by KLA
options to purchase an aggregate of 64,700 shares of Common Stock at an
exercise price of $0.001 per share. Upon the consummation of the Offering,
the KLA Options will be exercisable. These transactions were undertaken in
reliance upon the exemption from the registration requirements of the
Securities Act afforded by Rule 701 promulgated under the Securities Act.
(e) On May 11, 1998, the Company issued Paul A. Farmer 76,950 shares
of restricted Common Stock under the 1997 Equity and Performance Plan. On
each anniversary of the grant date, one third of Mr. Farmer's restricted
stock will vest. Mr. Farmer paid the purchase price for the restricted
stock by executing and delivering to the Company a promissory note in the
principal amount of $359,356. The note is due and payable on May 11, 2004,
and accrues interest on unpaid principal at 6% per annum until paid in
full. These transactions were undertaken in reliance upon the exemption
from the registration requirements of the Securities Act afforded by Rule
701 promulgated under the Securities Act.
(f) On May 11, 1998, the Company granted options to purchase 320,200
shares of Common Stock under the 1997 Equity and Performance Plan. These
options vest 20% each year over a five-year period. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Rule 701 promulgated under
the Securities Act.
(g) In connection with the purchase of BVD, on January 12, 1999, the
Company issued Luc P. De Groof 300,000 shares of restricted Common Stock.
On each anniversary of the date of grant, one half of Mr. De Groof's
restricted stock will vest.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1** Form of Underwriting Agreement between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc., BancBoston Robertson Stephens and McDonald
Investments Inc.
3.1** Second Amended and Restated Articles of Incorporation of the
Company.
3.2* Amended and Restated Code of Regulations of the Company.
5** Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1* Employment Agreement, dated April 3, 1998, between the
Company and Ronnie Crumpler.
10.2* Employment Agreement, dated April 3, 1998, between the
Company and Gary Levey.
10.3* Form of Employment Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.4* Noncompetition Agreement, dated April 3, 1998, between the
Company and Anthony Kelly.
10.5* Employment Agreement, dated April 23, 1998, between the
Company and Paul A. Farmer.
10.6* Restricted Stock Agreement, dated May 11, 1998, between the
Company and Paul A. Farmer.
10.7* Form of Warrant Agreement, between the Company and Ronnie
Crumpler.
10.8* Form of Warrant Agreement, between the Company and Gary
Levey.
10.9* Form of Warrant Agreement, between the Company and Anthony
Kelly.
</TABLE>
II-4
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.10* Warrant Escrow Agreement, dated April 3, 1998, among the
Company and Ronnie Crumpler, Gary Levey and Anthony Kelly.
10.11* Form of Option Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.12* Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan,
dated April 3, 1998.
10.13* Form of Retention Incentive Bonus Plan Agreement 1998, among
certain former employees, Kelly-Levey & Assoc., Inc. and the
Company.
10.14* Retention Incentive Bonus Plan Escrow Agreement, dated April
3, 1998, among the Company and Kelly-Levey & Assoc., Inc,
Burke & Company, P.L.L. (as representative of the
shareholders), Anthony Kelly, Gary Levey, Ronnie Crumpler,
Trevor Montgomery, Rob Petersen and Don Kirby.
10.15* Earnout Agreement, dated April 3, 1998, among the Company,
Kelly-Levey & Assoc., Inc., Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.16* Earnout Escrow Agreement as amended, dated April 3, 1998,
among the Company, Kelly-Levey & Assoc., Burke & Company,
P.L.L. (as representative of the shareholders), Anthony
Kelly, Gary Levey and Ronnie Crumpler.
10.17* 1997 Stock Purchase and Shareholders Agreement, dated
October 15, 1997, among the Company, Annette M. Canitano,
Nicholas A. Canitano, Karen M. Conley, Kenneth L. Conley,
NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L.
Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust, TA/Advent VIII L.P., Advent
Atlantic and Pacific III L.P., TA Venture Investors Limited
Partnership, Kenneth T. Schiciano, A. Bruce Johnston,
McDonald & Company Securities, Inc., McD Venture Capital
Fund, L.P. and GHK Investments, L.L.C.
10.18* Form of the Company's Incentive Stock Option Agreement.
10.19* Amended and Restated Share Redemption and Purchase
Agreement, dated July 1, 1997, among the Company, Karen M.
Conley, Nicholas A. Canitano, Annette Canitano and Joseph
Minadeo.
10.20* Agreement, dated October 15, 1997, among the Company,
Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley,
Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises,
Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M.
Conley Charitable Remainder Trust, TA/Advent VIII, L.P.,
Advent Atlantic and Pacific L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce
Johnston, McDonald & Company Securities, Inc., McD Venture
Capital Fund, L.P., GHK Investments, L.L.C. and Joseph
Minadeo.
10.21* Stock Redemption Agreement, dated October 15, 1997, between
the Company and NAC Enterprises, Inc.
10.22* Stock Redemption Agreement, dated October 15, 1997, between
the Company and CKCK Enterprises, Inc.
10.23* Stock Redemption Agreement, dated October 15, 1997, between
the Company and Kenneth L. Conley Charitable Remainder
Trust.
10.24* Stock Redemption Agreement, dated October 15, 1997, between
the Company and Karen M. Conley Charitable Remainder Trust.
10.25* The Company's 1997 Equity and Performance Incentive Plan,
dated October 15, 1997.
10.26* First Amendment to the Company's Equity and Performance
Incentive Plan, dated July 21, 1998.
10.27* The Company's Amended and Restated 401(k) Plan and Trust,
dated December 2, 1996.
10.28* First Amendment to the Company's 401(k) Plan and Trust,
dated December 18, 1997.
10.29* Amendment No. 2 to the Company's 401(k) Plan and Trust,
dated May 29, 1998.
10.30* The Company's Employee Stock Purchase Plan, dated December
21, 1998.
10.31 The Restated and Amended Loan Agreement, dated January 12,
1999, between the Company and Fleet National Bank.
10.32* Lease Agreement, as amended, dated January 3, 1997, between
the Company and Place Renaissance, Ltd.
</TABLE>
II-5
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.33 R-3 National Implementation Partner Agreement, as amended,
dated April 2, 1996, between the Company and SAP America,
Inc.
10.34* Oracle Alliance Agreement, dated March 4, 1998, between the
Company and Oracle Corporation.
10.35* Form of Indemnification Agreement for directors and
officers.
10.36* Amendment to Amended and Restated Share Redemption and
Purchase Agreement, dated October 13, 1997, among the
Company, Karen M. Conley, Nicholas A. Canitano, Annette M.
Canitano and Joseph Minadeo.
10.37* Second Amendment to the Company's 1997 Equity and
Performance Incentive Plan, dated December 21, 1998.
10.38 Stock Purchase Agreement, dated January 12, 1999, between
the Company and Luc De Groof.
11** Statement regarding computation of per share earnings.
23.1** Consent of Jones, Day, Reavis & Pogue (included with Exhibit
5).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Langford de Kock & Co.
24* Powers of Attorney.
27** Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto appearing elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the Closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE> 105
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 4 to the Registration Statement to be signed on
its behalf by the undersigned, thereunder duly authorized, in the City of
Cleveland, State of Ohio, on February 1, 1999.
CONLEY, CANITANO & ASSOCIATES, INC.
By: /s/ PAUL A. FARMER*
------------------------------------
Paul A. Farmer
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Operating Officer and February 1, 1999
- --------------------------------------------- Director
Kenneth L. Conley
/s/ PAUL A. FARMER Chief Financial Officer and Vice February 1, 1999
- --------------------------------------------- President (Principal Accounting and
Paul A. Farmer Financial Officer)
* Executive Vice President, Treasurer February 1, 1999
- --------------------------------------------- and Director
Karen M. Conley
* Executive Vice President, Secretary February 1, 1999
- --------------------------------------------- and Director
Annette M. Canitano
* Chief Executive Officer, Chairman of February 1, 1999
- --------------------------------------------- the Board and Director (Principal
Nicholas A. Canitano Executive Officer)
/s/ KENNETH T. SCHICIANO Director February 1, 1999
- ---------------------------------------------
Kenneth T. Schiciano
/s/ A. BRUCE JOHNSTON Director February 1, 1999
- ---------------------------------------------
A. Bruce Johnston
* Director February 1, 1999
- ---------------------------------------------
Ivan J. Winfield
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment No. 4 to the Registration Statement pursuant to the Powers of
Attorney executed by the above-named officers and directors of the Company and
which have been filed with the Securities and Exchange Commission on behalf of
such officers and directors.
By: /s/ PAUL A. FARMER
---------------------------------------------------------
Paul A. Farmer
as Attorney-in-Fact
II-7
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
1** Form of Underwriting Agreement between the Company and Donaldson, Lufkin & Jenrette Securities
Corporation, Lehman Brothers Inc., BancBoston Robertson Stephens and McDonald Investments Inc.
3.1** Second Amended and Restated Articles of Incorporation of the Company.
3.2* Amended and Restated Code of Regulations of the Company.
5** Opinion of Jones, Day, Reavis & Pogue as to the validity of the securities being offered.
10.1* Employment Agreement, dated April 3, 1998, between the Company and Ronnie Crumpler.
10.2* Employment Agreement, dated April 3, 1998, between the Company and Gary Levey.
10.3* Form of Employment Agreement, among the Company and certain employees previously employed by
Kelly-Levey & Assoc., Inc.
10.4* Noncompetition Agreement, dated April 3, 1998, between the Company and Anthony Kelly.
10.5* Employment Agreement, dated April 23, 1998, between the Company and Paul A. Farmer.
10.6* Restricted Stock Agreement, dated May 11, 1998, between the Company and Paul A. Farmer.
10.7* Form of Warrant Agreement, between the Company and Ronnie Crumpler.
10.8* Form of Warrant Agreement, between the Company and Gary Levey.
10.9* Form of Warrant Agreement, between the Company and Anthony Kelly.
10.10* Warrant Escrow Agreement, dated April 3, 1998, among the Company and Ronnie Crumpler, Gary Levey
and Anthony Kelly.
10.11* Form of Option Agreement, among the Company and certain employees previously employed by
Kelly-Levey & Assoc., Inc.
10.12* Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan, dated April 3, 1998.
10.13* Form of Retention Incentive Bonus Plan Agreement 1998, among certain former employees, Kelly-Levey
& Assoc., Inc. and the Company.
10.14* Retention Incentive Bonus Plan Escrow Agreement, dated April 3, 1998, among the Company and
Kelly-Levey & Assoc., Inc, Burke & Company, P.L.L. (as representative of the shareholders),
Anthony Kelly, Gary Levey, Ronnie Crumpler, Trevor Montgomery, Rob Petersen and Don Kirby.
10.15* Earnout Agreement, dated April 3, 1998, among the Company, Kelly-Levey & Assoc., Inc., Anthony
Kelly, Gary Levey and Ronnie Crumpler.
10.16* Earnout Escrow Agreement as amended, dated April 3, 1998, among the Company, Kelly-Levey & Assoc.,
Burke & Company, P.L.L. (as representative of the shareholders), Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.17* 1997 Stock Purchase and Shareholders Agreement, dated October 15, 1997, among the Company, Annette
M. Canitano, Nicholas A. Canitano, Karen M. Conley, Kenneth L. Conley, NAC Enterprises, Inc., CKCK
Enterprises, Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M. Conley Charitable
Remainder Trust, TA/Advent VIII L.P., Advent Atlantic and Pacific III L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce Johnston, McDonald & Company Securities, Inc.,
McD Venture Capital Fund, L.P. and GHK Investments, L.L.C.
10.18* Form of the Company's Incentive Stock Option Agreement.
10.19* Amended and Restated Share Redemption and Purchase Agreement, dated July 1, 1997, among the
Company, Karen M. Conley, Nicholas A. Canitano, Annette Canitano and Joseph Minadeo.
</TABLE>
<PAGE> 107
EXHIBIT INDEX -- CONTINUED
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
10.20* Agreement, dated October 15, 1997, among the Company, Annette M. Canitano, Nicholas A. Canitano,
Karen M. Conley, Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L.
Conley Charitable Remainder Trust, Karen M. Conley Charitable Remainder Trust, TA/Advent VIII,
L.P., Advent Atlantic and Pacific L.P., TA Venture Investors Limited Partnership, Kenneth T.
Schiciano, A. Bruce Johnston, McDonald & Company Securities, Inc., McD Venture Capital Fund, L.P.,
GHK Investments, L.L.C. and Joseph Minadeo.
10.21* Stock Redemption Agreement, dated October 15, 1997, between the Company and NAC Enterprises, Inc.
10.22* Stock Redemption Agreement, dated October 15, 1997, between the Company and CKCK Enterprises, Inc.
10.23* Stock Redemption Agreement, dated October 15, 1997, between the Company and Kenneth L. Conley
Charitable Remainder Trust.
10.24* Stock Redemption Agreement, dated October 15, 1997, between the Company and Karen M. Conley
Charitable Remainder Trust.
10.25* The Company's 1997 Equity and Performance Incentive Plan, dated October 15, 1997.
10.26* First Amendment to the Company's Equity and Performance Incentive Plan, dated July 21, 1998.
10.27* The Company's Amended and Restated 401(k) Plan and Trust, dated December 2, 1996.
10.28* First Amendment to the Company's 401(k) Plan and Trust, dated December 18, 1997.
10.29* Amendment No. 2 to the Company's 401(k) Plan and Trust, dated May 29, 1998.
10.30* The Company's Employee Stock Purchase Plan, dated December 21, 1998.
10.31 The Restated and Amended Loan Agreement, dated January 12, 1999, between the Company and Fleet
National Bank.
10.32* Lease Agreement, as amended, dated January 3, 1997, between the Company and Place Renaissance,
Ltd.
10.33 R-3 National Implementation Partner Agreement, as amended, dated April 2, 1996, between the
Company and SAP America, Inc.
10.34* Oracle Alliance Agreement, dated March 4, 1998, between the Company and Oracle Corporation.
10.35* Form of Indemnification Agreement for directors and officers.
10.36* Amendment to Amended and Restated Share Redemption and Purchase Agreement, dated October 13, 1997,
among the Company, Karen M. Conley, Nicholas A. Canitano, Annette M. Canitano and Joseph Minadeo.
10.37* Second Amendment to the Company's 1997 Equity and Performance Incentive Plan, dated December 21,
1998.
10.38 Stock Purchase Agreement, dated January 12, 1999, between the Company and Luc De Groof.
11** Statement regarding computation of per share earnings.
23.1** Consent of Jones, Day, Reavis & Pogue (included with Exhibit 5).
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Langford de Kock & Co.
24* Powers of Attorney.
27** Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
Exhibit 10.31
LOAN AGREEMENT
BY AND BETWEEN
CONLEY, CANITANO & ASSOC., INC.
AND
FLEET NATIONAL BANK, AS AGENT AND A LENDER
AND
THE OTHER FINANCIAL INSTITUTIONS NOW OR
HEREAFTER PARTIES HERETO
$15,000,000 SECURED REVOLVING CREDIT/TERM LOAN
APRIL 7, 1998
<PAGE> 2
INDEX TO
LOAN AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS AND ACCOUNTING AND OTHER TERMS.............................................................1
SECTION 1.1. CERTAIN DEFINED TERMS.............................................................................1
SECTION 1.2. ACCOUNTING TERMS.................................................................................15
SECTION 1.3. OTHER TERMS......................................................................................15
ARTICLE 2. AMOUNT AND TERMS OF THE LOANS.........................................................................15
SECTION 2.1. THE LOANS........................................................................................15
Section 2.1.0. The Revolving Credit/Term Loans.............................................................15
SECTION 2.2. INTEREST AND FEES ON THE LOANS...................................................................17
Section 2.2.1. Interest....................................................................................17
Section 2.2.2. Fees........................................................................................18
Section 2.2.3. Increased Costs - Capital...................................................................19
SECTION 2.3. NOTATIONS........................................................................................20
SECTION 2.4. COMPUTATION OF INTEREST..........................................................................20
SECTION 2.5. TIME OF PAYMENTS AND PREPAYMENTS IN IMMEDIATELY AVAILABLE FUNDS..................................20
Section 2.5.1. Time........................................................................................20
Section 2.5.2. Setoff, etc.................................................................................21
Section 2.5.3. Unconditional Obligations and No Deductions.................................................22
SECTION 2.6. PREPAYMENT AND CERTAIN PAYMENTS..................................................................22
Section 2.6.1. Mandatory Payments..........................................................................22
Section 2.6.2. Voluntary Prepayments.......................................................................23
Section 2.6.3. Prepayment of Libor Loans...................................................................23
Section 2.6.4. Permanent Reduction of Commitment...........................................................23
SECTION 2.7. PAYMENT ON NON-BUSINESS DAYS.....................................................................23
SECTION 2.8. USE OF PROCEEDS..................................................................................24
SECTION 2.9. SPECIAL LIBOR LOAN PROVISIONS....................................................................24
Section 2.9.1. Requests....................................................................................24
Section 2.9.2. Libor Loans Unavailable.....................................................................24
Section 2.9.3. Libor Lending Unlawful......................................................................25
Section 2.9.4. Additional Costs on Libor Loans.............................................................25
Section 2.9.5. Libor Funding Losses........................................................................27
Section 2.9.6. Banking Practices...........................................................................27
Section 2.9.7. Borrower's Options on Unavailability or Increased Cost of Libor Loans......................28
Section 2.9.8. Assumptions Concerning Funding of Libor Loans...............................................28
ARTICLE 3. CONDITIONS OF LENDING.................................................................................29
SECTION 3.1. CONDITIONS PRECEDENT TO THE COMMITMENT AND TO ALL LOANS..........................................29
Section 3.1.1. The Commitment and Initial Loans............................................................29
Section 3.1.2. The Commitment and the Loans................................................................32
ARTICLE 4. REPRESENTATIONS AND WARRANTIES........................................................................33
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER...................................................33
Section 4.1.1. Organization and Existence..................................................................33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.1.2. Authorization and Absence of Defaults.......................................................33
Section 4.1.3. Acquisition of Consents.....................................................................33
Section 4.1.4. Validity and Enforceability.................................................................34
Section 4.1.5. Financial Information.......................................................................34
Section 4.1.6. No Litigation...............................................................................34
Section 4.1.7. Regulation U................................................................................34
Section 4.1.8. Absence of Adverse Agreements...............................................................35
Section 4.1.9. Taxes.......................................................................................35
Section 4.1.10. ERISA......................................................................................35
Section 4.1.11. Ownership of Properties....................................................................36
Section 4.1.12. Accuracy of Representations and Warranties.................................................36
Section 4.1.13. No Investment Company......................................................................37
Section 4.1.14. Solvency, etc..............................................................................37
Section 4.1.15. Approvals..................................................................................37
Section 4.1.16. Ownership Interests........................................................................37
Section 4.1.17. Licenses, Registrations, Compliance with Laws, etc.........................................37
Section 4.1.18. Principal Place of Business; Books and Records.............................................38
Section 4.1.19. Subsidiaries...............................................................................38
Section 4.1.20. Copyright..................................................................................38
Section 4.1.21. Environmental Compliance...................................................................38
Section 4.1.22. Material Agreements, etc...................................................................38
Section 4.1.23. Patents, Trademarks and Other Property Rights..............................................39
Section 4.1.24. Related Transaction Documents..............................................................39
Section 4.1.25. Material Adverse Effect....................................................................39
Section 4.1.26. Transactions with Affiliates...............................................................39
ARTICLE 5. COVENANTS OF THE BORROWER.............................................................................39
SECTION 5.1. AFFIRMATIVE COVENANTS OF THE BORROWER OTHER THAN REPORTING REQUIREMENTS..........................39
Section 5.1.1. Payment of Taxes, etc.......................................................................39
Section 5.1.2. Maintenance of Insurance....................................................................40
Section 5.1.3. Preservation of Existence, etc..............................................................40
Section 5.1.4. Compliance with Laws, etc...................................................................41
Section 5.1.5. Visitation Rights...........................................................................41
Section 5.1.6. Keeping of Records and Books of Account.....................................................41
Section 5.1.7. Maintenance of Properties, etc..............................................................41
Section 5.1.8. Post-Closing Items..........................................................................41
Section 5.1.9. Other Documents, etc........................................................................41
Section 5.1.10. Minimum Interest Coverage Ratio............................................................41
Section 5.1.11. Minimum Debt Service Coverage Ratio........................................................41
Section 5.1.12. Maximum Ratio of Total Indebtedness for Borrowed Money to Adjusted EBITDA..................42
Section 5.1.12.1. Minimum Profitability.................................................................42
Section 5.1.12.2. Minimum Quick Ratio...................................................................42
Section 5.1.13. Officer's Certificates and Requests........................................................42
Section 5.1.14. Depository.................................................................................42
Section 5.1.15. Chief Executive Officer....................................................................42
Section 5.1.16. Notice of Purchase of Real Estate and Leases...............................................43
Section 5.1.17. Additional Assurances......................................................................43
Section 5.1.18. Appraisals.................................................................................43
Section 5.1.19. Environmental Compliance...................................................................43
Section 5.1.20. Remediation................................................................................43
Section 5.1.21. Site Assessments...........................................................................43
Section 5.1.22. Indemnity..................................................................................44
Section 5.1.23. Trademarks, Copyrights, etc................................................................44
Section 5.2. Negative Covenants of the Borrower............................................................44
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 5.2.1. Liens, etc..................................................................................44
Section 5.2.2. Assumptions, Guaranties, etc. of Indebtedness of Other Persons..............................45
Section 5.2.3. Acquisitions, Dissolution, etc..............................................................46
Section 5.2.4. Change in Nature of Business................................................................46
Section 5.2.5. Ownership...................................................................................46
Section 5.2.6. Sale and Leaseback..........................................................................46
Section 5.2.7. Sale of Accounts, etc.......................................................................46
Section 5.2.8. Indebtednessu...............................................................................47
Section 5.2.9. Other Agreements............................................................................47
Section 5.2.10. Reserved...................................................................................47
Section 5.2.11. Dividends, Payments and Distributions......................................................47
Section 5.2.12. Investments in or to Other Persons.........................................................48
Section 5.2.13. Transactions with Affiliates...............................................................48
Section 5.2.14. Change of Fiscal Year......................................................................48
Section 5.2.15. Subordination of Claims....................................................................48
Section 5.2.16. Compliance with ERISA......................................................................48
Section 5.2.17. Capital Expenditures.......................................................................49
Section 5.2.18. Hazardous Waste............................................................................49
Section 5.2.19 Other Restrictions on Liens.................................................................49
SECTION 5.3. REPORTING REQUIREMENTS...........................................................................49
ARTICLE 6. EVENTS OF DEFAULT.....................................................................................51
SECTION 6.1. EVENTS OF DEFAULT................................................................................51
ARTICLE 7. REMEDIES OF LENDERS...................................................................................54
ARTICLE 8. AGENT.................................................................................................54
SECTION 8.1. APPOINTMENT......................................................................................54
SECTION 8.2. POWERS; GENERAL IMMUNITY.........................................................................56
Section 8.2.1. Duties Specified............................................................................56
Section 8.2.2. No Responsibility For Certain Matters.......................................................56
Section 8.2.3. Exculpatory Provisions......................................................................56
Section 8.2.4. Agent Entitled to Act as Lender.............................................................57
SECTION 8.3. REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDITWORTHINESS..............57
SECTION 8.4. RIGHT TO INDEMNITY...............................................................................57
SECTION 8.5. PAYEE OF NOTE TREATED AS OWNER...................................................................58
SECTION 8.6. RESIGNATION BY AGENT.............................................................................59
SECTION 8.6. SUCCESSOR AGENT..................................................................................59
ARTICLE 9. MISCELLANEOUS.........................................................................................59
SECTION 9.1. CONSENT TO JURISDICTION AND SERVICE OF PROCESS...................................................60
SECTION 9.2. RIGHTS AND REMEDIES CUMULATIVE...................................................................60
SECTION 9.3. DELAY OR OMISSION NOT WAIVER.....................................................................61
SECTION 9.4. WAIVER OF STAY OR EXTENSION LAWS.................................................................61
SECTION 9.5. AMENDMENTS, ETC..................................................................................61
SECTION 9.6. ADDRESSES FOR NOTICES, ETC.......................................................................62
SECTION 9.7. COSTS, EXPENSES AND TAXES........................................................................63
SECTION 9.8. PARTICIPATIONS...................................................................................63
SECTION 9.9. BINDING EFFECT; ASSIGNMENT.......................................................................63
SECTION 9.10. ACTUAL KNOWLEDGE................................................................................64
SECTION 9.11. SUBSTITUTIONS AND ASSIGNMENTS...................................................................64
SECTION 9.12. PAYMENTS PRO RATA...............................................................................66
SECTION 9.13. INDEMNIFICATION.................................................................................66
SECTION 9.14. GOVERNING LAW...................................................................................68
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 9.15. SEVERABILITY OF PROVISIONS......................................................................68
SECTION 9.16. HEADINGS........................................................................................68
SECTION 9.17. COUNTERPARTS....................................................................................68
</TABLE>
iv
<PAGE> 6
SCHEDULE OF EXHIBITS
EXHIBIT 1.1 - OWNERSHIP INTERESTS AND SUBSIDIARIES
EXHIBIT 1.2 - RELATED TRANSACTION DOCUMENTS
EXHIBIT 1.4 - FORM OF INTEREST RATE ELECTION
EXHIBIT 1.5 - FORM OF REVOLVING CREDIT/TERM NOTE
EXHIBIT 1.8 - PERMITTED ENCUMBRANCES
EXHIBIT 1.9 - PRO RATA SHARES
EXHIBIT 1.10 - FORM OF REQUEST
EXHIBIT 1.12 - PROJECTIONS
EXHIBIT 3.1.1.8 - PERMITTED INDEBTEDNESS AND CAPITALIZED LEASES
EXHIBIT 3.1.1.10 - FORM OF COMPLIANCE CERTIFICATE
EXHIBIT 4.1.1 - FOREIGN QUALIFICATIONS
EXHIBIT 4.1.2 - AUTHORIZATIONS
EXHIBIT 4.1.3 - CONSENTS
EXHIBIT 4.1.6 - LITIGATION
EXHIBIT 4.1.8 - ADVERSE AGREEMENTS
EXHIBIT 4.1.9 - TAXES
EXHIBIT 4.1.11 - REAL PROPERTY
EXHIBIT 4.1.17 - GOVERNMENTAL PERMITS
EXHIBIT 4.1.20 - COPYRIGHTS
EXHIBIT 4.1.21 - HAZARDOUS WASTE
EXHIBIT 4.1.22 - MATERIAL CONTRACTS
EXHIBIT 4.1.23 - INTELLECTUAL PROPERTY
EXHIBIT 5.2.2 - GUARANTIES
EXHIBIT 5.2.13 - TRANSACTIONS WITH AFFILIATES
EXHIBIT 9.11.1 - FORM OF SUBSTITUTION AGREEMENT
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<PAGE> 7
LOAN AGREEMENT
Conley, Canitano & Assoc., Inc., an Ohio corporation with a principal
place of business at CCAi Renaissance Centre, 5800 Landerbrook Drive, Mayfield
Heights, Ohio 44124 (hereinafter the "Borrower"), Fleet National Bank, a
national banking association organized under the laws of the United States and
having a head office at One Federal Street, Boston, Massachusetts 02110
(hereinafter sometimes the "Agent" as Agent for itself, sometimes "Fleet" and
sometimes a "Lender") and each of the other Lenders who now and/or hereafter
become parties to this Agreement pursuant to the terms of SECTION 9.11 hereof,
and such Lenders and Fleet as Lenders, hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND ACCOUNTING AND OTHER TERMS
SECTION 1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ACQUIRED COMPANY" means Kelly-Levey & Associates, Inc., a Kentucky
corporation with a place of business at 7900 Tanner's Gate Lane, Suite 330,
Florence, Kentucky 41042.
"ADJUSTED EBITDA" means, for any fiscal period, Net Income MINUS, to
the extent not accounted for in Net Income, any deferred consideration (whether
in the form of earn-outs, conditional payments or other post-closing acquisition
payments) payable in connection with a Permitted Acquisition, PLUS, to the
extent accounted for in Net Income, Interest Expense, taxes, depreciation,
amortization, other noncash charges and non-recurring extraordinary costs
(including one-time cash acquisition expenses of up to $500,000 per each
Permitted Acquisition) incurred by the Borrower and any Subsidiaries in
connection with closing of the Loans, the Related Transaction and any Permitted
Acquisition, PLUS, excess compensation expense incurred by the Borrower and any
Subsidiaries prior to September 30, 1997, all determined on an accrual and
consolidated basis in accordance with GAAP. With respect to any entity acquired
by the Borrower, pro-forma adjustments to the calculation of Adjusted EBITDA
shall be agreed upon by the Borrower and the Agent to reflect such acquisition.
"ADJUSTED LIBOR RATE" means, with respect to any Libor Loan to be made
by the Lenders for the Interest Period applicable to such Libor Loan, the
interest rate per annum determined by the Agent (fixed throughout such Interest
Period (subject to adjustments for the Libor Rate Reserve Percentage)) and
rounded upwards, if necessary, to the next 1/16 of 1%) which is equal to the
quotient of (i) the rate of interest determined by the Agent to be the average
of the interest rates per annum at which Dollar deposits in immediately
available funds are offered to each Reference Lender by first-class banks in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the Business Day on which such Interest Period begins, in an
amount approximately equal to the principal amount of such Libor Loan, for a
period of time equal to such Interest Period and (ii) a number equal to the
number one minus the
<PAGE> 8
Libor Rate Reserve Percentage. The "Libor Rate Reserve Percentage" applicable to
any Interest Period means the average of the maximum effective rates (expressed
as a decimal) of the statutory reserve requirements (without duplication, but
including, without limitation, basic, supplemental, marginal and emergency
reserves) applicable to each Reference Lender during such Interest Period under
regulations of the Board of Governors of the Federal Reserve System (or any
successor), including without limitation Regulation D or any other regulation
dealing with maximum reserve requirements which are applicable to each Reference
Lender with respect to its "Eurocurrency Liabilities", as that term may be
defined from time to time by the Board of Governors of the Federal Reserve
System (or any successor) or are otherwise imposed by the Board of Governors of
the Federal Reserve System (or any successor) and which in any other respect
relate directly to the funding of loans bearing interest at rates based on the
interest rates at which Dollar deposits in immediately available funds are
offered to banks by first-class banks in the London interbank market. If any
Reference Lender fails to provide its offered quotation to the Agent, the
Adjusted Libor Rate shall be determined on the basis of the offered quotation of
the other Reference Lender. The Adjusted Libor Rate shall be adjusted
automatically on and as of the effective date of any change in the Libor Rate
Reserve Percentage.
"ADVANCE" and "ADVANCES" means the funding by any Lender of all or a
portion of the Loans in accordance with this Agreement.
"AFFILIATE" means singly and collectively, TA Associates and any Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, the Borrower. For purposes of
this definition, a Person shall be deemed to be "controlled by" the Borrower if
the Borrower possesses, directly or indirectly, power either to (i) vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person or (ii) direct or cause the direction of the management
and policies of such Person whether by contract or otherwise, and the legal
representative, successor or assign of any such Person.
"AGENT" means Fleet National Bank or any other Person which is at the
time in question serving as the agent under the terms of Article 8 hereof and
the other Financing Documents.
"AGREEMENT" means this loan agreement, as the same may from time to
time be amended.
"A.M." means a time from and including 12 o'clock midnight to and
excluding 12 o'clock noon on any Business Day using Eastern Standard (Daylight
Savings) time.
"APPLICABLE MARGIN" means for each Libor Loan, two and one-quarter
percent (2.25%) per annum; provided, however, that if, at any time on or after
the receipt by the Agent of the quarterly financial statements for the
Borrower's March 31, 1998 fiscal quarter and each subsequent Borrower fiscal
quarter provided to the Agent by the Borrower pursuant to SECTION 5.3.3 hereof,
the ratio of (a) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of the most recently
ended fiscal quarter of the Borrower to (b) Adjusted EBITDA for such fiscal
quarter and for the three immediately preceding Borrower fiscal quarters, (i) is
less than 2.0:1.0, but greater than or equal to 1.50:1.0 and if and so long as
no Event of Default or Default exists and is continuing, the Applicable
2
<PAGE> 9
Margin shall, subject to the next-to-last sentence of this definition, be two
percent (2.00%) per annum, or (ii) is less than 1.50:1.0, but greater than or
equal to 1.0:1.0 and if and so long as no Event of Default or Default exists and
is continuing, the Applicable Margin shall, subject to the next-to-last sentence
of this definition, be one and three-quarters percent (1.75%) per annum, or
(iii) less than 1.0:1.0, and if and so long as no Event of Default or Default
exists and is continuing, the Applicable Margin shall, subject to the
next-to-last sentence of this definition, be one and one-half percent (1.50%)
per annum; provided further, however, that if on any date the Borrower would be
entitled to an Applicable Margin other than 2.25% except for the fact that a
Default exists, the Applicable Margin shall not change until the first to occur
of (a) such Default becoming an Event of Default and (b) waiver or cure of such
Default, at which time the Applicable Margin shall be adjusted or remain the
same in accordance with the provisions of this definition preceding this further
proviso.
Any change in the Applicable Margin required pursuant to the foregoing
shall become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the Borrower's fiscal quarter or year-end, as
the case may be, in question and only after, in the case of a decrease in the
Applicable Margin, receipt by the Agent of a written request for such rate
decrease from the Borrower; provided, however, that each of the above-referenced
interest rates shall remain in effect only so long as Borrower qualifies
therefor and provided further, however, that interest rate reductions shall
become final only on the basis of Borrower's annual audited financial statements
and in the event that such annual audited financial statements establish that
the Borrower was not entitled to a rate reduction which was previously granted,
the Borrower shall, upon written demand by the Agent, repay to the Agent for the
account of each Lender an amount equal to the excess of interest at the rate
which should have been charged based on such annual audited financial statements
and the rate actually charged on the basis of Borrower's quarterly financial
statement(s) (provided that in the event of a dispute as to the appropriate
fiscal quarter as to which any adjustment should be allocated, the decision of
the independent accountants of the Borrower shall be made in accordance with
GAAP and shall be binding upon the Agent, the Lenders and the Borrower absent
manifest error); and provided further, however, that in the event that Borrower
fails to provide any financial statement on a timely basis in accordance with
SECTION 5.3.3, any interest rate increase payable as a result thereof shall be
retroactively effective to the date on which the financial statement in question
should have been received by the Agent in accordance with SECTION 5.3.3, and the
Borrower shall pay any amount due as a result thereof upon written demand from
the Agent. The Agent shall send the Borrower written acknowledgment of each
change in the Applicable Margin in accordance with the Agent's customary
procedures as in effect from time to time, but the failure to send such
acknowledgment shall have no effect on the effectiveness or applicability of the
foregoing provisions of this definition or Borrower's obligations with respect
to payment and calculation of interest on Libor Loans.
"AUTHORIZED REPRESENTATIVE" means such senior personnel of the Borrower
as shall be duly authorized and designated in writing by the Borrower to execute
documents, instruments and agreements on its behalf and to perform the functions
of Authorized Representative under any of the Financing Documents.
3
<PAGE> 10
"BORROWED MONEY" means any obligation to repay funded Indebtedness, any
Indebtedness evidenced by notes, bonds, debentures, guaranties or similar
obligations including without limitation the Loans and any obligation to pay
money under a conditional sale or other title retention agreement, the net
aggregate rentals payable under any Capitalized Lease Obligation, any
reimbursement obligation for any letter of credit and any obligations in respect
of banker's and other acceptances or similar obligations.
"BORROWER" has the meaning assigned in the first paragraph of this
Agreement.
"BUDGET" has the meaning assigned to such term in SECTION 5.3.7.
"BUSINESS CONDITION" means the financial condition, business, property,
assets, liabilities and/or operations of a Person.
"BUSINESS DAY" means (i) for all purposes other than as covered by
clause (ii) below, any day on which banks in Boston, Massachusetts or New York,
New York are not authorized or required by applicable law to close; and (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Libor Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in Dollar deposits in the London interbank market.
"CAPITAL EXPENDITURES" means all expenditures paid or incurred by the
Borrower or any Subsidiary in respect of (i) the acquisition, construction,
improvement or replacement of land, buildings, machinery, equipment, any other
fixed assets or leaseholds and (ii) to the extent related to and not included in
(i) above, materials, contract labor and direct labor, which expenditures have
been or should be, in accordance with GAAP, capitalized on the books of the
Borrower or such Subsidiary. Where a fixed asset is acquired by a lease which is
required to be capitalized pursuant to Statement of Financial Accounting
Standards number 13 or any successor thereto, the amount required to be
capitalized in accordance therewith shall be considered to be an expenditure in
the year such asset is first leased.
"CAPITALIZED LEASE OBLIGATIONS" means all lease obligations which have
been or should be, in accordance with GAAP, capitalized on the books of the
lessee.
"CASH EQUIVALENT INVESTMENTS" means any Investment in (i) direct
obligations of the United States or any agency, authority or instrumentality
thereof, or obligations guaranteed by the United States or any agency, authority
or instrumentality thereof, whether or not supported by the full faith and
credit of, a right to borrow from or the ability to be purchased by the United
States; (ii) commercial paper rated in the highest grade by a nationally
recognized statistical rating agency or which, if not rated, is issued or
guaranteed by any issuer with outstanding long-term debt rated A or better by
any nationally recognized statistical rating agency; (iii) demand and time
deposits with, and certificates of deposit and bankers acceptances issued by,
any office of the Agent, any Lender or any other bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000, the
outstanding long-term debt of which or of the holding company of which it is a
subsidiary is rated A or better by any nationally recognized statistical
4
<PAGE> 11
rating agency; (iv) any short-term note which has a rating of MIG-2 or better by
Moody's Investors Service Inc. or a comparable rating from any other nationally
recognized statistical rating agency; (v) any municipal bond or other
governmental obligation (including without limitation any industrial revenue
bond or project note) which is rated A or better by any nationally recognized
statistical rating agency; (vi) any other obligation of any issuer, the
outstanding long-term debt of which is rated A or better by any nationally
recognized statistical rating agency; (vii) any repurchase agreement with any
financial institution described in clause (iii) above, relating to any of the
foregoing instruments and fully collateralized by such instruments; (viii)
shares of any open-end diversified investment company that has its assets
invested only in investments of the types described in clause (i) through (vii)
above at the time of purchase and which maintains a constant net asset value per
share; and (ix) shares of any open-end diversified investment company registered
under the Investment Company Act of 1940, as amended, which maintains a constant
net asset value per share in accordance with regulations of the Securities &
Exchange Commission, has aggregate net assets of not less than $50,000,000 on
the date of purchase and either derives at least 95% of its gross income from
interest on or gains from the sale of investments of the type described in
clauses (i) through (vii), above or has at least 85% of the weighted average
value of its assets invested in investments of such types; provided that the
purchase of any shares in any particular investment company shall be limited to
an aggregate amount owned at any one time of $500,000. Each Cash Equivalent
Investment shall have a maturity of less than one year at the time of purchase;
provided that the maturity of any repurchase agreement shall be deemed to be the
repurchase date and not the maturity of the subject security and that the
maturity of any variable or floating rate note subject to prepayment at the
option of the holder shall be the period remaining (including any notice period
remaining) before the holder is entitled to prepayment.
"CHANGE OF CONTROL" means, any one of the following events: (i) any
change in the ownership of the Borrower such that TA Associates, Nicholas A. and
Annette M. Canitano (and/or any trusts established fore the benefit of Nicholas
A. and Annette M. Canitano) and Kenneth L. and Karen M. Conley (and/or any
trusts established for the benefit of Kenneth L. and Karen M. Conley) in the
aggregate own less than 51% of the equity interests in the Borrower or (ii) any
decrease in any of the voting rights in the Borrower now held by TA Associates,
Nicholas A. and Annette M. Canitano (and/or any trusts established fore the
benefit of Nicholas A. and Annette M. Canitano) and Kenneth L. and Karen M.
Conley (and/or any trusts established for the benefit of Kenneth L. and Karen M.
Conley) such that they cease to collectively hold 51% or more of the voting
rights in the Borrower.
"CLOSING DATE" means the date on which all of the conditions precedent
set forth in SECTION 3.1 of this Agreement have been satisfied and the Loan is
funded in accordance with this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITMENT" means the Lenders' several commitments to make or maintain
the Loans as set forth in SECTION 2.1 hereof in the maximum outstanding amount
of each Lender's Pro Rata Share of $15,000,000 less the reductions, prepayments
or repayments, as the case may be set forth in SECTIONS 2.1 and 2.6.
5
<PAGE> 12
"COMMONLY CONTROLLED ENTITY" means a Person, whether or not
incorporated, which is under common control with the Borrower within the meaning
of section 414(b) or (c) of the Code.
"CONVERSION DATE" means June 30, 1999.
"CURRENT LIABILITIES" means all liabilities of the Borrower and the
Subsidiaries which would, in accordance with GAAP on a consolidated basis, be
classified as current liabilities of corporations conducting a business the same
as or similar to that of the Borrower and any Subsidiaries, including without
limitation, all lease rental payments under Capitalized Lease Obligations and
fixed prepayments of, and sinking fund payments and reserves with respect to,
Indebtedness, in each case required to be made within one year from the date of
determination.
