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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
REGISTRATION NO. 333-59909
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5
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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<S> <C> <C>
OHIO 34-1375019 7373
(State or Other Jurisdiction of (I.R.S. Employer (Primary Standard Industrial
Incorporation or Organization) Identification Number) Classification Code Number)
</TABLE>
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 MARCH 1, 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.
<TABLE>
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) 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 December 31, 1998 issued in connection with the
KLA acquisition (the "KLA Options"); (ii) 195,266 shares of Common Stock
subject to outstanding warrants as of December 31, 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
</TABLE>
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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 -- Growth 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 the ability of its competitors to
recruit, motivate and retain project managers and other senior professionals,
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<PAGE> 13
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. Furthermore,
Congress and administrative agencies with jurisdiction over immigration matters
have periodically
11
<PAGE> 14
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.
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
12
<PAGE> 15
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 implemented a 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 shares of Common Stock. See
"Description of Capital Stock -- Certain Articles of Incorporation and Code of
Regulations Provisions and Ohio Law; Anti-Takeover Effects."
13
<PAGE> 16
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, 360,600 shares are subject to outstanding
options as of December 31, 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."
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
14
<PAGE> 17
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.
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<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.
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<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 1998
(UNAUDITED)
(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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------------------------
KLA BVD BVD
THREE MONTHS NINE MONTHS THREE 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>
20
<PAGE> 23
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
$0.6 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.
(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.
21
<PAGE> 24
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.
22
<PAGE> 25
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
23
<PAGE> 26
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
24
<PAGE> 27
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.
25
<PAGE> 28
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 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.
26
<PAGE> 29
<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>
27
<PAGE> 30
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> 31
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
29
<PAGE> 32
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 implemented a 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.
30
<PAGE> 33
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
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<PAGE> 34
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
32
<PAGE> 35
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> 36
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 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 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> 37
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>
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.
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<PAGE> 38
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.
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> 39
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> 40
$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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<PAGE> 41
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> 42
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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<PAGE> 43
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> 44
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"):
43
<PAGE> 46
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
44
<PAGE> 47
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.
45
<PAGE> 48
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 Investors LLC (f.k.a. 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.
46
<PAGE> 49
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."
47
<PAGE> 50
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 T. Schiciano (8)............... 10,560 * -- 10,560 *
TA Associates, Inc. (9)................ 3,743,890 38.9 951,991 2,791,607 20.5
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
McDonald Investments Inc.(10).......... 110,110 1.1 27,999 82,103 *
Other Selling Shareholders as a group
(7 persons)(11)...................... -- -- 20,010 -- --
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. Nicholas A. Canitano also has beneficial ownership of
939,000 shares of Common Stock held in trust for which he is trustee and
has sole power of voting and 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. Kenneth L. Conley has beneficial
ownership of 872,750 shares of Common Stock held in trust for which he is
trustee and has sole power of voting and disposition. 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. Karen M. Conley has beneficial
ownership of 972,750 shares of
48
<PAGE> 51
Common Stock held in trust for which she is trustee and has sole power of
voting and disposition. 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. Annette M. Canitano has beneficial ownership of 949,000 shares
of Common Stock for which she is trustee and has sole power of voting and
disposition. Except as noted, the shares shown do not include shares owned
by Nicholas A. Canitano.
(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 Investments L.L.C., 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 (i) 3,100,070 shares owned by TA/Advent VIII L.P., (ii) 581,840
shares owned by Advent Atlantic and Pacific III L.P. and (iii) 61,980
shares owned by TA Investors LLC. The foregoing partnerships and limited
liability company are part of an affiliated group of investment
partnerships and other entities referred to, collectively, as the TA
Investors. The general partner of TA/Advent VIII L.P. is TA Associates VIII
LLC. The general partner of Advent Atlantic and Pacific III L.P. is TA
Associates AAP III Partners L.P. The manager of each of TA Associates VIII
LLC and TA Investors LLC is TA Associates, Inc. TA Associates, Inc. is also
the general partner of TA Associates AAP III Partners L.P. In such
capacity, TA Associates, Inc. exercises sole voting and investment power
with respect to all the shares of Common Stock held of record by the named
partnerships or limited liability companies; individually no stockholder,
director or officer of TA Associates, Inc. is deemed to have or share such
voting or investment power.
(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
49
<PAGE> 52
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 -- Certain Articles of
Incorporation and Code of Regulations Provisions and Ohio Law; Anti-Takeover
Effects."
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
50
<PAGE> 53
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 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
51
<PAGE> 54
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.
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
52
<PAGE> 55
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.
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.
53
<PAGE> 56
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
54
<PAGE> 57
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.
55
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 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,
56
<PAGE> 59
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
57
<PAGE> 60
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.
58
<PAGE> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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, 1999.
F-24
<PAGE> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
[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> 96
- ------------------------------------------------------------
- ------------------------------------------------------------
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.............................. 23
Business.................................. 31
Management................................ 41
Certain Transactions...................... 46
Principal and Selling Shareholders........ 48
Description of Capital Stock.............. 49
Shares Eligible for Future Sale........... 54
Underwriting.............................. 56
Legal Matters............................. 57
Experts................................... 57
Additional Information.................... 58
Index to 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.
, 1999
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 97
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, a
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, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, 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, a 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
<PAGE> 98
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 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.
<PAGE> 99
(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
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, member, manager 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, 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 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 entity, 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, a 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
<PAGE> 100
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>
<PAGE> 101
<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>
<PAGE> 102
<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.
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.
</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.
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 5 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 March 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. 5 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 March 1, 1999
- --------------------------------------------- Director
Kenneth L. Conley
/s/ PAUL A. FARMER Chief Financial Officer and Vice March 1, 1999
- --------------------------------------------- President (Principal Accounting and
Paul A. Farmer Financial Officer)
* Executive Vice President, Treasurer and March 1, 1999
- --------------------------------------------- Director
Karen M. Conley
* Executive Vice President, Secretary and March 1, 1999
- --------------------------------------------- Director
Annette M. Canitano
* Chief Executive Officer, Chairman of the March 1, 1999
- --------------------------------------------- Board and Director (Principal Executive
Nicholas A. Canitano Officer)
* Director March 1, 1999
- ---------------------------------------------
Kenneth T. Schiciano
* Director March 1, 1999
- ---------------------------------------------
A. Bruce Johnston
* Director March 1, 1999
- ---------------------------------------------
Ivan J. Winfield
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Amendment No. 5 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
<PAGE> 104
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> 105
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.
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.
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
Exhibit 1
__________ Shares(1)
CONLEY, CANITANO & ASSOCIATES, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
February ___, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS INC.
MCDONALD INVESTMENTS INC.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Conley, Canitano & Associates, Inc., an Ohio corporation (the
"COMPANY"), proposes to issue and sell to the several underwriters named in
Schedule I hereto (the "UNDERWRITERS"), and certain shareholders of the Company
named in Schedule II hereto (the "SELLING SHAREHOLDERS") severally and not
jointly propose to sell to the several Underwriters, an aggregate of
_______________ shares of the common stock, no par value, of the Company (the
"FIRM SHARES"), of which _____________ shares are to be issued and sold by the
Company and _____________ shares are to be sold by the Selling Shareholders,
each Selling Shareholders selling the amount set forth opposite such Selling
Shareholder's name in Schedule II hereto. The Company and the Selling
Shareholders set forth on Schedule III hereto (the "PARTICIPATING SELLING
Shareholders") also propose to sell to the several Underwriters not more than an
additional _______ shares of the Company's common stock, no par value, (the
"ADDITIONAL SHARES") if requested by the Underwriters as provided in Section 2
hereof. The Firm Shares and the Additional Shares are hereinafter referred to
collectively as the "SHARES". The shares of common stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "COMMON STOCK". The Company, the Selling Shareholders and the
Participating Selling Shareholders are hereinafter sometimes referred to
collectively as the "SELLERS."
- ---------------
(1)Insert number of shares to be sold (not including green shoe).
<PAGE> 2
SECTION 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "REGISTRATION STATEMENT";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "PROSPECTUS". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"RULE 462(b) REGISTRATION STATEMENT"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
SECTION 2. Agreements to Sell and Purchase and Lock-Up Agreements. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
______________ Firm Shares, (ii) each Selling Shareholder agrees, severally and
not jointly, to sell the number of Firm Shares set forth opposite such Selling
Shareholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$______ (the "PURCHASE PRICE") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by the Company and
the Selling Shareholders, respectively, as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedules I hereto bears to the total
number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and each
Participating Selling Shareholder agrees, severally and not jointly, to sell,
and the Underwriters shall have the right to purchase, severally and not
jointly, up to __________ Additional Shares from the Company and the
Participating Selling Shareholders at the Purchase Price. Of the total number of
Additional Shares to be purchased by the Underwriters, eighty percent (80%), of
the total number of such Additional Shares are to be purchased from the
Participating Selling Shareholders, on a pro rata basis, and 20% of the total
number of such Additional Shares are to be purchased from the Company.
Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. In the
event that any Participating Selling Shareholder fails to sell the Additional
Shares to the Underwriters as herein set forth, then the Company hereby agrees
to sell such Additional Shares to the Underwriters. The Underwriters may
exercise their right to purchase Additional Shares in whole or in part from
time to time by giving written notice thereof to the Company, the Attorneys and
the Custodian (as
2
<PAGE> 3
defined in Section 7(c) below) within 30 days after the date of this Agreement.
You shall give any such notice on behalf of the Underwriters and such notice
shall specify the aggregate number of Additional Shares to be purchased pursuant
to such exercise and the date for payment and delivery thereof, which date shall
be a business day (i) no earlier than two business days after such notice has
been given (and, in any event, no earlier than the Closing Date (as hereinafter
defined)) and (ii) no later than ten business days after such notice has been
given. If any Additional Shares are to be purchased, each Underwriter, severally
and not jointly, agrees to purchase from the Company and the Participating
Selling Shareholders, respectively, the number of Additional Shares (subject to
such adjustments to eliminate fractional shares as you may determine) which
bears the same proportion to the total number of Additional Shares to be
purchased as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Shares.
Each Seller hereby agrees 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 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), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan, (ii) the Company may issue
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and (iii) the Company
may issue shares of Common Stock to securities holders of companies acquired in
exchange for securities of such companies, provided that such securities holders
agree to the foregoing restrictions. The Company also agrees not to file any
registration statement under the Act with respect to any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock for a period of 180 days after the date of the Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation,
other than S-8 registration statements with respect to executive or director
compensation plans. In addition, each Selling Shareholder and Participating
Selling Shareholder agrees that, for a period of 180 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, it will not 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. The
Company shall, prior to or concurrently with the execution of this Agreement,
deliver an agreement executed by (i) each Selling Shareholder and Participating
Selling Shareholder, (ii) each of the directors and officers of the Company who
is not a Selling Shareholder and (iii) each
3
<PAGE> 4
stockholder listed on Annex I hereto to the effect that such person will not,
during the period commencing on the date such person signs such agreement and
ending 180 days after the date of the Prospectus, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, (A) engage in
any of the transactions described in the first sentence of this paragraph or (B)
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.
SECTION 3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers, with any transfer
taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin &
Jenrette Securities Corporation through the facilities of The Depository Trust
Company ("DTC"), for the respective accounts of the several Underwriters,
against payment to the Sellers of the Purchase Price therefore by wire transfer
of Federal or other funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date (as defined below), as the
case may be, at the office of DTC or its designated custodian (the "DESIGNATED
OFFICE"). The time and date of delivery and payment for the Firm Shares shall be
9:00 A.M., New York City time, on February ___, 1999 or such other time on the
same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation
and the Company shall agree in writing. The time and date of delivery and
payment for the Firm Shares are hereinafter referred to as the "CLOSING DATE".
The time and date of delivery and payment for any Additional Shares to be
purchased by the Underwriters shall be 9:00 A.M., New York City time, on the
date specified in the applicable exercise notice given by you pursuant to
Section 2 or such other time on the same or such other date as Donaldson, Lufkin
& Jenrette Securities Corporation and the Company shall agree in writing. The
time and date of delivery and payment for any Additional Shares are hereinafter
referred to as the "OPTION CLOSING DATE".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Brobeck, Phleger & Harrison LLP, 1633
Broadway, New York, New York 10019 and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
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SECTION 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you five (5) signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits, and to furnish to you and each Underwriter designated by
you such number of conformed copies of the Registration Statement as so filed
and of each amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall
be satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
or to which you shall reasonably object after being so advised; and, during such
period, to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or amendment or supplement
to the Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) To furnish as soon as practicable, on the first business day after
the date of this Agreement and from time to time thereafter for such period as
in the opinion of counsel for the Underwriters a prospectus is required by law
to be delivered in connection with sales by an Underwriter or a dealer, to
furnish in New York City to each Underwriter and any dealer as many copies of
the Prospectus (and of any amendment or supplement to the Prospectus) as such
Underwriter or dealer may reasonably request.
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<PAGE> 6
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the reasonable opinion
of counsel for the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriters, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to prepare
and file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with applicable
law, and to furnish to each Underwriter and to any dealer as many copies thereof
as such Underwriter or dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may reasonably request, to continue such registration or qualification in
effect so long as required for distribution of the Shares and to file such
consents to service of process or other documents as may be necessary in order
to effect such registration or qualification; provided, however, that the
Company shall not be required in connection therewith to qualify as a foreign
corporation in any jurisdiction in which it is not now so qualified or to take
any action that would subject it to general consent to service of process or
taxation other than as to matters and transactions relating to the Prospectus,
the Registration Statement, any preliminary prospectus or the offering or sale
of the Shares, in any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its shareholders as soon
as practicable an earnings statement covering the twelve-month period ending
September 30, 1999 that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
(h) During the period of three (3) years after the date of this
Agreement, to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including without limitation: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and, to the extent
obligated to do so under existing agreements, any counsel to the Selling
Shareholders and
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Participating Selling Shareholders (in addition to the Company's counsel), in
connection with the registration and delivery of the Shares under the Act and
all other fees and expenses in connection with the preparation, printing, filing
and distribution of the Registration Statement (including financial statements
and exhibits), any preliminary prospectus, the Prospectus and all amendments and
supplements to any of the foregoing, including the mailing and delivering of
copies thereof to the Underwriters and dealers in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Shares to the Underwriters, including any transfer or other taxes payable
thereon, (iii) all costs of printing or producing this Agreement and any other
agreements or documents in connection with the offering, purchase, sale or
delivery of the Shares, (iv) all reasonable expenses, if any, in connection with
the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel, if
any, for the Underwriters in connection with such registration or qualification
and memoranda relating thereto), (v) the filing fees and disbursements of
counsel for the Underwriters in connection with the review and clearance of the
offering of the Shares by the National Association of Securities Dealers, Inc.,
(vi) all fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to designating the Shares for quotation on the Nasdaq
National Market, (vii) the cost of printing certificates representing the
Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, and (ix) all other costs and expenses incident to the performance of
the obligations of the Company hereunder. The Selling Shareholders and the
Participating Selling Shareholders shall bear all costs and expenses incident to
the performance of their obligations hereunder for which provision is not
otherwise made in this Section, except to the extent the Company is obligated to
pay such costs and expenses under any existing shareholder agreement. The
provisions of this Section shall not supersede or otherwise affect any agreement
that the Company and the Selling Shareholders and the Participating Selling
Shareholders may otherwise have for allocation of costs and expenses among
themselves.
(j) To use its best efforts to designate for quotation the Shares on
the Nasdaq National Market and to maintain the designation for quotation of the
Shares on the Nasdaq National Market for a period of three years after the date
of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in
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<PAGE> 8
compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement filed
after the effectiveness of this Agreement will become effective no later than
10:00 P.M., New York City time, on the date of this Agreement; and no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this
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paragraph do not apply to statements or omissions in any preliminary prospectus
based upon information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Shareholders and the
Participating Selling Shareholders) have been duly authorized and validly issued
and are fully paid, non-assessable and not subject to any preemptive or similar
rights; and the Shares to be issued and sold by the Company have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms, in all
material requests, as to legal matters to the description thereof contained in
the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound, except for such violations
or defaults which, singly or in the aggregate, would not have a material adverse
effect on the
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business, operating results or financial condition of the Company and its
subsidiaries, taken as whole.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as have been obtained under
the Act and the Securities Exchange Act of 1934 (the "Exchange Act") and as may
be required under the securities or Blue Sky laws of the various states), (ii)
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Company or any of its subsidiaries
or any indenture, loan agreement, mortgage, lease or other agreement or
instrument, to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective property is
bound, except for such breaches or defaults which, singly or in the aggregate,
would not have a material adverse effect on the business, operating results or
financial condition of the Company and its subsidiaries, taken as a whole, (iii)
violate or conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their respective
property or (iv) result in the suspension, termination or revocation of any
Authorization (as defined below) of the Company or any of its subsidiaries or
any other impairment of the rights of the holder of any such Authorization,
except for such suspensions, terminations or revocations which, singly or in the
aggregate, would not have material adverse effect on the business, operating
results or financial condition of the Company and its subsidiaries, taken as a
whole.
(k) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or to which any of their
respective property is subject, nor are any such proceedings threatened that are
required to be described in the Registration Statement or the Prospectus and are
not so described; nor are there any statutes, regulations, contracts or other
documents that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
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(m) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; except where such failure to be valid and in full force and
effect or to be in compliance, the occurrence of any such event or the presence
of any such restriction would not, singly or in the aggregate, have a material
adverse effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(o) This Agreement has been duly authorized, executed and delivered by
the Company.
(p) Each of Pricewaterhouse Coopers LLP and Langdorf de Kock & Co. are
independent public accountants with respect to the Company and its subsidiaries
as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as
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disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(r) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(s) Except as otherwise disclosed in the Registration Statement, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(v) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(w) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, taken as a whole, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
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Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries, taken as a whole, in each case except as described
in the Prospectus.
(x) The Company and its subsidiaries own, or possess valid and
enforceable licenses to all patents, patent rights, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("INTELLECTUAL PROPERTY") currently employed by
the Company and its subsidiaries in connection with the business now operated by
them , except where the failure to own or possess such Intellectual Property
would not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operation of the Company
and its subsidiaries, taken as a whole. Neither the Company, nor its
subsidiaries, has received any notice, nor are they aware of facts which would
form a reasonable basis for any such claim, that: (i) challenges the Company's
or its subsidiaries' rights in or to any Intellectual Property; (ii) challenges
the validity or scope of any Intellectual Property; (iii) any third party has or
will be able to establish any rights in the Intellectual Property, except for
the ownership rights of the owners of the Intellectual Property which is
licensed to the Company or the rights of parties to whom the Company has granted
licenses of such Intellectual Property; (iv) the Intellectual Property infringes
or otherwise violates any patent, copyright, trade secret, trademark or other
proprietary right of any third party; or (v) there is infringement of the
Intellectual Property by any third party, which, in the case of any such claim
specified in clauses (i), (ii), (iii), (iv) or (v) above, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the business, prospects, financial condition
or results of operations of the Company and its subsidiaries, taken as a whole.
(y) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at a cost that would not
have a material adverse effect on the business, prospects, financial conditions
or results of operations of the Company and its subsidiaries, taken as a whole.
(z) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
shareholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
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(aa) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or, to the Company's best knowledge,
threatened against the Company or any of its subsidiaries before the National
Labor Relations Board or any state or local labor relations board, (ii) strike,
labor dispute, slowdown or stoppage pending or, to the Company's best knowledge,
threatened against the Company or any of its subsidiaries or (iii) union
representation question existing with respect to the employees of the Company
and its subsidiaries, except for such actions specified in clause (i), (ii) or
(iii) above, which, singly or in the aggregate, would not have a material
adverse effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole. To the best of
the Company's knowledge, no collective bargaining organizing activities are
taking place with respect to the Company or any of its subsidiaries.
(bb) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(cc) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
SECTION 7. Representations and Warranties of the Selling Shareholders
and the Participating Selling Shareholders. Each Selling Shareholder and
Participating Selling Shareholder, severally and not jointly, represents and
warrants to each Underwriter that:
(a) Such shareholder is the lawful owner of the Shares to be sold by
such shareholder pursuant to this Agreement and has, and on the Closing Date
will have, good and valid title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever.
(b) The Shares to be sold by such shareholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(c) Such shareholder has, and on the Closing Date will have, full
legal right, power and authority, and all authorization and approval required by
law, to
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enter into this Agreement, the Custody Agreement signed by such shareholder and
____________________, as Custodian, relating to the deposit of the Shares to be
sold by such shareholder (the "CUSTODY AGREEMENT") and the Power of Attorney of
such shareholder appointing certain individuals as such shareholder's
attorneys-in-fact (the "ATTORNEYS") to the extent set forth therein, relating
to the transactions contemplated hereby and by the Registration Statement and
the Custody Agreement (the "POWER OF ATTORNEY") and to sell, assign, transfer
and deliver the Shares to be sold by such shareholder in the manner provided
herein and therein.
(d) This Agreement has been duly authorized, executed and delivered by
or on behalf of such shareholder.
(e) The Custody Agreement of such shareholder has been duly
authorized, executed and delivered by such shareholder and is a valid and
binding agreement of such shareholder, enforceable in accordance with its terms.
(f) The Power of Attorney of such shareholder has been duly
authorized, executed and delivered by such shareholder and is a valid and
binding instrument of such shareholder, enforceable in accordance with its
terms, and, pursuant to such Power of Attorney, such shareholder has, among
other things, authorized the Attorneys, or any one of them, to execute and
deliver on such shareholder's behalf this Agreement and any other document that
they, or any one of them, may deem necessary or desirable in connection with the
transactions contemplated hereby and thereby and to deliver the Shares to be
sold by such shareholder pursuant to this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such
shareholder pursuant to this Agreement, good and valid title to such Shares will
pass to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever.
(h) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such shareholder by or on behalf of
such shareholder, the compliance by such shareholder with all the provisions
hereof and thereof and the consummation of the transactions contemplated hereby
and thereby will not (i) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or agency
(except such as may be required under the securities or Blue Sky laws of the
various states), (ii) conflict with or constitute a breach of any of the terms
or provisions of, or a default under, the organizational documents of such
shareholder, if such shareholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
shareholder is a party or by which such shareholder or any property of such
shareholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such shareholder or any property of such
shareholder.
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<PAGE> 16
(i) The information in the Registration Statement under the caption
"Principal and Selling Shareholders" which specifically relates to such
shareholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(j) At any time during the period described in Section 5(d), if there
is any change in the information referred to in Section 7(i), such shareholder
will immediately notify you of such change.
(k) Each certificate signed by or on behalf of such shareholder and
delivered to the Underwriters or counsel for the Underwriters shall be deemed to
be a representation and warranty by such shareholder to the Underwriters as to
the matters covered thereby.