"DEFAULT" means an event or condition which with the giving of notice
or lapse of time or both would become an Event of Default.
"DISCHARGED RIGHTS AND OBLIGATIONS" shall have the meaning assigned to
such term in SECTION 9.11.4.
"DOLLARS" and the sign "$" mean lawful money of the United States of
America.
"EFFECTIVE PRIME" means the Prime Rate plus three-quarters of one
percent (.75%) per annum; provided, however, that if, at any time on or after
the receipt by the Agent of the quarterly financial statements for the
Borrower's March 31, 1998 fiscal quarter and each subsequent Borrower fiscal
quarter provided to the Agent by the Borrower pursuant to SECTION 5.3.3 hereof,
the ratio of (a) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of the most recently
ended fiscal quarter of the Borrower to (b) Adjusted EBITDA for such fiscal
quarter and for the three immediately preceding Borrower fiscal quarters, (i) is
less than 2.0:1.0, but greater than or equal to 1.50:1.0 and if and so long as
no Event of Default or Default exists and is continuing, Effective Prime shall,
subject to the next-to-last sentence of this definition, be the Prime Rate plus
one-half of one percent (.50%) per annum, or (ii) is less than 1.50:1.0, but
greater than or equal to 1.0:1.0 and if and so long as no Event of Default or
Default exists and is continuing, Effective Prime shall, subject to the
next-to-last sentence of this definition, be the Prime Rate plus one-quarter of
one percent (.25%) per annum, or (iii) is less than 1.0:1.0, and if and so long
as no Event of Default or Default exists and is continuing, Effective Prime
shall, subject to the next-to-last sentence of this definition, be the Prime
Rate per annum; provided, further, however, that if on any date the Borrower
would be entitled to an Effective Prime other than the Prime Rate plus .75%
except for the fact that a Default exists, the Effective Prime shall not change
until the first to occur of (a) such Default becoming an Event of Default and
(b) waiver or cure of such Default, at which time the Effective Prime shall be
adjusted or remain the same in accordance with the provisions of this definition
preceding this further proviso.
Any change in Effective Prime required pursuant to the foregoing shall
become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the
6
<PAGE> 13
Borrower's fiscal quarter or year-end, as the case may be, in question and only
after, in the case of a decrease in Effective Prime, receipt by the Agent of a
written request for such rate decrease from the Borrower; provided, however,
that each of the above-referenced interest rates shall remain in effect only so
long as Borrower qualifies therefor and provided further, however, that interest
rate reductions shall become final only on the basis of Borrower's annual
audited financial statements and in the event that such annual audited financial
statements establish that the Borrower was not entitled to a rate reduction
which was previously granted, the Borrower shall, upon written demand by the
Agent repay to the Agent for the account of each Lender an amount equal to the
excess of interest at the rate which should have been charged based on such
annual audited financial statements and the rate actually charged on the basis
of Borrower's quarterly financial statement(s) (provided that in the event of a
dispute as to the appropriate fiscal quarter as to which any adjustment should
be allocated, the decision of the independent accountants of the Borrower shall
be made in accordance with GAAP and shall be binding upon the Agent, the Lenders
and the Borrower absent manifest error); and provided further, however, that in
the event that Borrower fails to provide any financial statement on a timely
basis in accordance with SECTION 5.3.3, any interest rate increase payable as a
result thereof shall be retroactively effective to the date on which the
financial statement in question should have been received by the Agent in
accordance with SECTION 5.3.3, and the Borrower shall pay any amount due as a
result thereof upon written demand from the Agent. The Agent shall send the
Borrower written acknowledgment of each change in the Effective Prime in
accordance with the Agent's customary procedures as in effect from time to time,
but the failure to send such acknowledgment shall have no effect on the
effectiveness or applicability of the foregoing provisions of this definition or
Borrower's obligations with respect to payment and calculation of interest on
Prime Rate Loans.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
amended from time to time.
"EVENTS OF DEFAULT" has the meaning assigned to that term in SECTION
6.1 of this Agreement.
"EXCESS CASH FLOW" means, for any fiscal year of the Borrower, the sum
of Adjusted EBITDA for each Borrower fiscal quarter in such fiscal year, MINUS
the sum of (i) an amount equal to the sum of payments included in Total Debt
Service paid during each fiscal quarter in such fiscal year, (ii) to the extent
not included in Total Debt Service, all Capital Expenditures permitted under
SECTION 5.2.17 and paid during each Borrower fiscal quarter in such fiscal year,
(iii) taxes payable during each Borrower fiscal quarter in such fiscal year,
(iv) to the extent included in Adjusted EBITDA, non-recurring, extraordinary
cash acquisition expenses incurred by the Borrower and (v) to the extent
included in Adjusted EBITDA, excess compensation expense incurred by the
Borrower and any Subsidiaries prior to September 30, 1997, PLUS decreases and
MINUS increases in working capital.
"EXHIBIT" means, when followed by a letter, the exhibit attached to
this Agreement bearing that letter and by such reference fully incorporated in
this Agreement.
"FACILITY FEE" means, the fee payable by the Borrower in accordance
with the Side Letter.
7
<PAGE> 14
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/16th of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York, PROVIDED that (i) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next succeeding Business Day as so published, and (ii) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to the Agent on such
day on such transactions as determined by the Agent in its discretion exercised
in good faith.
"FINANCING DOCUMENTS" means, collectively, this Agreement, each Note,
the Security Documents, the Side Letter, the Post-Closing Letter, any Letter of
Credit or Letter of Credit Agreement, any agreement with any Lender providing
any interest rate protection arrangement and each other agreement, instrument or
document now or hereafter executed in connection herewith or therewith.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America.
"HAZARDOUS MATERIAL" shall mean any substance or material defined or
designated as a hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or other similar term, by any United States federal, state
or local environmental statute, regulation or ordinance.
"INDEBTEDNESS" means, without duplication for any Person, (i) all
indebtedness or other obligations of said Person for Borrowed Money or for the
deferred purchase price of property or services, including, without limitation,
all reimbursement obligations of said Person with respect to standby and/or
documentary letters of credit (ii) all indebtedness or other obligations of any
other Person ("Other Person") for Borrowed Money or for the deferred purchase
price of property or services, the payment or collection of which said Person
has guaranteed (except by reason of endorsement for deposit or collection in the
ordinary course of business) or in respect of which said Person is liable,
contingently or otherwise, including, without limitation, liable by way of
agreement to purchase or lease, to provide funds for payment, to supply funds to
purchase, sell or lease property or services primarily to assure a creditor of
such Other Person against loss or otherwise to invest in or make a loan to the
Other Person, or otherwise to assure a creditor of such Other Person against
loss, (iii) all indebtedness or other obligations of any Person for Borrowed
Money or for the deferred purchase price of property or services secured by (or
for which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in any property owned by said
Person, whether or not said Person has assumed or become liable for the payment
of such indebtedness or obligations, (iv) Capitalized Lease Obligations of said
Person and (v) obligations of such Person under contracts pursuant to which such
Person has agreed to purchase interest rate protection or swap interest rate
obligations.
8
<PAGE> 15
"INTEREST ADJUSTMENT DATE" means (i) as to any Prime Rate Loan to be
converted to a Libor Loan the Business Day elected by the Borrower in its
applicable Interest Rate Election, but being not less than three (3) Business
Days after the receipt by the Agent before 12:00 o'clock P.M. on a Business Day
of an Interest Rate Election electing the Libor Rate as the interest rate on
such Loan; and (ii) as to any Libor Loan, the last Business Day of the Interest
Period pertaining to such Libor Loan.
"INTEREST EXPENSE" means, with respect to any fiscal quarter, the
aggregate amount required to be accrued by the Borrower and any Subsidiaries in
such fiscal quarter for interest, fees (excluding, however, the Facility Fee),
charges and expenses, however characterized, on its Indebtedness, including,
without limitation, all such interest, fees, charges and expenses required to be
accrued with respect to Indebtedness under the Financing Documents, all
determined in accordance with GAAP.
"INTEREST PERIOD" means:
With respect to each Libor Loan:
(i) initially, the period commencing on the date of such Libor
Loan and ending one, two, three or six months thereafter as the
Borrower may elect in the applicable Interest Rate Election and subject
to SECTION 2.9; and
(ii) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Libor Loan and
ending one, two, three or six months thereafter as the Borrower may
elect in the applicable Interest Rate Election and subject to SECTION
2.9;
PROVIDED THAT clauses (i) and (ii) of this definition are subject to
the following:
(A) any Interest Period (other than an Interest Period determined
pursuant to clause (C) below) which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day;
(B) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clause (C) below, end on the last Business Day of a calendar month; and
(C) no Interest Period shall end after the Repayment Date; and
(D) with respect to all Libor Loans, no more than three (3) Interest
Periods may be in effect at any time.
"INTEREST RATE ELECTION" means the Borrower's irrevocable telecopied or
telephonic notice of election, which shall be promptly confirmed by a written
notice of election that Effective
9
<PAGE> 16
Prime or the Libor Rate shall apply to all or any portion of the Loans, which
shall, subject to this Agreement, be effective on the next Interest Adjustment
Date, such telecopied or telephonic notice and written confirmation thereof to
be in the form of EXHIBIT 1.4 and to be received by the Agent prior to 12:00
o'clock P.M. on a Business Day and at least three (3) Business Days prior to an
Interest Adjustment Date in the case of a Libor Loan, and by 12:00 p.m. on an
Interest Adjustment Date in the case of a Prime Rate Loan (or four (4) Business
Days in the case of an Interest Rate Election as to which the consent of the
Lenders is required), each such Interest Rate Election, subject to the terms of
this Agreement to apply to the Advance or the Loan referred to in such Interest
Rate Election or to effect a change in the interest rate on the applicable
portion of the Loans then outstanding, as applicable, with respect to which such
Interest Rate Election was made, such change to occur on the Interest Adjustment
Date next succeeding receipt of such Interest Rate Election by the Agent. Any
Interest Rate Election received by the Agent after 12 o'clock P.M. on a Business
Day shall be deemed, for all purposes of this Agreement to have been received
prior to 12 o'clock P.M. on the next succeeding Business Day.
"INVESTMENT" means any investment in any Person whether by means of a
purchase of capital stock, notes, bonds, debentures or other evidences of
Indebtedness and/or by means of a capital or partnership contribution, loan,
deposit, advance or other means.
"LENDER" means Fleet or any financial institution which hereafter
becomes a party hereto pursuant to the terms of SECTION 9.11, each in their
individual capacity, and "Lenders" means Fleet and each of such financial
institutions.
"LETTER OF CREDIT" means an irrevocable stand-by or commercial letter
of credit issued by the Agent for the account of the Borrower pursuant to a
Letter of Credit Agreement subject to and in accordance with this Agreement.
"LETTER OF CREDIT AGREEMENT" means an application and agreement for
stand-by or commercial letter of credit in such form as may at any time be
customarily required by the Agent for its issuance of stand-by or commercial
letters of credit.
"LIBOR LOAN" means any portion of any Loan bearing interest at the
Libor Rate.
"LIBOR RATE" means, for any Interest Period, the Adjusted Libor Rate in
effect on the first day of such Interest Period (subject to adjustment as
provided in the definition of Adjusted Libor Rate) plus the Applicable Margin
for Libor Loans from time to time in effect.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or other security agreement
or preferential arrangement of any kind or nature whatsoever (including without
limitation any conditional sale or other title retention agreement and any
Capitalized Lease Obligation) having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the
applicable Uniform Commercial Code or comparable law of any jurisdiction in
respect of any of the foregoing.
10
<PAGE> 17
"LOANS" and "LOAN" means at any time the outstanding principal amount
of Indebtedness owed to the Lenders or to any lender, as the context may require
pursuant to this Agreement.
"MAJORITY LENDERS" means Lenders holding an aggregate Pro Rata Share of
the outstanding principal balance of the Loans in an amount in excess of 50.1%
of the total outstanding principal balance of the Loans and if there is no
outstanding principal balance of the Loans, Lenders having at least 50.1% of the
Commitment.
"MATERIAL ADVERSE EFFECT" means material adverse effect on (i) the
ability of the Borrower or any Subsidiary to fulfill their obligations under any
of the Financing Documents, (ii) the Business Condition of the Borrower or any
Subsidiary or (iii) the ability of the Borrower to consummate the Related
Transactions.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"NET INCOME" means, for any fiscal period, the net after tax income
(loss) of the Borrower and any Subsidiaries for such period determined on an
accrual and consolidated basis in accordance with GAAP.
"NOTE" means any promissory note of the Borrower payable to the order
of a Lender and substantially in the form of EXHIBIT 1.5 and evidencing all or a
portion of the Loan and "Notes" means all of the Notes, collectively.
"OBLIGATIONS" mean any and all Indebtedness, obligations and
liabilities of Borrower and/or any Subsidiaries under any of the Financing
Documents to any one or more of the Lenders and/or the Agent of every kind and
description, absolute or contingent, due or to become due, whether for payment
or performance, now existing or hereafter arising, including, without
limitation, all Loans, interest, taxes, fees, charges, and expenses under the
Financing Documents and attorneys' fees chargeable to the Borrower and/or any
Subsidiaries or incurred by any of the Lenders and/or the Agent under any of the
Financing Documents.
"OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Representative and delivered to the Agent on behalf of the Lenders.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to subtitle A of Title IV of ERISA.
"P.M." means a time from and including 12 o'clock noon on any Business
Day to the end of such Business Day using Eastern Standard (Daylight Savings)
time.
"PERMITTED ACQUISITION" means any acquisition (whether in one
transaction or in a series of transactions) of all or any substantial portion of
the assets or ownership interests in another Person, or any merger,
consolidation or combination(whether in one transaction or in a series of
transactions) with another Person permitted pursuant to the terms of SECTION
5.2.3 hereof,
11
<PAGE> 18
including, without limitation, the acquisition of the Acquired Company by the
Borrower pursuant to the Related Transaction Documents.
"PERMITTED ENCUMBRANCES" means each Lien granted pursuant to any of the
Security Documents, those Liens, security interests and defects in title
permitted under SECTION 5.2.1 and those Liens listed on EXHIBIT 1.8 hereto.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"PLAN" means an employee benefit plan as defined in Section 3(3) of
ERISA maintained for employees of the Borrower or any Commonly Controlled
Entity.
"POST-CLOSING LETTER" means that certain letter agreement between the
Borrower and the Agent dated the Closing Date and listing certain post-closing
actions to be completed by the Borrower.
"PREMISES" has the meaning assigned to such term in SECTION 4.1.22.1.
"PRIME RATE" means the higher of (i) the floating rate of interest per
annum designated from time to time by the Agent as being its "prime rate" of
interest, such interest rate to be adjusted on the effective date of any change
thereof by the Agent, it being understood that such rate of interest may not be
the lowest rate of interest from time to time charged by the Agent and (ii) the
Federal Funds Rate, such interest rate to be adjusted on the effective date of
any change thereof by the Federal Reserve Bank of New York.
"PRIME RATE LOAN(S)" means any portion of the Loans bearing interest at
Effective Prime.
"PROJECTIONS" means the Borrower's written projections of Borrower's
1-year future performance on a consolidated basis delivered to the Agent prior
to the Closing and attached to this Agreement as EXHIBIT 1.12.
"PRO RATA SHARE" means (i) with respect to the Commitment, each
Lender's percentage share of the Commitment as set forth immediately opposite
such Lender's name on EXHIBIT 1.9, and (ii) with respect to the Loans, each
Lender's percentage share of the aggregate outstanding principal balance of the
Loans and "Pro Rata Shares" means such percentage shares of the Lenders.
"REFERENCE LENDER(S)" means the Agent unless the Agent resigns said
responsibility, at which time and thereafter such term means one or two Lenders
selected by the Agent in its discretion from time to time as a reference lender
for purposes of determining the Adjusted Libor Rate.
"RELATED TRANSACTION" means the acquisition by the Borrower of the
Acquired Company.
12
<PAGE> 19
"RELATED TRANSACTION DOCUMENTS" means the documents listed on EXHIBIT
1.2.
"REPAYMENT DATE" means the earlier to occur of (i) June 30, 2003 and
(ii) such earlier date on which the Revolving Credit/Term Loan becomes due and
payable pursuant to the terms hereof.
"REPORTABLE EVENT" shall have the meaning assigned to that term in
Section 4043 of ERISA for which the requirement of 30 days' notice to the PBGC
has not been waived by the PBGC.
"REQUEST" means a written request for the Loans in the form of EXHIBIT
1.10, received by the Agent on behalf of the Lenders from the Borrower in
accordance with this Agreement, specifying the date on which the Borrower
desires such Loans and the disbursement instructions of the Borrower with
respect thereto.
"REVOLVING CREDIT FORMULA AMOUNT means an amount equal to (i) 2.50
multiplied by (ii) Adjusted EBITDA as at each Borrower fiscal quarter end for
the rolling four Borrower fiscal quarter period consisting of the Borrower
fiscal quarter then ending and the three immediately preceding Borrower fiscal
quarters. Any change in the Revolving Credit Formula Amount shall become
effective on the fifth Business Day after the Agent receives the Borrower's
financial statement for the Borrower's fiscal quarter or year-end, as the case
may be, in question; provided, however, that the Revolving Credit Formula Amount
shall remain in effect only so long as Borrower qualifies therefor.
"REVOLVING CREDIT/TERM LOAN" means the revolving credit/term loans to
be made by the Lenders to the Borrower from time to time in the maximum
outstanding principal amount of the Commitment, all subject and pursuant to
SECTION 2.1.0.
"REVOLVING CREDIT/TERM NOTE" means each revolving credit/term note of
the Borrower, payable to the order of a Lender in the form of EXHIBIT 1.5 hereto
evidencing the Indebtedness of the Borrower to such Lender with respect to the
Revolving Credit/Term Loan.
"SECTION" means, when followed by a number, the section or subsection
of this Agreement bearing that number.
"SECURITY DOCUMENTS" means any and all documents, instruments and
agreements now or hereafter providing security for the Loans and any other
Indebtedness of the Borrower or any Subsidiary to any of the Lenders and/or the
Agent, including without limitation the following documents, instruments and
agreements between the Agent and the Borrower or any Subsidiary; any mortgages
on and collateral assignments of real property interests (fee, leasehold and
easement) of the Borrower and any Subsidiary granting Liens thereon; landlord
lien waivers and consents as may be reasonably requested by the Agent; security
agreements granting first Liens on all Borrower's and any Subsidiary's fixtures
and tangible and intangible personal property; collateral assignments of
Borrower's and any Subsidiary's contracts, licenses, permits, easements and
leases; collateral assignments of Borrower's and any Subsidiary's copyrights;
conditional assignments of Borrower's and any Subsidiary's trademarks; any
Subordination Agreement; any
13
<PAGE> 20
guaranty by a Subsidiary; any pledge of the capital stock of any Subsidiary;
casualty and liability insurance policies providing coverage to the Agent for
the benefit of the Lenders, UCC-1 financing statements or similar filings
perfecting the above-referenced security interests, pledges and assignments, all
as executed, delivered to and accepted by the Agent on or prior to the Closing
Date or subsequent to the Closing Date as may be required by this Agreement, as
any of the foregoing may be amended in writing by the Agent and any other party
or parties thereto.
"SELLING LENDER" shall have the meaning assigned to such term in
SECTION 9.11.1.
"SIDE LETTER" means that certain side letter of even date with this
Agreement between the Borrower and the Agent regarding certain fees payable by
the Borrower.
"SINGLE EMPLOYER PLAN" means any Plan as defined in Section 4001(a)(15)
of ERISA.
"STOCKHOLDERS" means collectively, TA Associates, Nicholas A. and
Annette M. Canitano (and/or any trusts established fore the benefit of Nicholas
A. and Annette M. Canitano) and Kenneth L. and Karen M. Conley (and/or any
trusts established for the benefit of Kenneth L. and Karen M. Conley).
"SUBSIDIARY" means any corporation or entity other than the Borrower of
which more than 50% of the outstanding capital stock or voting interests or
rights having ordinary voting power to elect a majority of the board of
directors or other managers of such entity (irrespective of whether or not at
the time capital stock or voting interests or rights of any other class or
classes of such Person shall or might have voting power upon the occurrence of
any contingency) is at the time directly or indirectly owned by the Borrower or
by the Borrower and/or one or more Subsidiaries or the management of which
corporation or entity is under control of the Borrower and/or any other
Subsidiary, directly or indirectly through one or more Persons and any other
Person which, under GAAP, should at any time for financial reporting purposes be
consolidated or combined with the Borrower and/or any other Subsidiary.
"SUBSTITUTED LENDER" has the meaning set forth in SECTION 9.11 hereof.
"SUBSTITUTION AGREEMENT" has the meaning assigned to such term in
SECTION 9.11.1.
"TA ASSOCIATES" means any venture capital or other fund or entity for
which TA Associates, Inc., a Delaware corporation and/or one or more general
partners of TA Associates, Inc. directly or indirectly through one or more
intermediaries serves as general partner, manager or in a like capacity.
"TOTAL DEBT SERVICE" means, at any date of determination, the sum of
(i) Interest Expense and (ii) scheduled and mandatory principal payments for the
fiscal period in question due on account of any Indebtedness of the Borrower,
but excluding any mandatory payments of principal required pursuant to SECTIONS
2.6.1.2, 2.6.1.3 and 2.6.1.4.
"UNUSED FEES" has the meaning assigned to such term in SECTION 2.2.2.
14
<PAGE> 21
SECTION 1.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, calculations of
amounts for the purposes of calculating any financial covenants or ratios
hereunder shall be made in accordance with GAAP applied on a basis consistent
with those used in the Borrower's financial statements referred to in SECTION
4.1.5 (other than departures therefrom not material in their impact), and all
financial data submitted pursuant to this Agreement shall be prepared in
accordance with GAAP (except, in the case of unaudited financial statements, the
absence of footnotes and that such statements are subject to changes resulting
from year-end adjustments made in accordance with GAAP).
SECTION 1.3. OTHER TERMS. References to "Articles", "Sections",
"subsections" and "Exhibits" shall be to Sections, subsections and Exhibits and
of this Agreement unless otherwise specifically provided. In this Agreement,
"hereof," "herein," "hereto," "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 genders; references to "writing" include printing, typing, lithography and
other means of reproducing words in a tangible visible form; the words
"including," "includes" 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 Financing 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.
ARTICLE 2.
AMOUNT AND TERMS OF THE LOANS
SECTION 2.1. THE LOANS.
SECTION 2.1.0. THE REVOLVING CREDIT/TERM LOANS. Each of the
Lenders severally agrees, subject to the terms and conditions of this Agreement,
to make Advances of Revolving Credit/Term Loans to the Borrower in a minimum
aggregate amount of Advances from the Lenders pursuant to any Request of $50,000
and an integral multiple of $50,000 thereafter after receipt by the Agent from
time to time of, and at the times provided for in, a Request and an Interest
Rate Election from the Borrower in accordance with this Agreement, during the
period commencing on the Closing Date and ending on the Business Day immediately
preceding the Conversion Date, in an aggregate principal amount at any one time
outstanding not to exceed the lesser of (i) such Lender's Pro Rata Share of the
Revolving Credit Formula Amount and (ii) such Lender's Pro Rata Share of the
Commitment less, in each case, such Lender's Pro Rata Share of the aggregate
amount of the outstanding stated amount of any Letter of Credit or Letter of
Credit Agreement, and any unreimbursed amounts thereunder.
15
<PAGE> 22
Promptly after receipt of a Request and Interest Rate Election, Agent
shall notify each Lender by telephone, telex or telecopy of the proposed
borrowing. Subject to the immediately preceding paragraph, each Lender agrees
that after its receipt of notification from Agent of Agent's receipt of a
Request and Interest Rate Election, such Lender shall send its Pro Rata Share
(or such portion thereof as may be necessary to provide Agent with such Pro Rata
Share in Dollars and in immediately available funds, without consideration or
use of any contra accounts of any Lender) of the requested Loan by wire transfer
to Agent so that Agent receives such Pro Rata Share in Dollars and in
immediately available funds not later than 12:00 P.M. (Boston, Massachusetts
time) on the first day of the Interest Period for any such requested Libor Loan
and on the Business Day for such Advance set forth in Borrower's Request for any
such requested Prime Rate Loan, and Agent shall advance funds to the Borrower by
depositing such funds in Borrower's account with the Agent upon Agent's receipt
of such Pro Rata Shares in the amount of the Pro Rata Shares of such Loan in
Agent's possession. Unless Agent shall have been notified by any Lender (which
notice may be telephonic if confirmed promptly in writing) prior to the first
day of the Interest Period in respect of any Loan which such Lender is obligated
to make under this Agreement, that such Lender does not intend to make available
to Agent such Lender's Pro Rata Share of such Loan on such date, Agent may
assume that such Lender has made such amount available to Agent on such date and
Agent in its sole discretion may, but shall not be obligated to, make available
to the Borrower a corresponding amount on such date. If such corresponding
amount is not in fact made available to Agent by such Lender, Agent shall be
entitled to recover such corresponding amount from such Lender promptly upon
demand by Agent together with interest thereon, for each day from such date
until the date such amount is paid to Agent, at the Federal Funds Rate for three
(3) Business Days and thereafter at the interest rate on the Loan in question.
If such Lender does not pay such corresponding amount forthwith upon Agent's
demand therefor, Agent shall promptly notify the Borrower and the Borrower shall
promptly pay such corresponding amount to Agent. Nothing contained in this
Section shall be deemed to relieve any Lender from its obligation to fulfill its
obligations hereunder or to prejudice any rights which the Borrower may have
against any Lender as a result of any default by such Lender hereunder.
Prior to the Conversion Date, $2,500,000 of the Commitment and
principal amount of the Loans may, in the Agent's discretion, be made available
to the Borrower by issuance of Letters of Credit having (A) an expiration date
prior to the earlier to occur of (a) the first anniversary date of the date of
issuance of any such Letter of Credit or (b) three (3) Business Days prior to
the Conversion Date or (B) an expiration date on or before June 30, 2000, only
for such Letters of Credit as the Borrower shall have provided to the Agent cash
collateral securing the Borrower's obligations under the Letter of Credit
Agreements pursuant to which such Letters of Credit were issues in an amount
equal to the outstanding amount of any such Letters of Credit and in form and
substance reasonably satisfactory to the Agent. Any such Letter of Credit will
be issued reasonably promptly after submission by the Borrower to the Agent of a
Letter of Credit Agreement, duly completed and executed by the Borrower and
otherwise in form and substance satisfactory to the Agent. The Borrower shall
pay upon demand by the Agent such fees and costs as the Agent and/or the Lenders
may from time to time establish for issuance, transfer, amendment and
negotiation of each Letter of Credit and shall pay to the Agent for the Lenders'
accounts equal to their respective Pro Rata Shares upon issuance of any Letter
of Credit an annual Letter of Credit fee in an amount equal to the product of
(i) the stated amount of each
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<PAGE> 23
Letter of Credit multiplied by (ii) the Applicable Margin then in effect with
respect to any Libor Loan. In the event that the Borrower shall fail to
reimburse the Agent under any Letter of Credit or Letter of Credit Agreement,
and any outstanding Indebtedness of the Borrower relating thereto, the Agent
shall promptly notify each Lender of the unreimbursed amount together with
accrued interest thereon, and each Lender agrees to purchase, and it shall be
deemed to have purchased, a participation in such Letter of Credit or Letter of
Credit Agreement and such Indebtedness in an amount equal to its Pro Rata Share
of the unpaid amount together with unpaid interest thereon. Upon one (1)
Business Day's notice from the Agent, each Lender shall deliver to the Agent an
amount equal to its respective participation in same day funds, at the place and
on the date and by the time notified by the Agent. The obligation of each Lender
to deliver to the Agent an amount equal to its respective participation pursuant
to the foregoing sentence shall be absolute and unconditional and such
remittance shall be made notwithstanding the occurrence or continuation of an
Event of Default or the failure to satisfy any condition set forth in Article
III of this Agreement.
From and after the Conversion Date, the Borrower shall not be entitled
to any further Advances of the Revolving Credit/Term Loans. The Borrower shall
pay to the Agent for the respective pro rata accounts of the Lenders on the last
day of each calendar quarter ending on or in between the dates set forth below
an amount equal to the product of (i) the percentage set forth immediately
opposite such dates below multiplied by (ii) the amount by which the outstanding
principal balance of the Revolving Credit/Term Loan on the Business Day
immediately preceding the Conversion Date EXCEEDS $5,000,000:
<TABLE>
<CAPTION>
Repayment Quarterly
Dates Percentage Amount
----- -----------------
<S> <C>
September 30, 1999 through
June 30, 2000 5.0%
September 30, 2000 through
June 30, 2001 5.83%
September 30, 2001 through
June 30, 2002 6.66%
September 30, 2002 through
March 31, 2003 7.51%
</TABLE>
and on the Repayment Date the Borrower shall pay to the Agent for
respective pro rata accounts of the Lenders the entire then-outstanding
principal balance of the Revolving Credit/Term Loan.
SECTION 2.2. INTEREST AND FEES ON THE LOANS.
SECTION 2.2.1. INTEREST. Interest shall accrue and be paid
currently on the Loans at Effective Prime or the Libor Rate for each of the
Loans' Interest Periods in accordance with the
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<PAGE> 24
Borrower's Interest Rate Elections for the Loans subject to and in accordance
with the terms and conditions of this Agreement and the Note(s); provided that
if a Default or an Event of Default exists and is continuing, no Interest Rate
Election electing the Libor Rate shall be effective and any Loan or portion
thereof with respect to which any such Interest Rate Election would otherwise
have been effective shall bear interest at Effective Prime plus, so long as an
Event of Default exists and is continuing, two percent (2.0%); all of the
foregoing being applicable until such Default or Event of Default is cured or
waived and an Interest Rate Election electing the Libor Rate for such Loan or
portion thereof which is effective in accordance with this Agreement is
submitted to the Agent; and provided further that the Borrower shall submit
Interest Rate Elections so that on any date on which under SECTION 2.1.0 a
regularly scheduled payment of principal of the Loans is to be made, at least
the amount of the Loans to be so repaid is bearing interest at Effective Prime
and/or such payment date is an Interest Adjustment Date for outstanding Libor
Loans in such amount of the Loans. The Borrower shall pay such interest to the
Agent for the pro rata account of each Lender in arrears on the Loans (including
without limitation Libor Loans) outstanding from time to time after the Closing
Date, such payments to be made, with respect to Libor Loans with Interest
Periods of three months or less on each Interest Adjustment Date for such Loans,
and with respect to Libor Loans with Interest Periods of more than three months,
quarterly on the last Business Day of each calendar quarter of each year
commencing March 31, 1998, and with respect to Prime Rate Loans, monthly on the
last Business Day of each calendar month commencing March 31, 1998. In the event
no Interest Rate Election has been made by the Borrower with respect to any Loan
or Advance (or an Interest Rate Election shall have expired without an effective
substitute Interest Rate Election), Effective Prime shall be the rate applicable
to such Loan or Advance. All provisions of each Note and any other agreements
between the Borrower and the Lenders are expressly subject to the condition that
in no event, whether by reason of acceleration of maturity of the Indebtedness
evidenced by any Note or otherwise, shall the amount paid or agreed to be paid
to the Lenders which is deemed interest under applicable law exceed the maximum
permitted rate of interest under applicable law (the "Maximum Permitted Rate"),
which shall mean the law in effect on the date of this Agreement, except that if
there is a change in such law which results in a higher Maximum Permitted Rate,
then each Note shall be governed by such amended law from and after its
effective date. In the event that fulfillment of any provision of any Note, or
this Agreement or any document, instrument or agreement providing security for
any Note results in the rate of interest charged under any Note being in excess
of the Maximum Permitted Rate, the obligation to be fulfilled shall
automatically be reduced to eliminate such excess. If, notwithstanding the
foregoing, any Lender receives an amount which under applicable law would cause
the interest rate under any Note to exceed the Maximum Permitted Rate, the
portion thereof which would be excessive shall automatically be deemed a
prepayment of and be applied to the unpaid principal balance of such Note to the
extent of then outstanding Prime Rate Loans and not a payment of interest and to
the extent said excessive portion exceeds the outstanding principal amount of
Prime Rate Loans, said excessive portion shall be repaid to the Borrower.
SECTION 2.2.2. FEES. On the last Business Day of each March,
June, September and December commencing March 31, 1998 and continuing through
the Conversion Date, the Borrower shall pay to the Agent for the pro rata
account of each Lender, a fee in an amount equal to .50% per annum of the
amount, if any, by which the average actual daily amount of the Commitment for
the quarterly period just ended (or in the case of the first such payment, the
18
<PAGE> 25
period from the Closing Date to the date such payment is due) exceeds the sum of
(i) the average of the actual daily outstanding principal balances of the
Revolving Credit/Term Loans plus (ii) the average of the actual daily aggregate
amount of the outstanding stated amount of any Letter of Credit or Letter of
Credit Agreement, and any unreimbursed amounts thereunder (the "Unused Fees").
In addition, the Borrower shall pay to the Agent for its own account the
Facility Fee and certain other fees as specified in the Side Letter.
SECTION 2.2.3. INCREASED COSTS - CAPITAL. If, after the date
hereof, any Lender shall have reasonably determined that the adoption after the
date hereof of any applicable law, governmental rule, regulation or order
regarding capital adequacy of banks or bank holding companies, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Lender or such
Lender's holding company with any policy, guideline, directive or request
regarding capital adequacy (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the capital of such Lender or such Lender's holding company as
a consequence of the obligations hereunder of such Lender to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the policies of such Lender or such
Lender's holding company with respect to capital adequacy immediately before
such adoption, change or compliance and assuming that the capital of such Lender
or such Lender's holding company was fully utilized prior to such adoption,
change or compliance) by an amount reasonably deemed by such Lender to be
material, then such Lender shall notify the Agent and the Borrower thereof and
the Borrower shall pay to the Agent for the account of such Lender from time to
time as specified by such Lender such additional amounts as shall be sufficient
to compensate such Lender for such reduced return, each such payment to be made
by the Borrower within five (5) Business Days after each demand by such Lender;
provided that the liability of the Borrower to pay such costs shall only accrue
with respect to costs accruing from and after the 180th day prior to the date of
each such demand. A certificate in reasonable detail of one of the officers of
such Lender describing the event giving rise to such reduction and setting forth
the amount to be paid to such Lender hereunder and a computation of such amount
shall accompany any such demand and shall, in the absence of manifest error, be
conclusive. In determining such amount, such Lender shall act reasonably and
will use any reasonable averaging and attribution methods. If the Borrower
shall, as a result of the requirements of this SECTION 2.2.3 above, be required
to pay any Lender the additional costs referred to above and the Borrower, in
its sole discretion, shall deem such additional amounts to be material, the
Borrower shall have the right to substitute another bank satisfactory to the
Agent for such Lender which has certified the additional costs to the Borrower,
and the Agent shall use reasonable efforts at no cost to the Agent to assist the
Borrower to locate such substitute bank. Any such substitution shall take place
in accordance with SECTION 9.11 and shall otherwise be on terms and conditions
reasonably satisfactory to the Agent, and until such time as such substitution
shall be consummated, the Borrower shall continue to pay such additional costs.
Upon any such substitution, the Borrower shall pay or cause to be paid to the
Lender that is being replaced, all principal, interest (to the date of such
substitution) and other amounts owing hereunder to such Lender and such Lender
will be released from liability hereunder.
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SECTION 2.3. NOTATIONS. At the time of (i) the making of each Advance
evidenced by any Note, (ii) each change in the interest rate under any Note
effected as a result of an Interest Rate Election; and (iii) each payment or
prepayment of any Note, each Lender may enter upon its records an appropriate
notation evidencing (a) such Lender's Pro Rata Share of the Loans and (b) the
interest rate and Interest Adjustment Date applicable thereto or (c) such
payment or prepayment (voluntary or involuntary) of principal and (d) in the
case of payments or prepayments (voluntary or involuntary) of principal, the
portion of the applicable Loan which was paid or prepaid. No failure to make any
such notation shall affect the Borrower's unconditional obligations to repay the
Loans and all interest, fees and other sums due in connection with this
Agreement and/or any Note in full, nor shall any such failure, standing alone,
constitute grounds for disproving a payment of principal by the Borrower.
However, in the absence of manifest error, such notations and each Lender's
records containing such notations shall constitute presumptive evidence of the
facts stated therein, including, without limitation, the outstanding amount of
such Lender's Pro Rata Share of the Loans and all amounts due and owing to such
Lender at any time. Any such notations and such Lender's records containing such
notations may be introduced in evidence in any judicial or administrative
proceeding relating to this Agreement, the Loans or any Note.
SECTION 2.4. COMPUTATION OF INTEREST. Interest due under this Agreement
and any Note shall be computed on the basis of a year of 360 days for the actual
number of days elapsed.
SECTION 2.5. TIME OF PAYMENTS AND PREPAYMENTS IN IMMEDIATELY AVAILABLE
FUNDS.
SECTION 2.5.1. TIME. All payments and prepayments of
principal, fees, interest and any other amounts owed from time to time under
this Agreement and/or under each Note shall be made to the Agent for the pro
rata account of each Lender at the address referred to in SECTION 9.6 in Dollars
and in immediately available funds prior to 12:00 o'clock P.M. on the Business
Day that such payment is due, provided that the Borrower hereby authorizes and
instructs the Agent to charge against the Borrower's accounts with the Agent on
each date on which a payment is due hereunder and/or under any Note and on any
subsequent date if and to the extent any such payment is not made when due an
amount up to the principal, interest and fees due and payable to the Lenders,
the Agent or any Lender hereunder and/or under any Note and such charge shall be
deemed payment hereunder and under the Note(s) in question to the extent that
immediately available funds are then in such accounts. The Agent shall use
reasonable efforts in accordance with the Agent's customary procedures to give
subsequent notice of any such charge to the Borrower, but the failure to give
such notice shall not affect the validity of any such charge. To the extent that
immediately available funds are then in such accounts, the failure of the Agent
to charge any such account or the failure of the Agent to charge any such
account prior to 12 o'clock P.M. shall not be basis for an Event of Default
under SECTION 6.1.1 and any amount due on the Loans on such date shall be deemed
paid; provided that the Agent shall have the right to charge any such account on
any subsequent date for such unpaid payment and an Event of Default shall exist
if sufficient immediately available funds are not in such accounts on the date
the Agent so charges such account after the expiration of any applicable cure
period. In the event of any charge against the Borrower's accounts by the Agent
pursuant to the immediately preceding sentence, the Agent shall use reasonable
efforts to provide notice to the Borrower of such charge in accordance with the
Agent's customary procedures, but
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the failure to provide such notice shall not in any way be a basis for any
liability of the Agent nor shall such failure adversely affect the validity and
effectiveness of any such action by the Agent. Any such payment or prepayment
which is received by the Agent in Dollars and in immediately available funds
after 12 o'clock P.M. on a Business Day shall be deemed received for all
purposes of this Agreement on the next succeeding Business Day unless the
failure by Agent to receive such funds prior to 12 o'clock P.M. is due to
Agent's failure to charge the account of Borrower prior to 12 o'clock P.M.,
except that solely for the purpose of determining whether a Default or Event of
Default has occurred under SECTION 6.1.1, any such payment or prepayment, if
received by the Agent prior to the close of the Agent's business on a Business
Day, shall be deemed received on such Business Day. All payments of principal,
interest, fees and any other amounts which are owing to any or all of the
Lenders or the Agent hereunder and/or under any of the Notes that are received
by the Agent in immediately available Dollars prior to 12:00 o'clock P.M. on any
Business Day shall, to the extent owing to the Lenders other than the Agent, be
sent by wire transfer by the Agent to any such other Lenders (in each case,
without deduction for any claim, defense or offset of any type) before 3:00
o'clock P.M. on the same Business Day. Each such wire transfer shall be
addressed to each Lender in accordance with the wire instructions set forth in
EXHIBIT 1.9 hereto. The amount of each payment wired by the Agent to each such
Lender shall be such amount as shall be necessary to provide such Lender with
its Pro Rata Share of such payment (without consideration or use of any contra
accounts of any Lender), or with such other amount as may be owing to such
Lender in accordance with this Agreement (in each case, without deduction for
any claim, defense or offset of any type). Each such wire transfer shall be sent
by the Agent only after the Agent has received immediately available Dollars
from or on behalf of the Borrower and each such wire transfer shall provide each
Lender receiving same with immediately available Dollars on receipt by such
Lender. Any such payments of immediately available Dollars received by the Agent
after 12:00 o'clock P.M. and before 3:00 o'clock P.M. on any Business Day shall
be forwarded in the same manner by the Agent to such Lender(s) as soon as
practicable on said Business Day, and if any such payments of immediately
available Dollars are received by the Agent after 3:00 o'clock P.M. on a
Business Day, the Agent shall so forward same to such Lender(s) before 10:00
o'clock A.M. on the immediately succeeding Business Day.
SECTION 2.5.2. SETOFF, ETC. Regardless of the adequacy of any
collateral for any of the Obligations, upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, without notice to the Borrower (any such notice
being expressly waived by the Borrower), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and any other Indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower irrespective of whether or not such Lender shall have made any
demand under this Agreement or any Note and although such obligations may be
unmatured. Each such Lender agrees to promptly notify the Borrower and the Agent
after any such setoff and application; provided that the failure to give such
notice shall not affect the validity of such setoff and application. Promptly
following any notice of setoff received by the Agent from a Lender pursuant to
the foregoing, the Agent shall notify each other Lender thereof. The rights of
each Lender under this SECTION 2.5.2 are in addition to all other rights and
remedies (including, without limitation, other rights of setoff) which such
Lender may have and are subject to SECTION 9.12.
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SECTION 2.5.3. UNCONDITIONAL OBLIGATIONS AND NO DEDUCTIONS.
The Borrower's obligation to make all payments provided for in this Agreement
and the other Financing Documents shall be unconditional. Each such payment
shall be made without deduction for any claim, defense or offset of any type,
including without limitation any withholdings and other deductions on account of
income or other taxes and regardless of whether any claims, defenses or offsets
of any type exist.
SECTION 2.6. PREPAYMENT AND CERTAIN PAYMENTS.
SECTION 2.6.1. MANDATORY PAYMENTS.
SECTION 2.6.1.1. In addition to each other principal
payment required hereunder, the outstanding principal balances of the Loans
shall be repaid on the Repayment Date.
SECTION 2.6.1.2. On or before the 90th day after the
end of each fiscal year of the Borrower commencing with the fiscal year ending
December 31, 1999, the Borrower shall prepay to the Agent for the accounts of
the Lenders in accordance with their Pro Rata Shares an amount of the
outstanding principal balances of the Loans equal to (i) 50% of the amount, if
any, of Excess Cash Flow for such fiscal year LESS (ii) voluntary prepayments of
the Loans made during such fiscal year. Such prepayments shall be in addition to
any and all other mandatory and voluntary prepayments required or permitted
hereunder and shall be applied to the principal installments of the Loans in the
inverse order of their maturities.
SECTION 2.6.1.3. In the event that the Borrower or
any Subsidiary is entitled to receive, collectively, proceeds from any casualty
insurance policies maintained by any of them on account of any interest of the
Borrower and/or any Subsidiary in any property, which proceeds are in an
aggregate amount in excess of $100,000 during the term of this Agreement, such
proceeds shall be received by the Agent and, to the extent that such proceeds
result from a casualty to property of the Borrower and/or any Subsidiary, so
long as no Default or Event of Default exists and is continuing and the Borrower
elects to repair, replace or restore such property, such proceeds shall be
released to the Borrower subject to reasonable procedures and conditions
established by the Agent to the extent necessary to so repair, replace or
restore such property within 3 months (or as soon as reasonably practicable if
such restoration, replacement or repair is not susceptible to being completed
within 3 months) from the date of receipt of such proceeds by the Agent and to
the extent such proceeds are not so used or do not result from such a casualty,
the Borrower shall make a prepayment of the Loans for the accounts of the
Lenders in accordance with their Pro Rata Shares upon written notice from the
Agent. All such payments shall be applied to the principal installments of the
Loans in the inverse order of their maturities.
SECTION 2.6.1.4. In the event that the Borrower
and/or any Subsidiary sells, assigns or otherwise transfers title to any asset
other than in the ordinary course of its business, the Borrower and/or such
Subsidiary shall remit 100% of the net cash proceeds of such sale, assignment or
other transfer to the Agent for the accounts of the Lenders in accordance with
their Pro Rata Shares to be applied to the principal installments of the Loans
after the Conversion
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Date in the inverse order of their maturities (prior to the Conversion Date,
such proceeds shall be applied as a permanent reduction of the Commitment as
provided in SECTION 2.6.4 below) within 10 Business Days of the date of
Borrower's or any Subsidiary's receipt of such net cash proceeds; provided,
however, that Borrower may sell any of its equipment which is obsolete, worn-out
or no longer used or useful in Borrower's business and Borrower may use the
proceeds of such sale to purchase replacement equipment which is useful or
necessary in the operation of Borrower's business within ninety (90) days of any
such sale or disposition.
SECTION 2.6.1.5. If at any time prior to the
Conversion Date the aggregate principal amount of the Loans together with the
aggregate amount of the outstanding stated amount of any Letter of Credit or
Letter of Credit Agreement, and any unreimbursed amounts thereunder shall exceed
the Revolving Credit Formula Amount, the Borrower shall immediately pay to the
Agent in immediately available dollars the amount of such excess.
SECTION 2.6.2. VOLUNTARY PREPAYMENTS. All or any portion of
the unpaid principal balance of the Loans (other than portions of any Loans
constituting Libor Loans) may be prepaid at any time, without premium or
penalty, by giving the Agent at least one (1) Business Day's prior written
notice of such prepayment and by a payment to the Agent for the accounts of the
Lenders in accordance with their Pro Rata Shares of such prepayment in
immediately available Dollars by the Borrower; provided that each such partial
payment or prepayment of principal of the Loans after the Conversion Date shall
be in a principal amount of at least $100,000 or an integral multiple of $50,000
in excess thereof and provided further that each such prepayment of the Loans
shall be applied to the principal installments of the Loans in the inverse order
of their maturities.
SECTION 2.6.3. PREPAYMENT OF LIBOR LOANS.Notwithstanding
anything to the contrary contained in any Note or in any other agreement
executed in connection herewith or therewith, the Borrower shall be permitted to
prepay any portion of the Loans constituting Libor Loans only in accordance with
SECTION 2.9 hereof.
SECTION 2.6.4. PERMANENT REDUCTION OF COMMITMENT. At the
Borrower's option the Commitment may be permanently and irrevocably reduced in
whole or in part by an amount of at least $100,000 and to the extent in excess
thereof in integral multiples of $50,000 at any time; provided that (i) the
Borrower gives the Agent written notice of the exercise of such option at least
one (1) Business Day's prior to the effective date thereof, (ii) the aggregate
outstanding balance of the Loans, if any, does not exceed the Commitment as so
reduced in any such case on the effective date of such reduction and (iii) the
Borrower is not, and after giving effect to such reduction, would not be in
violation of SECTION 2.6.3. Any such reduction shall concurrently reduce the
Dollar amount of each Lender's Pro Rata Share of the Commitment.
SECTION 2.7. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder or under any Note shall be stated to be due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payment of fees, if any, and interest under this Agreement and under such Note.
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SECTION 2.8. USE OF PROCEEDS. The Borrower shall use the proceeds of
the Revolving Credit/Term Loans to complete the Related Transaction for
consideration not in excess of $6,800,000, to pay costs incurred by the Borrower
in connection with the closing of the Loans and the Related Transaction and for
Borrower's working capital needs and for Investments permitted by SECTION
5.2.12.
SECTION 2.9. SPECIAL LIBOR LOAN PROVISIONS. The Libor Loans shall be
subject to and governed by the following terms and conditions:
SECTION 2.9.1. REQUESTS. Each Request accompanied by an
Interest Rate Election selecting the Libor Rate must be received by the Agent in
accordance with the definition of Interest Rate Election.
SECTION 2.9.2. LIBOR LOANS UNAVAILABLE. Notwithstanding any
other provision of this Agreement, if, prior to or on the date on which all or
any portion of the Loans is to be made as or converted into a Libor Loan, any of
the Lenders (or the Agent with respect to (ii) below) shall reasonably determine
(which determination shall be conclusive and binding on the Borrower), that
(i) Dollar deposits in the relevant amounts and for the relevant
Interest Period are not offered to such Lender in the London interbank
market,
(ii) by reason of circumstances affecting the London interbank market,
adequate and reasonable means do not exist for ascertaining the Adjusted
Libor Rate, or
(iii) the Adjusted Libor Rate shall no longer represent the effective
cost to such Lender for Dollar deposits in the London interbank market
for reasons other than the fact, standing alone, that the Adjusted Libor
Rate is based on an averaging of rates determined by the Agent and that
such Lender's rate may exceed such average,
such Lender may elect not to accept any Interest Rate Election electing a Libor
Loan and such Lender shall notify the Agent by telephone or telex thereof,
stating the reasons therefor, not later than the close of business on the second
Business Day prior to the date on which such Libor Loan is to be made. The Agent
shall promptly give notice of such determination and the reason therefor to the
Borrower, and all or such portion of the Loans, as the case may be, which are
subject to any of SECTION 2.9.2 (i), (ii) through (iii) as a result of such
Lender's determination shall be made as or converted into, as the case may be,
Prime Rate Loans and such Lender shall have no further obligation to make Libor
Loans, until further written notice to the contrary is given by the Agent to the
Borrower. If such circumstances subsequently change so that such Lender shall no
longer be so affected, such Lender's obligation to make or maintain its Pro Rata
Share of all or any portion of the Loans as Libor Loans shall be reinstated when
such Lender obtains actual knowledge of such change of circumstances and
promptly after obtaining such actual knowledge such Lender shall forward written
notice thereof to the Agent. After receipt of such notice, the Agent shall
promptly forward written notice thereof to the Borrower. Upon or after receipt
by the Borrower of such written notice, the Borrower may submit an Interest Rate
Election in accordance with this Agreement electing an Interest Period ending no
later than the
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Interest Adjustment Date for the then current Interest Period for the other
Lenders' Pro Rata Shares of Libor Loans and electing the Libor Rate for such
Lenders' or Lender's Pro Rata Share(s) of the Loans as to which such Lender's or
Lenders' obligation(s) to make or maintain its or their Pro Rata Share(s) of the
Loans as Libor Loans was suspended and such Pro Rata Share(s) shall be converted
to Libor Loans in accordance with this Agreement. During any period throughout
which any of the Lenders has or have no obligation to make or maintain its or
their Pro Rata Share(s) of the Loans as Libor Loans, no Interest Rate Elections
electing the Libor Rate shall be effective with regard to the Loans to the
extent of the Pro Rata Share(s) of such Lender(s), but shall be effective as to
the other Lenders.
SECTION 2.9.3. LIBOR LENDING UNLAWFUL. In the event that any
change in applicable laws or regulations (including the introduction of any new
applicable law or regulation) or in the interpretation thereof (whether or not
having the force of law) by any governmental or other regulatory authority
charged with the administration thereof, shall make it unlawful for any of the
Lenders to make or continue to maintain its Pro Rata Share of all or any portion
of the Loans as Libor Loans, each such Lender shall promptly notify the Agent by
telephone or telex thereof, and of the reasons therefor, and the obligation of
such Lender to make or maintain its Pro Rata Share of the Loans or such portion
thereof as Libor Loans shall, upon the happening of such event, terminate and
the Agent shall, by telephonic notice to the Borrower, declare that such
obligation has so terminated with respect to such Lender, and such Pro Rata
Share of the Loans or any portion thereof to the extent then maintained as Libor
Loans, shall, on the last day on which such Lender can lawfully continue to
maintain such Pro Rata Share of the Loans or any portion thereof as Libor Loans,
automatically convert into Prime Rate Loans without additional cost to the
Borrower. If circumstances subsequently change so that such Lender shall no
longer be so affected, such Lender's obligation to make or maintain its Pro Rata
Share of all or any portion of the Loans as Libor Loans shall be reinstated when
such Lender obtains actual knowledge of such change of circumstances, and
promptly after obtaining such actual knowledge such Lender shall forward written
notice thereof to the Agent. After receipt of such notice, the Agent shall
promptly forward written notice thereof the Borrower. Upon or after receipt by
the Borrower of such written notice, the Borrower may submit an Interest Rate
Election in accordance with this Agreement electing an Interest Period ending no
later than the Interest Adjustment Date for the then current Interest Period for
the other Lenders' Pro Rata Shares of Libor Loans and electing the Libor Rate
for such Lenders' or Lender's Pro Rata Share(s) of the Loans as to which such
Lender's or Lenders' obligation(s) to make or maintain its or their Pro Rata
Share(s) of the Loans as Libor Loans was suspended and such Pro Rata Share(s)
shall be converted to Libor Loans in accordance with this Agreement. During any
period throughout which any of the Lenders has or have no obligation to make or
maintain its or their Pro Rata Share(s) of the Loans as Libor Loans, no Interest
Rate Elections electing the Libor Rate shall be effective with regard to the
Loans to the extent of the Pro Rata Share(s) of such Lender(s), but shall be
effective as to the other Lenders.
SECTION 2.9.4. ADDITIONAL COSTS ON LIBOR LOANS. The Borrower
further agrees to pay to the Agent for the account of the applicable Lender or
Lenders such amounts as will compensate any of the Lenders for any increase in
the cost to such Lender of making or maintaining (or of its obligation to make
or maintain) all or any portion of its Pro Rata Share of the Loans as Libor
Loans and for any reduction in the amount of any sum receivable by such
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Lender under this Agreement in respect of making or maintaining all or any
portion of such Lender's Pro Rata Share of the Loans as Libor Loans, in either
case, from time to time by reason of:
(i) any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, such Lender, under or pursuant to any law, treaty, rule,
regulation (including, without limitation, any Regulations of the Board
of Governors of the Federal Reserve System) or requirement in effect on
or after the date hereof, any interpretation thereof by any
governmental authority charged with administration thereof or by any
central bank or other fiscal or monetary authority or other authority,
or any requirement imposed by any central bank or such other authority
whether or not having the force of law; or
(ii) any change in (including the introduction of any new)
applicable law, treaty, rule, regulation or requirement or in the
interpretation thereof by any official authority, or the imposition of
any requirement of any central bank, whether or not having the force of
law, which shall subject such Lender to any tax (other than taxes on
net income imposed on such Lender), levy, impost, charge, fee, duty,
deduction or withholding of any kind whatsoever or change the taxation
of such Lender with respect to making or maintaining all or any portion
of its Pro Rata Share of the Loans as Libor Loans and the interest
thereon (other than any change which affects, and to the extent that it
affects, the taxation of net income of such Lender); provided, that
with respect to any withholding the foregoing shall not apply to any
withholding tax described in sections 1441, 1442 or 3406 of the Code,
or any succeeding provision of any legislation that amends, supplements
or replaces any such section, or to any tax, levy, impost, duty,
charge, fee, deduction or withholding that results from any
noncompliance by a Lender with any federal, state or foreign law or
from any failure by a Lender to file or furnish any report, return,
statement or form the filing or furnishing of which would not have an
adverse effect on such Lender and would eliminate such tax, impost,
duty, deduction or withholding;
In any such event, such Lender shall promptly notify the Agent thereof, and of
the reasons therefor, and the Agent shall promptly notify the Borrower thereof
in writing stating the reasons provided to the Agent by such Lender therefor and
the additional amounts required to fully compensate such Lender for such
increased or new cost or reduced amount as reasonably determined by such Lender.
Such additional amounts shall be payable on each date on which interest is to be
paid hereunder or, if there is no outstanding principal amount under any of the
Notes, within 10 Business Days after the Borrower's receipt of said notice. Such
Lender's certificate as to any such increased or new cost or reduced amount
(including calculations, in reasonable detail, showing how such Lender computed
such cost or reduction) shall be submitted by the Agent to the Borrower and
shall, in the absence of manifest error, be conclusive. In determining any such
amount, the Lender(s) may use any reasonable averaging and attribution methods.
Notwithstanding anything to the contrary set forth above, the Borrower shall not
be obligated to pay any amounts pursuant to this SECTION 2.9.4 as a result of
any requirement or change referenced above with respect to any period prior to
the one hundred and eightieth (180th) day prior to the date on which the
Borrower is first notified thereof (other than any amounts which relate to any
such requirement or change which is adopted with retroactive effect
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in which case the Borrower shall be obligated to pay all such amounts accrued
from the date as of which such requirement or change is retroactively effective)
unless the failure to give such notice within such one hundred and eighty (180)
day period resulted from reasonable circumstances beyond such Lender's
reasonable control.
SECTION 2.9.5. LIBOR FUNDING LOSSES. In the event that any
payment or prepayment of a Libor Loan is received on a date other than the last
day of an Interest Period, such payment or prepayment shall be held by the Agent
in a separate account and be pledged to the Agent as collateral for the
obligations of the Borrower arising in connection with this Agreement, the Notes
and the other Financing Documents until the end of the then current Interest
Period, at which time the Agent shall apply such payment or prepayment, for the
accounts of the Lenders in accordance with their Pro Rata Shares, to the
outstanding Libor Loans. Notwithstanding the foregoing, in the event any of the
Lenders shall incur any loss or expense (including, without limitation, any loss
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to fund or maintain all or any portion of
the Loans as Libor Loans) as a result of:
(i) payment or prepayment by the Borrower of all or any
portion of any Libor Loan on a date other than the Interest
Adjustment Date for such Libor Loan, for any reason;
provided, however that this clause shall not be deemed to
grant the Borrower any right to convert a Libor Loan to a
Prime Rate Loan prior to the end of any Interest Period or to
imply such right;
(ii) conversion of all or any portion of any Libor Loan on a
day other than the last day of an Interest Period applicable
to such Loan to a Prime Rate Loan for any reason including,
without limitation, acceleration of the Loans upon or after
an Event of Default, any Interest Rate Election or any other
cause whether voluntary or involuntary and whether or not
referred to or described in this Agreement, other than any
such conversion resulting solely from application of SECTIONS
2.9.2 or 2.9.3 by any Lender; or
(iii) any failure by the Borrower to borrow the Loans as
Libor Loans on the date specified in any Interest Rate
Election selecting the Libor Rate, other than any such
failure resulting solely from application of SECTIONS 2.9.2
or 2.9.3 by any Lender;
such Lender shall promptly notify the Agent thereof, and of the reasons
therefor. Upon the request of the Agent, the Borrower shall pay directly to the
Agent for the account of such Lender such amount as will (in the reasonable
determination of such Lender, which shall be correct in the absence of manifest
error) reimburse such Lender for such loss or expense. Each Lender shall furnish
to the Borrower, upon written request from the Borrower received by the Agent, a
written statement setting forth the computation of any such amounts payable to
such Lender under this SECTION 2.9.5.
SECTION 2.9.6. BANKING PRACTICES. Each Lender agrees that upon
the occurrence of any of the events described in SECTIONS 2.2.3 and/or 2.9.2,
2.9.4 or 2.9.5, such Lender will exercise all reasonable efforts to take such
reasonable actions at no expense to such Lender (other than reasonable expenses
which are covered by the Borrower's advance deposit of funds with
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such Lender for such purpose, or if such Lender agrees, which the Borrower has
agreed to pay or reimburse to such Lender in full upon demand), in accordance
with such Lender's usual banking practices in such situations and subject to any
statutory or regulatory requirements applicable to such Lender, as such Lender
may take without the consent or participation of any other Person to, in the
case of an event described in SECTIONS 2.2.3 and/or 2.9.4 or 2.9.5, mitigate the
cost of such events to the Borrower and, in the case of an event described in
SECTIONS 2.9.2(i), (ii) or (iii), to seek Dollar deposits in any other interbank
Libor market in which such Lender regularly participates and in which the
applicable determination(s) described in SECTIONS 2.9.2(i), (ii) or (iii), as
the case may be, does not apply.
SECTION 2.9.7. BORROWER'S OPTIONS ON UNAVAILABILITY OR
INCREASED COST OF LIBOR LOANS. In the event of any conversion of all or any
portion of any Lender's Pro Rata Share of any Libor Loans to a Prime Rate Loan
for reasons beyond the Borrower's control or in the event that any Lender's Pro
Rata Share of all or any portion of the Libor Loans becomes subject, under
SECTIONS 2.9.4 or 2.9.5, to additional costs, the Borrower shall have the
option, subject to the other terms and conditions of this Agreement, to convert
such Lender's Pro Rata Share to a Prime Rate Loan by making Interest Rate
Elections for Interest Periods which (i) end on the Interest Adjustment Date for
such Libor Loan or (ii) end on Business Days occurring prior to such Interest
Adjustment Date, in which case, at the end of the last of such Interest Periods
any such Libor Rate Loan shall automatically convert to a Prime Rate Loan and
the Borrower shall have no further right to make an Interest Rate Election with
respect to such Prime Rate Loan other than an Interest Rate Election which is
effective on the Interest Adjustment Date for such Libor Loan. The Borrower's
options set forth in this SECTION 2.9.7 may be exercised, if and only if the
Borrower pays, concurrently with delivery to the Agent of each such Interest
Rate Election and thereafter in accordance with SECTIONS 2.9.4, 2.9.5 and 2.9.6
all amounts provided for therein to the Agent in accordance with this Agreement.
If the Borrower shall, as a result of the requirements of
SECTION 2.9.4 above, be required to pay any Lender the additional costs referred
to therein, but not be required to pay such additional costs to the other Lender
or Lenders and the Borrower, in its sole discretion, shall deem such additional
amounts to be material or in the event that Libor Loans from a Lender are
unavailable to the Borrower as a result solely of the provisions of SECTIONS
2.9.2, 2.9.3 or 2.9.4, but are available from the other Lender or Lenders, the
Borrower shall have the right to substitute another bank satisfactory to the
Agent for such Lender which is entitled to such additional costs or which is
relieved from making Libor Loans and the Agent shall use reasonable efforts
(with all reasonable costs of such efforts by the Agent to be borne by the
Borrower) to assist the Borrower to locate such substitute bank. Any such
substitution shall take place in accordance with SECTION 9.11 and otherwise be
on terms and conditions reasonably satisfactory to the Agent, and until such
time as such substitution shall be consummated, the Borrower shall continue to
pay such additional costs and comply with the above-referenced Sections. Upon
any such substitution, the Borrower shall pay or cause to be paid to the Lender
that is being replaced, all principal, interest (to the date of such
substitution) and other amounts owing hereunder to such Lender and such Lender
will be released from liability hereunder.
SECTION 2.9.8. ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS.
The calculation of all amounts payable to the Lenders under this SECTION 2.9
shall be made as though each Lender
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actually funded its relevant Libor Loans through the purchase of a deposit in
the London interbank market bearing interest at the Libor Rate in an amount
equal to that Libor Loan and having a maturity comparable to the relevant
Interest Period and through the transfer of such deposit from an offshore office
of such Lender to a domestic office of such Lender in the United States of
America; provided, however, that each Lender may fund each of its Libor Loans in
any manner it sees fit and the foregoing assumption shall be utilized solely for
the calculation of amounts payable under this SECTION 2.9.
ARTICLE 3.
CONDITIONS OF LENDING
SECTION 3.1. CONDITIONS PRECEDENT TO THE COMMITMENT AND TO ALL LOANS.
SECTION 3.1.1. THE COMMITMENT AND INITIAL LOANS. The
Commitment and the obligation of the Lenders to make the initial Advances of the
Loans and/or to issue any Letter of Credit or Letter of Credit Agreement are
subject to performance by the Borrower of all of its obligations under this
Agreement and to the satisfaction of the conditions precedent that all legal
matters incident to the transactions contemplated hereby or incidental to the
Loans shall be reasonably satisfactory to counsel for the Agent and that the
Lenders shall have received on or before the Closing Date all of the following,
each dated the Closing Date or another date acceptable to the Lenders and each
to be in form and substance reasonably satisfactory to the Agent or if any of
the following is not a deliverable, the satisfaction of such condition in form
and substance reasonably satisfactory to the Agent:
SECTION 3.1.1.1. The Financing Documents, including,
without limitation, those hereinafter set forth and the Borrower's and any
Subsidiary's certificate of incorporation or other organizational documents.
SECTION 3.1.1.2. Certificate of the secretary of the
Borrower and each Subsidiary certifying as to the resolutions of the
shareholders or board of directors of the Borrower and each Subsidiary
authorizing and approving each of the Financing Documents to which the Borrower
and each Subsidiary is a party and other matters contemplated hereby and
certifying as to the names and signatures of the Authorized Representative(s) of
the Borrower and each Subsidiary authorized to sign each Financing Document to
be executed and delivered by or on behalf of the Borrower and each Subsidiary.
The Agent and the Lenders may conclusively rely on each such certificate until
the Agent shall receive a further certificate canceling or amending the prior
certificate and submitting the signatures of the Authorized Representative(s)
named in such further certificate.
SECTION 3.1.1.3. Favorable opinions of Jones, Day,
Reavis & Pogue, counsel for the Borrower, in form and substance reasonably
satisfactory to the Agent.
SECTION 3.1.1.4. An Officer's Certificate stating that:
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SECTION 3.1.1.4.1. The representations and
warranties contained in SECTION 4.1 and/or contained in any of the other
Financing Documents are correct on and as of the Closing Date as though made on
and as of such date; and
SECTION 3.1.1.4.2. No Default or Event of
Default has occurred and is continuing, or would result from the making of the
Loans.
SECTION 3.1.1.5. Certificates of good standing or
legal existence of the secretaries of state of the states of organization and
qualification of and covering the Borrower and any Subsidiaries dated reasonably
near the Closing Date.
SECTION 3.1.1.6. Evidence that (i) the ownership
interests in the Borrower are as set forth in EXHIBIT 1.1 and (ii) that except
for receipt and application of certain proceeds of the Loans, the Related
Transaction has been completed in accordance with the Related Transaction
Documents, without any waiver or amendment of any term or condition contained
therein without the prior written approval of the Lenders, and in compliance
with any applicable laws and necessary governmental authority approvals.
SECTION 3.1.1.7. A Request and an Interest Rate
Election.
SECTION 3.1.1.8. All documents, instruments and
agreements necessary to terminate, cancel and discharge the documents,
instruments and agreements evidencing or securing any and all existing
Indebtedness of the Borrower and any Subsidiary and Liens securing such
Indebtedness other than those listed in EXHIBIT 3.1.1.8.
SECTION 3.1.1.9. Payment to the Agent and the Lenders
of the fees specified in this Agreement or in the Side Letter as being payable
on the Closing Date and all reasonable out-of-pocket costs and expenses incurred
by the Agent and Fleet National Bank in connection with the transactions
contemplated hereby, including, but not limited to, reasonable outside legal
expenses and any accounting fees, auditing fees, appraisal fees, and other fees
associated with any independent analyses of the Borrower and any Subsidiary and
evidence that all other reasonable fees and costs payable by the Borrower in
connection with the transactions contemplated by this Agreement and completed on
the Closing Date have been paid in full.
SECTION 3.1.1.10. An Officer's Certificate in the
form of EXHIBIT 3.1.1.10, duly completed and reflecting, INTER ALIA, compliance
by the Borrower as of the opening of business on the first Business Day after
the Closing Date but based on the Borrower's financial information as of the
last day of the Borrower's most recent fiscal quarter, adjusted to give effect
to the Loans made on the Closing Date and completion of the Related Transaction
to be completed on or prior to the Closing Date, with the financial covenants
provided for herein.
SECTION 3.1.1.11. Such other information about the
Borrower and/or its Business Condition as the Lenders may reasonably request.
SECTION 3.1.1.12. True copies of, and/or true copies
of any revisions to, the financial statements, the Projections, the pro forma
Closing Date financial statements giving
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effect to the Loans and completion of the Related Transaction to be completed on
or prior to the Closing Date, and other information provided pursuant to SECTION
4.1.5 and certification by the Borrower of the Projections. In the event that
the Borrower's audited financial statements for the Borrower fiscal year ended
December 31, 1997 will not be available to the Agent as of the Closing Date, the
Borrower will afford the Agent the opportunity to speak with the Borrower's
accountants and the Agent shall be reasonably satisfied with the results of such
due diligence.
SECTION 3.1.1.13. Certificates of fire, business
interruption, liability and extended coverage insurance policies, each such
policy to name the Agent as mortgagee and loss payee and, on all liability
policies, as additional insured.
SECTION 3.1.1.14. True descriptions of any pending or
threatened litigation against or by Borrower or any Subsidiary.
SECTION 3.1.1.15. Evidence that all necessary
material third party consents to the Related Transaction and the Loans have been
obtained and remain in effect without the imposition of any conditions or terms
not reasonably acceptable to the Lenders, all required filings with any
governmental authority have been duly completed and any applicable waiting
periods shall have expired without any adverse action being taken by any
competent authority.
SECTION 3.1.1.16. The financial statements described
in SECTION 4.1.5 together with the Borrower's pro forma Closing Date balance
sheet. Such financial statements shall be accompanied by an Officer's
Certificate of the chief financial officer of the Borrower to the effect that no
Material Adverse Effect has occurred since the date of the Borrower's most
recent audited financial statements delivered to the Lenders except as set forth
or reflected in the financial statements described in SECTION 4.1.5 or otherwise
disclosed in writing and acceptable to the Agent.
SECTION 3.1.1.17. True copies of all documents,
instruments and agreements relating to the Borrower's capital structure and the
Related Transaction Documents.
SECTION 3.1.1.18. The fact that the representations
and warranties of the Borrower contained in Article 4, INFRA, and in each of the
other Financing Documents are true and correct in all material respects on and
as of the Closing Date except as altered hereafter by actions not prohibited
hereunder. The Borrower's delivery of each Note to the Lenders and of each
Request to the Agent shall be deemed to be a representation and warranty by the
Borrower as of the date thereof to such effect.
SECTION 3.1.1.19. That there has been no enactment of
any law or regulation by any governmental authority which would make it (i)
unlawful, (ii) prevent, (iii) restrain or (iv) impose conditions which the
Lenders determine to be adverse, in any respect as to the foregoing, to the
making of the Loans and/or the completion of the Related Transaction.
SECTION 3.1.1.20. The Security Documents, after the
completion of any required filings or recordations, will grant to the Agent
perfected, first priority security interests or mortgages, as the case may be,
with respect to the collateral identified therein and the Agent
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shall received the favorable opinions of counsel referred to in SECTION 3.1.1.3
above with respect to such perfection. The Agent shall also have received such
searches, landlord consents, access agreements and/or title insurance
commitments as reasonably requested by the Agent, all in form and substance
reasonably satisfactory to the Agent and/or its counsel. Without limiting the
generality of the foregoing, the Agent shall be reasonably satisfied with the
terms and conditions of all real property leases in which the Borrower and any
Subsidiary has a leasehold interest, including the terms of such leaseholds and
the assumability of the lessee's obligations thereunder upon the transfer of or
foreclosure upon of the Borrower's or any Subsidiary's leasehold interest.
SECTION 3.1.1.21. No Material Adverse Effect has
occurred and there shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental or regulatory agency or authority that could reasonably be expected
to result in a Material Adverse Effect.
SECTION 3.1.1.22. All information and materials
supplied to the Agent prior to the date hereof shall be true and correct in all
material aspects; and no additional information shall have come to the attention
of the Agent or the Lenders that is inconsistent in any material respect with
the information and materials supplied to the Agent prior to the date hereof or
that could reasonably be expected to have a Material Adverse Effect.
SECTION 3.1.2. THE COMMITMENT AND THE LOANS. The Commitment
and the obligation of each Lender to make or maintain its Pro Rata Share of any
Advance or Loan and/or to issue any Letter of Credit or Letter of Credit
Agreement are subject to performance by the Borrower of all its obligations
under this Agreement and to the satisfaction of the following further conditions
precedent:
(a) The fact that, immediately prior to and upon the making of
each Loan, no Event of Default or Default shall have occurred and be continuing;
(b) The fact that the representations and warranties of the
Borrower contained in Article 4, INFRA and in each of the other Financing
Documents, are true and correct in all material respects on and as of the date
of each Advance or Loan except as altered hereafter by actions consented to or
not prohibited hereunder. The Borrower's delivery of the Notes to the Lenders
and of each Request to the Agent shall be deemed to be a representation and
warranty by the Borrower as of the date of such Advance or Loan as to the facts
specified in SECTIONS 3.1.2(a) and (b);
(c) Receipt by Agent on or prior to the Business Day specified
in the definition of Interest Rate Election of a written Request stating the
amount requested for the Loan or Advance in question and an Interest Rate
Election for such Loan or Advance, all signed by a duly authorized officer of
the Borrower on behalf of the Borrower;
(d) That there exists no law or regulation by any governmental
authority having jurisdiction over the Agent or any of the Lenders which would
make it unlawful in any respect for such Lender to make its Pro Rata Share of
the Loan or Advance, including, without
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limitation, Regulations U, T, G and X of the Board of Governors of the Federal
Reserve System and no Material Adverse Effect has occurred.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants to the Agent and the Lenders that, after giving
effect to the Loans and the application of the proceeds thereof (which
representations and warranties shall survive the making of the Loans) as
follows:
SECTION 4.1.1. ORGANIZATION AND EXISTENCE. The Borrower and
any Subsidiary is a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and is
duly qualified to do business in all jurisdictions in which such qualification
is required, all as noted on EXHIBIT 4.1.1, except where failure to so qualify
would not have a Material Adverse Effect, and has all requisite power and
authority to conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under the Financing Documents.
SECTION 4.1.2. AUTHORIZATION AND ABSENCE OF DEFAULTS. Except
as described on EXHIBIT 4.1.2, the execution, delivery to the Agent and/or the
Lenders and performance by the Borrower and any Subsidiary of the Financing
Documents and Related Transaction Documents have been duly authorized by all
necessary corporate and governmental action and do not and will not (i) require
any consent or approval of the shareholders or board of directors of the
Borrower or any Subsidiary which has not been obtained, (ii) violate any
provision of any law, rule, regulation (including, without limitation,
Regulations U and X of the board of governors of the federal reserve system),
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to the Borrower and/or any Subsidiary and/or the
articles of organization or by-laws, as applicable, of the Borrower and/or any
Subsidiary, (iii) result in a material breach of or constitute a material
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower and/or any Subsidiary is or are a
party or parties or by which it or they or its or their properties may be bound
or affected; or (iv) result in, or require, the creation or imposition of any
Lien on any of the Borrower's and/or any Subsidiary's respective properties or
revenues other than Liens granted to the Agent by any of the Financing Documents
securing the Obligations. The Borrower and any Subsidiary are in compliance with
any such applicable law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, other agreement, lease or
instrument, except where the failure to be in compliance does not have a
Material Adverse Effect.
SECTION 4.1.3. ACQUISITION OF CONSENTS. Except as noted on
EXHIBIT 4.1.3, no authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, other than those
which have been obtained, is or will be necessary to the valid execution and
delivery to the Agent and/or the Lenders or performance by the Borrower or any
Subsidiary
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of any Financing Documents or any of the Related Transaction Documents and each
of the foregoing which has been obtained is in full force and effect.
SECTION 4.1.4. VALIDITY AND ENFORCEABILITY. Each of the
Financing Documents when delivered hereunder will constitute the legal, valid
and binding obligations of each of the Borrower and any Subsidiary which is or
are a party thereto enforceable against the Borrower, and any Subsidiary which
is or are a party thereto in accordance with their respective terms except as
the enforceability thereof may be limited by the effect of general principles of
equity and bankruptcy and similar laws affecting the rights and remedies of
creditors generally.
SECTION 4.1.5. FINANCIAL INFORMATION. The following
information with respect to the Borrower has heretofore been furnished to the
Agent:
SECTION 4.1.5.1. Audited annual financial statements
of the Borrower for the periods ended December 31, 1996 and internally prepared
financial statements of the Borrower for the period ending December 31, 1997;
and
SECTION 4.1.5.2. The Projections.
SECTION 4.1.5.3. The pro forma financial statements
of the Borrower as of the Closing Date provided pursuant to SECTION 3.1.1.12.
Each of the financial statements referred to above in
SECTION 4.1.5.1 was prepared in accordance with GAAP (subject, in the case of
interim statements, to the absence of footnotes and normal year-end adjustments)
applied on a consistent basis, except as stated therein. To the best of the
Borrower's knowledge, each of the financial statements referred to above in
SECTIONS 4.1.5.1 and 4.1.5.3 fairly presents the financial condition or pro
forma financial condition, as the case may be, of the Person being reported on
at such dates and is complete and correct in all material respects and no
Material Adverse Effect has occurred since the date thereof. The Projections
were prepared by the Borrower in good faith.
SECTION 4.1.6. NO LITIGATION. There are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower and/or any Subsidiary or any of their properties before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which if determined adversely to the
Borrower and/or any Subsidiary would draw into question the legal existence of
the Borrower and/or any such Subsidiary and/or the validity, authorization
and/or enforceability of any of the Financing Documents and/or any provision
thereof and/or could have a Material Adverse Effect except those matters, if
any, described on EXHIBIT 4.1.6 none of which, in Borrower's good faith opinion,
will (i) have such Material Adverse Effect or (ii) draw into question (a) the
legal existence of the Borrower and/or any such Subsidiary or (b) the validity,
authorization and/or enforceability of any of the Financing Documents and/or any
provision thereof.
SECTION 4.1.7. REGULATION U. The Borrower is not
engaged in the business of extending credit for the purpose of purchasing or
carrying "margin stock" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR Part 221), does
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not own and has no present intention of acquiring any such margin stock or a
"margin security" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System (12 CFR, Part 207). None of the proceeds of the
Loans will be used directly or indirectly by the Borrower for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry, any such margin
security or margin stock or for any other purpose which might constitute the
transaction contemplated hereby a "purpose credit" within the meaning of said
Regulation G or Regulation U, or cause this Agreement to violate any other
regulation of the Board of Governors of the Federal Reserve System or the
Securities and Exchange Act of 1934, as amended, or any rules or regulations
promulgated under either said statute.
SECTION 4.1.8. ABSENCE OF ADVERSE AGREEMENTS. Neither the
Borrower nor any Subsidiary is a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
corporate or partnership restriction which would have a Material Adverse Effect.
SECTION 4.1.9. TAXES. The Borrower and each Subsidiary (and as
to the Acquired Company only, to the Borrower's best knowledge after reasonable
inquiry) has filed all tax returns (federal, state and local) required to be
filed and paid all taxes shown thereon to be due, including interest and
penalties, except for those taxes, if any, which are being contested in good
faith and by appropriate proceedings, and for which proper reserve or other
provision has been made in accordance with GAAP and except where any failure to
file or pay would not have a Material Adverse Effect on the Borrower or any
Subsidiary and except as described in EXHIBIT 4.1.9.
SECTION 4.1.10. ERISA. Borrower and any Commonly Controlled
Entity do not maintain or contribute to any Plan which is not in substantial
compliance with ERISA, or any Single Employer Plan which has incurred any
accumulated funding deficiency within the meaning of sections 412 and 418 of the
Code, or which has applied for or obtained a waiver from the Internal Revenue
Service of any minimum funding requirement under section 412 of the Code.
Borrower and any Commonly Controlled Entity have not incurred any liability to
the PBGC in connection with any Plan covering any employees of Borrower or any
Commonly Controlled Entity in amount exceeding Fifty Thousand Dollars ($50,000)
in the aggregate or ceased operations at any facility or withdrawn from any Plan
in a manner which could subject any of them to liability under sections 4062(e),
4063 or 4064 of ERISA in amount exceeding Fifty Thousand Dollars ($50,000) in
the aggregate, and know of no facts or circumstance which might give rise to any
liability of Borrower or any Commonly Controlled Entity to the PBGC under Title
IV of ERISA in amount exceeding Fifty Thousand Dollars ($50,000) in the
aggregate. Borrower and any Commonly Controlled Entity have not incurred any
withdrawal liability in amount exceeding Fifty Thousand Dollars ($50,000) in the
aggregate (including but not limited to any contingent or secondary withdrawal
liability) within the meaning of sections 4201 and 4202 of ERISA, to any
Multiemployer Plan, and no event has occurred, and there exists no condition or
set of circumstances known to the Borrower, which presents a risk of the
occurrence of any withdrawal from or the partition, termination, reorganization
or insolvency of any Multiemployer Plan which could result in any liability to a
Multiemployer Plan in amount exceeding Fifty Thousand Dollars ($50,000) in the
aggregate.
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Except for payments for which the minimum funding requirement
has been waived under section 412 of the Code, full payment has been made of all
amounts which Borrower and any Commonly Controlled Entity are required to have
paid as contributions to any Plan under applicable law or under any plan or any
agreement relating to any Plan to which Borrower or any Commonly Controlled
Entity is a party. Borrower and each Commonly Controlled Entity have made
adequate provision for reserves to meet contributions that have not been made
because they are not yet due under the terms of any Plan or related agreements.
Neither Borrower nor any Commonly Controlled Entity has any
knowledge, nor do any of them have any reason to believe, that any Reportable
Event which could result in a liability or liabilities of Fifty Thousand Dollars
($50,000) or more in the aggregate has occurred with respect to any Plan.
SECTION 4.1.11. OWNERSHIP OF PROPERTIES.
SECTION 4.1.11.1. Except for Permitted Encumbrances,
Borrower and any Subsidiary has good title to all of its properties and assets
free and clear of all restrictions and Liens of any kind other than those which
could not have a Material Adverse Effect or a material adverse effect on the
validity, authorization and/or enforceability of the Financing Documents and/or
any provision thereof.
SECTION 4.1.11.2. EXHIBIT 4.1.11 accurately and
completely lists the location of all real property owned or leased by Borrower
or any Subsidiary. Borrower and each Subsidiary enjoys quiet possession under
all material leases of real property to which it is a party as a lessee, and all
of such leases are valid, subsisting and, to Borrower's knowledge, in full force
and effect.