SECTION 8. Indemnification. (a) The Sellers, severally and not jointly,
agree to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus (as then
amended or supplemented, provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages
and liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in such Prospectus and such Prospectus was required by law to
be delivered at or prior to the written confirmation of sale to such person;
provided, further, however, that each Selling Shareholder and Participating
Selling Shareholder shall only be liable to the extent, and only to the extent,
that such untrue statement or alleged untrue
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<PAGE> 17
statement or omission or alleged omission was made in the Registration Statement
(or any amendment thereto), the prospectus (or any amendment or supplement
thereto) or any preliminary prospectus in reliance upon and in conformity with
written information furnished to the Company by such Selling Shareholder or
Participating Selling Shareholder, as the case may be, expressly for use
therein. Notwithstanding the foregoing, the aggregate liability of any Selling
Shareholder and Participating Selling Shareholder pursuant to this Section 8(a)
shall be limited to an amount equal to the total proceeds (before deducting
underwriting discounts and commissions and expenses) received by such Selling
Shareholder or Participating Selling Shareholder, as the case may be, from the
Underwriters for the sale of the Shares sold by such Selling Shareholder or
Participating Selling Shareholder, as the case may be, hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Shareholder and Participating Selling Shareholder and each person, if any, who
controls such Selling Shareholder or Participating Selling Shareholder, as the
case may be, within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Sellers to
such Underwriter but only with reference to information relating to such
Underwriter furnished in writing to the Company by such Underwriter through you
expressly for use in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional
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<PAGE> 18
to those available to the indemnifying party (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for (i) the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all Underwriters, their
officers and directors and all persons, if any, who control any Underwriter
within the meaning of either Section 15 of the Act or Section 20 of the Exchange
Act, (ii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Company, its directors, its officers who
sign the Registration Statement and all persons, if any, who control the Company
within the meaning of either such Section and (iii) the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all Selling Shareholders and Participating Selling Shareholders and all persons,
if any, who control any Selling Shareholder or Participating Selling
Shareholder, as the case may be, within the meaning of either such Section, and
all such fees and expenses shall be reimbursed as they are incurred. In the case
of any such separate firm for the Underwriters, their officers and directors and
such control persons of any Underwriters, such firm shall be designated in
writing by Donaldson, Lufkin & Jenrette Securities Corporation. In the case of
any such separate firm for the Company and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the Company.
In the case of any such separate firm for the Selling Shareholders or
Participating Selling Shareholders, as the case may be, and such control persons
of any Selling Shareholder or Participating Selling Shareholder, such firm shall
be designated in writing by the Attorneys. The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
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<PAGE> 19
(d) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 8(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Sellers on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Sellers, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Sellers on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Selling Shareholders or the Participating Selling Shareholders on the one hand
or the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to
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<PAGE> 20
contribute pursuant to this Section 8(d) are several in proportion to the
respective number of Shares purchased by each of the Underwriters hereunder and
not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) Each Selling Shareholder and Participating Selling Shareholder
hereby designates Conley, Canitano & Associates, Inc., CCAi Renaissance Centre,
5800 Landerbrook Drive, Mayfield Heights, OH 44224, as its authorized agent,
upon which process may be served in any action which may be instituted in any
state or federal court in the State of New York by any Underwriter, any director
or officer of any Underwriter or any person controlling any Underwriter
asserting a claim for indemnification or contribution under or pursuant to this
Section 8, and each Selling Shareholder and Participating Selling Shareholder
will accept the jurisdiction of such court in such action, and waives, to the
fullest extent permitted by applicable law, any defense based upon lack of
personal jurisdiction or venue. A copy of any such process shall be sent or
given to such Selling Shareholder or Participating Selling Shareholder, at the
address for notices specified in Section 12 hereof.
SECTION 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or known to be contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Nicholas Canitano and Kenneth Conley, in their
capacities as the Chairman and Chief Executive Officer and the President and
Chief Operating Officer Company, confirming the matters set forth in Sections
6(t), 9(a) and 9(b) and that the Company has complied with all of the agreements
and satisfied all of the conditions herein contained and required to be complied
with or satisfied by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall
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<PAGE> 21
not have occurred any change or any development involving a prospective change
in the condition, financial or otherwise, or the earnings, business, management
or operations of the Company and its subsidiaries, taken as a whole, (ii) there
shall not have been any change or any development involving a prospective change
in the capital stock or in the long-term debt of the Company or any of its
subsidiaries and (iii) neither the Company nor any of its subsidiaries shall
have incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 9(d)(i), 9(d)(ii) or 9(d)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.
(e) All the representations and warranties of each Selling Shareholder
and the Participating Selling Shareholder contained in this Agreement shall be
true and correct on the Closing Date with the same force and effect as if made
on and as of the Closing Date and you shall have received on the Closing Date a
certificate dated the Closing Date from each Selling Shareholder and the
Participating Selling Shareholder to such effect and to the effect that such
Selling Shareholder and the Participating Selling Shareholder has complied with
all of the agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by such Selling Shareholder and the
Participating Selling Shareholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Jones, Day, Reavis & Pogue counsel for the Company, to the effect that:
(i) the Company is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority to own or lease its properties and to
conduct its business as described in the Prospectus;
(ii) the Company is duly qualified and is in good standing as a
foreign corporation authorized to do business in each of the states of
__________, __________ and __________;
(iii) all the issued and outstanding shares of capital stock of
the Company (including the Shares to be sold by the Selling
Shareholders and the Participating Selling Shareholders) have been duly
authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder
have been duly authorized and, when issued and delivered to the
Underwriters against payment of the consideration therefor as provided
by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights;
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<PAGE> 22
(v) all of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
directly or indirectly through one or more subsidiaries, free and clear
of any security interest, claim, lien, encumbrance or adverse interest
of any nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding obligation of the
Company;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge and after due inquiry,
no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, pending before or threatened by the
Commission;
(ix) the statements under the captions "Risk Factors -
Government Regulation of Immigration", "Risk Factors - Certain
Anti-Takeover Effects", "Risk Factors Shares Eligible for Future Sale;
Registration Rights Agreement", "Management-Employee Benefit Plans",
"Certain Transactions", "Description of Capital Stock", "Shares
Eligible for Future Sale" and "Underwriting" in the Prospectus and
Items 14 and 15 of Part II of the Registration Statement, insofar as
such statements purport to summarize the legal matters, documents or
proceedings referred to therein, fairly present the information called
for with respect to such legal matters, documents and proceedings;
(x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of such
counsel's knowledge after due inquiry, neither the Company nor any of
its subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement.
(xi) neither the execution and delivery of this Agreement by
the Company, nor the compliance by the Company with all the provisions
hereof and the performance of the transactions herein contemplated will
(A) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the Company's Second Amended and
Restated Articles of Incorporation or Amended and Restated Code of
Regulations or the charter or by-laws of any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or
instrument that is required to be described in the Registration
Statement or the Prospectus or
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<PAGE> 23
to be filed as an exhibit to the Registration Statement or (B) result
in a violation of or conflict with any statute or regulation or, to
such counsel's knowledge after due inquiry, any judgment, order or
decree of any U.S. court or governmental authority binding upon the
Company or its subsidiaries or their respective property.
(xii) no consent, approval, authorization or order of any
governmental agency or body is required for the issuance or sale by the
Company of the Shares except such as have been obtained under the Act
and such as may be required under foreign or state securities or Blue
Sky laws in connection with the purchase and distribution of the Shares
as contemplated hereunder;
(xiii) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is or could be a party or to which any of
their respective property is or could be subject that are required to
be described in the Registration Statement or the Prospectus and are
not so described, or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required;
(xiv) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" or a company "controlled" by an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
(xv) to the best of such counsel's knowledge after due inquiry,
except as disclosed in the Registration Statement, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with
the Shares registered pursuant to the Registration Statement; and
(xvi) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements,
financial schedules and other financial data included therein and the
information referred to under the caption "Experts" as having been
included therein on the authority of the experts named therein, as to
which no opinion need be expressed) comply as to form with the Act.
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<PAGE> 24
In addition, such counsel shall state that (A) such counsel has no
reason to believe that at the time the Registration Statement became effective
or on the date of this Agreement, the Registration Statement and the prospectus
included therein (except for the financial statements, financial data and other
financial data and the information referred to under the caption "Experts" as
having been included therein on the authority of the experts named therein, as
to which such counsel need not express any belief) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading and (B) such counsel has no reason to believe that the Prospectus, as
amended or supplemented, if applicable (except for the financial statements and
other financial data, as aforesaid) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
The opinion of Jones, Day, Reavis & Pogue, described in Section 9(f)
above shall be rendered to you at the request of the Company and shall state so
therein.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of (i) Goodwin, Proctor & Hoar, LLP, (ii) Calfee, Halter & Griswold LLP and
(iii) Keating, Muethiny & Klekamp, P.L.L., counsel for the Selling Shareholders
identified on Schedule II hereto to the effect that:
(i) each such Selling Shareholder is the lawful owner of the
Shares to be sold by such Selling Shareholder pursuant to this
Agreement and has good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever;
(ii) each such Selling Shareholder has full legal right, power
and authority, and all authorization and approval required by law, to
enter into this Agreement and the Custody Agreement and the Power of
Attorney of such Selling Shareholder and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Shareholder in the manner
provided herein and therein;
(iii) this Agreement has been duly authorized, executed and
delivered by or on behalf of each such Selling Shareholder; the Custody
Agreement of each such Selling Shareholder has been duly authorized,
executed and delivered by such Selling Shareholder; and each such
agreement is a valid and binding agreement of such Selling Shareholder,
enforceable in accordance with its terms;
(iv) the Power of Attorney of each such Selling Shareholder has
been duly authorized, executed and delivered by such Selling
Shareholder and is a valid and binding instrument of such Selling
Shareholder, enforceable in accordance with its terms, and, pursuant to
such Power of
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<PAGE> 25
Attorney, such Selling Shareholder has, among other things, authorized
the Attorneys, or any one of them, to execute and deliver on such
Selling Shareholder's behalf this Agreement and any other document
they, or any one of them, may deem necessary or desirable in connection
with the transactions contemplated hereby and thereby and to deliver
the Shares to be sold by such Selling Shareholder pursuant to this
Agreement;
(v) upon delivery of and payment for the Shares to be sold by
each Selling Shareholder pursuant to this Agreement, good and clear
title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever; and
(vi) the execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney of each Selling
Shareholder by such Selling Shareholder, the compliance by such Selling
Shareholder with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will
not (A) require any consent, approval, authorization or other order of,
or qualification with, any court or governmental body or agency (except
such as may be required under the securities or Blue Sky laws of the
various states), (B) conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the organizational
documents of such Selling Shareholder, if such Selling Shareholder is
not an individual, or any indenture, loan agreement, mortgage, lease or
other agreement or instrument to which such Selling Shareholder is a
party or by which any property of such Selling Shareholder is bound or
(C) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Shareholder or any
property of such Selling Shareholder.
The opinions described in Section 9(g) above shall be rendered to you
at the request of the Selling Shareholders and shall so state therein.