SECTION 4.1.11.3. To Borrower's knowledge, except as
specified in EXHIBIT 4.1.11, none of the real property occupied by Borrower or
any Subsidiary is located within any federal, state or municipal flood plain
zone.
SECTION 4.1.11.4. Except as set forth in EXHIBIT
4.1.11, all of the material properties used in the conduct of the Borrower's and
each Subsidiary's business (i) are in good repair, working order and condition
(reasonable wear and tear excepted) and reasonably suitable for use in the
operation of Borrower's, and each Subsidiary's business; and (ii) to Borrower's
knowledge are currently operated and maintained, in all material respects, in
accordance with the requirements of applicable governmental authorities.
SECTION 4.1.12. ACCURACY OF REPRESENTATIONS AND WARRANTIES.
None of Borrower's representations or warranties set forth in this Agreement or
in any document or certificate furnished pursuant to this Agreement or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary to make
any statement of fact contained herein or therein, in light of the circumstances
under which it was made, not misleading; except that unless provided otherwise
any such document or certificate which is dated speaks as of the date stated and
not the present.
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SECTION 4.1.13. NO INVESTMENT COMPANY. Neither the Borrower
nor any Subsidiary is an "investment company" or a company "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended, which is required to register thereunder.
SECTION 4.1.14. SOLVENCY, ETC. After giving effect to the
consummation of each Loan outstanding and to be made under this Agreement as of
the time this representation and warranty is given, the Borrower (a) will be
able to pay its debts as they become due, (b) will have funds and capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (c) will own property in the aggregate having a value both at fair
valuation and at fair saleable value in the ordinary course of the Borrower's
business greater than the amount required to pay its Indebtedness, including for
this purpose unliquidated and disputed claims. The Borrower will not be rendered
insolvent by the execution and delivery of this Agreement and the consummation
of any transactions contemplated herein.
SECTION 4.1.15. APPROVALS. Except as set forth in EXHIBIT
4.1.3, all approvals required from all Persons including without limitation all
governmental authorities with respect to the Financing Documents have been
obtained.
SECTION 4.1.16. OWNERSHIP INTERESTS. The schedule of ownership
interests in the Borrower and any Subsidiaries set forth in EXHIBIT 1.1 is true,
accurate and complete.
SECTION 4.1.17. LICENSES, REGISTRATIONS, COMPLIANCE WITH LAWS,
ETC. EXHIBIT 4.1.17 accurately and completely describes all permits,
governmental licenses, registrations and approvals, material to carrying out of
Borrower's and each of the Subsidiaries' businesses as presently conducted and
as required by law or the rules and regulations of any federal, foreign
governmental, state, county or local association, corporation or governmental
agency, body, instrumentality or commission having jurisdiction over the
Borrower or any of the Subsidiaries, including but not limited to the United
States Environmental Protection Agency, the United States Department of Labor,
the United States Occupational Safety and Health Administration, the United
States Equal Employment Opportunity Commission, the Federal Trade Commission and
the United States Department of Justice and analogous and related state and
foreign agencies. All existing authorizations, licenses and permits are in full
force and effect, are duly issued in the name of, or validly assigned to the
Borrower or a Subsidiary and the Borrower or a Subsidiary has full power and
authority to operate thereunder. There is no material violation or material
failure of compliance or, to Borrower's knowledge, allegation of such violation
or failure of compliance on the part of the Borrower or any Subsidiary with any
of the foregoing permits, licenses, registrations, approvals, rules or
regulations and there is no action, proceeding or investigation pending or to
the knowledge of the Borrower threatened nor has the Borrower or any Subsidiary
received any notice of such which might result in the termination or suspension
of any such permit, license, registration or approval which in any case could
have a Material Adverse Effect.
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SECTION 4.1.18. PRINCIPAL PLACE OF BUSINESS; BOOKS AND
RECORDS. The Borrower's chief executive offices are located at Borrower's
addresses set forth in SECTION 9.6. All of the Borrower's books and records are
kept at one or more of its addresses set forth in SECTION 9.6.
SECTION 4.1.19. SUBSIDIARIES. The Borrower has only the
Subsidiaries identified on EXHIBIT 1.1.
SECTION 4.1.20. COPYRIGHT. Except as set forth in EXHIBIT
4.1.20 the Borrower has not violated any of the provisions of the Copyright
Revision Act of 1976, 17 U.S.C. 101, ET SEQ. The Borrower has filed all
registration statements, notices and statements of account and all necessary
supplements and adjustment schedules thereto with the United States Copyright
Office and has made all payments to the United States Copyright Office that are
required. EXHIBIT 4.1.20 accurately and completely sets forth all copyrights
held by the Borrower or any of the Subsidiaries and contains exceptions to the
representations contained in this SECTION 4.1.20. No inquiries regarding any
such filings have been received by the Copyright Office. The Borrower has not
allocated revenues in any manner inconsistent with the rules and regulations of
the Copyright Office.
SECTION 4.1.21. ENVIRONMENTAL COMPLIANCE. Neither the Borrower
nor, to the knowledge of the Borrower, any other Person:
SECTION 4.1.21.1. has ever caused, permitted, or
suffered to exist any Hazardous Material to be spilled, placed, held, located or
disposed of on, under, or about, any of the facilities owned, leased or used by
the Borrower (the "Premises"), or from the Premises into the atmosphere, any
body of water, any wetlands, or on any other real property, nor to Borrower's
knowledge does any Hazardous Material exist on, under or about the Premises
other than as disclosed on EXHIBIT 4.1.21, or in respect of Hazardous Material
used or disposed of in compliance with law;
SECTION 4.1.21.2. has any knowledge that any of the
Premises has ever been used (whether by the Borrower or, to the knowledge of the
Borrower, by any other Person) as a treatment, storage or disposal (whether
permanent or temporary) site for any Hazardous Waste as defined in 42 U.S.C.A.
6901, ET SEQ. (the Resource Recovery and Conservation Act); and
SECTION 4.1.21.3. has any knowledge of any notice of
violation, Lien or other notice issued by any governmental agency with respect
to the environmental condition of the Premises or any other property occupied by
the Borrower, or any other property which was included in the property
description of the Premises or such other real property within the preceding
three years except as disclosed to the Agent.
SECTION 4.1.22. MATERIAL AGREEMENTS, ETC. EXHIBIT 4.1.22
attached hereto accurately and completely lists all material agreements to which
the Borrower or any of the Subsidiaries are a party including without limitation
all software licenses, and all material construction, engineering, consulting,
employment, management, operating and related agreements, if any, which are
presently in effect. All of the material agreements to which
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Borrower or any Subsidiary is a party, are legally valid, binding, and, to
Borrower's knowledge, in full force and effect and neither the Borrower, any of
the Subsidiaries nor, to Borrower's knowledge, any other parties thereto are in
material default thereunder.
SECTION 4.1.23. PATENTS, TRADEMARKS AND OTHER PROPERTY RIGHTS.
EXHIBIT 4.1.23 attached hereto contains a complete and accurate schedule of all
registered trademarks, registered copyrights and patents of the Borrower and/or
any of the Subsidiaries, and pending applications therefor, and all other
intellectual property in which the Borrower and/or any of the Subsidiaries has
any rights other than "off-the shelf" software which is generally available to
the general public at retail. Except as set forth in EXHIBIT 4.1.23, the
Borrower and any Subsidiaries own, possess, or have licenses to use all the
patents, trademarks, service marks, trade names, copyrights and non-governmental
licenses, and all rights with respect to the foregoing, necessary for the
conduct of their respective businesses as now conducted, without, to the
Borrower's knowledge any conflict with the rights of others with respect
thereto.
SECTION 4.1.24. RELATED TRANSACTION DOCUMENTS. The Borrower
has, on or prior to the date hereof, delivered to the Lenders true copies of the
Related Transaction Documents, and each and every amendment or modification
thereto.
SECTION 4.1.25. MATERIAL ADVERSE EFFECT. No Material Adverse
Effect has occurred and there exists no action, suit, investigation, litigation
or proceeding pending or threatened in any court or before any arbitrator or
governmental or regulatory agency or authority that could reasonably be expected
to result in a Material Adverse Effect.
SECTION 4.1.26. TRANSACTIONS WITH AFFILIATES. Except as set
forth on EXHIBIT 5.2(3), or except as contemplated by the Related Transaction
Documents and this Agreement, the Borrower and each Subsidiary have not engaged
in any transaction or entered into any agreement with an Affiliate, except
transactions which are in the ordinary course upon fair and reasonable terms and
no less favorable to the Borrower or the Subsidiary than as could be obtained on
an arm's length basis.
ARTICLE 5.
COVENANTS OF THE BORROWER
SECTION 5.1. AFFIRMATIVE COVENANTS OF THE BORROWER OTHER THAN REPORTING
REQUIREMENTS. From the date hereof and thereafter for so long as there is
Indebtedness of the Borrower to any Lender and/or the Agent under any of the
Financing Documents or any part of the Commitment is in effect, the Borrower
will, with respect to itself and, unless noted otherwise below, with respect to
each of its Subsidiaries, ensure that each Subsidiary will, unless the Majority
Lenders shall otherwise consent in writing:
SECTION 5.1.1. PAYMENT OF TAXES, ETC. Pay and discharge all
taxes and assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims for the same which, if
unpaid, might become a Lien upon any of its properties,
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provided that (unless and until foreclosure, restraint, sale or any similar
proceeding is pending and is not stayed, discharged or bonded within 30 days
after commencement) the Borrower shall not be required to pay any such tax,
assessment, charge, levy or claim which is being contested in good faith and by
proper proceedings and for which proper reserve or other provision has been made
in accordance with GAAP, unless failure to pay could not result in a Material
Adverse Effect.
SECTION 5.1.2. MAINTENANCE OF INSURANCE. Maintain insurance in
accordance with the Security Documents including, without limitation, casualty,
liability and business interruption insurance reasonably acceptable to the Agent
and, to the extent not covered by any of the Security Documents, with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties and in accordance with the requirements
of any governmental agency having jurisdiction over the Borrower and/or any
Subsidiary. The Borrower shall provide the Lenders with such evidence as the
Agent may request from time to time as to the maintenance of all such insurance.
Certificates of all such insurance shall be delivered to the Agent concurrently
with the execution and delivery of this Agreement, and thereafter all renewal or
replacement certificates shall be delivered to the Agent not less than thirty
(30) days prior to the expiration date of the policy to be renewed or replaced,
accompanied by evidence satisfactory to the Agent that all premiums payable with
respect to such policies have been paid by Borrower. Borrower shall have the
right of free choice in the selection of the agent or the insurer through or by
which the insurance required hereunder is to be placed; provided, however, said
insurer has at all times a general policyholder's rating of A or A+ in Best's
latest rating guide. Furthermore, the Agent shall have the right and is hereby
constituted and appointed the true and lawful attorney irrevocable of Borrower,
in the name and stead of Borrower, but in the uncontrolled discretion of said
attorney, (i) to adjust, sue for, compromise and collect any amounts due under
such insurance policies in the event of loss and (ii) to give releases for any
and all amounts received in settlement of losses under such policies; and the
same shall, subject to SECTION 2.6.1.3 of this Agreement, at the option of the
Agent, be applied, after first deducting the costs of collection, on account of
any Indebtedness the payment of which is secured by any of the Financing
Documents, whether or not then due, or, notwithstanding the claims of any
subsequent lienor, be used or paid over to Borrower in accordance with
reasonable procedures established by the Agent for use in repairing or replacing
any damaged or destroyed collateral under any of the Security Documents.
SECTION 5.1.3. PRESERVATION OF EXISTENCE, ETC. Preserve and
maintain in full force and effect its legal existence, and all material rights,
franchises and privileges in the jurisdiction of its organization, preserve and
maintain all material licenses, governmental approvals, trademarks, patents,
trade secrets, copyrights and trade names owned or possessed by it and which are
necessary or, in the reasonable business judgment of the Borrower, desirable in
view of its business and operations or the ownership of its properties and
qualify or remain qualified as a foreign corporation in each jurisdiction in
which such qualification is necessary or, in its reasonable business judgment,
desirable in view of its business and operations and ownership of its properties
except where the failure to so qualify will not have a Material Adverse Effect.
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SECTION 5.1.4. COMPLIANCE WITH LAWS, ETC. Comply with the
requirements of all present and future applicable laws, rules, regulations and
orders of any governmental authority having jurisdiction over it and/or its
business including, without limitation, regulations of the United States
Copyright Office and the Copyright Royalty Tribunal, except where the failure to
comply would not have a Material Adverse Effect.
SECTION 5.1.5. VISITATION RIGHTS. At any time after the
occurrence of a Default or an Event of Default and otherwise not more often than
twice in any Borrower fiscal year, permit, during normal business hours and upon
the giving of reasonable notice, the Agent, the Lenders and any agents or
representatives thereof, to examine and make copies of (at Borrower's cost and
expense) and abstracts from the records and books of account of, and visit the
properties of the Borrower and any Subsidiary to discuss the affairs, finances
and accounts of the Borrower or any Subsidiary with any of their partners,
officers or management level employees and/or any independent certified public
accountant of the Borrower and/or any Subsidiary.
SECTION 5.1.6. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep
adequate records and books of account, in which complete entries will be made in
accordance with GAAP and with applicable requirements of any governmental
authority having jurisdiction over the Borrower and/or any Subsidiary in
question, reflecting all financial transactions.
SECTION 5.1.7. MAINTENANCE OF PROPERTIES, ETC. Maintain and
preserve all of its properties necessary or useful in the proper conduct of its
business, in good working order and condition, ordinary wear and tear excepted,
and in accordance with each of the Security Documents.
SECTION 5.1.8. POST-CLOSING ITEMS. Complete in a timely
fashion all actions required in the Post-Closing Letter.
SECTION 5.1.9. OTHER DOCUMENTS, ETC. Except as otherwise
required by this Agreement, pay, perform and fulfill all of its obligations and
covenants under each material document, instrument or agreement to which it is a
party including, without limitation, the Related Transaction Documents; provided
that so long as the Borrower or any Subsidiary is contesting any claimed default
by it or them under any of the foregoing by proper proceedings conducted in good
faith and for which any proper reserve or other provision in accordance with and
to the extent required by GAAP has been made, such default shall not be deemed a
violation of this covenant.
SECTION 5.1.10. MINIMUM INTEREST COVERAGE RATIO. Maintain a
ratio of Adjusted EBITDA to Interest Expense of not less than 3.0:1.0, such
ratio to be measured (i) at each Borrower fiscal quarter end on or prior to June
30, 1998 for the period commencing on the Closing Date and ending on such fiscal
quarter end and (ii) at each Borrower fiscal quarter end thereafter for the
rolling two Borrower fiscal quarter period consisting of the Borrower fiscal
quarter then ending and the immediately preceding Borrower fiscal quarter.
SECTION 5.1.11. MINIMUM DEBT SERVICE COVERAGE RATIO. Maintain
a ratio of (i) Adjusted EBITDA LESS, for the fiscal period in question, the sum
of taxes paid or payable and
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Capital Expenditures to (ii) the sum of Total Debt Service of not less than
1.25:1.00, such ratio to be measured (i) at each Borrower fiscal quarter end on
or prior to June 30, 2000 for the period commencing July 1, 1999 and ending on
such fiscal quarter end and (ii) at each Borrower fiscal quarter end thereafter
for the rolling four Borrower fiscal quarter period consisting of the Borrower
fiscal quarter then ending and the three immediately preceding Borrower fiscal
quarters.
SECTION 5.1.12. MAXIMUM RATIO OF TOTAL INDEBTEDNESS FOR
BORROWED MONEY TO ADJUSTED EBITDA. Maintain at the end of each fiscal quarter of
the Borrower a ratio of (i) total Indebtedness for Borrowed Money of the
Borrower and its Subsidiaries on a consolidated basis as of the last day of such
fiscal quarter to (ii) Adjusted EBITDA for the rolling four Borrower fiscal
quarter period consisting of such fiscal quarter and the three immediately
preceding Borrower fiscal quarters of not greater than 2.50:1.00.
SECTION 5.1.12.1. MINIMUM PROFITABILITY. Maintain at
the end of each Borrower fiscal quarter for the period commencing as of the
Closing Date and ending December 31, 1998, Adjusted EBITDA of at least
$5,000,000 and thereafter maintain at the end of each Borrower fiscal quarter,
Adjusted EBITDA of at least $6,500,000, to be measured for the rolling four
Borrower fiscal quarter period consisting of the Borrower fiscal quarter then
ending and the three immediately preceding Borrower fiscal quarters.
SECTION 5.1.12.2. MINIMUM QUICK RATIO. Maintain at
the end of each fiscal quarter of the Borrower a ratio of (i) the sum of (w)
cash on hand or on deposit in any bank or trust company which has not suspended
business, (x) Cash Equivalent Investments (without duplication with (w);
provided however that if the amount outstanding under the Loans shall be equal
to or greater than $1,000,000, the sum of (w) and (x) shall not exceed
$1,000,000 for the purposes of calculating compliance with this ratio) and (y)
net outstanding amount of accounts receivable taking into account allowances for
doubtful or uncollectible accounts receivable to (ii) (x) Current Liabilities
less the sum of (y) the outstanding amount of the Loan (to the extent included
in Current Liabilities) and (z) the amount of any deferred revenue of not less
than 1.25:1.00. Each item described in clauses (i) and (ii) of this SECTION
5.1.25 shall be calculated as of the last day of the Borrower fiscal quarter and
include only the item(s) in question of the Borrower and its Subsidiaries on a
consolidated basis.
SECTION 5.1.13. OFFICER'S CERTIFICATES AND REQUESTS. Provide
each Officer's Certificate required under this Agreement and each Request so
that the statements contained therein are accurate and complete in all material
respects.
SECTION 5.1.14. DEPOSITORY. Use the Agent as a principal
depository of Borrower's funds.
SECTION 5.1.15. CHIEF EXECUTIVE OFFICER. Maintain Nicholas A.
Canitano as president of the Borrower and Kenneth L. Conley as Executive Vice
President of the Borrower and as the Persons with principal executive, operating
and management responsibility for the Borrower's business or obtain a
replacement of comparable experience and training in the
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Borrower's industry reasonably satisfactory to the Majority Lenders within 120
days of either Person ceasing to act in such capacity.
SECTION 5.1.16. NOTICE OF PURCHASE OF REAL ESTATE AND LEASES.
Promptly notify the Agent in the event that the Borrower shall purchase any real
estate or enter into any lease of real estate or of equipment material to the
operation of the Borrower's business, supply the Agent with a copy of the
related purchase agreement or of such lease, as the case may be, and if
requested by the Agent, execute and deliver, or cause to be executed and
delivered, to the Agent for the benefit of the Lenders a deed of trust,
mortgage, assignment or other document, together with landlord consents, in the
case of leased property, reasonably satisfactory in form and substance to the
Agent, granting a valid first Lien (subject to any Liens permitted under SECTION
5.2.1 hereof) on such real property or leasehold as security for the Financing
Documents, all subject to the limitations of SECTION 5.2.17.
SECTION 5.1.17. ADDITIONAL ASSURANCES. From time to time
hereafter, execute and deliver or cause to be executed and delivered, such
additional instruments, certificates and documents, and take all such actions,
as the Agent shall reasonably request for the purpose of implementing or
effectuating the provisions of the Financing Documents, and upon the exercise by
the Agent of any power, right, privilege or remedy pursuant to the Financing
Documents which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, exercise and
deliver all applications, certifications, instruments and other documents and
papers that the Agent may be so required to obtain.
SECTION 5.1.18. APPRAISALS. Permit the Agent and its agents,
at any time and in the sole discretion of the Agent or at the request of the
Majority Lenders, to conduct appraisals of the Borrower's business, the cost of
which shall be borne by the Borrower.
SECTION 5.1.19. ENVIRONMENTAL COMPLIANCE. Comply strictly and
in all material respects with the requirements of all federal, state, and local
environmental laws; notify the Lenders promptly in the event of any spill of
Hazardous Material materially affecting the Premises occupied by the Borrower
from time to time; forward to the Lenders promptly any written notices relating
to such matters received from any governmental agency; and pay promptly when due
any uncontested fine or assessment against the Premises.
SECTION 5.1.20. REMEDIATION. Immediately contain and remove
any Hazardous Material found on the Premises in compliance with applicable laws
and at the Borrower's expense, subject however, to the right of the Agent, at
the Agent's option but at the Borrower's expense, to have an environmental
engineer or other representative review the work being done.
SECTION 5.1.21. SITE ASSESSMENTS. Promptly upon the request of
the Agent, based upon the Agent's reasonable belief that a material Hazardous
Waste or other environmental problem exists with respect to any Premises,
provide the Agent with a Phase I environmental site assessment report and, if
Agent finds a reasonable basis for further assessment in such Phase I
assessment, a Phase II environmental site assessment report, or an update of any
existing report, all in scope, form and content and performed by such company as
may be reasonably satisfactory to the Agent.
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SECTION 5.1.22. INDEMNITY. Indemnify, defend, and hold the
Agent and the Lenders harmless from and against any claim, cost, damage
(including without limitation consequential damages), expense (including without
limitation reasonable attorneys' fees and expenses), loss, liability, or
judgment now or hereafter arising as a result of any claim for environmental
cleanup costs, any resulting damage to the environment and any other
environmental claims against the Borrower, any Subsidiary, the Lenders and/or
the Agent arising out of the transactions contemplated by this Agreement, or any
of the Premises. The provisions of this Section shall continue in effect and
shall survive (among other events), until the applicable statute of limitations
has expired, any termination of this Agreement, foreclosure, a deed in lieu
transaction, payment and satisfaction of the Obligations of Borrower, and
release of any collateral for the Loans.
SECTION 5.1.23. TRADEMARKS, COPYRIGHTS, ETC. Concurrently with
the acquisition of any trademark, tradename, copyright, patent or service mark
collaterally assign and grant a first priority perfected Lien thereon to the
Agent pursuant to documents in form and substance reasonably satisfactory to the
Agent.
SECTION 5.2. NEGATIVE COVENANTS OF THE BORROWER. From the date hereof
and thereafter for so long as there is Indebtedness of the Borrower to any
Lender and/or the Agent under any of the Financing Documents or any part of the
Commitment is in effect, the Borrower will not, with respect to itself and,
unless noted otherwise below, with respect to each of the Subsidiaries, will
ensure that each such Subsidiary will not, without the prior written consent of
the Majority Lenders:
SECTION 5.2.1. LIENS, ETC. Create, incur, assume or suffer to
exist any Lien of any nature, upon or with respect to any of its properties, now
owned or hereafter acquired, or assign as collateral or otherwise convey as
collateral, any right to receive income, except that the foregoing restrictions
shall not apply to any Liens:
SECTION 5.2.1.1. For taxes, assessments or
governmental charges or levies on property if the same shall not at the time be
delinquent or thereafter can be paid without penalty or interest, or (if
foreclosure, distraint, sale or other similar proceedings shall not have been
commenced or if commenced not stayed, bonded or discharged within 30 days after
commencement) are being contested in good faith and by appropriate proceedings
diligently conducted and for which proper reserve or other provision has been
made in accordance with and to the extent required by GAAP;
SECTION 5.2.1.2. Imposed by law, such as landlords',
carriers', warehousemen's and mechanics' liens, bankers' set off rights and
other similar Liens arising in the ordinary course of business for sums not yet
due or being contested in good faith and by appropriate proceedings diligently
conducted and for which proper reserve or other provision has been made in
accordance with and to the extent required by GAAP;
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SECTION 5.2.1.3. Arising in the ordinary course of
business out of pledges or deposits under worker's compensation laws,
unemployment insurance, old age pensions, or other social security or retirement
benefits, or similar legislation;
SECTION 5.2.1.4. Arising from or upon any judgment or
award, provided that such judgment or award is being contested in good faith by
proper appeal proceedings and only so long as execution thereon shall be stayed;
SECTION 5.2.1.5. Those set forth on EXHIBIT 1.8;
SECTION 5.2.1.6. Those now or hereafter granted
pursuant to the Security Documents or otherwise now or hereafter granted to the
Agent for the benefit of the Lenders as collateral for the Loans and/or
Borrower's other Obligations arising in connection with or under any of the
Financing Documents;
SECTION 5.2.1.7. Deposits to secure the performance
of bids, trade contracts (other than for Borrowed Money), leases, statutory
obligations, surety bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of the Borrower's or any Subsidiary's
business;
SECTION 5.2.1.8. Easements, rights of way,
restrictions and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of business by any
Borrower or any Subsidiary;
SECTION 5.2.1.9. Liens securing Indebtedness
permitted to exist under SECTION 5.2.8.3; provided that the Lien securing any
such Indebtedness is limited to the item of property purchased or leased in each
case;
SECTION 5.2.1.10. UCC-1 financing statements filed
solely for notice or precautionary purposes by lessors under operating leases
which do not secure Indebtedness and which are limited to the items of equipment
leased pursuant to the lease in question; and
SECTION 5.2.2. ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS
OF OTHER PERSONS. Assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligation or Indebtedness of any
other Person, except:
SECTION 5.2.2.1. Guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business;
SECTION 5.2.2.2. Assumptions, guaranties,
endorsements and contingent liabilities within the definition of Indebtedness
and permitted by SECTION 5.2.8; and
SECTION 5.2.2.3. Those set forth on EXHIBIT 5.2.2.
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SECTION 5.2.3. ACQUISITIONS, DISSOLUTION, ETC. Acquire, in one
or a series of transactions, all or any substantial portion of the assets or
ownership interests in another Person, or dissolve, liquidate, wind up, merge or
consolidate or combine with another Person or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) any
material assets, whether now owned or hereafter acquired, or any of the
Borrower's or any Subsidiary's interests in real property other than assets
which are replaced within 90 days of any asset sale, assignment, lease or
disposition with assets of like kind, usefulness and value; provided, however,
that the Borrower shall be permitted to acquire all or any portion of the assets
or ownership interests in another Person (by merger, consolidation or otherwise
so long as the Borrower survives) having aggregate (for all such acquisitions
from and after the Closing Date, but excluding however the acquisition of the
Acquired Company) consideration not to exceed $15,000,000, of which not more
than $10,000,000 of such consideration shall be in the form of cash. At the time
of any such Permitted Acquisition the Borrower shall provide or grant or cause
to be provided or granted to the Agent a first priority perfected Lien on the
assets or ownership interests acquired, including without limitation the assets
owned by any Subsidiary, to the extent that the Agent does not already have such
a Lien. Prior to the consummation of any such Permitted Acquisition, Borrower
shall submit to the Agent a pro-forma Compliance Certificate on a consolidated
basis (including the to-be-acquired assets and any assumed liabilities or if
ownership interests are acquired, the to-be-acquired Person if such Person is to
be a Subsidiary and if not, the to-be-acquired ownership interests, all measured
as set forth below in this SECTION 5.2.3), which such pro-forma Compliance
Certificate shall indicate that no Default or Event of Default exists or would
exist following consummation of the Permitted Acquisition and that the Borrower
would be, in compliance with (on a consolidated basis including the
to-be-acquired assets and any assumed liabilities or if ownership interests are
acquired, the to-be-acquired Person if such Person is to be a Subsidiary and if
not, the to-be-acquired ownership interests), SECTIONS 5.1.10, 5.1.11, 5.1.12,
5.1.12.1 and 5.1.12.2 following consummation of the Permitted Acquisition,
including the to-be-acquired assets, Person or ownership interests and the
operating results thereof on the same basis and for the same periods as the
Borrower is measured for each such covenant, respectively.
SECTION 5.2.4. CHANGE IN NATURE OF BUSINESS. Make any material
change in the nature of its business.
SECTION 5.2.5. OWNERSHIP. Cause or permit the occurrence of
any Change of Control.
SECTION 5.2.6. SALE AND LEASEBACK. Enter into any sale and
leaseback arrangement with any lender or investor, or enter into any leases
except in the normal course of business at reasonable rents comparable to those
paid for similar leasehold interests in the area.
SECTION 5.2.7. SALE OF ACCOUNTS, ETC. Sell, assign, discount
or dispose in any way of any accounts receivable, promissory notes or trade
acceptances held by the Borrower or any Subsidiary, with or without recourse,
except in the ordinary course of the Borrower's or any Subsidiary's business.
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SECTION 5.2.8. INDEBTEDNESS. Incur, create, become or be
liable directly or indirectly in any manner with respect to or permit to exist
any Indebtedness except:
SECTION 5.2.8.1. Indebtedness under the Financing
Documents;
SECTION 5.2.8.2. Indebtedness with respect to trade
payable obligations and other normal accruals and customer deposits in the
ordinary course of business not yet due and payable in accordance with customary
trade terms or with respect to which the Borrower or any Subsidiary is
contesting in good faith the amount or validity thereof by appropriate
proceedings and then only to the extent such person has set aside on its books
adequate reserves therefor in accordance with and to the extent required by
GAAP;
SECTION 5.2.8.3. Indebtedness with respect to
Capitalized Lease Obligations and purchase money Indebtedness with respect to
real or personal property in an aggregate amount outstanding at any time not to
exceed $1,000,000; provided that the amount of any purchase money Indebtedness
does not exceed 90% of the lesser of the cost or fair market value of the asset
purchased with the proceeds of such Indebtedness;
SECTION 5.2.8.4. Unsecured Indebtedness in an
aggregate amount outstanding at any time not to exceed $250,000;
SECTION 5.2.8.5. Indebtedness listed on EXHIBIT
3.1.1.8;
SECTION 5.2.8.6. Indebtedness permitted by SECTION
5.2.2.
SECTION 5.2.8.7. Indebtedness outstanding as a
refinancing of Indebtedness permitted under another clause of this SECTION 5.2.8
other than SECTIONS 5.2.8.2 or this 5.2.8.7; provided that such Indebtedness as
refinanced continues to qualify as permitted Indebtedness under the clause of
this SECTION 5.2.8 under which the refinanced Indebtedness was permitted under
this SECTION 5.2.8.
SECTION 5.2.9. OTHER AGREEMENTS. Amend any of the terms or
conditions of any of the Related Transaction Documents in a manner materially
adverse to the Agent or any of the Lenders, its certificate of incorporation, if
any, any subordination agreement or any indenture, agreement, document, note or
other instrument evidencing, securing or relating to any other Indebtedness
permitted under SECTION 5.2.8.
SECTION 5.2.10. [RESERVED].
SECTION 5.2.11. DIVIDENDS, PAYMENTS AND DISTRIBUTIONS. Declare
or pay any dividends, management fees or like fees or make any other
distribution of cash or property or both to any of the Stockholders other than
compensation for services rendered to the Borrower and/or any Subsidiary or use
any of its assets for payment, purchase, conversion, redemption, retention,
acquisition or retirement of any beneficial interest in the Borrower or set
aside or reserve assets for sinking or like funds for any of the foregoing
purposes, make any other
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distribution by reduction of capital or otherwise in respect of any beneficial
interest in the Borrower or permit any Subsidiary which is not a wholly-owned
Subsidiary so to do.
SECTION 5.2.12. INVESTMENTS IN OR TO OTHER PERSONS. Make or
commit to make any Investment in or to any other Person (including, without
limitation, any Subsidiary) other than (i) advances to employees for business
expenses not to exceed $10,000 in the aggregate outstanding for any one employee
and not to exceed $50,000 in the aggregate outstanding at any one time to all
such employees, (ii) other employee loans not to exceed $100,000 in the
aggregate outstanding at any one time to all such employees, (iii) Cash
Equivalent Investments, (iv), Investments in accounts, contract rights and
chattel paper (as defined in the Uniform Commercial Code) and notes receivable,
arising or acquired in the ordinary course of business, (v) Investments
constituting Permitted Acquisitions and (vi) Investments described on EXHIBIT
5.2.2.
SECTION 5.2.13. TRANSACTIONS WITH AFFILIATES. Engage in any
transaction or enter into any agreement with an Affiliate, or in the case of
Affiliates or Subsidiaries, with the Borrower or another Affiliate or
Subsidiary, except in the ordinary course of business, upon fair and reasonable
terms and no less favorable to the Borrower than could be obtained on an arm's
length basis, except as set forth on EXHIBIT 5.2.13.
SECTION 5.2.14. CHANGE OF FISCAL YEAR. Change its accounting
policies, reporting practices or its fiscal year from that which was in effect
on the Closing Date.
SECTION 5.2.15. SUBORDINATION OF CLAIMS. Subordinate any
present or future claim against or obligation of another Person, except as
ordered in a bankruptcy or similar creditors' remedy proceeding of such other
Person.
SECTION 5.2.16. COMPLIANCE WITH ERISA. With respect to
Borrower and any Commonly Controlled Entity (a) withdraw from or cease to have
an obligation to contribute to, any Multiemployer Plan, (b) engage in any
"prohibited transaction" (as defined in Section 4975 of the Code) involving any
Plan, (c) except for any deficiency caused by a waiver of the minimum funding
requirement under sectionS 412 and/or 418 of the Code, as described above, incur
or suffer to exist any material "accumulated funding deficiency" (as defined in
section 302 of ERISA and section 412 of the Code) of the Borrower or any
Commonly Controlled Entity, whether or not waived, involving any Single Employer
Plan, (d) incur or suffer to exist any Reportable Event or the appointment of a
trustee or institution of proceedings for appointment of a trustee for any
Single Employer Plan if, in the case of a Reportable Event, such event continues
unremedied for ten (10) days after notice of such Reportable Event pursuant to
sections 4043(a), (c) or (d) of ERISA is given, if in the reasonable opinion of
the Majority Lenders any of the foregoing is likely to result in a material
liability of the Borrower or any Commonly Controlled Entity, (e) permit the
assets held under any Plan to be insufficient to protect all accrued benefits,
(f) allow or suffer to exist any event or condition, which presents a material
risk of incurring a material liability of the Borrower or any Commonly
Controlled Entity to PBGC by reason of termination of any such Plan or (g) cause
or permit any Plan maintained by Borrower and/or any Commonly Controlled Entity
to be out of compliance with ERISA. For purposes of this SECTION 5.2.16
"material liability" shall be deemed to mean any liability of Fifty Thousand
Dollars ($50,000) or more in the aggregate.
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SECTION 5.2.17. CAPITAL EXPENDITURES. Incur Capital
Expenditures during any Borrower fiscal year in excess of $1,000,000.
Subject to the foregoing, the Borrower shall make its Capital
Expenditures substantially in accordance with and for the purposes outlined in
the Budget for the Borrower fiscal year in question.
SECTION 5.2.18. HAZARDOUS WASTE. Become involved, or permit,
to the extent reasonably possible after the exercise by the Borrower of
reasonable due diligence and preventive efforts, any tenant of its real property
to become involved, in any operations at such real property generating, storing,
disposing, or handling Hazardous Material or any other activity that could lead
to the imposition on the Borrower or the Agent or any Lender, or any such real
property of any material liability or Lien under any environmental laws.
SECTION 5.2.19. OTHER RESTRICTIONS ON LIENS. Enter into any
agreement or otherwise agree to or grant any restriction substantially similar
to the provisions of SECTION 5.2.1 hereof or which would otherwise have the
effect of prohibiting, restricting, impeding or interfering with the creation
subsequent to the Closing Date of Liens to secure the Obligations.
SECTION 5.3. REPORTING REQUIREMENTS. From the date hereof and
thereafter for so long as the Borrower is indebted to any Lender and/or the
Agent under any of the Financing Documents, the Borrower will, unless the
Majority Lenders shall otherwise consent in writing, furnish or cause to be
furnished to the Agent for distribution to the Lenders:
SECTION 5.3.1. As soon as possible and in any event upon
acquiring knowledge of an Event of Default or Default, continuing on the date of
such statement, the written statement of an Authorized Representative setting
forth details of such Event of Default or Default and the actions which the
Borrower has taken and proposes to take with respect thereto;
SECTION 5.3.2. As soon as practicable after the end of each
Borrower fiscal year and in any event within 90 days after the end of each such
fiscal year, consolidated and consolidating balance sheets of the Borrower and
any Subsidiaries as at the end of such year, and the related statements of
income and cash flows or shareholders' equity of the Borrower and any
Subsidiaries setting forth in each case the corresponding figures for the
preceding fiscal year, such statements to be certified by a firm of independent
certified public accountants selected by Borrower and reasonably acceptable to
the Majority Lenders, to be accompanied by a true copy of said auditors'
management letter, if one was provided to the Borrower, and to contain a
statement to the effect that such accountants have examined SECTIONS 5.1.10
through 5.1.13 and 5.2.17 and that no Default or Event of Default exists on
account of Borrower's failure to have been in compliance therewith on the date
of such statement;
SECTION 5.3.3. As soon as is practicable after the end of each
fiscal quarter of each Borrower fiscal year and in any event within 45 days
thereafter, consolidated balance sheets of the Borrower and any Subsidiaries as
of the end of such period and the related statements of income and cash flows
and shareholders' equity of the Borrower and any Subsidiaries, subject to
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changes resulting from year-end adjustments, together, subject to SECTION 5.3.7,
with a comparison to the Budget for the applicable period, such balance sheets
and statements to be prepared and certified by an Authorized Representative in
an Officer's Certificate as having been prepared in accordance with GAAP except
for footnotes and year-end adjustments, and to be in form reasonably
satisfactory to the Agent;
SECTION 5.3.4. Simultaneously with the furnishing of each of
the year-end consolidated and consolidating financial statements of the Borrower
and any Subsidiaries to be delivered pursuant to SECTION 5.3.2 and each of the
consolidated quarterly statements of the Borrower and the Subsidiaries to be
delivered pursuant to SECTION 5.3.3 an Officer's Certificate of an Authorized
Representative which shall contain a statement in the form of EXHIBIT 3.1.1.10
to the effect that no Event of Default or Default has occurred, without having
been waived in writing, or if there shall have been an Event of Default not
previously waived in writing pursuant to the provisions hereof, or a Default,
such Officer's Certificate shall disclose the nature thereof and the actions the
Borrower has taken and prepare to take with respect thereto. Each such Officer's
Certificate shall also contain a calculation of and certify to the accuracy of
the amounts required to be calculated in the financial covenants of the Borrower
contained in this Agreement and described in EXHIBIT 3.1.1.10;
SECTION 5.3.5. Promptly after the commencement thereof, notice
of all material actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Borrower and/or any Subsidiary;
SECTION 5.3.6. [Reserved];
SECTION 5.3.7. On or before January 31 of each fiscal year of
the Borrower, an updated proposed budget, prepared on a quarterly basis, and
updated financial projections for the Borrower and any Subsidiaries on a
consolidated basis (together, the "Budget") for such fiscal year, setting forth
in detail reasonably satisfactory to the Agent the projected results of
operations of the Borrower and any Subsidiaries on a consolidated quarterly
basis, detailed Capital Expenditures plan and stating underlying assumptions and
accompanied by a written statement of an Authorized Representative certifying as
to the approval of such Budget by Borrower's board of directors.
SECTION 5.3.8. Such other information respecting the Business
Condition of the Borrower or any Subsidiaries as the Agent or any Lender may
from time to time reasonably request;
SECTION 5.3.9. Written notice of the fact and of the details
of any sale or transfer of any ownership interest in the Borrower or any
Subsidiary given promptly after the Borrower acquires knowledge thereof;
provided, however, that this clause shall not be deemed to constitute or imply
any consent to any such sale or transfer;
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SECTION 5.3.10. Prompt written notice of loss of any key
personnel or any Material Adverse Effect and an explanation thereof and of the
actions the Borrower and/or such Subsidiary propose to take with respect
thereto; and
SECTION 5.3.11. Written notice of the following events, as
soon as possible and in any event within 15 days after the Borrower knows or has
reason to know thereof: (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan, or (ii) the institution of
proceedings or the taking or expected taking of any other action by PBGC or the
Borrower or any Commonly Controlled Entity to terminate, withdraw or partially
withdraw from any Plan and, with respect to any Multiemployer Plan, the
Reorganization (as defined in Section 4241 of ERISA) or Insolvency (as defined
in Section 4245 of ERISA) of such Multiemployer Plan and in addition to such
notice, deliver to the Agent whichever of the following may be applicable: (a)
an Officer's Certificate setting forth details as to such Reportable Event and
the action that the Borrower or Commonly Controlled Entity proposes to take with
respect thereto, together with a copy of any notice of such Reportable Event
that may be required to be filed with PBGC, or b) any notice delivered by PBGC
evidencing its intent to institute such proceedings or any notice to PBGC that
such Plan is to be terminated, as the case may be.
ARTICLE 6.