(h) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Goodwin, Proctor & Hoar, LLP and Calfee, Halter & Griswold LLP, counsel for
the Participating Selling Shareholders identified on Schedule III hereto, to
the effect that:
(i) each such Participating Selling Shareholder is the lawful
owner of the Shares to be sold by such Participating Selling
Shareholder pursuant to this Agreement and has good and clear title to
such Shares, free of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever;
(ii) each such Participating Selling Shareholder has full legal
right, power and authority, and all authorization and approval required
by
25
<PAGE> 26
law, to enter into this Agreement and the Custody Agreement and the
Power of Attorney of such Participating Selling Shareholder and to
sell, assign, transfer and deliver the Shares to be sold by such
Participating Selling Shareholder in the manner provided herein and
therein;
(iii) this Agreement has been duly authorized, executed and
delivered by or on behalf of each such Participating Selling
Shareholder; the Custody Agreement of each such Participating Selling
Shareholder has been duly authorized, executed and delivered by such
Participating Selling Shareholder; and each such agreement is a valid
and binding agreement of such Participating Selling Shareholder,
enforceable in accordance with its terms;
(iv) the Power of Attorney of each such Participating Selling
Shareholder has been duly authorized, executed and delivered by such
Participating Selling Shareholder and is a valid and binding instrument
of such Participating Selling Shareholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such
Participating Selling Shareholder has, among other things, authorized
the Attorneys, or any one of them, to execute and deliver on such
Participating Selling Shareholder's behalf this Agreement and any other
document they, or any one of them, may deem necessary or desirable in
connection with the transactions contemplated hereby and thereby and to
deliver the Shares to be sold by such Participating Selling Shareholder
pursuant to this Agreement;
(v) upon delivery of and payment for the Shares to be sold by
each Participating Selling Shareholder pursuant to this Agreement, good
and clear title to such Shares will pass to the Underwriters, free of
all restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever; and
(vi) the execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney of each Participating
Selling Shareholder by such Participating Selling Shareholder, the
compliance by such Participating Selling Shareholder with all the
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (A) require any consent,
approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B)
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the organizational documents of such
Participating Selling Shareholder, if such Participating Selling
Shareholder is not an individual, or any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which such
Participating Selling Shareholder is a party or by which any property
of such Participating Selling Shareholder is bound or (C) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or
26
<PAGE> 27
agency having jurisdiction over such Participating Selling Shareholder
or any property of such Participating Selling Shareholder.
The opinions described in Section 9(h) above shall be rendered to you
at the request of the Participating Selling Shareholders and shall so state
therein.
(i) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
as to the matters referred to in Sections 9(f)(iv), 9(f)(vi), 9(f)(ix) (but only
with respect to the statements under the caption "Description of Capital Stock"
and "Underwriting") and the paragraph immediately subsequent to Section
9(f)(xvi).
In giving such opinions with respect to the matters covered by the
paragraph immediately subsequent to Section 9(f)(xvi), Jones, Day, Reavis &
Pogue and Brobeck, Phleger & Harrison LLP may rely as to matters of fact on
officers' certificates and representations of the Company and may state that
their opinion and belief are based upon their participation in the preparation
of the Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(j) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from Pricewaterhouse Coopers
LLP and Langford de Kock & Co., independent public accountants, containing the
information and statements of the type ordinarily included in accountants'
"comfort letters" to Underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
(k) The Company shall have delivered to you the agreements specified
in Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(l) The Shares shall have been duly designated for quotation on the
Nasdaq National Market.
(m) The Company, the Selling Shareholders and the Participating
Selling Shareholder shall not have failed on or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company, the Selling Shareholders or the
Participating Selling Shareholders, as the case may be, on or prior to the
Closing Date.
(n) You shall have received on the Closing Date, a certificate of
each Selling Shareholder and each Participating Selling Shareholder, as the case
may be, who is not a U.S. Person (as defined under applicable U.S. federal tax
legislation) to the effect that such Selling Shareholder or Participating
Selling Shareholder is not a U.S. Person, which certificate may be in the form
of a
27
<PAGE> 28
properly completed and executed United States Treasury Department Form W-8 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your reasonable
judgment, is material and adverse and, in your reasonable judgment, makes it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (ii) the suspension or material limitation of trading in
securities or other instruments on the New York Stock Exchange, the American
Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation
on prices for securities or other instruments on any such exchange or the Nasdaq
National Market, (iii) the suspension of trading of any securities of the
Company on any exchange or in the over-the-counter market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your opinion materially and adversely affects, or will materially and adversely
affect, the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole, (v) the declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in your opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each
non-defaulting Underwriter shall be obligated severally, in the proportion which
the number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares
28
<PAGE> 29
which all the non-defaulting Underwriters have agreed to purchase, or in such
other proportion as you may specify, to purchase the Firm Shares or Additional
Shares, as the case may be, which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date; provided that in no event
shall the number of Firm Shares or Additional Shares, as the case may be, which
any Underwriter has agreed to purchase pursuant to Section 2 hereof be increased
pursuant to this Section 10 by an amount in excess of one-ninth of such number
of Firm Shares or Additional Shares, as the case may be, without the written
consent of such Underwriter. If on the Closing Date any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased by all
Underwriters and arrangements satisfactory to you, the Company and the Selling
Shareholders for purchase of such Firm Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders. In any such
case which does not result in termination of this Agreement, either you or the
Sellers shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. If, on an Option Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
SECTION 11. Agreements of the Selling Shareholders and Participating
Selling Shareholders. Each Selling Shareholder and Participating Selling
Shareholder, as the case may be, agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Shareholder and Participating Selling Shareholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Shareholder and Participating Selling Shareholder, as the case may be,
under this Agreement prior to the Closing Date and to satisfy all conditions
precedent to the delivery of the Shares to be sold by such Selling Shareholder
and Participating Selling Shareholder, as the case may be, pursuant to this
Agreement.
SECTION 12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to Conley,
Canitano & Associates, Inc., CCAi Renaissance Centre, 5800 Landerbrook Drive,
29
<PAGE> 30
Mayfield Heights, OH 44124, (ii) if to the Selling Shareholders or the
Participating Selling Shareholders, to [NAME OF ATTORNEY-IN-FACT] c/o [ADDRESS
OF ATTORNEY-IN-FACT] and (iii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Shareholders, the
Participating Selling Shareholders and the several Underwriters set forth in or
made pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Shares, regardless of
(i) any investigation, or statement as to the results thereof, made by or on
behalf of any Underwriter, the officers or directors of any Underwriter, any
person controlling any Underwriter, the Company, the officers or directors of
the Company, any person controlling the Company, any Selling Shareholder or
Participating Selling Shareholder or any person controlling such Selling
Shareholder or Participating Selling Shareholder, (ii) acceptance of the Shares
and payment for them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and severally, to reimburse the several Underwriters, their
directors and officers and any persons controlling any of the Underwriters for
any and all fees and expenses (including, without limitation, the fees
disbursements of counsel) incurred by them in connection with enforcing their
rights hereunder (including, without limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Selling
Shareholders, the Participating Selling Shareholders, the Underwriters, the
Underwriters' directors and officers, any controlling persons referred to
herein, the Company's directors and the Company's officers who sign the
Registration Statement and their respective successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
30
<PAGE> 31
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
31
<PAGE> 32
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholders, the Participating Selling
Shareholders and the several Underwriters.
Very truly yours,
CONLEY, CANITANO &
ASSOCIATES, INC.
By:
--------------------------------
Title:
THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE II
HERETO, ACTING
SEVERALLY
By
--------------------------------
Attorney-in-fact
THE PARTICIPATING SELLING
SHAREHOLDERS NAMED IN
SCHEDULE III HERETO,
ACTING SEVERALLY
By
---------------------------------
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS INC.
MCDONALD INVESTMENTS INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
-----------------------------
32
<PAGE> 33
SCHEDULE I
----------
- ------------- ----------------------
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities
Corporation
BancBoston Robertson Stephens
Lehman Brothers Inc.
McDonald Investments Inc.
-----------
Total
<PAGE> 34
SCHEDULE II
-----------
Selling Shareholders
--------------------
- ----------- -----------------
Name Number of Firm
Shares Being Sold
TA/Advent VII L.P.
Advent Atlantic and Pacific III, L.P.
McDonald Investments, Inc.
McD Venture Capital Fund, L.P.
TA/Advent VIII L.P.
T/A Investors LLC
Brent Bearden
J.P. Gravitt
Claudia Kendler
Laura McDonel
Bryan Pepper
Rob Petersen
Ted Renneker
Total
-------------
1,000,000
<PAGE> 35
SCHEDULE III
------------
Participating Selling Shareholders
----------------------------------
- ------- -----------------
Name Number of Option
Shares Being Sold
Advent Atlantic and Pacific III, L.P.
McDonald Investments, Inc.
McD Venture Capital Fund, L.P.
TA/Advent VIII L.P.
T/A Venture Investors Limited Partnership
32
<PAGE> 1
Exhibit 3.1
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CONLEY, CANITANO & ASSOCIATES, INC.
ARTICLE I
---------
The name of the corporation is Conley, Canitano & Associates, Inc.
(the "Corporation").
ARTICLE II
----------
The place in the State of Ohio where the Corporation's principal office
is located is the City of Mayfield Heights, Cuyahoga County.
ARTICLE III
-----------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code.
ARTICLE IV
----------
A. Authorized Capital Stock.
-------------------------
The total number of shares of capital stock which the Corporation shall
have authority to issue is 55,500,800, of which (a) 500,800 shares shall be
preferred stock, par value $.01 per share, (b) 5,000,000 shares shall be
non-voting preferred stock, no par value ("Nonvoting Preferred Stock"), (c)
5,000,000 shares shall be voting preferred stock, no par value ("Voting
Preferred Stock") (Sections (a), (b) and (c) collectively referred to herein as
"Preferred Stock"), and (d) 45,000,000 shares shall be common stock, no par
value ("Common Stock").
B. Preferred Stock.
----------------
The Board of Directors shall have authority to issue Preferred Stock
from time to time in one or more classes or series. The express terms of shares
of a different series of any particular class shall be identical except for such
variations as may be permitted by law. Unless this provision is expressly
modified by a Preferred Stock Designation in accordance with then-applicable
law, the holders of Voting Preferred Stock will be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders for each share of
Preferred Stock held of record by such holder as of the record date for such
meeting.
- 1 -
<PAGE> 2
C. Convertible Preferred Stock
---------------------------
1. DESIGNATION. A total of 250,400 shares of the Corporation's
Preferred Stock shall be designated as a series known as Convertible Preferred
Stock, par value $.01 per share (the "Convertible Stock").
2. Election of Directors; Voting.
------------------------------
(a) ELECTION OF DIRECTORS. The holders of outstanding shares
of Convertible Stock shall, voting together as a separate class, be
entitled to elect three (3) Directors of the Corporation. Such
Directors shall be the candidates receiving the greatest number of
affirmative votes (with each holder of Convertible Stock entitled to
cast one vote for or against each candidate with respect to each share
of Convertible Stock held by such holder) of the outstanding shares of
Convertible Stock (the "Convertible Stock Director Designees"), with
votes cast against such candidates and votes withheld having no legal
effect. The election of the Convertible Stock Director Designees by the
holders of the Convertible Stock shall occur (i) at the annual meeting
of holders of capital stock, (ii) at any special meeting of holders of
capital stock, (iii) at any special meeting of holders of Convertible
Stock called by holders of a majority of the outstanding shares of
Convertible Stock or (iv) by the unanimous written consent of holders
of the outstanding shares of Convertible Stock. If at any time when any
share of Convertible Stock is outstanding any Convertible Stock
Director Designee should cease to be a Director for any reason, the
vacancy shall only be filled by the vote or written consent of the
holders of the outstanding shares of Convertible Stock, voting together
as a separate class, in the manner and on the basis specified above.
The holders of outstanding shares of Convertible Stock shall also be
entitled to vote for all other Directors of the Corporation together
with holders of all other shares of the Corporation's outstanding
capital stock entitled to vote thereon, voting as a single class, with
each outstanding share entitled to the same number of votes specified
in Section C.2(b). The holders of outstanding shares of Convertible
Stock, may, in their sole discretion, determine to elect only one or
two Convertible Stock Director Designees from time to time, and during
any such period the Board of Directors nonetheless shall be deemed duly
constituted.
(b) VOTING GENERALLY. The holder of each share of Convertible
Stock shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which each share of
Convertible Stock could be converted pursuant to Section C.6 hereof
(other than by means of Section C.6(b)) on the record date for the vote
or for written consent of shareholders, if applicable, multiplied by
the number of shares of Convertible Stock held of record on such date.
The holder of each share of Convertible Stock shall be entitled to
notice of any shareholders' meeting in accordance with the Code of
Regulations of the Corporation and shall vote with holders of the
Common Stock, voting together as single class, upon all matters
submitted to a vote of shareholders, excluding those matters required
to be submitted to a class or series vote pursuant to the terms hereof
(including without limitation Section C.8) or by law. Fractional votes
shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares of
Common Stock into which shares of Convertible Stock held by each holder
could be converted) shall be
- 2 -
<PAGE> 3
rounded to the nearest whole number (with any fraction equal or greater
than one-half rounded upward to one).
3. DIVIDENDS. The holders of Convertible Stock shall be entitled
to receive dividends out of funds legally available therefor at such times and
in such amounts as the Board of Directors may determine in its sole discretion;
PROVIDED, HOWEVER, that no such dividend may be declared or paid on any shares
of Convertible Stock unless at the same time a dividend is declared or paid on
all outstanding shares of Common Stock and vice versa, with holders of
Convertible Stock and Common Stock sharing in any such dividends as if they
constituted a single class of stock and with each holder of a share of
Convertible Stock entitled to receive such dividends based on the number of
shares of Common Stock into which such share of Convertible Stock is then
convertible hereunder. The right to dividends on shares of Convertible Stock
shall not be cumulative, and no right shall accrue to holders of Convertible
Stock by reason of the fact that dividends on said shares are not declared in
any prior period.
4. Liquidation.
------------
(a) LIQUIDATION PREFERENCE. Upon any liquidation, dissolution
or winding up of the Corporation and its subsidiaries, whether
voluntary or involuntary (a "Liquidation Event"), each holder of
outstanding shares of Convertible Stock shall be entitled to be paid
out of the assets of the Corporation available for distribution to
shareholders, whether such assets are capital, surplus or earnings, and
before any amount shall be paid or distributed to the holders of Common
Stock or of any other stock ranking on liquidation junior to the
Convertible Stock, an amount in cash equal to (i) $69.89 per share of
Convertible Stock held by such holder (adjusted appropriately for stock
splits, stock dividends, recapitalizations and the like with respect to
the Convertible Stock), plus (ii) any declared but unpaid dividends to
which such holder of outstanding shares of Convertible Stock is then
entitled pursuant to Sections C.3 and C.5(f) hereof (the sum of clauses
(i) and (ii) being referred to herein as the "Convertible Base
Liquidation Amount"), plus (iii) any interest accrued pursuant to
Section C.5(e) hereof to which such holder of Convertible Stock is
entitled, if any (the sum of clauses (i), (ii) and (iii) being referred
to herein as the "Convertible Liquidation Preference Amount");
PROVIDED, HOWEVER, that if, upon any Liquidation Event, the amounts
payable with respect to the Convertible Liquidation Preference Amount
are not paid in full, the holders of the Convertible Stock shall share
ratably in any distribution of assets in proportion to the full
respective preferential amounts to which they are entitled; and
PROVIDED FURTHER, HOWEVER, that if upon any Liquidation Event the
holders of the outstanding shares of Convertible Stock would receive
more than the Convertible Liquidation Preference Amount in the event
their shares were converted into Series A Redeemable Preferred Stock
(as defined in Section D.1 of this Article IV) and Common Stock
immediately prior to the record date for distributions in connection
with such Liquidation Event, then each holder of an outstanding share
of Convertible Stock shall receive an amount equal to such holder's
Series A Redeemable Liquidation Preference Amount (as defined in
Section D.4) under Section D.4 before any amount shall be paid or
distributed to the holders of Common Stock or of any other stock
ranking on liquidation junior to the Convertible Stock, and thereafter
shall share ratably with the holders of Common Stock in the assets
available for distribution, with such distributions to be made in cash
and as if each share of Convertible Stock had been converted into the
number of shares of Series A Redeemable
- 3 -
<PAGE> 4
Preferred Stock and Common Stock issuable upon the conversion of such
holder's shares of Convertible Stock immediately prior to any such
Liquidation Event. The provisions of this Section C.4 shall not in any
way limit the right of the holders of Convertible Stock to elect to
convert their shares of Convertible Stock into Series A Redeemable
Preferred Stock and Common Stock pursuant to Section C.6 prior to or in
connection with any Liquidation Event.
(b) NOTICE. Prior to the occurrence of any Liquidation Event,
the Corporation will furnish each holder of Convertible Stock notice in
accordance with Section C.9 hereof, together with a certificate
prepared by the chief financial officer of the Corporation describing
in detail the facts of such Liquidation Event, stating in detail the
amount(s) per share of Convertible Stock each holder of Convertible
Stock would receive pursuant to the provisions of Section C.4(a) hereof
(both with respect to the amount a holder would receive pursuant to
clauses (i) and (ii) of Section C.4(a) and the amount a holder would
receive pursuant to the second proviso of Section C.4(a)) and stating
in detail the facts upon which such amounts were determined.
5. Redemption.
-----------
(a) Redemption Events.
------------------
(i) On or After October 15, 2001.
-----------------------------
(A) At any time after October 15, 2001, on
any one occasion any holder of Convertible Stock may
require the Corporation to redeem up to 50% of the
outstanding shares of Convertible Stock held by such
holder at such time.
(B) At any time after October 15, 2002, on
any one occasion any holder of Convertible Stock may
require the Corporation to redeem up to all of the
outstanding shares of Convertible Stock held by such
holder at such time.
(ii) EXTRAORDINARY TRANSACTIONS. Upon the election of
the holder or holders of not less than sixty-six and
two-thirds percent in voting power of the outstanding
Convertible Stock in connection with (A) a merger or
consolidation of the Corporation with or into another
corporation (with respect to which less than a majority of the
outstanding voting power of such surviving corporation is held
by shareholders of the Corporation immediately prior to such
event), (B) the sale or transfer of all or substantially all
of the properties and assets of the Corporation and its
subsidiaries, (C) any purchase by any party of shares of
capital stock of the Corporation (either through a negotiated
stock purchase or a tender for such shares), the effect of
which is that such party that did not beneficially own a
majority of the voting power of the outstanding shares of
capital stock of the Corporation immediately prior to such
purchase beneficially owns at least a majority of such voting
power immediately after such purchase, or (D) the redemption
or repurchase of shares representing a majority of the voting
power of the outstanding shares of capital stock of the
Corporation (each an
- 4 -
<PAGE> 5
"Extraordinary Transaction"), then, as a part of and as a
condition to the effectiveness of such Extraordinary
Transaction, UNLESS the holders of Convertible Stock shall
have elected to convert their shares of Convertible Stock into
Series A Redeemable Preferred Stock and Common Stock in
accordance with the voluntary conversion provisions of Section
C.6 prior to the effective date of such Extraordinary
Transaction, the Corporation shall, on the effective date of
such Extraordinary Transaction, redeem all (but not less than
all) of the outstanding shares of Convertible Stock for an
amount equal to the Convertible Liquidation Preference Amount,
such amount to be payable in cash or, at the election of
holders of not less than sixty-six and two-thirds percent in
voting power of the outstanding Convertible Stock, in the same
form of consideration as is paid to the holders of Common
Stock in such Extraordinary Transaction; PROVIDED, HOWEVER,
that if upon any Extraordinary Transaction the holders of the
outstanding shares of Convertible Stock would receive more
than the Convertible Liquidation Preference Amount in the
event their shares were converted into Series A Redeemable
Preferred Stock and Common Stock immediately prior to such
Extraordinary Transaction, then each holder of Convertible
Stock shall receive with respect to each outstanding share of
Convertible Stock held by such holder an amount equal to the
per share liquidation preference for a share of Series A
Redeemable Preferred Stock under Section D.4 before any amount
shall be paid or distributed to the holders of Common Stock or
of any other stock ranking on liquidation junior to the
Convertible Stock, payable in cash, and thereafter shall share
ratably with the holders of the Common Stock in the proceeds
of such Extraordinary Transaction or, as applicable, shall
receive from the Corporation an amount equal to the amount per
share that would be paid if the shares of Common Stock
receivable upon conversion of the Convertible Stock were being
acquired in the Extraordinary Transaction at the same price
per share as is paid for Common Stock, which amount shall be
paid in the same form of consideration as is paid to holders
of Common Stock, as if each share of Convertible Stock had
been converted into the number of shares of Series A
Redeemable Preferred Stock and Common Stock issuable upon the
conversion of such share of Convertible Stock immediately
prior to such Extraordinary Transaction. The foregoing
election shall be made by such holders giving the Corporation
and each other holder of Convertible Stock not less than five
(5) business days prior written notice, which notice shall set
forth the date for such redemption. The provisions of this
Section C.5 shall not in any way limit the right of the
holders of Convertible Stock to elect to convert their shares
into shares of Series A Redeemable Preferred Stock and Common
Stock pursuant to Section C.6 prior to or in connection with
any Extraordinary Transaction.
(b) VALUATION OF DISTRIBUTION SECURITIES. Any securities
or other consideration to be delivered to the holders of the
Convertible Stock upon any Extraordinary Transaction in accordance with
the terms hereof shall be valued as follows:
(i) If traded on a nationally recognized securities
exchange or inter-dealer quotation system, the value shall be
deemed to be the average of the closing prices of the
securities on such exchange or system over the 30-day period
ending three (3) business days prior to the closing;
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<PAGE> 6
(ii) If traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the
30-day period ending three (3) business days prior to the
closing; and
(iii) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined
by the Corporation and the holders of not less than sixty-six
and two-thirds percent in voting power of the outstanding
shares of Convertible Stock, provided that if the Corporation
and the holders of sixty-six and two-thirds percent in voting
power of the outstanding shares of Convertible Stock are
unable to reach agreement, then by independent appraisal by a
mutually agreed to investment banker, the fees of which shall
be paid by the Corporation.
(c) NOTICE BY CORPORATION. Prior to the occurrence of any
Extraordinary Transaction, the Corporation will furnish each holder of
Convertible Stock notice in accordance with Section C.9 hereof,
together with a certificate prepared by the chief financial officer of
the Corporation describing in detail all material terms of such
Extraordinary Transaction, including without limitation the
consideration to be delivered in connection with such Extraordinary
Transaction and the identities of the parties to the Extraordinary
Transaction.