EVENTS OF DEFAULT
SECTION 6.1. EVENTS OF DEFAULT. The Borrower shall be in default under
each of the Financing Documents, upon the occurrence of any one or more of the
following events ("Events of Default"):
SECTION 6.1.1. If the Borrower shall fail to make due and
punctual payment of any principal, fees, interest and/or other amounts payable
under this Agreement as provided in any Note and/or in this Agreement when the
same is due and payable, whether at the due date thereof or at a date fixed for
prepayment or if the Borrower shall fail to make any such payment of fees,
interest, principal and/or any other amount under this Agreement and/or under
any Note on the date when such payment becomes due and payable by acceleration;
SECTION 6.1.2. If the Borrower or any Subsidiary shall make an
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall admit in writing its inability to pay its
debts as they become due or shall file a voluntary petition in bankruptcy, or
shall file any petition or answer seeking any reorganization, arrangement,
composition, adjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy laws or other applicable federal, state
or other statute, law or regulation, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of it or of all or any
substantial part of its properties, or if partnership or corporate action shall
be taken for the purpose of effecting any of the foregoing; or
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SECTION 6.1.3. To the extent not described in SECTION 6.1.2,
(i) if the Borrower or any Subsidiary shall be the subject of a bankruptcy
proceeding, or (ii) if any proceeding against any of them seeking any
reorganization, arrangement, composition, adjustment, liquidation, dissolution,
or similar relief under the present or any future federal bankruptcy law or
other applicable federal, foreign, state or other statute, law or regulation
shall be commenced, or (iii) if any trustee, receiver or liquidator of any of
them or of all or any substantial part of any or all of their properties shall
be appointed without their consent or acquiescence; provided that in any of the
cases described above in this SECTION 6.1.3, such proceeding or appointment
shall not be an Event of Default if the Borrower or the Subsidiary in question
shall cause such proceeding or appointment to be discharged, vacated, dismissed
or stayed within sixty (60) days after commencement thereof; or
SECTION 6.1.4. If final judgment or judgments aggregating more
than $500,000 shall be rendered against the Borrower or any Subsidiary and shall
remain undischarged, unstayed or unpaid for an aggregate of thirty (30) days
(whether or not consecutive) after entry thereof; or
SECTION 6.1.5. If the Borrower or any Subsidiary shall default
(after giving effect to any applicable grace period) in the due and punctual
payment of the principal of or interest on any Indebtedness exceeding in the
aggregate $500,000 (other than the Loans and the Letter of Credit Agreements),
or if any default shall have occurred and be continuing after any applicable
grace period under any mortgage, note or other agreement evidencing, securing or
providing for the creation of such Indebtedness, which results in the
acceleration of such Indebtedness or which permits, or with the giving of notice
would permit, any holder or holders of any such Indebtedness to accelerate the
stated maturity thereof; or
SECTION 6.1.6. If there shall be a default in the performance
of the Borrower's obligations under SECTION 5.1.3 (insofar as such Section
requires the preservation of the corporate existence of the Borrower or any
Subsidiary), any of SECTIONS 5.1.2, 5.1.10 through 5.1.12.2 or SECTION 5.2 of
this Agreement or under any covenant, representation or warranty contained in
any of the Security Documents for which no cure period is provided in such
Security Document; or
SECTION 6.1.7. If there shall be any Default in the
performance of any covenant or condition contained in this Agreement or in any
of the other Financing Documents to be observed or performed pursuant to the
terms hereof or any Financing Document, as the case may be, or to the extent
such Default would have a Material Adverse Effect, by the Borrower under any of
the Related Transaction Documents, other than a covenant or condition referred
to in any other subsection of this SECTION 6.1 and such Default shall continue
unremedied or unwaived, (i) in the case of any covenant or condition contained
in SECTION 5.3, for fifteen (15) Business Days, or (ii) in the case of any other
covenant or condition for which no other grace period is provided, for thirty
(30) days, or (iii) in the case of any other covenant or condition for which
another grace period is provided, for such grace period, or (iv) if any of the
representations and warranties made or deemed made by the Borrower to the Agent
and/or any Lender pursuant to any of the Financing Documents proves to have been
false or misleading in any material respect when made and such falseness or
misleading representation or warranty would be reasonably likely to have a
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material adverse effect on the Agent or any Lender or their rights and remedies
or a Material Adverse Effect; or
SECTION 6.1.8. If there shall be any attachment of any
deposits or other property of the Borrower and/or any Subsidiary in the
possession of any Lender or any attachment of any other property of the Borrower
and/or any Subsidiary in an amount exceeding $100,000, which shall not be
discharged, vacated or stayed within thirty (30) days of the date of such
attachment; or
SECTION 6.1.9. Any certification of the financial statements,
furnished to the Agent pursuant to SECTION 5.3.2, shall contain any
qualification; provided, however, that such qualifications will not be deemed an
Event of Default if in each case (i) such certification shall state that the
examination of the financial statements covered thereby was conducted in
accordance with generally accepted auditing standards, including but not limited
to all such tests of the accounting records as are considered necessary in the
circumstances by the independent certified public accountants preparing such
statements, (ii) such financial statements were prepared in accordance with GAAP
and (iii) such qualification does not involve the "going concern" status of the
entity being reported upon.
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ARTICLE 7.
REMEDIES OF LENDERS
Upon the occurrence and during the continuance of any one or more of
the Events of Default, the Agent, at the request of the Majority Lenders, shall,
by written notice to the Borrower, declare the obligation of the Lenders to make
or maintain the Loans to be terminated, whereupon the same and the Commitment
shall forthwith terminate, and the Agent, at the request of the Majority
Lenders, shall, by notice to the Borrower, declare the entire unpaid principal
amount of each Note and all fees and interest accrued and unpaid thereon and/or
under this Agreement, and/or any of the other Financing Documents and any and
all other Indebtedness under this Agreement, each Note and/or any of the other
Financing Documents to the Agent and/or any of the Lenders and/or to any holder
of all or any portion of each Note to be forthwith due and payable, whereupon
each Note, and all such accrued fees and interest and other such Indebtedness
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower; provided, however, that upon the occurrence of an Event of
Default under SECTIONS 6.1.2 or 6.1.3, all of the unpaid principal amount of
each Note, all fees and interest accrued and unpaid thereon and/or under this
Agreement and/or under any of the other Financing Documents and any and all
other such Indebtedness of the Borrower to any of the Lenders and/or to any such
holder shall thereupon be due and payable in full without any need for the Agent
and/or any Lender to make any such declaration or take any action and the
Lenders' obligations to make the Loans shall simultaneously terminate. The Agent
shall, in accordance with the votes of the Majority Lenders, exercise all
remedies on behalf of and for the account of each Lender and on behalf of its
respective Pro Rata Share of the Loans, its Note and Indebtedness of the
Borrower owing to it or any of the foregoing, including, without limitation, all
remedies available under or as a result of this Agreement, the Notes or any of
the other Financing Documents or any other document, instrument or agreement now
or hereafter securing any Note without any such exercise being deemed to modify
in any way the fact that each Lender shall be deemed a separate creditor of the
Borrower to the extent of its Note and Pro Rata Share of the Loans and any other
amounts payable to such Lender under this Agreement and/or any of the other
Financing Documents and the Agent shall be deemed a separate creditor of the
Borrower to the extent of any amounts owed by the Borrower to the Agent.
ARTICLE 8.
AGENT
SECTION 8.1. APPOINTMENT. The Agent is hereby appointed as Agent,
hereunder and each Lender hereby authorizes the Agent to act under the Financing
Documents as its Agent hereunder and thereunder, respectively. The Agent agrees
to act as such upon the express conditions contained in this Article 8. The
provisions of this Article 8 are solely for the benefit of the Agent, and,
except as expressly provided in SECTION 8.6, neither the Borrower nor any third
party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement
and the other Financing Documents to which the
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Agent is a party, the Agent shall act solely as Agent of the Lenders and does
not assume nor shall the Agent be deemed to have assumed any obligation towards
or relationship of agency or trust with or for the Borrower, any of the
Stockholders, any Affiliate or any Subsidiary.
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SECTION 8.2. POWERS; GENERAL IMMUNITY.
SECTION 8.2.1. DUTIES SPECIFIED. Each Lender irrevocably
authorizes the Agent to take such action on such Lender's behalf, including,
without limitation, to execute and deliver the Financing Documents to which the
Agent is a party and to exercise such powers hereunder and under the Financing
Documents and other instruments and agreements referred to herein as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto. The Agent shall have only
those duties and responsibilities which are expressly specified in this
Agreement or in any of the Financing Documents and may perform such duties by or
through its agents or employees. The duties of the Agent shall be mechanical and
administrative in nature; and the Agent shall not have by reason of this
Agreement or any of the Financing Documents a fiduciary relationship in respect
of any Lender; and nothing in this Agreement or any of the Security Documents,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Agreement or any of the Financing
Documents or the other instruments and agreements referred to herein except as
expressly set forth herein or therein.
SECTION 8.2.2. NO RESPONSIBILITY FOR CERTAIN MATTERS. The
Agent shall not be responsible to any Lender for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of any of
the Financing Documents or any other document, instrument or agreement now or
hereafter executed in connection herewith or therewith, or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates or any other documents in connection herewith
or therewith by or on behalf of the Borrower, any of the Stockholders, and/or
any Subsidiary to the Agent or any Lender, or be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained herein or therein or as to the use
of the proceeds of the Loans or of the existence or possible existence of any
Default or Event of Default.
SECTION 8.2.3. EXCULPATORY PROVISIONS. Neither the Agent nor
any of its officers, directors, employees or agents shall be liable to any
Lender for any action taken or omitted hereunder or under any of the Financing
Documents, or in connection herewith or therewith unless caused by its or their
gross negligence or willful misconduct. If the Agent shall request instructions
from Lenders with respect to any action (including the failure to take an
action) in connection with any of the Financing Documents, the Agent shall be
entitled to refrain from taking such action unless and until the Agent, shall
have received instructions from the Majority Lenders (or all of the Lenders if
the action requires their consent). Without prejudice to the generality of the
foregoing, (i) the Agent shall be entitled to rely, and shall be fully protected
in relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for the Borrower, any
of the Stockholders, and/or any Subsidiary), accountants, experts and other
professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against the Agent as a result of the Agent acting or (where so
instructed) refraining from acting under any of the Financing Documents or the
other instruments and agreements referred to herein in accordance with the
instructions of the Majority Lenders (or all of the
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Lenders if the action requires their consent). The Agent shall be entitled to
refrain from exercising any power, discretion or authority vested in it under
any of the Financing Documents or the other instruments and agreements referred
to herein unless and until it has obtained the instructions of the Majority
Lenders (or all of the Lenders if the action requires their consent).
SECTION 8.2.4. AgENT ENTITLED TO ACT AS LENDER. The agency
hereby created shall in no way impair or affect any of the rights and powers of,
or impose any duties or obligations upon, Fleet National Bank in its individual
capacity as a Lender hereunder. With respect to its participation in the Loans
and the Commitment, Fleet National Bank shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
performing the duties and functions delegated to it hereunder, and the term
"Lender" or "Lenders" or any similar term shall, unless the context clearly
otherwise indicates, include Fleet National Bank in its individual capacity. The
Agent and its affiliates may accept deposits from, lend money to and generally
engage in any kind of banking, trust, financial advisory or other business with
the Borrower, any of the Stockholders, or any Affiliate or Subsidiary as if it
were not performing the duties specified herein, and may accept fees and other
consideration from the Borrower and/or any of such other Persons for services in
connection with this Agreement and otherwise without having to account for the
same to Lenders.
SECTION 8.3. REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR
APPRAISAL OF CREDITWORTHINESS. Each Lender represents and warrants that it has
made its own independent investigation of the financial condition and affairs of
the Borrower, the Stockholders and any Subsidiaries of any of them in connection
with the making of the Loans hereunder and has made and shall continue to make
its own appraisal of the creditworthiness of the Borrower, the Stockholders and
the Subsidiaries. The Agent shall not have any duty or responsibility, either
initially or on a continuing basis, to make any such investigation or any such
appraisal on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto whether coming into its possession before the
making of any Loan or any time or times thereafter (except for information
received by the Agent under SECTION 5.3 hereof which the Agent will promptly
forward to the Lenders), and the Agent shall further not have any responsibility
with respect to the accuracy of or the completeness of the information provided
to any of the Lenders.
SECTION 8.4. RIGHT TO INDEMNITY. Each Lender severally agrees to
indemnify the Agent proportionately to its Pro Rata Share of the Loans, to the
extent the Agent shall not have been reimbursed by or on behalf of the Borrower,
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in performing its duties hereunder or in any way relating to or arising
out of this Agreement and/or any of the other Financing Documents; PROVIDED that
no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or willful misconduct.
If any indemnity furnished to the Agent for any purpose shall, in the opinion of
the Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
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SECTION 8.5. PAYEE OF NOTE TREATED AS OWNER. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any person or entity
who, at the time of making such request or giving such authority or consent, is
the holder of any Note shall be conclusive and binding on any subsequent holder,
transferee or assignee of that Note or of any Note or Notes issued in exchange
for such Note.
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SECTION 8.6. RESIGNATION BY AGENT.
SECTION 8.6.1. The Agent may resign from the performance of
all its functions and duties under the Financing Documents at any time by giving
30 days' prior written notice to the Borrower and each of the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent, of
appointment pursuant to SECTIONS 8.6.2 and 8.6.3 below or as otherwise provided
below.
SECTION 8.6.2. Upon any such notice of resignation, the
Majority Lenders shall appoint a successor Agent, who shall be a Lender and, so
long as no Default or Event of Default exists and is continuing, who shall be
reasonably satisfactory to the Borrower and in any event shall be an
incorporated bank or trust company with a combined surplus and undivided capital
of at least Five Hundred Million Dollars ($500,000,000).
SECTION 8.6.3. If a successor Agent shall not have been so
appointed within said 30 day period, the resigning Agent, with the consent of
the Borrower, which shall not be unreasonably withheld or delayed, shall then
appoint a successor Agent, who shall be a Lender and who shall serve as the
Agent, until such time, if any, as the Majority Lenders, and so long as no
Default or Event of Default exists and is continuing, with the consent of the
Borrower, which shall not be unreasonably withheld or delayed, appoint a
successor Agent as provided above.
SECTION 8.6.4. If no successor Agent has been appointed
pursuant to SECTIONS 8.6.2 or 8.6.3 by the 40th day after the date such notice
of resignation was given by the resigning Agent, the resigning Agent's
resignation shall become effective and the Majority Lenders shall thereafter
perform all the duties of the resigning Agent under the Financing Documents
including without limitation directing the Borrower on how to submit Requests
and Interest Rate Elections and otherwise on administration of the Agent's
duties under the Financing Documents and the Borrower shall comply therewith so
long as such directions do not have a Material Adverse Effect on the Borrower or
any Subsidiary until such time, if any, as the Majority Lenders, and so long as
no Default or Event of Default exists and is continuing, with the consent of the
Borrower, which shall not be unreasonably withheld or delayed, appoint a
successor Agent, as provided above.
SECTION 8.7. SUCCESSOR AGENT. Upon the acceptance of any appointment as
the Agent hereunder by a successor Agent, that successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent, shall be discharged from its
duties and obligations as the Agent under the Financing Documents. After any
retiring Agent's resignation hereunder as the Agent the provisions of this
Article 8 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under the Financing Documents.
ARTICLE 9.
MISCELLANEOUS
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SECTION 9.1. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
SECTION 9.1.1. Except to the extent prohibited by applicable
law, the Borrower irrevocably:
SECTION 9.1.1.1. agrees that any suit, action, or
other legal proceeding arising out of any of the Financing Documents or any of
the Loans may be brought in the courts of record of The Commonwealth of
Massachusetts or any other state(s) in which any of the Borrower's assets are
located or the courts of the United States located in The Commonwealth of
Massachusetts or any other state(s) in which any of the Borrower's assets are
located;
SECTION 9.1.1.2. consents to the jurisdiction of each
such court in any such suit, action or proceeding; and
SECTION 9.1.1.3. waives any objection which it may
have to the laying of venue of such suit, action or proceeding in any of such
courts.
For such time as any of the Indebtedness of the Borrower to any Lender
and/or the Agent shall be unpaid in whole or in part and/or the Commitment is in
effect, the Borrower irrevocably designates the registered agent or agent for
service of process of the Borrower as reflected in the records of the Secretary
of State of the State of Ohio as its registered agent, and, in the absence
thereof, the Secretary of State of the State of Ohio as its agent to accept and
acknowledge on its behalf service of any and all process in any such suit,
action or proceeding brought in any such court and agrees and consents that any
such service of process upon such agent and written notice of such service to
the Borrower by registered or certified mail shall be taken and held to be valid
personal service upon the Borrower regardless of where the Borrower shall then
be doing business and that any such service of process shall be of the same
force and validity as if service were made upon it according to the laws
governing the validity and requirements of such service in each such state and
waives any claim of lack of personal service or other error by reason of any
such service. Any notice, process, pleadings or other papers served upon the
aforesaid designated agent shall, within three (3) Business Days after such
service, be sent by the method provided therefor under SECTION 9.6 to the
Borrower at its address set forth in this Agreement. EACH OF THE PARTIES HERETO
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF ANY DISPUTE BETWEEN THE
BORROWER AND THE AGENT AND/OR THE LENDERS WITH RESPECT TO THE FINANCING
DOCUMENTS AND/OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY.
SECTION 9.2. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
conferred upon or reserved to the Agent and/or the Lenders in any of the
Financing Documents is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given under any of the Financing
Documents or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy under any of the Financing
Documents, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
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SECTION 9.3. DELAY OR OMISSION NOT WAIVER. No delay in exercising or
failure to exercise by the Agent and/or the Lenders of any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by any of the Financing
Documents or by law to the Agent and/or any of the Lenders may be exercised from
time to time, and as often as may be deemed expedient, by the Agent and/or any
of the Lenders.
SECTION 9.4. WAIVER OF STAY OR EXTENSION LAWS. The Borrower covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of any of
the Financing Documents; and the Borrower (to the extent that it may lawfully do
so) hereby expressly waives all benefit and advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Agent and/or any of the Lenders, but will suffer and
permit the execution of every such power as though no such law had been enacted,
except to the extent the Agent or any Lender is guilty of willful misconduct or
gross negligence.
SECTION 9.5. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of any of the Financing Documents nor consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be in a written notice given to the Borrower by the Agent and
consented to in writing by the Majority Lenders (or by the Agent acting alone if
any specific provision of this Agreement provides that the Agent, acting alone,
may grant such amendment, modification, termination, waiver or departure) and
the Agent shall give any such notice if the Majority Lenders so consent or
direct the Agent to do so; provided, however, that any such amendment,
modification, termination, waiver or consent shall require a written notice
given to the Borrower by the Agent and consented to in writing by all of the
Lenders if the effect thereof is to (i) change any of the provisions affecting
the interest rate on the Loans, (ii) extend or modify the Commitment, (iii)
discharge or release the Borrower from its obligation to repay all principal due
under the Loans or release any collateral or guaranty for the Loans, (iv) change
any Lender's Pro Rata Share of the Commitment or the Loans, (v) modify this
SECTION 9.5, (vi) change the definition of Majority Lenders, (vii) extend any
scheduled due date for payment of principal, interest or fees or (viii) permit
the Borrower to assign any of its rights under or interest in this Agreement,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. Any amendment or modification of
this Agreement must be signed by the Borrower, the Agent and at least all of the
Lenders consenting thereto who shall then hold the Pro Rata Shares of the Loans
required for such amendment or modification under this SECTION 9.5 and the Agent
shall sign any such amendment if such Lenders so consent or direct the Agent to
do so provided that any Lender dissenting therefrom shall be given an
opportunity to sign any such amendment or modification. Any amendment of any of
the Security Documents must be signed by each of the parties thereto. No notice
to or demand on the Borrower and no consent, waiver or departure from the terms
of this Agreement granted by the Agent and/or the Lenders in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.
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SECTION 9.6. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands
and other communications provided for hereunder (other than those which, under
the terms of this Agreement, may be given by telephone, which shall be effective
when received verbally) shall be in writing (including telecopied communication)
and mailed (provided that in the case of items referred to in the next-to-last
sentence of SECTION 9.1 and the items set forth below as requiring a copy to
legal counsel for the Borrower, the Agent or a Lender, such items shall be
mailed by overnight courier for delivery the next Business Day), telecopied or
delivered to the applicable party at the addresses indicated below:
If to the Borrower:
CCAi Renaissance Centre
5800 Landerbrook Drive
Mayfield Heights, Ohio 44124
Attention: Nicholas A. Canitano
Telecopy: (440) 684-6700
With a copy to (if given pursuant to any of SECTIONS 5.3.1, 5.3.5,
5.3.9, 5.3.10 and 5.3.11):
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: John Saada
Telecopy: (216) 579-0212
If to Fleet National Bank as the Agent and/or a Lender:
Fleet National Bank
Mailstop: MA OF D07A
One Federal Street
Boston, MA 02110
Attention: Thomas W. Davies, Senior Vice President
Telecopy: (617) 346-0151
With a copy to (if given pursuant to any of SECTIONS 5.3.1, 5.3.5,
5.3.9, 5.3.10 and 5.3.11)
Hinckley, Allen & Snyder
28 State Street
Boston, MA 02109
Attention: Malcolm Farmer III
Telecopy: (617) 345-9020
If to any other Lender, to the address set forth on EXHIBIT 1.9.
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or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party complying as to the delivery with the
terms of this Section. All such notices, requests, demands and other
communications shall be effective when received. Requests, certificates, other
items provided pursuant to SECTION 5.3 and other routine mailings or notices
need not be accompanied by a copy to legal counsel for the Lenders or the
Borrower.
SECTION 9.7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand the reasonable fees and out-of-pocket expenses of Messrs. Hinckley, Allen
& Snyder, counsel for the Agent and of any local counsel retained by the Agent
in connection with the preparation, execution, delivery and administration
(excluding expenses of any Lender's sale of a participation in or sale or
assignment of all or a portion of such Lender's Commitment or Loans other than
any such sale pursuant to SECTIONS 2.2.3 or 2.9.7) of the Financing Documents
and the Loans. The Borrower agrees to pay on demand all reasonable costs and
expenses (including without limitation reasonable attorneys' fees) incurred by
the Agent and/or any Lender, upon or after the occurrence and during the
continuance of any Default or Event of Default, if any, in connection with the
enforcement of any of the Financing Documents and any amendments, waivers, or
consents with respect thereto. In addition, the Borrower shall pay on demand any
and all stamp and other taxes and fees payable or determined to be payable in
connection with the execution and delivery of the Financing Documents, and
agrees to save the Lenders and the Agent harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes or fees, except those resulting from the Lenders' or Agent's
gross negligence or willful misconduct.
SECTION 9.8. PARTICIPATIONS. Subject to compliance with the proviso in
the first sentence of SECTION 9.11, any Lender may sell participations in all or
part of the Loans made by it and/or its Pro Rata Share of the Commitment or any
other interest herein to a financial institution having at least $500,000,000 of
assets, in which event the participant shall not have any rights under any of
the Financing Documents (the participant's rights against such Lender in respect
of that participation to be those set forth in the Agreement executed by such
Lender in favor of the participant relating thereto) and all amounts payable by
the Borrower hereunder or thereunder shall be determined as if such Lender had
not sold such participation. Such Lender may furnish any information concerning
the Borrower and any Subsidiary in the possession of such Lender from time to
time to participants (including prospective participants); provided that such
Lender and any participant comply with the proviso in SECTION 9.11.7 as if any
such participant was a Substituted Lender.
SECTION 9.9. BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Agent and the Lenders
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Agent and the Lenders. This Agreement and all
covenants, representations and warranties made herein and/or in any of the other
Financing Documents shall survive the making of the Loans, the execution and
delivery of the Financing Documents and shall continue in effect so long as any
amounts payable under or in connection with any of the Financing Documents or
any other Indebtedness of the Borrower to the Agent and/or any Lender remains
unpaid or the Commitment remains outstanding; provided, however, that SECTIONS
2.2.3 and 9.7 shall, except to the extent agreed to in a pay-off letter by the
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Agent and the Lenders in their complete discretion, survive and remain in full
force and effect for 90 days following repayment in full of all amounts payable
under or in connection with all of the Financing Documents and any other such
Indebtedness.
SECTION 9.10. ACTUAL KNOWLEDGE. For purposes of this Agreement, neither
the Agent nor any Lender shall be deemed to have actual knowledge of any fact or
state of facts unless the senior loan officer or any other officer responsible
for the Borrower's account established pursuant to this Agreement at the Agent
or such Lender, shall, in fact, have actual knowledge of such fact or state of
facts or unless written notice of such fact shall have been received by the
Agent or such Lender in accordance with SECTION 9.6.
SECTION 9.11. SUBSTITUTIONS AND ASSIGNMENTS. Upon the request of any
Lender, the Agent and such Lender may assign all or any portion of its Pro Rata
Share of the Commitment and the Loans to a Federal Reserve Bank and may, subject
to the terms and conditions hereinafter set forth, take the actions set forth
below to substitute one or more financial institutions having at least
$500,000,000 in assets (a "Substituted Lender") as a Lender or Lenders hereunder
having an amount of the Loans as specified in the relevant Substitution
Agreement executed in connection therewith; provided that no Lender, Selling
Lender or Substituted Lender shall have a Pro Rata Share of the Commitment and
the Loans in the aggregate of less than 10% and Fleet National Bank and/or its
Affiliates shall retain for their own account at least 25% of the Commitment.
SECTION 9.11.1. In connection with any such substitution the
Substituted Lender and the Agent shall enter into a Substitution Agreement in
the form of EXHIBIT 9.11.1 hereto (a "Substitution Agreement") pursuant to which
such Substituted Lender shall be substituted for the Lender requesting the
substitution in question (any such Lender being hereinafter referred to as a
"Selling Lender") to the extent of the reduction in the Selling Lender's portion
of the Loans specified therein. In addition, such Substituted Lender shall
assume such of the obligations of each Selling Lender under the Financing
Documents as may be specified in such Substitution Agreement and this Agreement
shall be amended by execution and delivery of each Substitution Agreement to
include such Substituted Lender as a Lender for all purposes under the Financing
Documents and to substitute for the then existing EXHIBIT 1.9 to this Agreement
a new EXHIBIT 1.9 in the form of Schedule A to such Substitution Agreement
setting forth the portion of the Loans belonging to each Lender following
execution thereof. Each Lender and the Borrower hereby appoint the Agent as
Agent on its behalf to countersign and accept delivery of each Substitution
Agreement and, to the extent applicable, the provisions of Article 8 hereof
shall apply MUTATIS MUTANDIS with respect to such appointment and anything done
or omitted to be done by the Agent in pursuance thereof.
SECTION 9.11.2. Without prejudice to any other provision of
this Agreement, each Substituted Lender shall, by its execution of a
Substitution Agreement, agree that neither the Agent nor any Lender is any way
responsible for or makes any representation or warranty as to: (a) the accuracy
and/or completeness of any information supplied to such Substituted Lender in
connection therewith, (b) the financial condition, creditworthiness, affairs,
status or nature of the Borrower, any of the Stockholders and/or any of the
Subsidiaries or the observance by the Borrower, or any other party of any of its
obligations under this Agreement or any of the other
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Financing Documents or (c) the legality, validity, effectiveness, adequacy or
enforceability of any of the Financing Documents.
SECTION 9.11.3. The Agent shall be entitled to rely on any
Substitution Agreement delivered to it pursuant to this SECTION 9.11 which is
complete and regular on its face as to its contents and appears to be signed on
behalf of the Substituted Lender which is a party thereto, and the Agent shall
have no liability or responsibility to any party as a consequence of relying
thereon and acting in accordance with and countersigning any such Substitution
Agreement. The effective date of each Substitution Agreement shall be the date
specified as such therein and each Lender prior to such effective date shall,
for all purposes hereunder, be deemed to have and possess all of their
respective rights and obligations hereunder up to 12:00 o'clock Noon on the
effective date thereof.
SECTION 9.11.4. Upon delivery to the Agent of any Substitution
Agreement pursuant to and in accordance with this SECTION 9.11 and acceptance
thereof by the Agent (which delivery shall be evidenced and accepted exclusively
and conclusively by the Agent's countersignature thereon pursuant to the terms
hereof without which such Substitution Agreement shall be ineffective): (i)
except as provided hereunder and in SECTION 9.11.5, the respective rights of
each Selling Lender and the Borrower against each other under the Financing
Documents with respect to the portion of the Loans being assigned or delegated
shall be terminated and each Selling Lender and the Borrower shall each be
released from all further obligations to the other hereunder with respect
thereto (all such rights and obligations to be so terminated or released being
referred to in this SECTION 9.11 as "Discharged Rights and Obligations"); and
(ii) the Borrower and the Substituted Lender shall each acquire rights against
each other and assume obligations towards each other which differ from the
Discharged Rights and Obligations only in so far as the Borrower and the
Substituted Lender have assumed and/or acquired the same in place of the Selling
Lender in question; and (iii) the Agent, the Substituted Lender and the other
Lenders shall acquire the same rights and assume the same obligations between
themselves as they would have acquired and assumed had such Substituted Lender
been an original party to this Agreement as a Lender possessing the Discharged
Rights and Obligations acquired and/or assumed by it in consequence of the
delivery of such Substitution Agreement to the Agent.
SECTION 9.11.5. Discharged Rights and Obligations shall not
include, and there shall be no termination or release pursuant to this SECTION
9.11 of (i) any rights or obligations arising pursuant to any of the Financing
Documents in respect of the period or in respect of payments hereunder made
during the period prior to the effective date of the relevant Substitution
Agreement or, (ii) any rights or obligations relating to the payment of any
amount which has fallen due and not been paid hereunder prior to such effective
date or rights or obligations for the payment of interest, damages or other
amounts becoming due hereunder as a result of such nonpayment.
SECTION 9.11.6. With respect to any substitution of a
Substituted Lender taking place after the Closing Date, the Borrower shall issue
to such Substituted Lender and to such Selling Lender, new Notes reflecting the
inclusion of such Substituted Lender as a Lender and the reduction in the
respective Loans of such Selling Lender, such new Notes to be issued against
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receipt by the Borrower of the existing Notes of such Lender. The Selling Lender
or the Substituted Lender shall pay to the Agent for its own account an
assignment fee in the amount of $3,000 for each assignment hereunder, which
shall be payable at or before the effective date of the assignment.
SECTION 9.11.7. Each Lender may furnish to any financial
institution having at least $500,000,000 in assets which such Lender proposes to
make a Substituted Lender or to a Substituted Lender any information concerning
such Lender, the Borrower, Stockholders and any Subsidiary in the possession of
that Lender from time to time; provided that any Lender providing any
confidential information about the Borrower, any of the Stockholders and/or any
Subsidiary to any such financial institution shall first obtain such financial
institution's agreement to keep confidential any such confidential information.
SECTION 9.12. PAYMENTS PRO RATA. The Agent agrees that promptly after
its receipt of each payment from or on behalf of the Borrower in respect of any
obligations of the Borrower hereunder it shall distribute such payment to the
Lenders pro rata based upon their respective Pro Rata Shares, if any, of the
obligations with respect to which such payment was received. Each of the Lenders
agrees that, if it should receive any amount hereunder (whether by voluntary
payment, by realization upon security, by the exercise of the right of setoff
under SECTION 2.5.2 or otherwise or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Financing Documents, or
otherwise), which is applicable to the payment of the Obligations of a sum which
with respect to the related sum or sums received by other Lenders is in a
greater proportion than the total amount of such Obligation then owed and due to
such Lender bears to the total amount of such Obligation then owed and due to
all of the Lenders immediately prior to such receipt, except for any amounts
received pursuant to SECTION 2.2.3, then such Lender receiving such excess
payment shall purchase for cash without recourse or warranty from the other
Lenders an interest in the Obligations of the Borrower to such Lenders in such
amount as shall result in a proportional participation by all the Lenders in
such amount; provided further, however, that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
SECTION 9.13. INDEMNIFICATION. The Borrower irrevocably agrees to and
does hereby indemnify and hold harmless Agent and each of the Lenders, their
agents or employees and each Person, if any, who controls any of the Agent and
the Lenders within the meaning of Section 15 of the Securities Act of 1933, as
amended, and each and all and any of them (the "Indemnified Parties"), against
any and all losses, claims, actions, causes of action, damages or liabilities
(including any amount paid in settlement of any action, commenced or threatened
and any amount described in SECTION 8.4) (collectively, the "Damages"), joint or
several, to which they, or any of them, may become subject under statutory law
or at common law, and to reimburse the Indemnified Parties for any legal or
other out-of-pocket expenses reasonably incurred by it or them in connection
with investigating, preparing for or defending against any of the Indemnified
Parties, insofar as such losses, claims, damages, liabilities or actions arise
out of or are related to any act or omission of the Borrower and/or any
Subsidiary with respect to (i) the Related Transaction, as it may be modified
from time to time by any of the parties thereto, (ii) this Agreement, any of the
Notes, any of the Financing Documents, any of the Loans and/or any use
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made or proposed to be made with the proceeds of said Loans, (iii) any
acquisition or proposed acquisition or any other similar business combination or
proposed business combination by the Borrower and/or any of its Subsidiaries
and/or its Affiliates (whether by acquisition or exchange of capital stock or
other securities or by acquisition of all or substantially all of the assets of
any Person), (iv) any offering of securities by the Borrower and/or any
Subsidiary after the date hereof and/or in connection with the Securities and
Exchange Act of 1933 or (v) any failure to comply with any applicable federal,
state or foreign governmental law, rule, regulation, order or decree, including
without limitation, any Damages which arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact with respect to matters
relative to any of the foregoing contained in any document distributed in
connection therewith, or the omission or alleged omission to state in any of the
foregoing a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, but excluding
any Damages to the extent arising from or due to, as determined in a final
nonappealable judgment by a court of competent jurisdiction, the gross
negligence or willful misconduct of any of the Indemnified Parties; provided,
however, that notwithstanding the foregoing, no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort of otherwise) to the
Borrower or any Subsidiaries or to their respective security holders or
creditors except for direct (as opposed to consequential damages) determined in
a final nonappealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
In the case of an investigation, litigation or proceeding to which the indemnity
described in this paragraph applies, such indemnity shall be effective whether
or not such investigation, litigation or proceeding is brought by the Borrower
or any Subsidiaries or to their respective security holders or creditors or an
Indemnified Party or an Indemnified Party is otherwise a party thereto and
whether or not the Related Transaction and the transactions contemplated by the
Financing Documents are consummated.
Promptly upon receipt of notice of the commencement of any action, or
information as to any threatened action against any of the Indemnified Parties
in respect of which indemnity or reimbursement may be sought from the Borrower
on account of the agreement contained in this SECTION 9.13, notice shall be
given to the Borrower in writing of the commencement or threatening thereof,
together with a copy of all papers served, but the omission so to notify the
Borrower of any such action shall not release the Borrower from any liability
which it may have to such Indemnified Parties unless, and only to the extent
that, such omission materially prejudiced Borrower's ability to defend against
such action.
In case any such action shall be brought against any of the Indemnified
Parties, the Borrower shall be entitled to participate in (and, to the extent
that it shall wish, to select counsel and to direct) the defense thereof at its
own expense. Any of the Indemnified Parties shall have the right to employ its
or their own counsel in any case, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless the employment of such
counsel shall have been authorized in writing by the Borrower in connection with
the defense of such action or the Borrower shall not have employed counsel to
have charge of the defense of such action or such Indemnified Party shall have
received an opinion from an independent counsel that there may be defenses
available to it which are different from or additional to those available to the
Borrower (in which case the Borrower shall not have the right to direct the
defense of such
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action on behalf of such Indemnified Party), in any of which events the same
shall be borne by the Borrower. If any Indemnified Party settles any claim or
action with respect to which the Borrower has agreed to indemnify such
Indemnified Party pursuant to the terms hereof, the Borrower shall have no
liability pursuant to this SECTION 9.13 to such Indemnified Party with respect
to such claim or action unless the Borrower shall have consented in writing to
the terms of such settlement.
The provisions of SECTION 9.13 shall be effective only to the fullest
extent permitted by law. The provisions of this SECTION 9.13 shall continue in
effect and shall survive (among other events), until the applicable statute of
limitations has expired, any termination of this Agreement, foreclosure, a deed
in lieu transaction, payment and satisfaction of the Obligations of Borrower,
and release of any collateral for the Loans.
SECTION 9.14. GOVERNING LAW. This Agreement and each Note shall be
governed by, and construed in accordance with, the laws of The Commonwealth of
Massachusetts without regard to such state's conflict of laws rules.
SECTION 9.15. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 9.16. HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 9.17. COUNTERPARTS. This Agreement may be executed and
delivered in any number of counterparts each of which shall be deemed an
original, and this Agreement shall be effective when at least one counterpart
hereof has been executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument by their respective officers thereunto duly
authorized, as of April __, 1998.
In the presence of: Conley, Canitano & Assoc., Inc.
/s/ Jennifer W. Berlin By: /s/ Nicholas A. Canitano
- -------------------------- -----------------------------------
Nicholas A. Canitano
Chairman and CEO
In the presence of: Fleet National Bank, as Agent for the
Lenders and as a Lender
By: /s/ Thomas W. Davies
- -------------------------- -----------------------------------
Thomas W. Davies
Senior Vice President
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Exhibit 10.33
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT
SAP AMERICA, INC. - CONLEY, CANITANO & ASSOC., INC.
This R/3 National Implementation Partner Agreement (the "Agreement"), made this
2nd day of April, 1996, is by and between Conley, Canitano & Assoc., Inc.
("CCAi"), a Ohio corporation with offices at Signature Square, Suite 390, 25201
Chagrin Boulevard, Beachwood, Ohio 44122, and SAP America, Inc., ("SAP"), a
Delaware corporation with its principal place of business at 701 Lee Road, Suite
200. Wayne, Pennsylvania 19087.
RECITALS
A. WHEREAS CCAi and SAP, desiring to work together, in connection with the SAP
RI3 National Implementation Partner Program (as defined below), with the goal of
furthering the implementation of SAP's R/3 Software System;
B. WHEREAS SAP desires to enhance its capabilities to market and support SAP
Products through the use of CCAi's services; and
C. WHEREAS CCAi and SAP desire to formalize their relationship by entering into
this Agreement to undertake cooperative efforts for SAP R/3 Products within the
SAP CCAi Program.
NOW, THEREFORE, in reliance upon the foregoing recitals, intending to
be legally bound, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, CCAi and SAP agree as follows:
1. DEFINITIONS.
As used in this Agreement:
(a) The SAP- CCAi R/3 National Implementation Partner Program (the "R/3
NIP Program") means the business relationship set forth in this Agreement and
Appendix A to this Agreement.
(b) SOFTWARE. Software shall mean all SAP R/3 software, in whole or in
part, licensed by SAP AG or SAP America, Inc. in any release, version or
correction level and including all improvements, modifications, and extensions
thereto; whether in human or machine readable form.
(c) DOCUMENTATION. Documentation shall mean all human and machine
readable materials and copies of SAP manuals, program listings, flow charts,
logic diagrams, input and output forms, data models, specifications, and
instructions relating to the Software made available to CCAi under this
Agreement, or, generally, to SAP end-user licensees.
(d) R/3 PRODUCTS. R/3 Products shall mean the Software, Documentation
and related materials.
(e) "PROPRIETARY" INFORMATION" means; (i) with respect to SAP, the
Software and Documentation and any complete or partial copies thereof, the
Program Concepts, SAP licensors' Third-Party Database, any other third-party
software licensed with or as part of the Software, benchmark results, and any
other information identified or reasonably identifiable as confidential and
proprietary information of SAP, SAP AG, or their licensors ("SAP PROPRIETARY"
INFORMATION"); and (ii) with respect to CCAi, information identified or
reasonably
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identifiable as the confidential and proprietary information of CCAi ("CCAi
PROPRIETARY INFORMATION"); provided that, any part of the SAP or CCAi
Proprietary Information which: (a) is or becomes publicly available through no
act or failure of the other party; or (b) was or is rightfully acquired by the
other party from a source other than the disclosing party prior to receipt from
the disclosing party; or (c) becomes independently available to the other party
as a matter of right, shall be excluded.
(f) TERRITORY. Territory shall mean the United States of America.
2. AUTHORIZATION AND COMMITMENT OF RESOURCES.
(a) SAP hereby authorizes CCM to offer services as related to R/3
Products to potential users in the Territory under the terms of this Agreement
and any Appendices hereto. This authorization does not include maintenance of
the R/3 Products, physical installation of the R/3 Products, and training. This
authorization is non-exclusive and non-transferable.
(b) SAP in its sole discretion shall have the right to limit the
Territory, the R/3 Products, and the type of customers to be covered by this
Agreement, as SAP deems advisable in its sole discretion following reasonable
notice and consultation with CCAi. SAP may authorize other parties to offer
services as related to the R/3 Products in the Territory as it deems advisable
in its sole discretion.
(c) Services to be provided by either party to its clients and
customers are to be contracted for separately by each party, independently of
each other, unless otherwise expressly agreed upon in writing between SAP and
CCAi for that specific engagement. Each party shall be solely liable to its
customers and clients for its own services.
3. SERVICES AND RESPONSIBILITIES OF SAP.
(a) SAP shall provide to CCAi the Software under the terms of the
Appendix A. The Software shall only be used internally by CCAi solely for (i)
training of CCAi's personnel who are to work under this Agreement and (ii) for
demonstration of the Software to potential prospects upon the prior written
consent of SAP. The Software copy provided hereunder may not be used in the
operation of the business of CCAi or of any other entity or person.