(d) REDEMPTION DATE; REDEMPTION PRICE. Any holder of
Convertible Stock may exercise such holder's right of redemption
pursuant to Section C.5(a)(i) by such holder giving the Corporation not
less than five (5) business days prior written notice, which notice
shall set forth the date for such redemption. Upon the election of the
holders of not less than sixty-six and two-thirds percent of the voting
power of the outstanding Convertible Stock to cause the Corporation to
redeem the Convertible Stock pursuant to Section C.5(a)(ii), all
holders of Convertible Stock shall be deemed to have elected to cause
the Convertible Stock to be so redeemed. Any date upon which a
redemption shall actually occur in accordance with Section C.5(a) shall
be referred to as a "Convertible Redemption Date." The redemption price
for each share of Convertible Stock redeemed pursuant to this Section
C.5 shall be the per share Convertible Liquidation Preference Amount or
such greater per share amount as may be payable pursuant to the proviso
to Section C.5(a)(ii), if applicable (the "Convertible Redemption
Price"). The aggregate Convertible Redemption Price shall be payable in
cash in immediately available funds to the respective holders of the
Convertible Stock on the fifteenth (15th) day (or if such day is not a
business day, the next business day after the 15th day) after the day
on which the Corporation receives the redemption election pursuant to
this Section C.5(d) (subject to Section C.5(e)) except to the extent
contemplated by the proviso to Section C.5(a)(ii); provided, however,
that such date may be postponed for up to an additional sixty (60)
calendar days to permit the appraisal process under Section
C.5(b)(iii). Until the aggregate Convertible Redemption Price has been
paid for all shares of Convertible Stock being redeemed: (A) no
dividend whatsoever shall be paid or declared, and no distribution
shall be made, on any capital stock of the Corporation; and (B) except
as permitted by Sections C.8(d)(i), (ii) and (iii), no shares of
capital stock of the Corporation (other than the Convertible Stock in
accordance with this Section C.5) shall be purchased, redeemed or
acquired by the
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<PAGE> 7
Corporation and no monies shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption or
acquisition thereof.
(e) REDEMPTION PROHIBITED. If, at a Convertible Redemption
Date, the Corporation is prohibited under Section 1701.35 of the Ohio
Revised Code ("Section 1701.35") from redeeming all shares of
Convertible Stock for which redemption is required hereunder, then it
shall redeem such shares on a pro-rata basis among the holders of
Convertible Stock in proportion to the full respective redemption
amounts to which they are entitled hereunder to the extent possible and
shall redeem the remaining shares to be redeemed as soon as the
Corporation is not prohibited from redeeming some or all of such shares
under Section 1701.35, subject to the last paragraph of Section C.8.
The shares of Convertible Stock not redeemed shall remain outstanding
and entitled to all of the rights and preferences provided in this
Article IV. In the event that the Corporation fails for any reason to
redeem shares for which redemption is required pursuant to this Section
C.5, including without limitation due to a prohibition of such
redemption under Section 1701.35, then during the period from the
applicable Convertible Redemption Date through the date on which such
shares are redeemed, the applicable Convertible Base Liquidation Amount
of such shares shall bear interest at the rate of 15% per annum, with
such interest to accrue daily in arrears and to be compounded annually;
PROVIDED, HOWEVER, that in no event shall such interest exceed the
maximum permitted rate of interest under applicable law (the "Maximum
Permitted Rate"). In the event that fulfillment of any provision hereof
results in such rate of interest being in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall automatically be
reduced to eliminate such excess; PROVIDED, HOWEVER, that any
subsequent increase in the Maximum Permitted Rate shall be
retroactively effective to the applicable Redemption Date.
(f) DIVIDEND AFTER CONVERTIBLE REDEMPTION DATE. From and after
a Convertible Redemption Date, no shares of Convertible Stock subject
to redemption shall be entitled to dividends, if any, as contemplated
by Section C.3; PROVIDED, HOWEVER, that in the event that shares of
Convertible Stock are unable to be redeemed and continue to be
outstanding in accordance with Section C.5(e), such shares shall
continue to be entitled to dividends and interest thereon as provided
in Sections C.3 and C.5(e) until the date on which such shares are
actually redeemed by the Corporation.
(g) SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Convertible Preferred Redemption Price by certified check or wire
transfer, each holder of shares of Convertible Stock to be redeemed
shall surrender the certificate or certificates representing such
shares to the Corporation, duly assigned or endorsed for transfer (or
accompanied by duly executed stock powers relating thereto), or, in the
event the certificate or certificates are lost, stolen or missing,
shall deliver an affidavit or agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred by it in connection
therewith (an "Affidavit of Loss") with respect to such certificates at
the principal executive office of the Corporation or the office of the
transfer agent for the Convertible Stock or such office or offices in
the continental United States of an agent for redemption as may from
time to time be designated by notice to the holders of Convertible
Stock, and each surrendered certificate shall be canceled and retired;
PROVIDED, HOWEVER, that if the holder has exercised its redemption
right pursuant to Section C.5(a)(i)(A) or the Corporation is prohibited
from redeeming all shares of
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<PAGE> 8
Convertible Stock as provided in Section C.5(e), the holder shall not
be required to surrender said certificate(s) to the Corporation until
said holder has received a new stock certificate for those shares of
Convertible Stock not so redeemed.
6. CONVERSION. The holders of the Convertible Stock shall have
the following conversion rights:
(a) AUTOMATIC CONVERSION UPON ELECTION OF HOLDERS. The holders
of shares of Convertible Stock shall be entitled, upon the written
election of the holder or holders of not less than sixty-six and
two-thirds percent in voting power of the outstanding shares of
Convertible Stock, without the payment of any additional consideration,
(i) immediately prior to and subject to the closing or happening of a
Liquidation Event or an Extraordinary Transaction and (ii) at any time
after October 15, 1999, to cause each (but not less than all) of the
outstanding shares of Convertible Stock to be automatically converted
into (i) the number of fully paid and nonassessable shares of Common
Stock which results from dividing the Conversion Price (as defined in
this Section C.6(a)) per share in effect for the Convertible Stock at
the time of conversion into the per share Conversion Value (as defined
in this Section C.6(a)) of the Convertible Stock (together with any
other shares of Common Stock held by the holders of Convertible Stock
(regardless of whether such holders continue to hold Convertible
Stock), the "Conversion Shares") and (ii) one (1) fully paid and
nonassessable share of Series A Redeemable Preferred Stock. Upon the
election to so convert in the manner and on the basis specified in the
preceding sentence, all holders of the Convertible Stock shall be
deemed to have elected to voluntarily convert all outstanding shares of
Convertible Stock pursuant to this Section C.6. Upon the filing of
these Second Amended and Restated Articles of Incorporation with the
Ohio Secretary of State's office, the "Conversion Price" per share of
Convertible Stock shall be $6.99, and the per share "Conversion Value"
of Convertible Stock shall be $69.89. The Conversion Price per share of
Convertible Stock and the Common Stock Conversion Rate (as defined in
this Section C.6(a)) shall be subject to adjustment from time to time
as provided in Section C.7 hereof. The number of shares of Common Stock
into which a share of a Convertible Stock is convertible is hereinafter
referred to as the "Common Stock Conversion Rate." The number of shares
of Series A Redeemable Preferred Stock into which a share of
Convertible Stock is convertible is hereinafter referred to as the
"Series A Redeemable Conversion Rate." If the holders of shares of
Convertible Stock elect to convert the outstanding shares of
Convertible Stock at a time when there are any declared but unpaid
dividends or other amounts due on or in respect of such shares, such
dividends and other amounts shall be paid in full in cash by the
Corporation in connection with such conversion.
(b) AUTOMATIC CONVERSION UPON QPO. Each share of Convertible
Stock shall automatically be converted, without the payment of any
additional consideration, into shares of Common Stock and Series A
Redeemable Preferred Stock as of, and in all cases subject to, the
closing of the Corporation's first underwritten offering to the public
pursuant to an effective registration statement under the Securities
Act of 1933, as amended, provided that (i) such registration statement
covers the offer and sale of Common Stock of which the aggregate net
proceeds attributable to sales for the account of the Corporation
exceed $35,000,000, at a price per share equal to at least $11.00 (as
appropriately adjusted for any stock split, combination,
reorganization, recapitalization,
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<PAGE> 9
stock dividend, or similar event), (ii) such Common Stock is listed for
trading on either the New York Stock Exchange or the Nasdaq National
Market and (iii) if a redemption election is made pursuant to Section
D.5(a)(i) or (a)(ii), either (A) all outstanding shares of Series A
Redeemable Preferred Stock which are outstanding or issuable upon such
automatic conversion are redeemed immediately upon and as of the
closing of such offering, (B) contemporaneously with such offering cash
in an amount sufficient to redeem all outstanding shares of Series A
Redeemable Preferred Stock is segregated and irrevocably held by the
Corporation for payment to holders of Series A Redeemable Preferred
Stock or (C) all outstanding shares of Series A Redeemable Preferred
Stock are exchanged for Series A Notes (as defined in Section
D.5(a)(i)) (a "QPO" or a "Qualified Public Offering"); PROVIDED that if
a closing of a QPO occurs, all outstanding shares of Convertible Stock
shall be deemed to have been converted into shares of Common Stock and
Series A Redeemable Preferred Stock immediately prior to such closing.
Any such conversion shall be at the Common Stock Conversion Rate and
Series A Redeemable Conversion Rate in effect upon the closing of a
QPO, as applicable.
If the holders of shares of Convertible Stock are required to convert
the outstanding shares of Convertible Stock pursuant to this Section
C.6(b) at a time when there are any declared but unpaid dividends or
any amounts due on or in respect of such shares pursuant to Section
C.5(e) hereof, such dividends and other amounts shall be paid in full
in cash by the Corporation in connection with such conversion.
(c) PROCEDURE FOR VOLUNTARY CONVERSION. Upon election to
convert pursuant to Section C.6(a), each holder of Convertible Stock
shall surrender the certificate or certificates representing its
Convertible Stock, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating
thereto), at the principal executive office of the Corporation or the
offices of the transfer agent for the Convertible Stock or such office
or offices in the continental United States of an agent for conversion
as may from time to time be designated by notice to the holders of the
Convertible Stock by the Corporation, or shall deliver an Affidavit of
Loss with respect to such certificates. Upon surrender of a certificate
representing Convertible Stock for conversion, or delivery of an
Affidavit of Loss, the Corporation shall issue and send by hand
delivery, by courier or by first class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated
by such holder, certificates for the number of shares of Common Stock
and Series A Redeemable Preferred Stock to which such holder shall be
entitled upon conversion. The issuance of certificates for Common Stock
and Series A Redeemable Preferred Stock upon conversion of Convertible
Stock will be made without charge to the holders of such shares for any
issuance tax in respect thereof or other costs incurred by the
Corporation in connection with such conversion and the related issuance
of such stock. If a Liquidation Event or conversion of Convertible
Stock upon an Extraordinary Transaction or public offering not
constituting a QPO occurs, all outstanding shares of Convertible Stock
shall be deemed to have been converted into shares of Common Stock and
Series A Redeemable Preferred Stock immediately prior thereto, provided
that the Corporation shall make appropriate provisions (x) for the
Common Stock issued upon such conversion to be treated on the same
basis as all other Common Stock in such Liquidation Event,
Extraordinary Transaction or public offering not constituting a QPO and
(y) for the payment of the Series A Redeemable Liquidation Preference
Amount in connection with any Liquidation
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<PAGE> 10
Event or the redemption of the Series A Redeemable Preferred Stock
(issued upon such conversion) upon election of such redemption in
connection with any Extraordinary Transaction or public offering not
constituting a QPO, if applicable, as provided herein. In the event of
any public offering constituting a QPO, the provisions of Section
C.5(d) shall apply.