(b) Should CCAi desire to license all or any part of the Software for
use in the operation of its own business, SAP will license it to CCAi under the
terms of SAP's standard end-user license agreement and at SAP's standard license
fees then in effect.
(c) With regard to training for the Software, SAP shall:
(i) invite CCAi, on a space available basis, at negotiated rates, to
SAP regularly scheduled alliance partner training. CCAi shall be responsible for
all related travel and living expenses;
(ii) provide access, on a space available basis, to CCAi for its
personnel participating in the R/3 NIP Program to customer training courses
generally offered by SAP, such training courses to be available at SAP's current
prices and terms;
(iii) provide marketing-oriented training courses to CCAi on a
cost-sharing basis to be agreed upon between the parties; and
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(d) SAP shall otherwise inform and instruct CCAi as to R/3 Products and
provide guidance, as SAP deems necessary in its sole judgment, for CCAi to carry
out its responsibilities under this Agreement.
4. SERVICES AND RESPONSIBILITIES OF CCAi.
CCAi agrees that it shall:
(a) acquire as soon as possible and maintain a comprehensive and
fundamental knowledge of the R/3 Products and ensure that its employees are
technically qualified and sufficiently trained in SAP courses, including ongoing
training at SAP, and internally, to provide appropriate advice on the use of the
R/3 Products to clients and prospective users of the Software;
(b) use its best efforts to promote internally the R/3 Products and to
offer services as related to the R/3 Products throughout the Territory and
ensure that its employees who perform any services hereunder shall have the
proper skill, training and background to enable them to demonstrate the R/3
Products in a competent and professional manner, it being understood that CCAi
will have no liability to SAP in the event that it fails to successfully promote
R/3 Products and related services except as committed to in this Agreement;
(c) use its best efforts to meet the goals relative to the R/3 NIP
Program set out in CCAi's annual business plan, which is attached hereto as
Appendix B, and to update such business plan quarterly;
(d) ensure that it has the necessary number of qualified personnel
available according to CCAi's annual business plan attached as Appendix B;
(e) continually improve its training of all personnel as offered in
Section 3. who are or will be acting under this Agreement;
(f) use its best efforts to make the R/3 Products known to its
customers and potential customers; make every effort to see that the R/3
Products it suggests to each potential customer meet that entity's application
requirements; present the R/3 Products using only the product names given by
SAP; provide potential customers such marketing materials and nonconfidential
information necessary for evaluating the R/3 Products being considered (except
as limited by Section 10.(b) below); and, make no warranties, assurances or
statements concerning R/3 Product features that are misleading or materially
divergent from the descriptive literature supplied by SAP;
(g) not engage in any business activity, either directly or indirectly,
in any manner or capacity, in its own behalf or in behalf of any other person,
firm, corporation or organization, nor accept or continue any obligations which
may interfere with or impair its ability to perform any of its duties or
obligations under this Agreement;
(h) to the extent it conducts end-user training within its other
consultation activities, not offer or conduct end user training which competes
with official SAP courses offered by SAP or SAP AG or any other SAP-related
entity without prior written authorization from SAP;
(i) upon invitation by SAP to participate in SAP sponsored marketing
events by presenting speeches, providing information to potential prospects
(subject to Section 10.(b) below), and assisting, where requested, in the
organization and implementation of the events;
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(j) expressly inform its customers that modifications and extensions to
the Software may impair or terminate the maintenance or support services
provided by SAP and may nullify the warranty;
(k) undertake to provide customers with release and version management
and migration support as related to the Software throughout the period of
productive installation of the Software; and
(l) dedicate a coordinator with an adequate support structure to act as
the central focal point to coordinate activities with SAP and designate a
contact person within the support group to be available to SAP who is authorized
to act on behalf of CCAi within the scope of this Agreement.
5. SERVICES AND RESPONSIBILITIES OF THE PARTIES.
To the extent reasonable under the circumstances, the parties shall
undertake the following cooperative activities with respect to identifying and
bringing to each other opportunities to promote the R/3 Products:
(a) Regularly inform each other about general market developments and
factors relating to the R/3 Products in the marketplace and current projects and
customer implementations in which CCAi is involved; this information shall be
designated and treated as Proprietary Information under Section 10. of this
Agreement;
(b) Furnish each other with appropriate information for support and
planning purposes; provided, however, that each party reserves the right, in its
sole discretion, to determine the content and availability of such information;
(c) Inform appropriate personnel in their respective organizations of
the existence of this Agreement;
(d) Subject to confidentiality constraints, endeavor to keep each other
appraised about new products and services;
(e) Exchange such other information and conduct such other activities
as the parties agree will carry out the intent of this Agreement.
6. GENERAL REPRESENTATIONS AND WARRANTIES.
Each party hereby represents and warrants to the other that:
(a) it has the right and power to enter into this Agreement;
(b) entering into this Agreement does not violate the terms and
conditions of any other agreement providing for cooperative marketing of
products of another entity, or any other legal obligations;
(c) the information which it may disclose to the other party, and the
process of disclosure and use of such information in accordance with the
provisions of this Agreement, will not violate any trade secret right,
trademark, issued United States patent, copyright or other proprietary right of
any third party;
(d) it holds good title or right, free and clear of all liens and
encumbrances, to the products and services which it is providing under this
Agreement;
(e) the products and services being provided under this Agreement do
not infringe any United States copyright, trademark, issued United States
patent, trade secret or other proprietary right of any third party; and 4
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(f) EXCEPT AS SPECIFICALLY SET FORTH HEREIN, NEITHER PARTY
MAKES ANY OTHER WARRANTY TO THE OTHER PARTY, EITHER EXPRESS, IMPLIED OR
STATUTORY, OR ARISING BY COURSE OF CONDUCT OR PERFORMANCE, CUSTOM OR USAGE IN
THE TRADE, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. TERM AND TERMINATION.
(a) This Agreement shall have an initial term expiring on December 3 1,
1996, with an automatic renewal for one (1) additional year uniess, at least six
(6) weeks prior to the renewal date, either party gives written notice of its
intention not to renew this Agreement.
(b) At least four (4) months prior to any scheduled expiration date,
SAP will decide whether to continue or terminate the Agreement applying the
following criteria:
i. Customer satisfaction with the projects conducted by
CCAi, with special regard to the length and cost of
the project, the project objectives met by CCAi, and
the achievements and professionalism of CCAi
employees;
ii. Number and scope of R/3 projects executed;
iii. Thoroughness of employee training;
iv. Accomplishment of goals set herein and in the annual
business plans; and
v. Level of effective communication with SAP.
The procedures for such audits and the weights to be assigned each
criterion will be provided in writing by SAP to CCAi prior to the first such
audit.
On the basis of this evaluation and subsequent consultations with CCAi,
CCAi agrees that SAP, in its sole discretion, may choose to terminate this
Agreement six (6) weeks prior to the next scheduled expiration date.
(c) Notwithstanding the above, either party may terminate this
Agreement:
(i) In accordance with the provisions of Section 7.(a) and (b) at
the end of a term;
(ii) Upon a determination by SAP that CCAi is offering potential
customers of R/3 Products other products that are in competition with the R/3
Products; CCAi expressly waives any claim to damages arising from termination on
this ground;
(iii) Upon thirty (30) days prior written notice in the event of
material breach of a material provision of this Agreement by the other party,
except that the party in breach shall have the right, during that 30-day period,
to cure the claimed breach or default; or
(iv) Immediately upon prior written notice if there is: (a) a
consolidation, merger or reorganization of the other party with or into another
corporation or entity; (b) creation of a new majority
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interest in, or change in majority ownership of, the other party; (c) a sale of
all or substantially all of the assets of the other party; or (d) a breach of
the confidentiality provisions as specified in Section 10. below.
(d) Upon any termination of this Agreement:
(i) each party shall, within ten (10) business days after
termination is effective, return to the other party or dispose of as mutually
agreed all advertising materials and other properties, including all Proprietary
Information, furnished to it by the other party pursuant to this Agreement and
so certify in writing;
(ii) within ten (10) business days after termination is effective,
CCAi shall promptly return R/3 Products and related materials and all copies
thereof to SAP, or as the case may be, delete all R/3 Products and Proprietary
Information from CCAi's hardware, including binary or other resulting files (if
any), and erase all R/3 Products and Proprietary Information from any storage
media before discarding such, and so certify in writing;
(iii) CCAi shall not hold itself out as a participant in the R/3 NIP
Program; and
(iv) both parties shall cease acting in a manner that would suggest
any continuing relationship between the parties regarding SAP's Software, and
shall cease all display and advertising contemplated under this Agreement.
(e) Termination of this Agreement shall not impact upon any active
engagements in process prior to such termination.
(f) The following provisions of this Agreement shall in all events
survive its termination: Section 6. (General Representations and Warranties); 7.
(Provisions Applicable to Termination); 8. (Relationship of Parties); 10.
(Confidentiality); and 11. (General Provisions).
(g) Termination of this Agreement shall result in termination of
Appendix A, R/3 Software Training and Demonstration License.
8. RELATIONSHIP OF PARTIES.
(a) CCAi and SAP are independent contractors acting for their own
account, and neither party or its employees are authorized to make any
representation otherwise or any commitment on the other party's behalf unless
previously authorized by such party in writing. Neither party is responsible to
any end user for the quality of services or products provided by the other
party. Each party is solely responsible for establishing the prices for its own
products.
(b) Neither party is a distributor or agent for the products or
services of the other. Each party's products and services shall be available to
a prospective client only through separate agreement between that party and the
client. Each party shall independently develop and price its respective products
and services offered between such party and a client.
(c) It is understood and agreed upon by the parties hereto, that
during the term of this Agreement, the use of the terms "joint venturer,"
"co-venturer," "partner," "marketing partner," "partnership" or similar terms to
be used to describe the relationship between the parties under this Agreement
refer to the spirit of cooperation between CCAi and SAP, and do not describe, or
expressly or by implication create, a legal partnership or joint venture, or any
responsibility by one party for the actions of the other.
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9. INTELLECTUAL PROPERTY RIGHTS.
(a) The name "R/3 NTP Program" shall be used by the parties only
jointly and pursuant to the terms of this Agreement; and upon any termination of
this Agreement, neither SAP nor CCAi may use the name in conjunction with the
parties' respective corporate names; however, SAP shall have the right to use
the name with any other parties who choose to participate in the SAP R/3 NIP
Programs.
(b) Nothing in this Agreement grants to either party the right to use
or display any other names, trademarks, trade names, logos or service marks of
the other party, except to identify the products and associated services and
deliverables of the other party to the extent obligations are undertaken
pursuant to this Agreement. Except in the case of correspondence and proposals
issued in the ordinary course of business, each party agrees to submit to the
other party for written prepublication approval, any materials which may use or
display any name, trademark, trade name, logo or service mark of the other
party. Notwithstanding the foregoing, nothing contained in this Agreement shall
affect either party's rights and obligations to use any trademarks, service
marks or proprietary words or symbols of the other party to properly identify
the goods or services of such other party to the extent otherwise permitted by
applicable law or by written agreement between the parties.
(c) CCAi herein acknowledges that title to all intellectual property
rights, including patent, copyright, trademark, and trade secret rights in R/3
Products, including any modifications, enhancements, versions, releases, or
correction levels thereto, program concepts including literal or nonliteral
structure, sequence and organization, training materials, literature, and other
SAP related materials shall remain exclusively with SAP AG, Walldort, Germany,
or SAP as the case may be, and that by virtue of this Agreement, no such rights
have been transferred, licensed, granted, assigned or acquired by CCAi from SAP
AG or SAP.
10. CONFIDENTIALITY.
(a) Each party acknowledges that, during the term of this Agreement, it
will receive Proprietary Information from the other party. Neither party shall
disclose, provide or otherwise make available to any third party (including any
prospective client) any Proprietary Information of the other party and shall
utilize such Proprietary Information on an internal organization need-to-know
basis only to the extent necessary to effect the provisions and purposes of, and
as expressly contemplated under the terms of, this Agreement and for no other
purpose.
(b) Each party agrees that it will protect the Proprietary Information
of the other party through the exercise of no less protection and care than it
customarily uses in safeguarding its own confidential and proprietary
information which it desires to retain in confidence, but always at least a
reasonable degree of care. Disclosure of the other party's Proprietary
Information to employees shall only be made on a need-to-know basis. Further,
each party shall take reasonable steps to advise their employees of the
confidential nature of Proprietary Information, to ensure by agreement or
otherwise that such employees are prohibited from copying, revealing or using
such Proprietary Information except to the extent required to carry out the
parties' obligations under this Agreement, and to require that Proprietary
Information be kept in a secure location. Each party will promptly notify the
other if it believes that Proprietary Information has lost its status as such.
(c) The foregoing shall not prohibit or limit a party's use of
information, including but not limited to ideas, concepts, know how, techniques
and methodologies, which: (i) is or become publicly available through no act of
failure to act of the receiving party; (ii) rightfully obtained by the receiving
party without restriction; (iii) is released by the receiving party in response
to lawful legal process and with prior notice to the other party; (iv) is
rightfully already known to or is independently developed by the receiving party
prior to disclosure.
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(d) Notwithstanding the foregoing, each party hereto understands that
they may become familiar with each other's services and that CCAi may become
familiar with SAP's R/3 Products, specifically its proprietary software.
Accordingly, CCAi agrees, with respect to the R/3 Products (including all
program concepts therein) SAP's training materials, literature and other SAP
related materials, that as the case may be, CCAi shall not copy, translate,
disassemble or decompile, nor create or attempt to create by reverse engineering
or otherwise the source code from the object code, or to use such items to
create derivative works, unless so authorized in advance, in writing, by SAP.
All updates, replacements, revisions, enhancements, additions, or conversions to
such SAP items specified above shall be subject to the provisions as stated
herein.
11. GENERAL PROVISIONS
(a) NON-SOLICITATION. During the term of this Agreement and for one (1)
year after its termination, SAP and CCAi agree that neither shall directly or
indirectly solicit for employment any staff of the other party who have been
directly and substantively involved in performance under this Agreement.
(b) NON-EXCLUSIVITY. Nothing in this Agreement shall limit or restrict
either party from entering into or continuing any agreement or other arrangement
with any other party, whether similar to this Agreement in nature or scope.
Moreover, each party shall remain free to provide products and services to any
client or prospective client so long as the terms of this Agreement are not
violated.
(c) NOTICES. All notices required to be given under this Agreement
shall be sent by certified mail to:
CCA
25201 Chagrin Blvd.
-------------------------------------
Beachwood, OH 44112
-------------------------------------
Attention: Kenneth L Conley
---------------------------
Partner
---------------------------
and to
SAP America, Inc
Attn: Contracts Department
701 Lee Road, Suite 200
Wayne, PA 19087
(d) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without reference
to its choice of law rules. To the extent that the parties are permitted under
this Agreement to seek judicial remedies, each party hereby consents to the
jurisdiction of the federal and state courts within the Commonwealth of
Pennsylvania to resolve any and all such matters.
(e) MERGER. This Agreement and any Appendices hereto constitute the
entire agreement between the parties with respect to the matters set forth
herein. All prior agreements, oral or otherwise, between the parties and
relating to the subject matter contained herein, are hereby superseded,
provided, however, that in the event CCAi executed an Alliance Agreement and
related License and Maintenance Agreement for SAP's R/2 Software Systems, such
agreement shall continue pursuant to its terms.
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(f) AMENDMENTS. This Agreement may not be modified except by a writing
signed by both parties.
(g) SEVERABILITY. If any of the provisions of this Agreement are held
invalid, such provisions shall be deemed severed and the remaining provisions
shall remain in full force and effect.
(h) NON-ASSIGNMENT. This Agreement may not be assigned or transferred,
nor may rights or obligations be delegated, without the prior written agreement
of the parties; notwithstanding the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties of this Agreement, as well as their
respective permitted successors and assigns.
(i) WAIVER. Failure of any party to enforce, in any one or more
instances, any of the terms or conditions of this Agreement shall not be
construed as a waiver of the future performance of any such terms or conditions.
(j) LIMITATION OF LIABILITY.
(i) SAP AND ITS LICENSORS SHALL NOT BE LIABLE TO CCAI OR THIRD
PARTIES FOR ANY LOSS OF BUSINESS, LOSS OF PROFITS, LOSS OF DATA OR COMPUTER
MALFUNCTION, OR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES, EVEN IF SAP HAS BEEN APPRISED OF THE POSSIBILITY THEREOF; OR
(ii) in no event shall the liability of SAP under this Agreement,
for any reason whatsoever, whether in contract, tort or statute (including,
without limitation, negligence), or otherwise, exceed $1,000,000.00; provided,
however, that this limitation shall not apply to claims for personal injury
caused by SAP's gross negligence or willful misconduct.
(k) NO ENDORSEMENT. Execution of this Agreement does not, and shall not
be construed to be, an endorsement by either party of the products or services
of the other party.
(l) PRESS RELEASES AND PUBLICITY. Any news release, public
announcement, advertisement, or publicity proposed to be released by either
party concerning the R/3 NIP Program or any matters arising under this Agreement
shall be subject to the approval of the designated representatives of both
parties.
(m) DISPUTE RESOLUTION PROCEDURES.
(i) Any dispute, disagreement, claim or controversy between the
parties arising under or relating to this Agreement or the parties' performance
thereunder (the "Disputed Matter") which cannot be resolved by consultations
between the senior executives of CCAI and SAP shall be resolved by binding
arbitration, according to the then prevailing Commercial Arbitration Rules of
the American Arbitration Association, before a panel of three arbitrators. Each
party will select one arbitrator, and the third arbitrator will be selected by
the party-selected arbitrators. Any such arbitration shall be held in the City
of Philadelphia, Pennsylvania. The parties will share the cost of the
arbitration equally, subject to any final apportionment by the arbitrators. The
arbitrators will apply Pennsylvania law, without reference to its choice of law
rules, in resolving the Disputed Matter. The decision of the arbitrators will be
final and conclusive on the parties, and each party consents that judgment upon
an award rendered by the arbitrators may be entered in any court of competent
jurisdiction.
(ii) Neither party shall institute any action or proceeding against
the other in any court concerning any Disputed Matter that is or could be the
subject of a claim or proceeding under this Section;
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provided, however, that if a party believes in good faith that a temporary or
preliminary injunction is necessary to preserve the status quo or otherwise to
avoid irreparable harm to such party, such as in the event of a breach of
Section 9. or Section 10., such party shall not be precluded by this Section
from seeking such injunctive relief from a court of competent jurisdiction.
(iii) Pending the resolution of a Disputed Matter, to the extent
feasible, both parties shall continue their performance under this Agreement.
IN WITNESS WHEREOF and intending to be legally bound, the
parties have caused this Agreement to
be signed by their authorized representatives as of the date shown
above.
Conley, Canitano & Assoc, Inc SAP America, Inc
(CCAi) (SAP)
By: /s/ Kenneth L. Conley By: /s/ Allen R. Brault
------------------------------ ---------------------------------
Printed Printed
Name: Kenneth L. Conley Name: Allen R. Brault
---------------------------- -------------------------------
Title: Partner Title: Director
--------------------------- ------------------------------
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Appendix 1 to
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT ("Agreement")
SAP AMERICA, INC. ("SAP") - CONLEY, CANITANO & ASSOC., INC. ("CCAi")
EFFECTIVE APRIL 2, 1996
ISSUED APRIL 2,1996
This Appendix is hereby annexed to and made a part of the Agreement specified
above. In each instance in which provisions of this Appendix contradict or are
inconsistent with the provisions of the Agreement, the provisions of this
Appendix shall prevail and govern, and the contradicted or inconsistent
provisions of the Agreement shall be deemed amended accordingly.
Designated Unit(s) to be identified by CCAi to SAP in writing.
Type/Model No. : DATA General
Serial No.: CCAi
Designated Site: 25201 Chagrin Blvd.
Beachwood, OH 44112
I
1. Software licensed to CCAi pursuant to the above-referenced Agreement
consists of the following SAP functional modules which are to be installed
on the above referenced Designated Unit(s) at the specified Designated
Site. For the prices set forth herein, CCAi is authorized to have fifty
(50) Named Users to access the Software, as per the terms of the Agreement,
at such Designated Site on such Designated Unit(s).
<TABLE>
<CAPTION>
Quantity
Denote "X" Licensed
<S> <C> <C>
FI Financial Accting/Asset Accting X
----------
TR-CM Cash Management X
----------
IM Investment Management X
----------
CO Controlling X
----------
EC Enterprise Controlling X
----------
PS Project System X
----------
MM Material Management X
----------
PM Plant Maintenance X
----------
SD Sales and Distribution X
----------
PP Production Planning X
----------
DW ABAP/4 Development Workbench X 1
---------- ----------
BC Basis Sys W/ ADABASD Database ($270 per user)
----------
BC Basis Sys W/ Oracle 7 Runtime Db X ($270 per user)
----------
PA Personnel Administration and Payroll
----------
PD Personnel Planning and Development
----------
BC/DS R/3 Data Model in SAP Format ($5,000 ea)
---------- ----------
SAP R/3 Analyzer ($13,500 per site)
---------- ----------
</TABLE>
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2. The License Support Fee for the Software set forth in item 1 above is USD
15,000. The annual license fee will be invoiced April 15, 1996 and is due
and payable net thirty (30) days. The Annual License Fee will be invoiced
and is due and payable annually thereafter.
3. Delivery by SAP of the Software is estimated to take place in April, 1996.
4. Delivery of one (1) set of CD-ROM Documentation, in the English language,
to the above-specified Designated Site shall be initiated upon execution of
this Appendix by the parties hereto. Additional Documentation for the
above-specified Designated Site may be ordered by CCAi at SAP's then
current prices in effect.
5. Software licensed hereunder currently requires a Third-Party Database,
which has been licensed hereunder as a runtime version at a license fee of
USD 13,500 ($270 per user). Such runtime version shall be limited to use by
CCAi for the purpose of running the Software licensed hereunder, and
utilizing SAP tools to modify and/or extend the Software as well as writing
in-house developments. Such Modification/Extension rights only apply to
Non-Productive Use of the Software. The license fee for the Third-Party
Database will be invoiced CCAi and is due and payable CCAi.
In the event CCAi uses the licensed database other than as specified above,
a Full License, including programming tools provided through such
third-party supplier can be licensed directly from a third party database
supplier, or as mutually agreed upon in writing by CCAi and SAP, the
runtime version licensed hereunder can be upgraded at agreed upon fees.
6. The Non-Productive Use copy of the Software licensed hereunder requires a
license keycode. The license keycodes will be issued by SAP AG within four
(4) weeks from the date of installation of the Software on the Designated
Unit. The required form to receive the license keycodes from SAP AG must be
executed by Licensee and faxed to SAP AG within the four (4) week period
following installation of the Software. The applicable form and fax number
will be included in each installation kit provided to CCAi upon delivery of
the Software. In the event that CCAi subsequently changes Designated Units
for Use of the licensed Software must be re-issued license keycodes for
each respective copy of the licensed Software. Failure of CCAi to obtain
necessary license keycodes for the licensed Software within four (4) weeks
of installation of such Software, will cause the Software to have limited
User access until such time as the license keycodes are issued.
7. The Software, including all third-party software, is not specifically
developed or licensed hereunder for Use in any direct and active operations
of any equipment in any nuclear, aviation, mass transit, or medical
applications, or in any other inherently dangerous applications. The
parties hereto agree that Use of the Software and third-party software for
financial application purposes or such other administrative purposes shall
not be deemed inherently dangerous applications if such Use does not affect
the operations or maintenance of such equipment. SAP, SAP AG, and its
licensors shall not be liable for any claims or damages arising from
inherently dangerous Use of the Software and/or third-party software
licensed hereunder.
8. In the event Licensee is utilizing EDI functionality, Licensee is
responsible to license or purchase a required third-party EDI
translator/interpreter. Such EDI translator/interpreter shall be license or
provided directly form a third party vendor to Licensee.
9. In the event Optional Packages are license by Licensee hereunder, all such
Optional Package Software (excluding TR-TM Treasury Management) must be
license at a minimum quantity of one (1) per Designated Site. Such
quantities of Optional Packages as well as ABAP/4 Workbenches are as
specified in item 1. above. The R/3 Analyzer may be used on one (1) or more
Personal Computers (PC's) per Designated Site, but may only be stored in
the hard disks and PC's which are part of the respective Software
installation. One (1) set of data carrier for the RI3 Analyzer will be
supplied by SAP. Licensee is not permitted to copy the RI3 Analyzer
reference model or use it to create new models. In order to copy the
reference model or create new models with the R/3 Analyzer, additional
Software must be licensed from a third-party vendor approved by SAP AG.
10. The validity of this Appendix will expire thirty (30) days from its issue
date, unless sooner executed by the parties hereto, or extended in writing
by SAP.
2
<PAGE> 13
11. Upon execution of this Appendix, Licensee's and SAP's R/3 National
Implementation Partner Agreement ("Prior Agreement") and related Appendix,
effective January 13,1995, shall be deemed terminated in their entirety.
All Software, Documentation, and Confidential Information for the Software
license hereunder, will remain in Licensee's possession and be considered
licensed to Licensee pursuant to the terms and conditions as contained
herein, and the Agreement to which this Appendix is a part. All Software,
Documentation, and Confidential Information provided to Licensee under the
Prior Agreement but not licensed hereunder shall be deleted/returned to SAP
in accordance with Section 7(d) of the Prior Agreement.
Accepted by Accepted by:
SAP America, Inc Conley, Canitano & Assoc, Inc
(SAP) (CCAi)
By: /s/ Allen R. Brault By: /s/ Kenneth L. Conley
--------------------------------- -------------------------------------
Title: Director Title: Partner
------------------------------ ----------------------------------
Date: 6/24/96 Date: 5/2/96
------------------------------- -----------------------------------
<PAGE> 14
APPENDIX A TO
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT
SAP AMERICA, INC. - CONLEY, CANETANO & ASSOC., INC.
R/3 SOFTWARE TRAINING AND DEMONSTRATION LICENSE ("LICENSE")
THIS Agreement is effective this 2nd day of April, 1996.
WHEREAS, SAP America, Inc., a Delaware corporation with offices at 701 Lee Road,
Suite 200, Wayne, Pennsylvania 19087 ("SAP") owns rights in the United States to
certain software for operation and management of businesses;
WHEREAS, Conley, Canitano & Assoc., Inc. ("CCAi"), a Ohio corporation with
offices at Signature Square, Suite 390, 25201 Chagrin Boulevard, Beachwood, Ohio
44122 desires a license for trial and demonstration purposes only; and
WHEREAS, SAP desires to grant to CCAi, and CCAi desires to license from SAP,
such software upon the terms and conditions hereinafter set forth;
IT IS THEREFORE AGREED AS FOLLOWS:
1. DEFINITIONS.
1.1. SOFTWARE. Software shall include one 50-Named User package of the software
components identified in Appendix "1" hereto or as otherwise mutually agreed
upon in writing between SAP and CCAi, in machine readable and/or printed form,
furnished to CCAi by or on behalf of SAP and any full or partial copies of any
of the foregoing.
1.2. NAMED USERS. Means that number of individuals who by password allocation
are authorized to log on to the Software and execute Software transactions.
Named Users may also be referred to as "Operational Users".
1.3. DOCUMENTATION. Means SAP's standard documentation, in human- or
machine-readable format, in any medium, which is delivered to CCAi under this
Agreement, including SAP'S standard manuals, program listings, data models, flow
charts, logic diagrams, input and output forms, functional specifications,
instructions, and complete or partial copies of the foregoing.
1.4. TERRITORY. Territory shall mean the United States of America.
1.5. DESIGNATED UNIT(S). Designated Unit(s) means each individual computer
located at a Designated Site in which the Software and Third-Party Database are
installed. Each Designated Unit must be approved by SAP as compatible with the
Software and must be identified as specified in Appendices hereto.
1.6. DESIGNATED SITE(S). Designated Site(s) means the location(s) controlled by
CCAi and listed in Appendix "1" to this Agreement.
1.7. PROPRIETARY INFORMATION. Proprietary Information means: (i) with respect to
SAP, the Software and Documentation and any complete or partial copies thereof,
the Program Concepts, SAP licensors' Third-Party Database, any other third-party
software licensed with or as part of the Software, benchmark results, and any
other information identified or reasonably identifiable as confidential and
proprietary information of SAP, SAP AG, or their licensors ("SAP PROPRIETARY
INFORMATION"); and (ii) with respect to CCAi, information identified or
reasonably identifiable as the confidential and proprietary information of CCAi
("CCAi PROPRIETARY INFORMATION"), PROVIDED that, any part of the SAP or CCAi
Proprietary Information which: (a) is or becomes publicly available through no
act or failure of the other party; or (b) was or is rightfully acquired by the
other party from a source other than the disclosing party prior to receipt from
the disclosing party; or (C) becomes independently available to the other party
as a matter of right, shall be excluded.
<PAGE> 15
1.8. PROGRAM CONCEPTS. Program Concepts are the techniques and ideas embodied
and expressed in the Software, including the structure, sequence, and
organization of the Software.
1.9. MODIFICATION. A Modification is a change in the Software in which there is
a change in the source code.
1.10. EXTENSION. An Extension is an addition to the Software which does not
require a Modification of the Software.
1.11. NON-PRODUCTIVE USE. Non-productive Use is the use of the Software for
demonstration or testing purposes.
1.12. PRODUCTIVE USE. Productive Use means the use of the Software in the
operation of CCAi's business.
1.13 THIRD-PARTY DATABASE. Third -Party Database means a third-party proprietary
database described in Section 2.6.
2. LICENSE GRANT.
2.1. SCOPE OF LICENSE. Subject to the terms and conditions and the accuracy of
CCAI's representations hereinafter set forth, SAP grants to CCAi a
non-exclusive, non-transferable license to the Software, Documentation and Third
Party Database specified in Appendix "1'. hereto or portions thereof within the
Territory solely for non-productive testing, training and demonstration purposes
as contemplated by this Agreement. No additional copies of the Software or any
part thereof may be made by CCAi without the express written consent of SAP.
2.2. RESTRICTIONS ON USE. CCAi agrees to use the Software, Documentation and
Third Party Database or other SAP Proprietary Information provided hereunder
solely for testing, trial and demonstration purposes in furtherance of this
Agreement. CCAi will not use the Software, Documentation, Third Party Database
or other SAP Proprietary Information in connection with running its own business
or the business of any firm, person or organization. Subject to the provisions
of this Section 2.2, CCAi shall use the Software exclusively on the Designated
Unit(s) identified in Appendices hereto.
2.3. SOURCE CODE. In the event source code is provided to CCAi hereunder, SAP,
in its sole discretion, reserves the right to delete, or to require the deletion
of, such source code and all copies thereof from CCAi's Designated Unit(s) and
the return of all source code on non-magnetic media. Source code shall not be
shown to any person not an employee of CCAi.
2.4. TRANSFER OF SOFTWARE. CCAi may transfer the Software and Third-Party
Database from one Designated Unit to another at a licensed Designated Site upon
prior written notice to SAP. The Software and Third-Party Database must be
promptly deleted in their entirety from the Designated Unit no longer in use and
from each archival and back-up copy for that Designated Unit.
2.5. AUDIT. Dunng normal business hours and at any time during which the
Software, Documentation, Third-Party Database, and other SAP Proprietary
Information are being utilized, SAP or its authorized representative or
licensors, shall have the right, upon reasonable advance notice, to audit and
inspect CCAi's utilization of such items, in order to verify compliance with the
terms of this Agreement.
2.6. RUNTIME LICENSE FOR APPLICATION DATABASE. The Software requires a
Third-Party Database which may be licensed as an SAP R/3 component (the "RUNTIME
LICENSE") or directly as a full license ("FULL LICENSE") from a third-party
database licensor approved by SAP. CCAi shall certify in an Appendix to this
Agreement either that it will use and maintain the Runtime License from SAP or
that it has obtained and will maintain a Full License from such a licensor. This
Agreement shall terminate automatically if; for any reason: (i) Licensee fails
to obtain or maintain a Runtime License or Full License; or (ii) Licensee's
Runtime License or Full License terminates prior to the termination of this
Agreement. SAP makes no representations or warranties as to the Third-Party
Database or its operation.
2
<PAGE> 16
3. DELIVERY.
3.1. DELIVERED COPY. One copy of the Software shall be delivered in machine
readable format and one (1) copy of the Documentation in CD ROM format.
3.2. INSTALLATION. CCAi shall be responsible for installation of the Software.
At CCAi request, and on terms to be agreed upon, SAP will install the Software.
It is CCAi responsibility, in coordination with SAP, to configure and install
required disk storage systems and network software prior to installation.
4. PRICE AND PAYMENT.
4.1. LICENSE FEE. The License fee for the Software licensed hereunder shall be
as set forth in the applicable Appendix. Additional copies may be delivered upon
written agreement by CCAi and SAP and will be provided at SAP's then current
prices in effect.
4.2. ADDITIONAL FEES. Any fees and charges set forth in this Agreement, in any
Appendices to this Agreement, and in SAP's current List of Prices do not include
federal, state, or local sales, use, excise, or other taxes now or hereafter
levied. Any taxes or amounts in lieu thereof paid or payable by SAP in respect
of any such taxes on such fees or charges (excepting only taxes on net income)
shall be added to CCAi's obligations as an additional fee which shall be due
within thirty (30) days after SAP's invoice to CCAi
5. TERM AND TERMINATION.
5.1. TERM OF LICENSE. This Agreement shall have an initial term expiring
December 31, 1996, and shall thereafter be automatically renewed for successive
one year terms, unless at least six weeks prior to the expiration of-the current
renewal term, either party gives written notice of its intention not to renew
this Agreement or unless this Agreement is otherwise terminated upon termination
of the R/3 National Implementation Partner Agreement between the parties dated
as of even date hereof; provided, however, that in the event of a material
breach of this Agreement by CCAi which has not been cured within ten (10) days
of written notice of such breach, or upon any attempt by CCAi to assign,
delegate, sublicense or otherwise transfer this Agreement in violation hereof,
this Agreement will terminate at the end of such ten (10) day cure period.
5.2. EFFECT OF TERMINATION. Upon termination of this Agreement:
(i) the provisions of Sections 6, 8.4, 9, 11 and 12.6 shall survive the
termination;
(ii) CCAi's rights under Section 2 (License Grant) shall immediately
cease; and
(iii) CCAi shall perform its obligations under Section 6.3.
Each party's right to terminate as expressed in this Agreement shall be in
addition to any other rights provided by law.
6. PROPRIETARY RIGHTS.
6.1. SAP PROPRIETARY INFORMATION.
(a) CCAi acknowledges and shall cause its authorized Affiliates to
acknowledge that ownership of and title in and to all intellectual property
rights, including patent, trademark, service mark, copyright, and trade secret
rights, in the SAP Proprietary Information are and shall remain in SAP and SAP
AG and their respective licensors. CCAi acquires only the right to use the SAP
Proprietary Information under the terms and conditions of this Agreement and
does not acquire any ownership rights or title in or to the SAP Proprietary
Information and that of their respective licensors.
(b) CCAi shall not copy, translate, disassemble, or decompile, nor
create or attempt to create, by reverse engineering or otherwise, the source
code from the object code of the Software licensed hereunder or use it to create
a derivative work, unless authorized in writing by SAP. In the event source code
is provided to CCAi, SAP, in its sole discretion, reserves the right to delete,
or to require the deletion of, such source code
3
<PAGE> 17
and all copies thereof from CCAi's Designated Unit(s), application server(s),
computer terminals or workstations, and data files whenever a future release,
version, or correction level provides for like functionality in an object code
format. Other than as specified herein, any tools licensed with or included in
the Software may not be copied, in whole or in part, without the express written
consent of SAP.
(c) CCAi shall not remove any proprietary, copyright, trademark, or
service mark legend from the Software, Documentation, Third-Party Database, or
SAP Proprietary Information.
(d) CCAi shall maintain a log of the number and location of all
originals and copies of the Software. The inclusion of a copyright notice on any
portion of the Software or Documentation shall not cause or be construed to
cause it to be a published work.
6.2. PROTECTION OF PROPRIETARY INFORMATION. In order to protect the rights of
SAP and its licensors, and CCAi in their respective Proprietary Information, SAP
and CCAi agree as follows:
(a) Neither party shall, without the other party's prior written
consent, disclose, provide, or make available any of the Proprietary Information
of the other party in any form to any person, except to bona fide employees,
officers, directors, or consultants of such party whose access is necessary to
enable such party to exercise its rights hereunder. Each party agrees that prior
to disclosing any Proprietary Information of the other party to any consultant,
it will obtain from that consultant a written acknowledgment that such
consultant will be bound by the same terms as specified in this Section 6 with
respect to the Proprietary Information.
(b) CCAi and SAP acknowledge that any disclosure to third parties of
Proprietary Information may cause immediate and irreparable harm to the owner of
the disclosed Proprietary Information; therefore, each party agrees to take all
reasonable steps and the same protective precautions to protect the Proprietary
Information from disclosure to third parties as with its own proprietary and
confidential information.
6.3. DUTIES UPON TERMINATION. Upon any termination hereunder, CCAi shall
immediately cease use of the Software, Documentation, Third-Party Database, and
other SAP Proprietary Information, and shall irretrievably delete and/or remove
such items from all Designated Units, application servers, computer terminals,
workstations, data files, and Designated Sites. Within thirty days after any
termination, each party shall deliver to the other party(adequately packaged and
insured for safe delivery) or, at the other party's request, destroy all copies
of the other party's Proprietary Information in every form. CCAi further agrees
to erase the Software, Documentation, Third-Party Database, and other provided
SAP Proprietary Information from any storage media. CCAi agrees an officer of
CCAi's organization, with the express authority to make such representation,
shall certify in writing to SAP that it has performed the foregoing.
6.4. MODIFICATIONS AND EXTENSIONS. CCAi may not modify or write extensions to
the Software without the prior written authorization of SAP. CCAi expressly
agrees that any Modifications and Extensions of the Software developed by SAP,
CCAi, their employees, agents or consultants shall become part of the Software
and will be the property of SAP AG and that CCAi will not grant, either
expressly or by implication, any rights, title, interest or licenses to the
Modifications or Extensions to any third party. CCAi shall provide complete
source code for all Modifications and Extensions to SAP. CCAi agrees that it
will not modify any provided Third Party Software hereunder unless expressly
authorized in writing by such Third Party Vendor.
6.5. OTHER DUTIES. CCAi shall be exclusively responsible for the supervision,
management and control of its use of the Software.
7. SUPPORT SERVICES.
7.1. At CCAi's request, and on terms to be agreed upon separately, SAP may agree
to provide pre-installation support, installation support training and
consulting services for the Software.
8. WARRANTY.
8.1. SOFTWARE. SAP warrants that the Software, when delivered, will be in good
working order and will substantially conform to the specifications contained in
the Documentation for six (6) months following delivery (The "Warranty Period")
when in use without material alteration, on the Designated Unit(s), in
accordance with
4
<PAGE> 18
the functional specifications set forth in the Documentation. SAP's warranty is
subject to CCAi providing SAP necessary access, including remote access to the
Software.
8.2. SOFTWARE COMPONENTS. Should any component of the Software fail to conform
substantially to the Software specifications during the warranty period SAP's
sole obligation shall be to correct the defect by bringing the performance of
the Software into substantial compliance with the specifications or replace the
component.
8.3. CCAi'S DEFECT REPORTS. CCAi must specifically identify to SAP the nature of
the perceived Software defect which causes the Software not to conform
substantially to the functional specifications and specifically describe the
conditions under which the perceived defect occurs. On SAP's request, CCAi shall
deliver such information in written form. CCAi shall provide SAP with sufficient
test time and support on CCAi's Designated Unit(s) to duplicate the problem, to
verify that the problem is with the Software, and to confirm that the problem
has been corrected.
8.4. DISCLAIMER. SAP DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
9. LIMITATION OF LIABILITY.
9.1 CCAi'S REMEDIES. Subject to the limited warranty set forth in Section 8,
CCAi's sole and exclusive remedies for any damages or loss in any way connected
with the Software or services furnished by SAP and its licensors, whether due to
SAP's negligence or breach of any other duty, shall be, at SAP's option: (i)
replacement of the Software or performance of services; or (ii) return or credit
of an appropriate portion of any payment made or to be made by CCAi with respect
to the applicable portion of the Software or services. The foregoing limitation
of liability does not apply to personal injury or death caused solely by the
gross negligence or willful misconduct of SAP. With respect to damage to
tangible property, SAP and its licensors will not be responsible in any amount
in excess of the amount by which such damage is paid by SAP's liability
insurance.
9.2 SAP NOT RESPONSIBLE. SAP will not be responsible under this Agreement for:
(i) the modification or improvement of the Software to fit the particular
requirements of CCAi; or (ii) the correction of any program errors resulting
from Modifications or Extensions; or (iii) the correction of any program errors
as a result of misuse of the Software by CCAi. Under no condition will SAP be
responsible under this Agreement for preparation or conversion of data into the
form required for use with the Software.