(d) PROCEDURE FOR AUTOMATIC CONVERSION. As of, and in all
cases subject to, the closing of a QPO (the "Automatic Conversion
Date"), all outstanding shares of Convertible Stock shall be converted
automatically into shares of Common Stock and Series A Redeemable
Preferred Stock at the applicable conversion rates specified in Section
C.6(a) and without any further action by the holders of such shares and
whether or not the certificates representing such shares of Convertible
Stock are surrendered to the Corporation or its transfer agent;
PROVIDED, HOWEVER, that all holders of Convertible Stock shall be given
prior written notice of the occurrence of a QPO in accordance with
Section C.9 hereof. The Corporation shall not be obligated to issue
certificates evidencing the shares of Series A Redeemable Preferred
Stock or Common Stock issuable on the Automatic Conversion Date (or the
cash payment or issuance of the Series A Notes for the shares of Series
A Redeemable Preferred Stock which are redeemed immediately after such
automatic conversion as provided below and in Section D.5(a)(i) or
D.5(a)(ii)) unless certificates evidencing such shares of the
Convertible Stock being converted, or an Affidavit of Loss with respect
to such certificates, are delivered to the Corporation or its transfer
agent. On the Automatic Conversion Date, all rights with respect to the
Convertible Stock so converted shall terminate, except any of the
rights of the holders thereof upon surrender of their certificate or
certificates therefor or delivery of an Affidavit of Loss thereof to
receive certificates for the number of shares of Common Stock and
Series A Redeemable Preferred Stock into which such Convertible Stock
has been converted (or the cash payment or Series A Notes to which such
holder is entitled as provided below and in Section D.5(a)(i) or
(a)(ii)). If so required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by written instrument
or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his, her or its attorney
duly authorized in writing. Upon surrender of such certificates or
Affidavit of Loss the Corporation shall issue and deliver to such
holder, promptly (and in any event in such time as is sufficient to
enable such holder to participate in such QPO) at such office and in
its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock
and number of shares of Series A Redeemable Preferred Stock or the
Series A Notes into which the shares of the Convertible Stock
surrendered were convertible on the Automatic Conversion Date.
Notwithstanding anything to the contrary set forth in this Section
C.6(d), the Corporation may deliver, in lieu of certificates for Series
A Redeemable Preferred Stock, cash in an amount determined pursuant to
Section D.5(b) hereof on account of the redemption of such Series A
Redeemable Preferred Stock, and upon payment of such cash the Series A
Redeemable Preferred Stock into which such Convertible Stock would have
been converted shall be deemed to have been issued and redeemed by the
Corporation.
(e) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock and Series A Redeemable
Preferred Stock solely for the purpose of effecting the
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<PAGE> 11
conversion of the shares of Convertible Stock such number of its shares
of Common Stock and Series A Redeemable Preferred Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
shares of Convertible Stock; and if at any time the number of
authorized but unissued shares of Common Stock and Series A Redeemable
Preferred Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Convertible Stock, the Corporation will take
such corporate action as may be necessary to increase its authorized
but unissued shares of Common Stock and Series A Redeemable Preferred
Stock to such number of shares as shall be sufficient for such purpose.
(f) NO CLOSING OF TRANSFER BOOKS. The Corporation shall not
close its books against the transfer of shares of Convertible Stock in
any manner which would interfere with the timely conversion of any
shares of Convertible Stock.
7. ADJUSTMENTS. The Conversion Price in effect from time to time
shall be subject to adjustment from and after October 10, 1997 and regardless of
whether any shares of Convertible Stock are then issued and outstanding as
follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater number of shares of
Common Stock, or the combination of outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the Conversion Price
shall, simultaneously with the happening of such dividend, subdivision
or split be adjusted by multiplying the then effective Conversion Price
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event. An adjustment made pursuant
to this Section C.7(a) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination
of shareholders entitled to receive such dividend or distribution (on a
retroactive basis) and in the case of a subdivision or combination
shall become effective immediately as of the effective date thereof.
(b) SALE OF COMMON STOCK. In the event the Corporation shall
at any time, or from time to time, issue, sell or exchange any shares
of Common Stock (including shares held in the Corporation's treasury
but excluding up to 2,762,450 shares of Common Stock (as appropriately
adjusted for stock splits, stock dividends and the like) issued to
officers, directors or employees of the Corporation or upon the
exercise of options or other rights issued to such officers, directors
or employees pursuant to the stock option plans (the "Excluded
Shares"), for a consideration per share less than the Conversion Price
in effect immediately prior to the issuance, sale or exchange of such
shares, then, and thereafter successively upon each such issuance, sale
or exchange, the Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares shall forthwith be reduced to
an amount determined by multiplying such Conversion Price by a
fraction:
(i) the numerator of which shall be (X) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of
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<PAGE> 12
such additional shares of Common Stock (excluding treasury
shares but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Convertible Stock,
options, warrants, rights or convertible securities), plus (Y)
the number of shares of Common Stock which the net aggregate
consideration received by the Corporation for the total number
of such additional shares of Common Stock so issued would
purchase at the Conversion Price (prior to adjustment), and
(ii) the denominator of which shall be (X) the number
of shares of Common Stock of all classes outstanding
immediately prior to the issuance of such additional shares of
Common Stock (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of
any outstanding Convertible Stock, options, warrants, rights
or convertible securities), plus (Y) the number of such
additional shares of Common Stock so issued.
(c) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE SECURITIES. In the
event the Corporation shall at any time or from time to time, issue
options, warrants or rights to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than any options or warrants for Excluded Shares),
for a consideration per share (determined by dividing the Net Aggregate
Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants,
rights or convertible securities were exercised or converted to the
fullest extent permitted by their terms) less than the Conversion Price
in effect immediately prior to the issuance of such options or rights
or convertible or exchangeable securities, the Conversion Price in
effect immediately prior to the issuance of such options, warrants or
rights or securities shall be reduced to an amount determined by
multiplying such Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, rights or convertible
securities (excluding treasury shares but including all shares
of Common Stock issuable upon conversion or exercise of any
outstanding Convertible Stock, options, warrants, rights or
convertible securities), plus (Y) the number of shares of
Common Stock which the total amount of consideration received
by the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set
forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net
Aggregate Consideration") would purchase at the Conversion
Price prior to adjustment, and
(ii) the denominator of which shall be (X) the number
of shares of Common Stock of all classes outstanding
immediately prior to the issuance of such options, warrants,
rights or convertible securities (excluding treasury shares
but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Convertible Stock,
options, warrants, rights or convertible securities), plus (Y)
the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible
securities were exercised or converted.
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<PAGE> 13
(d) EXPIRATION OR CHANGE IN PRICE. If the consideration per
share provided for in any options or rights to subscribe for shares of
Common Stock or any securities exchangeable for or convertible into
shares of Common Stock, changes at any time, the Conversion Price in
effect at the time of such change shall be readjusted to the Conversion
Price which would have been in effect at such time had such options or
convertible securities provided for such changed consideration per
share (determined as provided in Section C.7(c) hereof), at the time
initially granted, issued or sold; PROVIDED, that such adjustment of
the Conversion Price will be made only as and to the extent that the
Conversion Price effective upon such adjustment remains less than or
equal to the Conversion Price that would be in effect if such options,
rights or securities had not been issued. No adjustment of the
Conversion Price shall be made under this Section A.7 upon the issuance
of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange rights
in any convertible securities if an adjustment shall previously have
been made upon the issuance of such warrants, options or other rights.
Any adjustment of the Conversion Price shall be disregarded if, as, and
when the rights to acquire shares of Common Stock upon exercise or
conversion of the warrants, options, rights or convertible securities
which gave rise to such adjustment expire or are canceled without
having been exercised, so that the Conversion Price effective
immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired
or canceled warrants, options, rights or convertible securities, with
such additional adjustments as would have been made to that Conversion
Price had the expired or canceled warrants, options, rights or
convertible securities not been issued.
(e) OTHER ADJUSTMENTS. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common
Stock, then and in each such event lawful and adequate provision shall
be made so that the holders of Convertible Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities of the Corporation which
they would have received had their Convertible Stock been converted
into Common Stock and Series A Redeemable Preferred Stock on the date
of such event and had they thereafter, during the period from the date
of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
Section C.7 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the
Convertible Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation
or sale of assets provided for elsewhere in this Section C.7), then and
in each such event the holder of each share of Convertible Stock shall
have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders
of the number of shares of Common Stock into which such shares of
Convertible Stock might
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<PAGE> 14
have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as
provided herein.
(f) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section C.7) or a
merger or consolidation of the Corporation with or into another
Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a
part of and as a condition to the effectiveness of such reorganization,
merger, consolidation or sale, lawful and adequate provision shall be
made so that the holders of the Convertible Stock shall thereafter be
entitled to receive upon conversion of the Convertible Stock the number
of shares of stock or other securities or property of the Corporation
or of the successor Corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case,
appropriate provisions shall be made with respect to the rights of the
holders of the Convertible Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section
C.7 (including without limitation provisions for adjustment of the
Conversion Price and the number of shares purchasable upon conversion
of the Convertible Stock) shall thereafter be applicable, as nearly as
may be, with respect to any shares of stock, securities or assets to be
deliverable thereafter upon the conversion of the Convertible Stock.
(g) All calculations under this Section C.7 shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
(h) Upon the occurrence of each adjustment or readjustment
pursuant to this Section C.7, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Convertible
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon written request at any time of
any holder of Convertible Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Prices before and after such
adjustment or readjustment, and (iii) the number of shares of Common
Stock and Series A Redeemable Preferred Stock and the amount, if any,
of other property which at the time would be received upon the
conversion of such holder's shares of Convertible Stock.
8. COVENANTS. So long as any shares of Convertible Preferred
Stock (or Series A Redeemable Preferred Stock, as applicable) shall be
outstanding, the Corporation shall not, without first having provided written
notice of such proposed action to each holder of outstanding shares of
Convertible Preferred Stock (or Series A Redeemable Preferred Stock, as
applicable) and having obtained the affirmative vote or written consent of the
holders of not less than sixty-six and two-thirds percent in voting power of the
outstanding shares of Convertible Preferred Stock (or Series A Redeemable
Preferred Stock, as applicable), voting as a single class, with each share of
Convertible Preferred Stock (or Series A Redeemable Preferred Stock, as
applicable) entitling the holder thereof to one vote per share of Convertible
Preferred Stock (or Series A Redeemable Preferred Stock, as applicable) held by
such holder:
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<PAGE> 15
(a) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or a substantial portion of
its assets or business,
(b) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related transactions,
in any such case in connection with or as a result of which the Corporation is
not the surviving entity or the owners of the Corporation's outstanding equity
securities prior to the transaction or series of related transactions do not own
at least a majority of the outstanding equity securities of the surviving,
resulting or consolidated entity,
(c) dissolve, liquidate or wind up its operations,
(d) directly or indirectly redeem, purchase, or otherwise
acquire for consideration any shares of its Common Stock or any other class of
its capital stock except (i) for the redemption of Convertible Preferred Stock,
Series A Redeemable Preferred Stock or Conversion Shares pursuant to and as
provided in these Second Amended and Restated Articles of Incorporation, (ii)
for the exchange of Series A Redeemable Preferred Stock for Series A Notes as
contemplated by Section D.5(a)(i), (iii) as contemplated by Sections 1.2 and 4.5
of the Stock Purchase and Shareholders Agreement dated as of October 15, 1997 by
and among the Corporation and the shareholders of the Corporation (the "Purchase
Agreement"), or (iv) for the repurchase of shares of Common Stock from employees
and consultants pursuant to agreements entered into in connection with the
issuance of options and/or restricted stock, pursuant to the Corporation's 1997
Equity and Performance Incentive Plan,
(e) propose or adopt any amendment to this Article IV of these
Second Amended and Restated Articles of Incorporation, or any other amendment to
these Second Amended and Restated Articles of Incorporation or the Corporation's
regulations that eliminates, amends or restricts or otherwise adversely affects
the rights and preferences of the Convertible Preferred Stock or the Series A
Redeemable Preferred Stock, or increases the authorized shares of Convertible
Preferred Stock or Series A Redeemable Preferred Stock,
(f) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock,
(g) create, or obligate itself to create, any class or series
of shares having preference over or being on a parity with the Convertible
Preferred Stock or the Series A Redeemable Preferred Stock,
(h) increase the size of the Board of Directors to more than
seven (7) members, or
(i) enter into or be a party to any transaction or agreement,
including without limitation any lease (other than the lease in effect as of the
date of filing these Second Amended and Restated Articles of Incorporation with
respect to the Company's new offices located in Mayfield Heights, Ohio as set
forth in the agreement by and between the Corporation and American National
Development, Ltd., dated May, 1996) or other rental or purchase agreement
providing for loans or extensions of credit by or to the Company with or for the
benefit of any person or entity which is a shareholder, officer or director of
the Company, a relative by blood or
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<PAGE> 16
marriage of, a trust or estate for the benefit of, or a person or entity which
directly or indirectly controls, is controlled by, or is under common control
with, any such person or entity, except (i) for normal compensation paid to
employees of the Company in the ordinary course of business and (ii)
transactions expressly disclosed in or contemplated by the Agreement and the
exhibits thereto.