9.3 EXCLUSION OF DAMAGES. ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, UNDER
NO CIRCUMSTANCES SHALL SAP AND ITS LICENSORS BE LIABLE TO CCAi OR ANY OTHER
PERSON OR ENTITY FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR INDIRECT DAMAGES,
LOSS OF GOOD WILL OR BUSINESS PROFITS, WORK STOPPAGE, DATA LOSS, COMPUTER
FAILURE OR MALFUNCTION, ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSS, OR
EXEMPLARY OR PUNITIVE DAMAGES.
9.4 SEVERABILITY OF ACTIONS. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND
EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR A LIMITATION OF LIABILITY,
DISCLAIMER OF WARRANTIES, OR EXCLUSION OF DAMAGES IS INTENDED BY THE PARTIES TO
BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE ENFORCED AS SUCH.
10. NON-ASSIGNMENT.
10.1. CCAi may not assign, delegate, sublicense, pledge, or otherwise transfer
this Agreement, or any of its rights or obligations under this Agreement, to any
party.
10.2. SAP may assign this Agreement to SAP AG or to an entity designated by SAP
AG.
5
<PAGE> 19
11. EXPORT CONTROL NOTICE
Regardless of any disclosure made by CCAi to SAP of an ultimate destination of
the Software, Documentation, Third-Party Database, and other provided SAP
Proprietary Information, CCAi acknowledges that SAP's Software, Documentation,
Proprietary Information, and the Third-Party Database are being released or
transferred to CCAi in the United States and are therefore subject to the U.S.
export control laws. CCAi acknowledges its exclusive obligation to ensure that
its exports from the United States are in compliance with the U.S. export
control laws. CCAi shall also be responsible for complying with all applicable
governmental regulations of any foreign countries with respect to the use of the
Proprietary Information by its Affiliates outside of the United States. CCAi
shall defend, indemnify, and hold SAP and SAP AG and its licensors harmless from
and against any and all claims, judgments, awards, and costs (including
reasonable attorneys fees) arising out of CCAi's noncompliance with applicable
U.S. or foreign law with respect to the use or transfer of the Proprietary
Information outside the United States by CCAI.
12. OTHER PROVISIONS.
12.1. CCAi acknowledges that remedies at law may be inadequate to provide SAP
with full compensation in the event of any material breach of this Agreement by
CCAi, and that SAP shall therefore be entitled to injunctive relief in the event
of any material breach.
12.2. This Agreement and all Appendices hereto constitute the complete and
exclusive statement of the agreement between SAP and CCAi, and all previous
representations are merged in this Agreement. This Agreement may be modified
only by a writing signed by both parties. This Agreement prevails over any
additional, conflicting, or inconsistent terms and conditions appearing on any
purchase order submitted by CCAi
12.3. It is the intent of the parties that in case any one or more of the
provisions contained in this Agreement shall be held to be invalid or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provisions had
never been contained herein. In case any one or more of the provisions contained
in this Agreement shall be held to be excessively broad as to duration,
geographical scope, activity or subject, such provision shall be construed by
limiting and reducing it in accordance with a judgment of a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
12.4. If either party should waive any breach of any provisions of this
Agreement, it shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provisions hereof.
12.5. The headings of the sections of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
12.6. This Agreement shall be governed by and construed under Pennsylvania law.
CCAi consents to the jurisdiction of any federal or state court sitting in
Delaware County, Pennsylvania for all claims, suits, or actions arising under
this Agreement or in connection with CCAi's use of or possession of the
Software.
IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto agree
to the foregoing Agreement as of the date first above written.
SAP America, Inc. Conley, Canitano & Assoc., Inc.
(SAP) (CCAi)
By: /s/ Allen R. Brault By: Kenneth L. Conley
---------------------------- -------------------------------
Title: Director Title: Partner
------------------------- ----------------------------
Date: 6/24/96 Date: 5/2/96
-------------------------- -----------------------------
/s/ ??????????
6
<PAGE> 20
ASAP PARTNER ADDENDUM
TO
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT ("NIP AGREEMENT")
BETWEEN
SAP AMERICA, INC. ("SAP") - CONLEY, CANITANO & AssOC., INC. ("PARTNER")
EFFECTIvE JULY 1, 1997
A. WHEREAS, Partner desires to utilize SAP's rapid R/3 implementation
methodology and to become an AcceleratedSAP Partner ("ASAP Partner") by meeting
the performance criteria established by SAP.
B, WHEREAS, SAP desires to offer the opportunity to Partner to achieve such
status, subject to the terms below.
C. NOW THEREFORE, SAP and Partner agree as follows:
1. SAP hereby grants Partner the right to identify itself publicly as an
ASAP Partner for so long as the NIP Agreement is in effect and Partner complies
with SAP's then-current criteria for participation in its AcceleratedSAP Partner
Program.
2. SAP's current criteria for participation in the AcceleratedSAP Partner
Program are as follows:
(a) 70% of consultants that comprise Partner's SAP Practice must be
AcceleratedSAP certified by attending SAP's 3-day course (current release)
within the timeframe (6 months) established in the business plan.
(b) All Partner consultants assigned to an accelerated project must be
AcceleratedSAP certified.
(c) All Partner project managers must be certified through SAP's
Project Manager course within three (3) months after SAP's first public offering
of such course.
(d) Partner must utilize 100% of the AcceleratedSAP methodology as
identified from time to time by SAP.
(e) Any AcceleratedSAP Project will include quality assurance
monitoring by an SAP Project Executive.
(f) Partner must adhere to SAP's status reporting criteria established
by SAP on all ASAP projects.
3. Any AcceleratedSAP materials, including the ASAP CD, made available to
Partner pursuant to this Addendum shall be considered SAP Confidential and/or
Proprietary Information as defined in the NIP Agreement.
4. Upon compliance with the terms of this Addendum, Partner shall be
authorized to represent itself as an authorized ASAP Partner and to display the
ASAP Partner logo. Partner's failure to
<PAGE> 21
comply with the terms of the Addendum shall result in termination of the
Addendum, unless such failure is cured to SAP's reasonable satisfaction within
thirty (30) days of written notice of such failure.
5. The term of this Addendum shall be coterminus with that of the NIP
Agreement, unless earlier terminated pursuant to the provisions of Section 4 of
this Addendum.
6. Except as specifically modified herein, all terms and conditions of the
NIP Agreement shall be applicable to this Appendix and the subject matter
hereof.
By: /s/ Nicholas A. Canitano By: /s/ Cheryl C. Groonel
----------------------------- -----------------------------
Title: President CCAi Title: Director
-------------------------- ---------------------------
Date: 7/16/97 Date: 7/30/97
--------------------------- ----------------------------
<PAGE> 22
AMENDMENT
effective January 1, 1999
to
National Implementation Partner Agreement
("Agreement")
between
SAP America, Inc. ("SAP")
and
CCAI ("Partner")
effective April 2, 1996
As of the issuance date of January 1, 1999, this Amendment modifies the above
referenced Agreement between the parties. In each instance in which the
provisions of this Amendment contradict or are inconsistent with the provisions
of the Agreement, the provisions of this Amendment shall prevail and govern and
the contradicted or inconsistent provisions shall be deemed amended accordingly.
SAP and Partner agree that the Agreement effective April 2, 1996 is modified as
follows:
1. Delete section 7)(a) in its entirety, and insert in lieu thereof:
"(a) This Agreement shall have a term expiring on December 31, 1999, with
automatic renewals for one (1) year periods unless, at least six (6) weeks
prior to a scheduled renewal date, either party gives written notice of
its intentions not to renew this Agreement."
EXCEPT AS HEREIN PROVIDED, NONE OF THE PROVISIONS OF THE AGREEMENT SHALL BE
AFFECTED BY THIS AMENDMENT.
ACCEPTED BY: ACCEPTED BY:
SAP America, Inc.
SAP -----------------------------
CCAI
BY: BY: /S/ KENNETH L. CONLEY
-------------------------- ---------------------------
NAME: NAME: Kenneth L. Conley
------------------------- TITLE: President & COO
TITLE:
-----------------------
SAP CONFIDENTIAL
<PAGE> 1
Exhibit 10.38
STOCK PURCHASE AGREEMENT
By and Between
CONLEY, CANITANO & ASSOCIATES, INC.
and
LUC DE GROOF
Dated as of January 12, 1999
73
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. DEFINITIONS...........................................................................................1
SECTION 2. SALE AND PURCHASE OF STOCK............................................................................5
2.1 Sale and Purchase of Shares.....................................................................5
2.2 Closing Payments................................................................................5
SECTION 3. CLOSING AND DELIVERIES................................................................................6
3.1 Closing.........................................................................................6
3.2 Deliveries by the Company and the Shareholder...................................................6
3.3 Deliveries by Buyer.............................................................................7
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.....................................................7
4.1 Organization and Good Standing; Corporate Authority. ...........................................7
4.2 Validity and Non-Contravention..................................................................8
4.3 Capitalization..................................................................................8
4.4 Options or Other Rights; Subsidiaries...........................................................8
4.5 Affiliates......................................................................................8
4.6 Consents........................................................................................9
4.7 Financial Statements............................................................................9
4.8 No Material Adverse Changes.....................................................................9
4.9 Ordinary Course................................................................................10
4.10 Agreements, Etc................................................................................10
4.11 Labor Relations and Practices..................................................................10
4.12 Licenses and Permits...........................................................................11
4.13 Intellectual Property..........................................................................11
4.14 Litigation and Orders..........................................................................11
4.15 Taxes..........................................................................................12
4.16 Environmental..................................................................................13
4.17 Insurance......................................................................................13
4.18 Accounts Receivable............................................................................13
4.19 Real Property and Leases.......................................................................13
4.20 Title to Assets and Properties.................................................................13
4.21 Undisclosed Liabilities........................................................................13
4.22 Customers and Suppliers........................................................................14
4.23 Compliance With Laws...........................................................................14
4.24 No Brokers', Finders' or Insider Fees..........................................................14
4.25 Product Warranty and Product Liability.........................................................14
4.26 Employee Benefit Plans; ERISA..................................................................14
4.27 Employees. ..........................................................................16
4.28 Political Contributions and Other Payments. .........................................16
4.29 Securities Matters. .................................................................17
4.30 Disclosure............................................................................17
4.31 No Other Representations..............................................................17
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER..............................................................17
5.1 Investment Intent..............................................................................17
5.2 Organization and Good Standing.................................................................17
5.3 Validity of Agreements. .......................................................................18
5.4 No Breach......................................................................................18
</TABLE>
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<TABLE>
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5.5 Capitalization.................................................................................18
5.6 No Brokers', Finders', or Insider Fees.........................................................19
5.7 Consents.......................................................................................19
5.8 Stock Payment Shares...........................................................................19
5.9 Disclosure.....................................................................................19
5.10 Buyer's Financing..............................................................................19
SECTION 6. PRE-CLOSING COVENANTS................................................................................19
6.1 General........................................................................................19
6.2 Operations of Business.........................................................................19
6.3 Full Access....................................................................................21
6.4 Notice of Developments.........................................................................21
SECTION 7. POST-CLOSING COVENANTS...............................................................................22
7.1 General........................................................................................22
7.2 Litigation Support.............................................................................22
7.3 Transition.....................................................................................22
7.4 Tax Matters....................................................................................22
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF BUYER...............................................................23
8.1 Deliveries.....................................................................................23
8.2 Representations, Warranties and Covenants......................................................23
8.3 Third-Party Consents...........................................................................23
8.4 No Material Adverse Change.....................................................................23
8.5 No Orders or Actions...........................................................................23
8.6 Employment and Noncompetition Agreement........................................................23
8.7 Noncompetition Agreements......................................................................23
8.8 Restricted Stock Agreement.....................................................................23
SECTION 9. CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDER.....................................................24
9.1 Representations, Warranties and Covenants......................................................24
9.2 No Orders or Actions...........................................................................24
9.3 Deliveries.....................................................................................24
SECTION 10. INDEMNIFICATION AND SURVIVAL.........................................................................24
10.1 Indemnification by the Shareholder.............................................................24
10.2 Indemnification by Buyer.......................................................................24
10.3 Claims.........................................................................................25
10.4 Third Party Claims.............................................................................25
10.5 Limitations on Indemnification.................................................................25
10.6 Survival of Representations and Warranties.....................................................26
10.7 Indemnification Exclusive......................................................................26
10.8 General Qualifications on Indemnification......................................................26
10.9 Payment in Common Stock........................................................................27
SECTION 11. TERMINATION..........................................................................................27
11.1 Termination of Agreement.......................................................................27
11.2 Effect of Termination..........................................................................28
SECTION 12. MISCELLANEOUS........................................................................................28
12.1 Waivers and Amendments.........................................................................28
12.2 Notices........................................................................................28
12.3 Fees and Expenses..............................................................................29
12.4 Successors and Assigns.........................................................................29
12.5 Choice of Law..................................................................................29
</TABLE>
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<TABLE>
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12.6 Dispute Resolution.............................................................................29
12.7 Severability...................................................................................30
12.8 Entire Agreement...............................................................................30
12.9 Construction...................................................................................30
12.10 Incorporation of Exhibits and Schedules........................................................30
12.11 Headings and Recitals..........................................................................31
12.12 Counterparts...................................................................................31
12.13 Knowledge......................................................................................31
</TABLE>
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SCHEDULES
Schedule 4.2 Validity and Non-Contravention
Schedule 4.3 Capitalization
Schedule 4.5 Affiliates
Schedule 4.6 Consents
Schedule 4.7(a) Financial Statements
Schedule 4.7(b) Exceptions to Financial Statements
Schedule 4.8 No Material Adverse Changes
Schedule 4.9 Ordinary Course
Schedule 4.10 Agreements, Etc.
Schedule 4.11(a) Employees
Schedule 4.11(b) Labor Matters
Schedule 4.12 Licenses and Permits
Schedule 4.13 Intellectual Property
Schedule 4.14 Litigation and Orders
Schedule 4.15 Tax Matters
Schedule 4.17 Insurance
Schedule 4.19 Real Property and Leases
Schedule 4.20 Title to Assets and Properties
Schedule 4.21 Undisclosed Liabilities
Schedule 4.22 Customers and Suppliers
Schedule 4.23 Compliance with Laws
Schedule 4.24 Brokers
Schedule 4.25 Product Warranty and Product Liability
Schedule 4.26 Employee Benefit Plans; ERISA
Schedule 4.27 Highly Compensated Employees
Schedule 6.2 Operations of Business
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EXHIBITS
EXHIBIT A FORM OF RESTRICTED STOCK AGREEMENT
EXHIBIT B FORM OF EMPLOYMENT AND NONCOMPETITION AGREEMENT
EXHIBIT C FORM OF NONCOMPETITION AGREEMENT
EXHIBIT D FORM OF EMPLOYMENT AGREEMENTS
EXHIBIT E LEGAL OPINION - COMPANY COUNSEL
EXHIBIT F LEGAL OPINION - BUYER'S COUNSEL
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of January 12, 1999
(this "Agreement"), is made by and between Conley, Canitano & Associates, Inc.,
an Ohio corporation (the "Buyer"), and Luc De Groof, an individual resident of
Georgia (the "Shareholder").
RECITALS:
A. The Shareholder is the beneficial and record owner of all
the issued and outstanding shares of capital stock (the "Shares") of Bureau Van
Dijk Computer Services, Inc., a Georgia corporation (the "Company").
B. The Shareholder desires to sell to Buyer, and Buyer desires
to purchase from the Shareholder, all of the Shares upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the representations,
warranties, covenants and agreements set forth in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
The following terms when used in this Agreement shall have the
following respective meanings:
"Actions" shall mean any pending, litigation, action, suit,
investigation, proceeding, hearing, complaint, assessment, inquiry or judgment,
administrative or judicial, at law or in equity.
"Affiliate" shall mean any Person which directly or indirectly
controls, is controlled by, or is under common control with such Person. A
Person shall be deemed to control another Person if such Person owns fifty-one
percent (51%) or more of any class of stock of the "controlled" Person or
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of the controlled Person, whether through ownership
of stock or partnership interests, by contract, or otherwise.
"Agreement" means this Agreement.
"Ancillary Agreements" shall mean the Employment and
Noncompetition Agreement, the Restricted Stock Agreement and the Noncompetition
Agreements, in each case only as applicable
<PAGE> 8
to the relevant party or parties to such Ancillary Agreement, as indicated by
the context in which such term is used.
"Articles of Incorporation" shall mean, as applicable (a) the
Amended and Restated Articles of Incorporation of Buyer or (b) the Articles of
Incorporation of the Company.
"Basket" shall have the meaning set forth in Section 10.5(a).
"Buyer" shall have the meaning set forth in the preamble
hereto.
"Bylaws" shall mean the Bylaws of the Company.
"Cap" shall have the meaning set forth in Section 10.5(a).
"Cash Payment" shall have the meaning set forth in Section
2.2(a).
"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.
"Claimant" shall have the meaning set forth in Section 10.3.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall have the meaning set forth in Section
3.1.
"Closing Payments" shall have the meaning set forth in Section
2.2.
"Code" shall have the meaning set forth in Section 4.15(e).
"Common Stock" shall have the meaning set forth in Section
2.2(b).
"Company" shall have the meaning set forth in the preamble
hereto.
"Consents" shall mean any consent, approval, authorization,
waiver or notification of a Governmental Authority or any other Person.
"Contaminants" shall mean any contaminant, pollutant or
hazardous substance, as defined by CERCLA, as well as any waste materials,
petroleum and petroleum products.
"Contracts" shall have the meaning set forth in Section 4.2.
"Conversion Shares" shall have the meaning set forth in
Section 5.5.
"Convertible Preferred Stock" shall have the meaning set forth
in Section 5.5.
"Current Period" shall mean (i) any taxable year or other
period ending on or before the Closing for which a Tax Return is not required to
be filed on or before the Closing, and (ii) in
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<PAGE> 9
the case of a taxable year or other period beginning before and ending after the
Closing, that portion of such taxable year or other period that ends on and
includes the Closing.
"Current Period Tax" shall mean the total tax due for a
Current Period.
"Debt" of any Person shall mean either (a) any liability of
such Person (i) for borrowed money (including the current portion thereof), or
(ii) under any reimbursement obligation relating to a letter of credit, bankers'
acceptance or note purchase facility, or (iii) evidenced by a bond, note,
debenture or similar instrument (including a purchase money obligation), or (iv)
for the payment of money relating to a lease that is required to be classified
as a capitalized lease obligation in accordance with U.S. generally accepted
accounting principles ("GAAP"), or (v) for all or any part of the deferred
purchase price of property or services (other than trade payables), or (b) any
liability of others described in the preceding clause (a) that such Person has
guaranteed, that is recourse to such Person or any of its assets or that is
otherwise its legal liability or that is secured in whole or in part by the
assets of such Person. For purposes of this Agreement, (i) Debt shall include
(a) all "cut" but uncashed checks issued by the Company that are outstanding on
the Closing Date and (b) any and all accrued interest, success fees, prepayment
premiums, make-whole premiums or penalties, and fees or expenses (including
reasonable attorney's fees) associated with the prepayment of any Debt.
"Employee Plans" shall have the meaning set forth in Section
4.26(a).
"Employment and Noncompetition Agreement" shall mean the
agreement to be delivered at the Closing as set forth in Section 3.2(i).
"Financial Statements" shall have the meaning set forth in
Section 4.7(a).
"GAAP" means United States generally accepted accounting
principles.
"Governmental Authority" shall mean any government or
political subdivision, whether federal, state, local or foreign, or any agency
or instrumentality of any such government or political subdivision, or any
federal state, local or foreign court or arbitrator.
"Indemnitor" shall have the meaning set forth in Section 10.3.
"Intellectual Property" shall have the meaning set forth in
Section 4.13(a).
"Intellectual Property Rights" shall have the meaning set
forth in Section 4.13.
"Interim Financial Statements" shall have the meaning set
forth in Section 4.7(a).
"Investment" shall mean any equity interest, directly or
indirectly, in any Person in excess of five percent (5%) of the total equity
ownership of such Person.
"Laws" shall mean any law, statute, code, ordinance, rule,
regulation or other requirement of any Governmental Authority.
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<PAGE> 10
"Liens" shall mean any mortgage, lien, pledge, encumbrance,
security interest, claim, charge, defect in title or other restriction.
"Losses" shall have the meaning set forth in Section 10.1.
"Material Customers" shall have the meaning set forth in
Section 4.22.
"Noncompetition Agreements" shall mean the agreements to be
delivered at the Closing as set forth in Section 3.2(j).
"Options" shall mean any option, warrant, call, convertible or
exchangeable security, right of conversion or exchange, subscription,
unsatisfied preemptive right, other agreement or right of similar nature,
whether oral or written.
"Orders" shall mean any order, judgment, injunction, award,
decree, ruling, charge or writ of any Governmental Authority.
"Ordinary Course of Business" shall mean the ordinary course
of business consistent with past custom and practice (including with respect to
quantity and frequency).
"Permits" shall mean any license, permit, authorization,
grant, approval, franchise, waiver, Consent, qualification or similar document
or authority issued or granted by any Governmental Authority the non-existence
of which would have a material adverse effect on the party required to obtain
such.
"Person" shall mean any individual, sole proprietorship,
partnership, corporation, limited liability company, unincorporated society or
association, trust, or other entity.
"Plan" shall have the meaning set forth in Section 5.5.
"Redeemable Preferred Stock" shall have the meaning set forth
in Section 5.5.
"Regulations" shall mean the Code of Regulations of Buyer.
"Restricted Stock Agreement" shall mean the agreement to be
delivered at the Closing as set forth in Section 3.2(h).
"SAP" shall have the meaning set forth in Section 4.27.
" Shareholder" shall have the meaning set forth in the
preamble hereto.
"Shares" shall have the meaning set forth in the recitals to
this Agreement.
"Stock Payment" shall have the meaning set forth in Section
2.2(b).
"Subsidiary" means any corporation or entity other than the
Company of which more than fifty percent (50%) of the outstanding capital stock
or voting interests or rights have ordinary voting power to elect a majority of
the board of directors or other managers of such entity
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<PAGE> 11
(irrespective of whether or not at the time capital stock or voting interests or
rights of any other class or classes of such Person shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by the Company or by the Company and/or one or more
Subsidiaries or the management of which corporation or entity is under control
of the Company and/or any other Subsidiary, directly or indirectly through one
or more Persons and any other Person which, under GAAP, should at any time for
financial reporting purposes be consolidated or combined with the Company and/or
any other Subsidiary.
"Taxes" shall mean any domestic or foreign federal, state or
local income, franchise, business, occupation, sales/use, manufacturer's excise,
payroll, withholding, Federal Insurance Contributions Act and employment and
unemployment taxes, personal and real property taxes and all other taxes or
charges (including all interest and penalties) levied or imposed by any
Governmental Authority.
"Taxing Authority" shall mean a Governmental Agency exercising
taxing authority including, without limitation, the Internal Revenue Service.
"Tax Returns" shall mean returns (including informational
returns), reports, statements, certificates, schedules, forms and other
documents relating to Taxes.
"Third Party" shall have the meaning set forth in Section
10.4.
"1933 Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, all as in effect from time
to time.
SECTION 2. SALE AND PURCHASE OF STOCK
2.1 Sale and Purchase of Shares. At the Closing, (a) the
Shareholder shall sell, assign and transfer all of the Shares to Buyer, (b) the
Shareholder shall deliver to Buyer one or more stock certificates representing
the Shares owned by the Shareholder, with duly executed stock powers attached in
proper form for transfer, (c) Buyer shall purchase all of the Shares, and (d)
Buyer shall pay and deliver to the Shareholder the consideration in the manner
and amount required by this Section 2.
2.2 Closing Payments. In consideration for the Shares, and
subject to and in accordance with Section 2.3, at the Closing Buyer shall:
(a) pay $17,500,000 in cash by wire transfer of immediately
available funds, subject to adjustments as provided in Section 2.3 (the "Cash
Payment"), and
(b) deliver to the Shareholder 300,000 shares of common stock
of Buyer, without par value (the "Common Stock"), issued and restricted pursuant
to the Restricted Stock Agreement (the "Restricted Stock Agreement") in
substantially the form attached as Exhibit A (the "Stock Payment").
The Cash Payment and the Stock Payment are collectively
referred to as the "Closing Payments."
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<PAGE> 12
SECTION 3. CLOSING AND DELIVERIES
3.1 Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Smith, Gambrell &
Russell, LLP, Suite 3100, Promenade II, 1230 Peachtree Street, N.E., Atlanta,
Georgia 30309-3592, on January 12, 1999 at 10:00 a.m. Atlanta time, or at such
other time or place as the parties mutually agree. "Closing Date" shall mean the
date on which the Closing occurs.
3.2 Deliveries by the Company and the Shareholder. At the
Closing, the Company and the Shareholder shall deliver or cause to be delivered
to Buyer the following:
(a) one or more certificates representing the Shares,
accompanied by duly executed stock powers in proper form for transfer;
(b) the minute books, stock ledgers and transfer books of the
Company, all fully updated to the reasonable satisfaction of the Buyer;
(c) receipt for the payment of the Closing Payments delivered
by the Shareholder to Buyer pursuant to Section 2.3 hereof;
(d) a certificate of the Secretary of State of the State of
Georgia as to the good standing of the Company in Georgia and a good standing
certificate from the Secretary of States of California and Indiana;
(e) a certificate of the Secretary of the Company certifying
that attached thereto are true and correct copies of (i) the Bylaws of the
Company and (ii) the Articles of Incorporation of the Company;
(f) a resignation of all officers and directors of the
Company, except as otherwise directed by the Buyer;
(g) the Restricted Stock Agreement duly executed by the
Shareholder;
(h) an Employment and Noncompetition Agreement in
substantially the form attached as Exhibit B duly executed by the Shareholder
(the "Employment and Noncompetition Agreement");
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<PAGE> 13
(i) the Noncompetition Agreements in substantially the form
attached as Exhibit C duly executed between the Company and each of Jean-Paul De
Nys, Bernard Van Ommeslaghe and Alain Liedts (collectively, the "Noncompetition
Agreements");
(j) the legal opinion of Smith, Gambrell & Russell, LLP,
counsel to the Company and the Shareholder, in substantially the form attached
as Exhibit E; and
(k) a copy of the agreements providing for the purchase by the
Shareholder of all the shares of the Company from each of Jean-Paul De Nys,
Bernard Van Ommeslaghe and Alain Liedts.
3.3 Deliveries by Buyer. At the Closing, Buyer shall deliver
or cause to be delivered to the Shareholder the following:
(a) payment by wire transfer of immediately available funds
necessary to satisfy Buyer's obligation under Section 2.2(a) hereof;
(b) one or more certificates representing the Stock Payment,
accompanied by duly executed stock powers in proper form and transfer;
(c) the Employment and Noncompetition Agreement duly executed
on behalf of the Buyer;
(d) the Restricted Stock Agreement duly executed on behalf of
Buyer;
(e) a certificate of the Secretary of Buyer certifying that
attached thereto is a true and correct copy of Resolutions duly and validly
adopted by the Board of Directors of Buyer authorizing this Agreement, the
Ancillary Agreements, the issuance of the shares of Common Stock comprising the
Stock Payment and the transactions contemplated by this Agreement; and
(f) the legal opinion of Jones, Day, Reavis & Pogue, counsel
to the Buyer, in substantially the form attached as Exhibit F.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder hereby represents and warrants to Buyer that:
4.1 Organization and Good Standing; Corporate Authority. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of
7
<PAGE> 14
Georgia and has the corporate power and authority to own, operate and lease its
properties and to carry on its business as presently being conducted. The
Company is duly qualified to do business and is in good standing in the States
of California and Indiana and in each other State where failure to qualify would
have a material adverse affect on the business, operations or financial
condition of the Company taken as a whole.
4.2 Validity and Non-Contravention. This Agreement and the
Ancillary Agreements constitute the legal, valid and binding obligations of the
Shareholder, enforceable against the Shareholder (to the extent the Shareholder
is a party) in accordance with their terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting generally the entrustment of creditors' interests
and (b) the availability of equitable remedies (whether in a proceeding in
equity or at law). The Shareholder has full capacity, authority and right to
execute and deliver this Agreement and the Ancillary Agreements and to transfer
and deliver to Buyer the Shares. Except as set forth in Schedule 4.2, neither
the execution and delivery of this Agreement or the Ancillary Agreements by the
Shareholder nor the performance of his obligations hereunder or thereunder will
(a) violate, conflict with or result in a breach of any Laws or Orders or the
Articles of Incorporation or Bylaws of the Company, (b) violate, conflict with
or result in a breach or termination of, or otherwise give any contracting party
additional rights or compensation under, or the right to terminate or
accelerate, or constitute (with notice or lapse of time, or both) a default
under the terms of, any note, deed, lease, instrument, security agreement,
mortgage, commitment, contract, agreement, license or other instrument, whether
written or oral, express or implied (collectively, "Contracts") to which the
Company or the Shareholder is a party or by which any of the assets or
properties of the Company are bound, or (c) result in the creation or imposition
of any Liens with respect to the Shares or any of the properties or assets of
the Company.
4.3 Capitalization. The authorized capital stock of the
Company consists of 1,000 shares of common stock, no par value, of which 1,000
shares are issued and outstanding, all of which were duly issued and are fully
paid and nonassessable. The Shareholder (a) is the record and beneficial owner
of all of the outstanding Shares; (b) has full power, right and authority, and
any approval required by Law, to make and enter into this Agreement and the
Ancillary Agreements and to sell, assign, transfer and deliver the Shares to
Buyer, and (c) except as set forth in Schedule 4.3, has good and marketable
title to the Shares free and clear of all Liens or Options. Upon the
consummation of the transaction contemplated by this Agreement in accordance
with the terms hereof, Buyer shall acquire good and marketable title to the
Shares, free and clear of all Liens and Options.
4.4 Options or Other Rights; Subsidiaries. There are no
authorized or outstanding Options providing for or relating to the issuance,
transfer or voting of any Shares or any unissued securities of the Company. The
Company has no Subsidiaries and no Investments.
4.5 Affiliates. Except as set forth in Schedule 4.5,
(a) the Company does not own, directly or indirectly, any of
the outstanding shares or securities convertible into capital shares of any
corporation or any participating interest in any partnership, joint venture or
other business enterprise.
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<PAGE> 15
(b) the Shareholder does not have any direct or indirect
interest (i) in, or is a director, officer or employee of, any entity which is a
client, customer, supplier, lessor, lessee, debtor, creditor or competitor or
potential competitor of the Company, (ii) in any property, asset or right which
is owned or used by the Company in the conduct of its business, or (iii) in any
contractual relationship with the Company other than the employment of the
Shareholder as an employee of the Company or as provided in this Agreement.
4.6 Consents. Except as set forth in Schedule 4.6, no Consents
are required in connection with the execution and delivery by the Shareholder or
the Company of this Agreement or the Ancillary Agreements or the consummation of
the transactions contemplated hereby or thereby.
4.7 Financial Statements.
(a) Set forth on Schedule 4.7(a) are correct and complete
copies of (i) the audited balance sheets of the Company as of December 31, 1996
and 1997 and the related statements of operations and cash flows for the years
then ended, together with the notes thereto, and the other financial information
included therewith (collectively, the "Financial Statements"), (ii) the reviewed
balance sheet of the Company as of September 30, 1998 and the related statements
of operations and cash flows for the nine-month period then ended (the
"Third-Quarter Statements"), and (iii) the balance sheet of the Company as of
November 30, 1998 (which reflects all adjustments resulting from the 1996 and
1997 audits and the September 30, 1998 review) and the related statements of
operations for the month then ended (the "Interim Financial Statements").
(b) Except as set forth in Schedule 4.7(b), the Financial
Statements, Third-Quarter Statements and the Interim Financial Statements (i)
are consistent with the books and records of the Company (which are accurate and
complete in all material respects), (ii) have been prepared in accordance with
GAAP, consistently applied throughout the periods indicated (except that the
Interim Financial Statements lack footnote disclosure and are subject to
customary year-end adjustments) and (iii) fairly present the financial position,
results of operations and cash flows of the Company at the respective dates
thereof and for the periods therein indicated.
4.8 No Material Adverse Changes. Except as set forth in
Schedule 4.8 or as reflected in the Interim Financial Statements, since
September 30, 1998 there has not been any (a) material adverse change in the
financial condition of the Company or in the assets, liabilities, business, or
results of operations of the Company taken as a whole, (b) declaration, setting
aside or payment of any dividend or other distribution with respect to, or any
direct or indirect redemption or acquisition of, any of the capital stock of the
Company, (c) cancellation of any debt or claim held by the Company, (d) loss,
destruction or damage to any property which would have a material adverse effect
on operations of the Company, whether or not insured, (e) acquisition or
disposition of any assets or other transaction by the Company other than in the
Ordinary Course of Business, (f) transaction or agreement involving the Company
and any officer, director, employee (other than in the Ordinary Course of
Business) or the Shareholder of the Company, (g) increase, direct or indirect,
in the compensation paid or payable to any officer, director, employee or agent
of the Company or any establishment (other than in the Ordinary Course of
Business) or creation of any employee benefit plan, (h) any organized labor
trouble involving the Company, (i) arrangements relating to any royalty,
dividend or similar payment based on the sales volume of the Company, whether as
part of the terms of the Company's capital stock or by any separate agreement,
(j)
9
<PAGE> 16
customer that has terminated an engagement of the Company prior to completion,
or, to the best knowledge of the Shareholder, customer that has provided notice
to the Company or the Shareholder that such customer intends to do so, (k)
incurrence of indebtedness or any material Lien other than in the Ordinary
Course of Business, but in no event greater than $200,000 in the aggregate, or
(l) any agreement with respect to any of the foregoing actions.
4.9 Ordinary Course. Except as set forth in the Schedules
attached hereto and except for actions taken with Buyer's knowledge in order to
facilitate or in contemplation of the transactions contemplated in by Agreement,
since December 31, 1997, the Company has conducted its business in all material
respects only in the Ordinary Course of Business.
4.10 Agreements, Etc. Except as set forth in Schedule 4.10,
the Company is not a party to or bound by (a) any Contracts (other than oral
agreements for at will employment) relating to the employment of any Person by
the Company, or any bonus, deferred compensation, pension, profit sharing, stock
option, employee stock purchase, retirement insurance, health, welfare or other
employee benefit plan, (b) any loan or advance to, or Investment in, any other
Person or any Contracts relating to the making of any such loan, advance or
Investment, (c) any indemnity, or any guarantee or other contingent liability,
whether written or oral, in respect of any indebtedness or obligation of any
other Person (other than the endorsement of negotiable instruments for
collection in the Ordinary Course of Business), (d) any Contracts limiting the
freedom of the Company to engage in any line of business or to compete with any
other Person, (e) Contracts requiring future payments in excess of $10,000
annually, (f) any Contracts for the sale, lease, license or disposition of
products or services in excess of $100,000 annually or (g) any other material
Contract. All of such Contracts and instruments set forth in Schedule 4.10 (or
required to be set forth in Schedule 4.10) are in full force and effect, there
exists no material default or breach thereunder by the Company, or to the best
knowledge of the Shareholder, by any other party thereto, and the Company has
not received any written notice claiming that the Company has committed any such
material default or breach or indicating the desire or intention of any party
thereto to amend, modify, rescind or terminate the same. Except as set forth on
Schedule 4.10, the Shareholder is not a party to or bound by any Contract
limiting the freedom to engage in any line of business or compete with any
Person. To the best knowledge of the Shareholder, no employee is bound by or is
a party to any contract limiting the freedom of such employee to perform such
employee's current duties on behalf of the Company.
4.11 Labor Relations and Practices. The Company has no
Contracts with any labor union or other labor organization or employee
bargaining group relating to its employees. The Shareholder has no knowledge of
any efforts being made on the part of any labor union or other labor
organization or employee bargaining group or any employee with respect to
representation or organization of any of the Company's employees. The Company is
not delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it as of the date hereof or amounts required to be reimbursed to such employees.
The Company is in compliance in all material respects with all applicable Laws
respecting labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours. No claims of employment discrimination, sexual
harassment or unfair labor practices or strikes, slowdowns, stoppages of work or
any other concerted interference with normal operations are pending against the
Company or, to the best knowledge of the Shareholder, threatened against the
Company.
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4.12 Licenses and Permits. Schedule 4.12 sets forth a complete
and accurate list and description of all Permits of any Governmental Authority
held by the Company. The Company is in substantial compliance with the terms of
such Permits and there is no pending or, to the best knowledge of the
Shareholder, threatened termination, expiration (other than Permits issued for a
specified terms that expire and require renewal according to their terms), or
revocation thereof. Except for the Permits and authorizations set forth and
described in Schedule 4.12, neither the Company's conduct of its business nor
its ownership or use of any of its properties or assets is dependent on any
Permit.
4.13 Intellectual Property.
(a) Schedule 4.13 sets forth an accurate and complete list of
all letters patents, patents, patent applications, patent licenses, software
licenses, know-how, licenses, trade names, brand names, trade secrets,
trademarks, copyrights, service marks, trademark registrations and applications,
service mark registrations and applications and copyright registrations and
applications and all other intangible property rights or technology owned or
used by the Company in the operation of its business (collectively the
"Intellectual Property").
(b) No claim is pending or, to the best knowledge of the
Shareholder, threatened against the Company nor has the Company received any
written notice or claim from any Person asserting that any of the Company's
present or contemplated activities infringe or may infringe any Intellectual
Property Rights (as defined below) of such Person and the Shareholder is not
aware of any infringement by any other Person of any rights of the Company under
any Intellectual Property Rights.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights including, without limitation, all of the
registered rights set forth on Schedule 4.13 and all patent, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, copyright applications,
computer programs and other computer software, inventions, designs, samples,
specifications, schematics, know-how, trade secrets, proprietary processes and
formulae, including production technology and processes, all source and object
code, algorithms, promotional materials, customer lists, supplier and dealer
lists and marketing research, and all documentation and media constituting,
describing or relating to the foregoing, including without limitation, manuals,
memoranda and records. Schedule 4.13 contains a list and brief description of
all registered Intellectual Property Rights.
4.14 Litigation and Orders. Except as set forth on Schedule
4.14, there are no Actions pending, or to the best knowledge of the Shareholder
threatened, against or affecting the Company or any of its properties, assets,
officers (in their capacity as such) or directors (in their capacity as such),
including any seeking to enjoin or prevent the consummation of the transactions
contemplated hereby, or otherwise claiming this Agreement or the Ancillary
Agreements or the transactions contemplated hereby or thereby are unlawful. The
Company and its properties and assets are not subject to any material Orders.
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4.15 Taxes.
(a) All Tax Returns that are or were required to be filed or
provided before the Closing by or with respect to the Company or its income,
properties, or operations have been timely filed or provided and are true,
correct and complete in all material respects. All Taxes owed by the Company for
the taxable periods covered by such Tax Returns (whether or not shown on any Tax
Return) have been paid. The Company has not been granted any extension of time
within which to file any Tax Return. No claim has ever been made by a Taxing
Authority in a jurisdiction where the Company does not file Tax Returns that the
Company is or may be subject to Tax in such jurisdiction. No Company assets are
subject to any Liens, whether or not perfected, for any Taxes, assessments, or
similar charges of a Government Authority, other than Liens for current Taxes,
assessments or similar charges not yet due and delinquent.
(b) Except as set forth in Schedule 4.15, no Tax Return filed
by the Company has been or is currently being audited or examined by any Taxing
Authority. There are no pending or, to the best knowledge of the Shareholder,
threatened audits, claims, deficiencies, or adjustments against the Company for
Taxes, and the Company has not granted any extension of the statutes of
limitations for the assessment or collection of Taxes which remains in effect.
(c) Each estimated payment for Current Period Taxes payable by
the Company has been made on or before the date on which payment is required in
an amount sufficient to avoid the imposition of a penalty.
(d) 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, independent contractor, creditor, stockholder, or other Person.
(e) The Company has not been a United States real property
holding corporation within the meaning of section 897(c)(2) of the Internal
Revenue Code of 1986, as amended (the "Code") during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
(f) The Company has never been a member of an affiliated group
filing a consolidated federal income Tax Return and has no liability for the
Taxes of any other Person.
(g) The Company has never been a "qualified personal service
corporation" within the meaning of Section 448(d)(2) of the Code.
(h) The Company has disclosed on its federal income Tax
Returns all positions taken thereon that could give rise to a substantial
understatement penalty within the meaning of Section 6662 of the Code.
(i) The Company has not agreed to any adjustments under
Section 481 of the Code with respect to a change in method of accounting.
4.16 Environmental. The Company's operations, properties and
assets (a) are and have been in substantial compliance with the requirements of
all applicable federal, state, local and foreign environmental, health and
safety statutes and regulations, and (b) are not the subject of any
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federal, state, local or foreign investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any
Contaminant into the environment.
4.17 Insurance. Schedule 4.17 sets forth a true and complete
list and brief description (including applicable premiums and deductibles) of
all policies of, and binders evidencing, life, fire, workmen's compensation,
product liability, general liability and other forms of insurance, including
title insurance, owned or maintained by the Company. All such policies are in
full force and effect, and the Company is not in material default under any of
them.
4.18 Accounts Receivable. To the best knowledge of the
Shareholder, all trade and other accounts receivable of the Company have arisen
only from bona fide transactions in the Ordinary Course of Business, are valid
receivables and, to the best of the Shareholder's knowledge, the Company has not
received notice from any Person owing accounts receivable disputing the amounts
owed or stating that such party is or will be unable to pay such accounts when
due.
4.19 Real Property and Leases. The Company does not own, and
has never owned, any real property. Schedule 4.19 constitutes a complete and
correct list of all real properties leased by the Company. The Company has
delivered or caused to be delivered true, complete and correct copies of all
leases for leased properties reflected in Schedule 4.19. The Company has valid
and enforceable leasehold interests in, all its real properties, free and clear
of all Liens except (a) Liens set forth in Schedule 4.19 and (b) Liens for
current Taxes, assessments or other governmental charges not yet due and
delinquent. The Company is not in violation, in any material respect, of any
zoning, building or safety ordinance, regulation or requirement or any other
Law, nor has it received any notice of such violation. The performance by the
Shareholder of this Agreement will not result in the termination of, or in any
increase of any amounts payable under, any of its real property leases.
4.20 Title to Assets and Properties. The Company has good and
marketable title to, or valid and enforceable leasehold interests in, all of its
tangible assets and properties shown as assets on the Interim Financial
Statements (other than assets disposed of since November 30, 1998 in the
Ordinary Course of Business) and all assets and properties acquired since
November 30, 1998, free and clear of all Liens, except (a) Liens set forth in
Schedule 4.20 and (b) Liens for current Taxes, assessments or other governmental
charges not yet due and delinquent. Except as set forth on Schedule 4.20, the
assets and properties owned or leased by the Company are, taken as a whole and
in all material respects, in good condition and repair (subject to normal wear
and tear consistent with the age of the assets and properties) and are
sufficient for the conduct of the Company's business as presently conducted.
4.21 Undisclosed Liabilities. Except (a) as set forth in
Schedule 4.21, (b) as incurred since November 30, 1998 in the Ordinary Course of
Business or (c) as set forth in the Interim Financial Statements (including the
reserves provided for therein), there are no debts, liabilities or obligations,
contingent or otherwise, of the Company, which are required by GAAP to be
recorded as balance sheet liabilities of the Company or described in footnotes
to the Company's financial statements.
4.22 Customers and Suppliers. Schedule 4.22 sets forth all
customers, licensees and other Persons that accounted for five percent (5%) or
more of the Company's revenues for the 12-month period ended December 31, 1997
and the nine-month period ended September 30, 1998 ("Material Customers").
Except as set forth on Schedule 4.22, (a) no Material Customer has
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terminated an engagement of the Company prior to its completion, or, to the best
knowledge of Shareholder, no Material Customer has provided notice that such
customer intends to do so; (b) the Company is not involved in any claim, dispute
or controversy with any of its Material Customers other than claims, disputes or
controversies arising in the Ordinary Course of Business, which do not involve
more than $10,000 in the aggregate with respect to any one Material Customer;
and (c) the Company is not involved in any claim, dispute or controversy with
any of its other customers or licensees or any of its suppliers or licensors
which, individually or in the aggregate, as of the date of this Agreement could
reasonably be expected to have a material adverse effect upon the Company's
assets, properties, liabilities, financial condition, results of operations or
business, in each case taken as a whole.
4.23 Compliance With Laws. The Company has complied in all
material respects with, and is not in violation of or in default in any material
respect under, any Laws or Orders applicable to the Company or to any of its
businesses, assets, properties or employees.
4.24 No Brokers', Finders' or Insider Fees. Except as set
forth in Schedule 4.24, no Person has, or immediately following the consummation
of the transactions contemplated hereby will have, as a result of any act or
omission of the Shareholder or the Company, any right, interest, or valid claim
against the Shareholder, the Company or Buyer for any commission, fee or other
compensation as a finder or broker in connection with the transactions
contemplated by this Agreement.
4.25 Product Warranty and Product Liability. Except as set
forth in Schedule 4.25, there are no product warranty or product liability
claims pending or, to the best knowledge of the Shareholder, threatened against
the Company. The Company has provided Buyer with a complete and accurate list of
all warranty information provided to or relied upon by its customers (other than
warranties, if any, which apply to the Company's goods and services by operation
of law).
4.26 Employee Benefit Plans; ERISA.
(a) Except for the employee plans disclosed on Schedule 4.26
(collectively, the "Employee Plans"), the Company does not maintain, contribute
to or have an obligation to contribute to any "Employee Benefit Plan" (as
defined in Section 3(3) of ERISA), or any other severance, bonus, stock option,
stock appreciation, stock purchase, retirement, insurance, health, welfare,
vacation, pension, profit-sharing or deferred compensation plan, agreement or
arrangement providing benefits for employees or former employees of the Company
nor has the Company or any officer or director of the Company taken any action
directly or indirectly to obligate the Company to institute any such Employee
Benefit Plan.
(b) The Company does not have any liability with respect to
any plans, arrangements or practices of the type described in the preceding
sentence previously maintained or contributed to the Company, or to which the
Company previously had an obligation to contribute, which could have a material
adverse effect upon the assets and properties, operations, condition (financial
or otherwise) or business of the Company, taken as a whole. The Shareholder
previously delivered to Buyer or its counsel true, complete and correct copies
of each of the Employee Plans, including all amendments thereto, and any other
documents, forms or other instruments relating thereto reasonably requested by
Buyer or its counsel. All Employee Plans have been maintained in substantial
compliance with all Laws, including, without limitation, ERISA, and all Orders
and have
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been administered in accordance with the terms of the applicable plan documents,
except where such failure to comply could not have a material adverse effect on
the assets and properties, operations, condition (financial or otherwise) or
business of the Company, taken as a whole.
(c) Except as disclosed on Schedule 4.26, the Company has not
made any promises or commitments to provide, and is under no obligation or
liability to provide, (i) medical benefits (including through insurance) to
retirees of the Company or their dependents or (ii) life insurance or other
death benefits (including through insurance) to retirees of the Company or their
dependents.
(d) No Employee Plan (i) is or at any time was funded through
a "welfare benefit fund" as defined in Section 419(e) of the Code, (ii) is or at
any time was subject to Title IV of ERISA, (iii) is or at any time was subject
to the minimum funding standards of Section 302 of ERISA or Section 412 of the
Code, or (iv) is or at any time was a "multiemployer plan" within the meaning of
Section 3(37) or 4001(a)(13) of ERISA, or Section 414(f) of the Code, or a
"multiple employer plan" within the meaning of Section 413(c) of the Code. No
trade or business is or, at any time within the past six (6) years, has been,
treated, together with the Company, as a single employer under Section 414 of
the Code or Section 4001 of ERISA.
(e) The execution and performance of this Agreement or any of
the Ancillary Agreements will not (i) constitute a stated triggering event under
any Employee Plan that will result in any payment (whether of severance pay or
otherwise) becoming due from the Company to any present or former officer,
employee, director, shareholder or consultant, or former employee (or dependents
of any thereof), or (ii) accelerate the time of payment or vesting, or increase
the amount, of compensation due to any employee, officer, director, shareholder
or consultant of the Company.
(f) All contributions, transfers, and payments by the Company
in respect of any Employee Plan have been or are fully deductible under the
Code.
(g) No Employee Plan provides benefits to any individual who
is not a current or former employee of the Company, or the dependents or other
beneficiaries of any such current or former employee.
(h) Other than routine claims for benefits, there are no
Actions with respect to any employee plan, nor to the best knowledge of the
Shareholder and the Company, is there any basis for such Actions.
(i) All (i) insurance premiums required to be paid with
respect to, (ii) benefits, expenses, and other amounts due and payable under,
and (iii) contributions, transfers, or payments required to be made to, any
Employee Plan prior to the Closing will have been paid, made or accrued on or
before the Closing.
(j) Except as expressly stated to the contrary in Contracts or
the instruments governing each Employee Plan made available to Buyer or its
counsel prior to Closing, the Company has reserved all rights necessary to amend
or terminate each of the Employee Plans without any Consents of any other
Person.
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(k) The execution and performance of this Agreement will not
result in payments (or transfers of property) which constitute "excess parachute
payments" within the meaning of Section 280G of the Code.
4.27 Employees. The Company has previously delivered to the
Buyer a list of all managers, employees and consultants of the Company who,
individually, have received or will receive compensation from the Company for
the fiscal year of the Company ended December 31, 1998 in excess of $100,000. In
each case, such Schedule included the current job title, start date with the
Company and current base salary of each such individual. Except as set forth on
Schedule 4.27, the Company has not received any written notice from any key
employee regarding such key employee's intention to terminate his or her
employment with the Company. For each of the fiscal years ended December 31,
1996 and 1997 and on an annualized basis for the nine-month period ended
September 30, 1998, the employee turnover rate has been less than twenty percent
(20%) (excluding employees that have retired or have been terminated by the
Company). Except as set forth in Schedule 4.27, the Company is in compliance in
all material respects with the immigration laws of the United States with
respect to the hiring, employment and engagement of all of its employees and
consultants who are not United States citizens. As of the date hereof, the
Company is in compliance in all material respects with all rules, regulations
and requirements of SAP AG, SAP America, Inc., Team SAP or as an ASAP Partner,
each as applicable to the Company.
4.28 Political Contributions and Other Payments. To the best
knowledge of the Shareholder, neither the Shareholder nor the Company nor any
other Person acting on behalf of the Shareholder nor the Company has, during the
past two years, (i) made any payment in violation of any law to any governmental
official or other governmental employee or agent (domestic or foreign) to induce
the recipient or the recipient's employer to do business with, grant favorable
treatment to or compromise or forego any claim against the Company, or (ii) made
any significant payment or conferred any benefit which are unlawful to promote
or retain sales or to help procure or maintain good relations with suppliers.
4.29 Securities Matters.
(a) The Shareholder is a sophisticated investor with
sufficient knowledge and experience in financial and business matters to be
capable of evaluating the merits and risks of an investment in the Buyer. The
Shareholder has access to and has consulted with, to the extent the Shareholder
considered appropriate, lawyers, accountants or investment advisers
knowledgeable in financial and business matters for the purpose of evaluating
the merits and risks of investment in the Buyer.
(b) The Shareholder can bear the economic risk and lack of
liquidity of the purchase of the Common Stock and of the loss of the entire
amount of the investment, and the Shareholder understands the tax consequences
of its receipt of the Common Stock.
(c) The Common Stock is being acquired for the Shareholder's
own account and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the 1933 Act or
any applicable state securities laws.
(d) The Shareholder is an "accredited investor" as that term
is defined in Regulation D promulgated under the 1933 Act.
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4.30 Disclosure. Neither this Agreement (including the
Exhibits and Schedules hereto) nor any certificate or instrument signed and
delivered by the Shareholder to the Buyer at Closing pursuant to the terms of
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading.
4.31 No Other Representations. Except as expressly set forth
in this Section 4 and the Schedules corresponding to the representations and
warranties set forth herein, the Shareholder makes no representations,
warranties or statements, express or implied, with respect to the Company, its
business, operations, assets or prospects, upon which Buyer may rely in entering
into this Agreement or consummating the transactions contemplated herein. Any
information disclosed on a Schedule hereto shall be deemed automatically to
qualify any other representation or warranty contained herein to the extent that
such information might reasonably considered relevant to such other
representation or warranty, regardless of whether there is a specific cross
reference.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Shareholder that:
5.1 Investment Intent. The Shares are being purchased for its
own account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the 1933 Act or
any applicable state securities laws.
5.2 Organization and Good Standing. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Ohio and has the corporate power and authority to own, operate and
lease its properties and to carry on its business as presently being conducted.
5.3 Validity of Agreements. This Agreement and the Ancillary
Agreements constitute the legal, valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their terms except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting generally the entrustment of
creditors' interests and (b) the availability of equitable remedies (whether in
a proceeding in equity or at law). Buyer has the corporate power and authority
to enter into this Agreement and the Ancillary Agreements and to undertake and
perform fully the transactions contemplated hereby or thereby. All necessary
corporate action has been taken by and on behalf of Buyer with respect to the
authorization, execution, delivery and performance of this Agreement and the
Ancillary Agreements.
5.4 No Breach. Neither the execution and delivery of this
Agreement or the Ancillary Agreements by Buyer nor the performance of its
obligations hereunder or thereunder will violate, conflict with or result in a
breach of any Laws, Orders, the Articles of Incorporation or Regulations of
Buyer.
5.5 Capitalization. The authorized capital stock of the Buyer
consists of 45,000,000 shares of Common Stock, of which 6,822,950 shares are
issued and outstanding, 250,400 shares of convertible preferred stock, par value
$.01 (the "Convertible Preferred Stock"), of which
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250,400 shares are issued and outstanding, and 250,400 shares of redeemable
preferred stock, par value $.01 (the "Redeemable Preferred Stock"), of which no
shares are issued and outstanding. In addition, the Buyer has authorized and
reserved for issuance upon conversion of shares of the Convertible Preferred
Stock up to 2,504,000 shares of Common Stock and 250,400 shares of Redeemable
Preferred Stock (subject to adjustment for stock splits, stock dividends and the
like) and has reserved for issuance upon the exercise of Options or issuance of
restricted stock under the Buyer's 1997 Equity and Performance Incentive Plan
(the "Plan") 2,500,000 shares of Common Stock (subject in each case to
adjustments for stock splits, stock dividends and the like). Except for the
2,500,000 shares of Common Stock issuable as shares of restricted stock or upon
conversion of outstanding Options under the Plan and the Conversion Shares or
the 260,000 shares of Common Stock issuable pursuant to the warrants and
options, dated April 3, 1998, the Buyer has not issued or agreed to issue and is
not obligated to issue any outstanding warrants, options or other rights to
purchase or acquire any shares of its capital stock, nor any outstanding
securities convertible into such shares or any warrants, Options or other rights
to acquire any such convertible securities. All of the outstanding shares of
capital stock of the Buyer (including without limitation shares of the
Convertible Preferred Stock) are duly and validly authorized and issued and are
fully paid and nonassessable and have been offered, issued, sold and delivered
in compliance with applicable federal and state securities laws and not subject
to any preemptive rights. The Conversion Shares issuable upon conversion of
shares of the Convertible Preferred Stock will upon issuance be duly and validly
authorized and issued, fully paid and nonassessable and not subject to any
preemptive rights and will be issued in compliance with federal and state
securities laws. As used herein, the term "Conversion Shares" shall mean the
shares of Redeemable Preferred Stock and Common Stock issuable upon conversion
of the shares of Convertible Preferred Stock.
5.6 No Brokers', Finders', or Insider Fees. No Person has or,
immediately following the consummation of the transactions contemplated hereby,
will have, as a result of any act or omission of Buyer, any right, interest or
valid claim against the Shareholder, the Company or Buyer for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this Agreement.
5.7 Consents. No Consents are required in connection with the
execution and delivery by Buyer of this Agreement or the Ancillary Agreements or
the consummation of the transactions contemplated hereby or thereby.
5.8 Stock Payment Shares. The 300,000 shares of Buyer's Common
Stock to be issued to Shareholder as the Stock Payment have been duly authorized
for issuance to Shareholder pursuant to the terms of this Agreement, and when
issued and delivered to Shareholder shall be validly issued, fully paid and
non-assessable, and upon such issuance and delivery Shareholder shall acquire
good title to such shares of Common Stock, free and clear of all Liens or
Options except as provided in the Restricted Stock Agreement.
5.9 Disclosure. Neither (i) this Agreement (including the
Exhibits and Schedules hereto) nor (ii) any certificate or instrument to be
signed and delivered by the Buyer to the Shareholder at Closing pursuant to the
terms of this Agreement, nor (iii) the 1933 Act Registration Statement on Form
S-1 filed by the Company with the U.S. Securities and Exchange Commission as of
July 24, 1998 and as amended to the date of this Agreement, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading.
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5.10 Buyer's Financing. Neither the Buyer nor the Company
shall, as a result of the transaction contemplated herein or the terms of any
indebtedness incurred to finance the transactions contemplated herein, be
rendered insolvent under any definition, have unreasonably small capital to
conduct their respective businesses or be unable to pay their respective debts
as they mature.
SECTION 6. PRE-CLOSING COVENANTS
6.1 General. Each of the parties hereto shall use his or its
reasonable efforts to take all action and to do all things necessary, proper or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement and the Ancillary Agreements.
6.2 Operations of Business. Except as otherwise provided or
disclosed in this Agreement, the Schedules hereto or the Ancillary Agreements,
from the date hereof until the Closing, the Shareholder shall not and shall not
cause or permit the Company to, and the Company shall not, engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business, and without limiting the foregoing, the Shareholder shall
not sell, transfer or assign the Shares or permit the creation of any Lien with
respect to the Shares, and except as set forth in Schedule 6.2, the Company
shall not take any of the following actions without the prior written consent of
Buyer, which consent will not be unreasonably withheld or delayed:
(a) incur, create or suffer to exist any Liens except as
disclosed on Schedule 4.20;
(b) increase the compensation of or to become payable to any
officers, employees, agents, sales representatives or consultants of the Company
(including any such increase pursuant to any bonus, pension, profit-sharing or
other plan or commitment) other than increases of amounts payable to employees
that are not officers of the Company in the Ordinary Course of Business, or
enter into any employment Contract with any officer or employee, or any Contract
with any agent, sales representative or consultant, which is not terminable on
or at any time after the Closing;
(c) make any change in the Company's authorized capital stock,
including any stock split or reclassification in respect of its outstanding
capital stock, or declaration, payment or setting aside for payment of any
dividend, fees, or other distribution in respect of the capital stock of the
Company, or any redemption, purchase or other acquisition of any of the Shares
or other securities of the Company;
(d) make or commit to make any capital expenditures requiring
the payment of in excess of $50,000 in the aggregate;
(e) sell, transfer or otherwise dispose of any assets of the
Company, except for sales of inventory in the Ordinary Course of Business;
(f) incur any material obligation or liability (fixed or
contingent) relating to the Company's business, except trade or business
obligations incurred in the Ordinary Course of Business;
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(g) cancel or compromise any debt or claim, or waive or
release any rights of value;
(h) transfer, abandon, fail to maintain in good standing or
grant any rights under or with respect to any material leases, licenses or
agreements of the Company or the Intellectual Property, or enter into any
material Contract limiting the Company's ability to conduct its operations or
manufacture or distribute its products anywhere in the world;
(i) issue, sell or otherwise dispose of any of the capital
stock or any other equity interests of the Company or any evidences of
indebtedness of the Company;
(j) amend the Articles of Incorporation or Bylaws of the
Company;
(k) introduce any material change with respect to the
operation of the Company's business, including its methods of accounting;
(l) enter into any material Contract of a kind required to be
listed on Schedule 4.10;
(m) fail to maintain the properties and assets of the business
of the Company, whether owned or leased, in their current operating condition
and repair, reasonable wear and tear excepted;
(n) fail to maintain in full force and effect insurance for
the business of the Company providing coverage and amounts of coverage in
accordance with its current practice;
(o) merge or consolidate with any other corporation or acquire
any stock, business, or substantially all of the property or assets of any other
Person;
(p) write-up the value of any of the Company's assets;
(q) make any loan or advance to, or any Investment in, any
Person (including any officer, director, employee, agent, sales representative
or consultant);
(r) do any act which, with or without the giving of notice or
the passage of time, or both, would result in a material breach of or default
under any Contract required to be listed in Schedule 4.10;
(s) incur any indebtedness for borrowed money; or
(t) enter into any agreement or understanding to do any of the
foregoing.
6.3 Full Access. The Shareholder shall permit and shall cause
the Company to permit, and the Company shall permit, representatives of Buyer to
have access during reasonable times, and in a manner so as not to unreasonably
interfere with the normal business operations of the Company, to all premises,
properties, personnel, books, records (including tax records), contracts and
documents of or pertaining to the Company; provided, however, that such access
is reasonably necessary to perform its due diligence review in connection with
this Agreement and the transactions
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contemplated hereby; and provided further, that all access to Company premises,
employees or customers shall be provided only upon prior notice to, and approval
as to reasonable timing and scope of, the Shareholder.
6.4 Notice of Developments. The Shareholder shall promptly
notify Buyer in writing of any development in the business of the Company which
would be outside the Ordinary Course of Business, or which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in the Schedules. Upon receipt of written notice of any such
event, Buyer shall elect within ten (10) calendar days either (i) to accept such
notice and waive any inaccuracy or misrepresentation or warranty which would
have occurred had such notice not been given, or any breach of this Agreement
arising from the facts disclosed or (ii) terminate this Agreement pursuant to
Section 11(b) by delivering written notice to the Shareholder. If Buyer fails to
notify Shareholder of its election within such ten (10) day period, Buyer shall
be deemed to have elected (i) above.
SECTION 7. POST-CLOSING COVENANTS
7.1 General. If at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the parties shall take such further action (including the execution and
delivery of such further instruments and documents) as any other party may
reasonably request.
7.2 Litigation Support. In the event and for so long as any
party actively is contesting or defending against any Actions of third parties
after the Closing in connection with (a) any transaction contemplated by this
Agreement or the Ancillary Agreements or (b) any fact, situation, circumstances,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to or after the Closing
involving the Company, each of the other parties shall cooperate in the defense
or contest, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with the
defense or contest, all at the sole cost and expense of the contesting or
defending party (unless the contesting or defending party is entitled to
indemnification therefor under Section 10 below).
7.3 Transition. The Shareholder shall not take any action that
is designed or intended to have the effect of discouraging any actual or
potential lessor, licensor, customer, supplier, or other business associate of
the Company from maintaining the same business relationships with the Company
after the Closing as it maintained with the Company prior to the Closing.
7.4 Tax Matters.
The following provisions shall govern the allocation of
responsibility as between Buyer and the Shareholder for certain tax matters
following the Closing Date:
(a) Buyer shall prepare and file all Tax Returns for the
Company for all periods ending on or before the Closing Date which are filed
after the Closing Date. Buyer shall permit the Shareholder to review and comment
on each such Tax Return described in the preceding sentence prior to filing. The
Shareholder shall reimburse Buyer for Taxes of the Company with respect to
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such periods within fifteen (15) days after payment by Buyer or the Company of
such Taxes to the extent such Taxes exceed the sum of (i) the reserve for tax
liability shown on the face of the Interim Financial Statements plus (ii) 40% of
the book income of the Company for such period earned after November 30, 1998.
(b) Buyer shall prepare and file any Tax Returns of the
Company for Tax periods which begin before the Closing Date and end after the
Closing Date and the Buyer or the Company shall pay all Taxes due thereon.
(c) Buyer, the Company and the Shareholder shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and any
audit, litigation or other proceeding with respect to Taxes.
(d) Buyer and Company will provide the Shareholder with access
to such of the Company's books and records as may be reasonably requested by the
Shareholder in connection with Tax matters relating to the Company and periods
ending prior to the Closing Date. Buyer shall cause the Company to preserve and
not to discard any documents, books, or records of the Company for at least
three years following the Closing Date without first notifying the Shareholder
and permitting the Shareholder to keep or copy such documents, books or records.
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer to purchase and pay for the Shares at
the Closing is subject to the fulfillment, at or prior to the Closing, of the
following conditions, each of which shall be deemed waived by Buyer if Buyer
proceeds with the Closing without satisfaction of such condition, unless the
parties otherwise agree in writing:
8.1 Deliveries. The Shareholder shall have delivered or caused
to be delivered all of the items required by Section 3.2 of this Agreement.
8.2 Representations, Warranties and Covenants. The
representations and warranties set forth in Section 4 shall be true and correct
at and as of the Closing. The Shareholder shall have performed or complied with
all covenants and agreements contemplated by this Agreement to be performed by
such party at or prior to the Closing.
8.3 Third-Party Consents. The Shareholder shall have obtained
all Consents that may be required in connection with the consummation of the
transactions contemplated by this Agreement or the Ancillary Agreements, if the
failure to obtain such Consents prior to Closing could reasonably be expected to
have a material adverse effect on the business of the Company following the
Closing.
8.4 No Material Adverse Change. There shall not have been any
material adverse change in any of the assets, business, financial condition or
results of operations of the Company.
8.5 No Orders or Actions. There shall be no Orders in effect
preventing, nor Actions pending seeking to prevent, consummation of any of the
transactions contemplated by this Agreement or the Ancillary Agreements.
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8.6 Employment and Noncompetition Agreement. Buyer shall have
entered into the Employment and Noncompetition Agreements with the Shareholder.
8.7 Noncompetition Agreements. The Company shall have entered
into the Noncompetition Agreements with each of Jean-Paul De Nys, Bernard Van
Ommeslaghe and Alain Liedts.
8.8 Restricted Stock Agreement. Buyer shall have entered into
the Restricted Stock Agreement with the Shareholder.
SECTION 9. CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDER
The obligations of the Shareholder to sell the Shares at the
Closing is subject to the fulfillment, at or prior to the Closing, of the
following conditions, each of which shall be deemed waived by the Shareholder if
Shareholder proceeds with the Closing without satisfaction of such condition,
unless the parties otherwise agree in writing:
9.1 Representations, Warranties and Covenants. The
representations and warranties set forth in Section 5 shall be true and correct
at and as of the Closing. Buyer shall have performed or complied with all
covenants and agreements contemplated by this Agreement to be performed by it at
or prior to the Closing.
9.2 No Orders or Actions. There shall be no Orders in effect
preventing, nor Actions pending seeking to prevent, consummation of any of the
transactions contemplated by this Agreement or the Ancillary Agreements.
9.3 Deliveries. Buyer shall have delivered all of the items
required by Section 3.3 of this Agreement.
SECTION 10. INDEMNIFICATION AND SURVIVAL
10.1 Indemnification by the Shareholder. Following the
Closing, subject to the terms and conditions of this Section 10, the Shareholder
shall indemnify, defend and hold harmless Buyer and its respective officers,
directors, employees, agents and Affiliates from and against, and shall
reimburse them for, liabilities, damages, claims, penalties, fines, judgments,
awards, settlements, Taxes, costs, fees, expenses (including, but not limited
to, reasonable attorneys' fees) and disbursements, and any interest that has
accrued on any of the foregoing (collectively, "Losses") resulting from or
arising in connection with:
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(a) any breach of or misrepresentation in (i) any
representation or warranty made by the Shareholder in this Agreement or (ii) any
covenant or agreement made by the Shareholder in this Agreement to be performed
at or prior to the Closing;
(b) any breach of any covenant or agreement made by the
Shareholder performed after the Closing; and
(c) the purchase by the Shareholder of the shares of Jean-Paul
De Nys, Bernard Van Ommeslaghe and Alain Liedts.
10.2 Indemnification by Buyer. Subject to the terms and
conditions of this Section 10, Buyer shall indemnify, defend and hold harmless
the Shareholder, and his heirs, assigns and successors from and against, and
shall reimburse him for, any Losses resulting from or arising in connection
with:
(a) any breach of or misrepresentation in (i) any
representation or warranty made by Buyer in this Agreement; or (ii) any covenant
or agreement made by Buyer in this Agreement to be performed at or prior to the
Closing; and
(b) any breach of any covenant or agreement made by Buyer in
this Agreement to be performed after the Closing.
10.3 Claims. In the event the Shareholder or Buyer (the
"Claimant") desires to make a claim for indemnification pursuant to Sections
10.1 or 10.2 hereof against the other (the "Indemnitor"), the Claimant shall
give prompt written notice of the claim to the Indemnitor, describing, in
reasonable detail, the nature of the claim. Failure to give such notice shall
not affect the indemnification provided hereunder except to the extent that such
failure shall have actually prejudiced the Indemnitor as a result thereof.
10.4 Third Party Claims. If the Claimant's notice involves a
claim against the Claimant by a Person not a party to this Agreement (a "Third
Party"), the Indemnitor shall have the exclusive right to defend and settle, at
Indemnitor's own expense and by Indemnitor's own counsel, any such matter so
long as the Indemnitor pursues the same diligently and in good faith. If the
Indemnitor undertakes to defend or settle, it shall promptly notify the Claimant
of its intention to do so, and the Claimant shall cooperate, at the sole expense
of the Indemnitor, with the Indemnitor and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnitor with any books, records, access to personnel and facilities and other
information reasonably requested by the Indemnitor and in the Claimant's
possession or control. After the Indemnitor has notified the Claimant of
Indemnitor's intention to undertake to defend or settle any such asserted
liability, and for so long as the Indemnitor diligently pursues such defense,
the Indemnitor shall not be liable for any additional legal expenses incurred by
the Claimant in connection with any defense or settlement of such asserted
liability; provided, however, that the Claimant shall be entitled, at its
expense, to participate in the defense of such asserted liability and the
negotiations of the settlement thereof, and the Indemnitor shall not settle any
such Third Party claim without the consent of the Claimant unless the settlement
thereof imposes no liability or obligation on, and includes a complete release
from liability of, the Claimant; and provided further, however, that, if it
reasonably appears that such Third Party claim, if proven could result in an
aggregate Loss to the Indemnitee of greater than
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$5,000,000, then the Indemnitee shall be entitled to reimbursement of reasonable
legal fees and expenses incurred in connection with Indemnitee's participation
in such defense and settlement discussions. If, upon receiving notice, the
Indemnitor does not timely undertake to defend such matter to which the Claimant
is entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Claimant may undertake such defense through counsel of its choice,
at the cost and expense of the Indemnitor, and the Claimant may settle such
matter, and the Indemnitor shall reimburse the Claimant for any losses incurred
by the Claimant in connection therewith.
10.5 Limitations on Indemnification.
(a) Subject to Section 10.5(b) below, (i) neither Buyer nor
the Shareholder shall be entitled to indemnification under this Agreement until
the aggregate amount of all Losses (other than Losses in connection with claims
excluded from application of the Basket pursuant to Section 10.5(b)) incurred by
such party exceeds $150,000 (the "Basket"), and then such party shall be
entitled to indemnification only for the amount by which such Losses incurred by
such party exceed the Basket amount; and (ii) the maximum aggregate obligation
of the Shareholder or the Buyer with respect to all matters for which either
party may seek indemnification under this Agreement shall not exceed $20,600,000
(the "Cap").
(b) Neither the Basket nor the Cap provided for in Section
10.5(a) shall apply to any claim made by Buyer based on the representations and
warranties contained in any of Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.15, 4.24, and
4.26, or to any claims made by the Shareholder based on the representations and
warranties contained in any of Sections 5.2, 5.3, 5.6 and 5.8. Furthermore,
neither the Basket nor the Cap shall apply to any indemnification claims made
pursuant to Sections 10.1(b), 10.1(c) or 10.2(b).
10.6 Survival of Representations and Warranties. All of the
representations and warranties of the Shareholder and Buyer contained in
Sections 4 and 5 above shall survive the Closing hereunder and continue in full
force and effect for a period of 18 months thereafter, except (i)
representations and warranties contained in Sections 4.15 and 4.26, which shall
survive until the expiration of the longest applicable period of limitations, if
any, applicable to the matters therein represented (as such period may be
extended pursuant to the request of the appropriate Governmental Authorities),
and (ii) representations and warranties contained in Sections 4.1, 4.2, 4.3,
4.5, 4.24, 5.2, 5.3, 5.6 and 5.8, which shall survive indefinitely.
10.7 Indemnification Exclusive. Except in the case of actual
fraud (intentional misrepresentation of a material fact reasonably relied upon
by the Claimant), indemnification pursuant to Sections 10.1 or 10.2, subject to
all terms, conditions and limitations provided for in this Section 10, shall be
the sole and exclusive remedy of the parties hereto or the other parties named
as beneficiaries of Sections 10.1 or 10.2 for monetary damages with respect to
any claims arising from, under or with respect to this Agreement, the
transactions contemplated herein or the matters subject to indemnification
hereunder.
10.8 General Qualifications on Indemnification.
Notwithstanding any provision of this Section 10 to the contrary, the right of
any Claimant to indemnification from an Indemnitor shall be subject to the
following:
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(a) The liability of an Indemnitor with respect to any
indemnification claim shall be reduced by the amount of any tax benefit actually
realized or any insurance proceeds received by any claimant as a result of any
Loss upon which such claim is based, and shall include any tax detriment
actually suffered by the claimant as a result of such Loss. The amount of such
tax benefit or detriment shall be determined by taking into account the effect,
if any, and to the extent determinable, of timing differences resulting from the
acceleration or deferral of items of gain or loss resulting from such Loss.
(b) A Loss shall include actual damages only and shall not
include any special, punitive, multiplied or consequential damages, except to
the extent the same are included in a Third Party judgment against the Claimant.
(c) Upon payment in full of any indemnification claim, the
Indemnitor shall be subrogated to the extent of such payment to the rights of
the Claimant against any Third Party with respect to the subject matter of such
indemnification claim.
(d) An Indemnitor shall be relieved its duty to indemnify
Claimant hereunder if and to the extent the Claimant fails to take commercially
reasonable steps in good faith to mitigate its Loss, including, but not limited
to, failure to pursue recovery under available policies of insurance.
(e) Any indemnification payment hereunder shall be deemed an
adjustment to the Purchase Price.
(f) The Buyer shall not be deemed to have incurred any Loss
relative to the Company to the extent such Loss may be charged against reserves
established in the Interim Financial Statements.
10.9 Payment in Common Stock. The Shareholder may, at his
option, pay any claim for indemnification under Section 10.1 in whole or part by
surrendering to the Buyer shares of Buyer Common Stock issued as the Stock
Payment. If, at the time of such surrender, the Buyer's common stock is listed
on any national securities exchange or the NASDAQ Stock Market, the value of
each share of Common Stock surrendered for payment of such claim shall be the
closing price as reported by such exchange on the NASDAQ Stock Market on the
trading day immediately preceding the date of surrender. For the period of one
year from the Closing Date, if Buyer's Common Stock is not listed on any such
national exchange or the NASDAQ Stock Market, the value of such Common Stock for
purposes of paying such claim shall be $11.00 per share; provided, however, that
after the first anniversary of the Closing Date, if the Buyer's Common Stock is
not listed on any such national exchange or the NASDAQ Stock Market, the value
of each share of Common Stock shall be the value on the date of surrender as
determined according to the provisions of the Buyer's current Employee Stock
Option Agreements. To the extent such valuation is less than $11 per share,
however, the Cap as of the time of such valuation will be reduced automatically
by an amount equal to the difference between $11 and such lesser per share
valuation, multiplied by the number of Stock Payment shares of Common Stock then
owned by the Shareholder.
SECTION 11. TERMINATION
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11.1 Termination of Agreement. This Agreement may be
terminated as provided below:
(a) The parties may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(b) Buyer may terminate this Agreement by giving written
notice to the Shareholder at any time prior to the Closing (i) if the
Shareholder or the Company have breached any of their covenants contained in
this Agreement or if there is any inaccuracy in the representations or
warranties made by the Shareholder or the Company in this Agreement, Buyer has
notified the Shareholder of such breach or inaccuracy, and the breach or
inaccuracy has continued without cure for a period of ten (10) days after such
notice or (ii) if the Closing shall not have occurred on or before January 31,
1999 by reason of the failure of any condition precedent under Section 8 hereof
(unless the failure results primarily from Buyer breaching any covenant or
misrepresenting any representation or warranty contained in this Agreement); and
(c) The Shareholder may terminate this Agreement by giving
written notice to Buyer at any time prior to the Closing (i) if Buyer has
breached any of its covenants contained in this Agreement or if there is any
material inaccuracy in the representations or warranties made by Buyer contained
in this Agreement, the Shareholder has notified Buyer of such breach or
inaccuracy, and the breach or inaccuracy has continued without cure for a period
of ten (10) days after such notice or (ii) if the Closing shall not have
occurred on or before January 31, 1999 by reason of the failure of any condition
precedent under Section 9 hereof (unless the failure results primarily from the
Shareholder or the Company or parties under their control breaching any covenant
or misrepresenting any representation or warranty contained in this Agreement).
11.2 Effect of Termination. A termination of this Agreement
shall not in any way limit or restrict the rights and remedies of any party
hereto against any other party or parties who or which have willfully breached
any of the agreements or other provisions of this Agreement prior to termination
hereof.
SECTION 12. MISCELLANEOUS
12.1 Waivers and Amendments. This Agreement may be amended or
modified only by an instrument in writing duly executed by the parties to this
Agreement, which makes specific reference to this Agreement.
12.2 Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given and received
for all purposes when delivered by hand, telecopy, telex or other method of
facsimile, or five (5) days after being sent by registered or certified mail,
return receipt requested, postage prepaid or two (2) days after being sent by
overnight delivery providing receipt of delivery, to the following addresses:
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If to Buyer:
Conley, Canitano & Associates, Inc.
CCAi Renaissance Centre
5800 Landerbrook Drive
Mayfield Heights, OH 44124
Facsimile No. (440) 684-6700
Attention: Nicholas A. Canitano
With a copy to Buyer's counsel:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Facsimile No.: (216) 579-0212
Attention: John M. Saada, Jr., Esq.
If to the Shareholder:
Luc De Groof
Five Concourse Parkway
Suite 2875
Atlanta, Georgia 30328
With copies to:
John H. Spillman, Esq.
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Facsimile No.: (404) 815-3509
12.3 Fees and Expenses. Each party shall bear his or its own
costs, fees and expenses (including attorneys' and advisors' fees and expenses)
incurred in connection with the negotiation, preparation, execution and Closing
of this Agreement, the Ancillary Agreements and the transactions contemplated
hereby or thereby; provided, however, that the Company shall pay at or prior to
Closing all legal or accountants' fees incurred by the Company or the
Shareholder in connection with the negotiation, preparation, execution and
Closing of this Agreement, up to a maximum of $200,000.
12.4 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the successors and
assigns of the parties hereto, but no rights, obligations or liabilities
hereunder shall be assignable by any party without the prior written consent of
the other parties hereto; provided, however, that the Buyer may assign the
rights, obligations and liabilities to an affiliate of the Buyer without such
consent.
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12.5 Choice of Law. This Agreement shall be governed by and
construed and interpreted in accordance with the internal, substantive laws of
the State of Georgia.
12.6 Dispute Resolution. Except with respect to matters as to
which injunctive relief is being sought, any dispute arising out of or relating
to this Agreement or the transactions contemplated hereunder that has not been
settled within thirty (30) days by good faith negotiation between the parties to
this Agreement shall be submitted to the American Arbitration Association (AAA)
for final and binding arbitration pursuant to AAA's Commercial Arbitration
Rules. If the Buyer is the party bringing the claim subject to dispute, the
venue for such arbitration shall be Atlanta, Georgia. If the Shareholder is the
party bringing the claim subject to dispute, the venue for such arbitration
shall be in Cleveland, Ohio. Such proceedings shall be guided by the following
agreed upon procedures, which shall govern to the extent of any inconsistency
with the AAA Commercial Arbitration Rules:
(a) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;
(b) no other discovery;
(c) hearings before the neutral advisor which shall consist of
a summary presentation by each side of not more than three (3) hours; such
hearings to take place on one (1) or two (2) days at a maximum;
(d) decision to be rendered not more than ten (10) days
following such hearings; and
(e) punitive damages shall not be permitted under any
circumstances.
12.7 Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the offending term or provision in any
other situation or in any other jurisdiction.
12.8 Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements, or representations by or among
the parties, written or oral, to the extent they have related in any way to the
subject matter hereof.
12.9 Construction. The parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Unless the context otherwise requires, any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder. Unless the
context otherwise requires, the use of the singular shall include the plural,
the use of the masculine shall include the feminine, and vice versa. The word
"including" shall mean including without limitation.
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12.10 Incorporation of Exhibits and Schedules. The Exhibits
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
12.11 Headings and Recitals. The section Headings and Recitals
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
12.12 Counterparts. This Agreement may be executed
concurrently in two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.13 Knowledge. Wherever any statement in this Agreement or
the Schedules hereto is qualified to the Shareholder's "knowledge" or the "best
of Shareholder's knowledge", or words of similar import, such reference shall be
to the Shareholder's actual knowledge after due inquiry and reasonable
investigation as to the matters subject to such qualification, and shall not
include knowledge imputed to the Shareholder for any reason.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to be executed as of the day and year first above written.
CONLEY, CANITANO & ASSOCIATES, INC.
By: /s/ PAUL FARMER
------------------------------------
Title: Chief Financial Officer
/s/ LUC DE GROOF
------------------------------------
Luc De Groff
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<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 59909) of our reports dated January 29, 1999 and June 8, 1998, on our
audits of the financial statements and financial statement schedules of Conley,
Canitano & Associates, Inc. and Kelly-Levey & Associates, Inc., respectively.
We also consent to the references to the firm under the captions "Experts" and
"Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
January 29, 1999
<PAGE> 1
[Langford de Kock & Co. Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-59909) of our reports dated January 11, 1999, on our audits of the
financial statements and financial statement schedules of Bureau Van Dijk
Computer Services, Inc. We also consent to the references to the firm under the
captions "Experts" and "Selected Financial Data."
/s/ Langford de Kock & Co.
Langford de Kock & Co.
January 29, 1999
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
MEMBER OF THE SEC PRACTICE SECTION
1100 South Tower, 225 Peachtree Street, N.F.., Atlanta, Georgia 30303
Telephone 404/525-2600 Fax 404/557-4947