Further, the Corporation shall not, by amendment of these Second
Amended and Restated Articles of Incorporation or through any Extraordinary
Transaction or other reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
knowingly or purposefully avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation and
each subsidiary of the Corporation but shall at all times in good faith assist
in the carrying out of all the provisions of this Article IV and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the holders of the Convertible Preferred Stock and the Series A
Redeemable Preferred Stock set forth in this Certificate against impairment. Any
successor to the Corporation or any subsidiary of the Corporation shall agree,
as a condition to such succession, to carry out and observe the obligations of
the Corporation hereunder with respect to the Convertible Preferred Stock and
the Series A Redeemable Preferred Stock.
9. Notice
------
(a) LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC. In
the event (i) the Corporation establishes a record date to determine
the holders of any class of securities who are entitled to receive any
dividend or other distribution or who are entitled to vote at a meeting
(or by written consent) in connection with any of the transactions
identified in clause (ii) hereof, or (ii) any Liquidation Event (as
defined in Section C.4), any Extraordinary Transaction (as defined in
Section C.5), any QPO (as defined in Section C.6) or any other public
offering becomes reasonably likely to occur, the Corporation shall mail
or cause to be mailed by first class mail (postage prepaid) to each
holder of Convertible Stock (or each holder of Series A Redeemable
Preferred Stock, as applicable) at least fifteen (15) days prior to
such record date specified therein or the expected effective date of
any such transaction, whichever is earlier, a notice specifying (A) the
date of such record date for the purpose of such dividend or
distribution or meeting or consent and a description of such dividend
or distribution or the action to be taken at such meeting or by such
consent, (B) the date on which any such Liquidation Event,
Extraordinary Transaction, QPO or other public offering is expected to
become effective, and (C) the date on which the books of the
Corporation shall close or a record shall be taken with respect to any
such event.
(b) WAIVER OF NOTICE. The holder or holders of not less than
sixty-six and two-thirds percent in voting power of the outstanding
shares of Convertible Stock (or Series A Redeemable Preferred Stock, as
applicable) may, at any time upon written notice to the Corporation,
waive any notice provisions specified herein for the benefit of such
holders, and any such waiver shall be binding upon all holders of such
securities.
(c) GENERAL. In the event that the Corporation provides any
notice, report or statement to any holder of Common Stock, the
Corporation shall at the same time provide
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<PAGE> 17
a copy of any such notice, report or statement to each holder of
outstanding shares of Convertible Stock (or Series A Redeemable
Preferred Stock, as applicable).
10. NO REISSUANCE OF CONVERTIBLE STOCK. No share or shares of
Convertible Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
11. CONTRACTUAL RIGHTS OF HOLDERS. The various provisions set forth
herein for the benefit of the holders of the Convertible Stock and Series A
Redeemable Preferred Stock shall be deemed contract rights enforceable by them,
including without limitation, one or more actions for specific performance.
D. Series A Redeemable Preferred Stock
-----------------------------------
1. DESIGNATION. A total of 250,400 shares of the Corporation's
Preferred Stock shall be designated as a series known as Series A Redeemable
Preferred Stock, par value $.01 per share (the "Series A Redeemable Preferred
Stock").
2. ELECTION OF DIRECTORS; VOTING.
------------------------------
(a) ELECTION OF DIRECTORS. The holders of outstanding shares
of Series A Redeemable Preferred Stock shall, voting together as a
separate class, be entitled to elect one (1) Director. Such Director
shall be the candidate receiving the greatest number of affirmative
votes (with each holder of Series A Redeemable Preferred Stock entitled
to cast one vote for or against each candidate with respect to each
share of Series A Redeemable Preferred Stock held by such holder) of
the outstanding shares of Series A Redeemable Preferred Stock (the
"Series A Redeemable Preferred Stock Director Designee"), with votes
cast against such candidates and votes withheld having no legal
effect). The election of the Series A Redeemable Preferred Stock
Director Designee by the holders of the Series A Redeemable Preferred
Stock shall occur (i) at the annual meeting of holders of capital
stock, (ii) at any special meeting of holders of capital stock, (iii)
at any special meeting of holders of Series A Redeemable Preferred
Stock called by holders of a majority of the outstanding shares of
Series A Redeemable Preferred Stock or (iv) by the unanimous written
consent of holders of the outstanding shares of Series A Redeemable
Preferred Stock. Upon conversion of the Convertible Stock, the holder
or holders of not less than a majority in voting power of the
outstanding Series A Redeemable Preferred Stock shall designate one of
the Convertible Stock Director Designees then serving on the
Corporation's board of directors to continue in such capacity as the
Series A Redeemable Preferred Stock Designee. If at any time when any
share of Series A Redeemable Preferred Stock is outstanding the Series
A Redeemable Preferred Stock Director Designee should cease to be a
Director for any reason, the vacancy shall only be filled by the vote
or written consent of holders of the outstanding shares of Series A
Redeemable Preferred Stock, voting together as a separate class, in the
manner and on the basis specified above.
(b) VOTING GENERALLY. Except as set forth above with respect
to the election of the Series A Redeemable Preferred Stock Director
Designee, the holders of Series A
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<PAGE> 18
Redeemable Preferred Stock shall not be entitled to vote on any matters
except to the extent otherwise required under the Ohio Revised Code.
3. DIVIDENDS. The holders of outstanding shares of Series A Redeemable
Preferred Stock shall be entitled to receive, out of any funds legally available
therefor, cumulative (non- compounding) dividends on the Series A Redeemable
Preferred Stock in cash, at the per share rate per annum of seven percent (7%)
of $62.90 (adjusted appropriately for stock splits, stock dividends,
recapitalizations and the like with respect to the Series A Redeemable Preferred
Stock) (a "Series A Redeemable Cumulative Dividend"). Such dividends will accrue
quarterly in arrears commencing as of the date of issuance of the Series A
Redeemable Preferred Stock and be cumulative, to the extent unpaid, whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
Series A Redeemable Cumulative Dividends shall become due and payable with
respect to any share of Series A Redeemable Preferred Stock as provided in
Section D.4 and Section D.5. So long as any shares of Series A Redeemable
Preferred Stock are outstanding and the Series A Redeemable Cumulative Dividends
have not been paid in full in cash: (A) no dividend whatsoever shall be paid or
declared, and no distribution shall be made, on any Common Stock or other
capital stock of the Corporation ranking junior to the Series A Redeemable
Preferred Stock; and (B) except as provided in Sections C.8(d)(i), (ii) and
(iii), no shares of capital stock of the Corporation ranking junior to the
Series A Redeemable Preferred Stock shall be purchased, redeemed or acquired by
the Corporation and no monies shall be paid into or set aside or made available
for a sinking fund for the purchase, redemption or acquisition thereof. All
numbers relating to the calculation of dividends pursuant to this Section D.3
shall be subject to equitable adjustment in the event of any stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the Series A Redeemable Preferred Stock. Nothing
herein contained shall in any way or under any circumstances be construed or
deemed to require the Board to declare, or the Corporation to pay or set apart
for payment, any cash dividends of the Series A Redeemable Preferred Stock.
Dividends payable on the Series A Redeemable Preferred Stock for any period less
than a year shall be computed on the basis of a 365 day (366 day if applicable)
year and the actual number of days elapsed.
4. LIQUIDATION. Upon any Liquidation Event, each holder of outstanding
shares of Series A Redeemable Preferred Stock shall be entitled to be paid out
of the assets of the Corporation available for distribution to shareholders,
whether such assets are capital, surplus, or earnings, and before any amount
shall be paid or distributed to the holders of Common Stock or of any other
stock ranking on liquidation junior to the Series A Redeemable Preferred Stock,
an amount in cash equal to the sum of (a) $62.90 per share of Series A
Redeemable Preferred Stock held by such holder (adjusted appropriately for stock
splits, stock dividends, recapitalizations and the like with respect to the
Series A Redeemable Preferred Stock), plus (b) any unpaid dividends to which
such holder of outstanding shares of Series A Redeemable Preferred Stock is
entitled pursuant to Sections D.3 and D.5(d) hereof (the sum of clauses (a) and
(b) being referred to herein as the"Series A Redeemable Base Liquidation
Amount"), plus (c) any interest accrued pursuant to Section D.5(c) to which such
holder of outstanding shares of Series A Redeemable Preferred Stock is entitled,
if any (the sum of clauses (a), (b) and (c) being referred to herein as
the"Series A Redeemable Liquidation Preference Amount"); PROVIDED, HOWEVER, that
if, upon any Liquidation Event, the amounts payable with respect to the Series A
Redeemable Liquidation Preference Amount are not paid in full, the holders of
the Series A Redeemable
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<PAGE> 19
Preferred Stock shall share ratably in any distribution of assets in proportion
to the full respective preferential amounts to which they are entitled.
5. Redemption.
-----------
(a) Redemption Events.
------------------
(i) UPON ELECTION OF HOLDERS UPON A QPO. Upon the
election of the holder or holders of not less than sixty-six
and two-thirds percent of the outstanding Convertible Stock,
the Corporation shall redeem all (and not less than all,
except as set forth in the third sentence of this Section
D.5(a)) of the outstanding shares of Series A Redeemable
Preferred Stock upon the closing of a QPO. The foregoing
election shall be made by such holders giving the Corporation
and each other holder of Series A Redeemable Preferred Stock
(or Convertible Stock, as applicable) written notice not less
than five (5) days prior to the closing of a QPO. In the event
that the principal underwriter for a QPO shall reasonably and
in good faith request in writing, or cause the Company to so
request in writing, that the holders of Series A Redeemable
Preferred Stock waive the holders' right to elect to have such
holder's shares of Series A Redeemable Preferred Stock
redeemed pursuant to this Section D.5(a)(i) and the holders of
sixty-six and two-thirds percent in voting power of the
outstanding shares of the Series A Redeemable Preferred Stock
agree to so waive such redemption election, then all
outstanding shares of Series A Redeemable Preferred Stock
shall be exchanged, without the payment of additional
consideration, for notes of the Company ("Series A Notes") in
an aggregate principal amount equal to the aggregate Series A
Redemption Price (as defined in Section D.5(b) below), which
Series A Notes shall (i) mature on the second anniversary of
the effective date of such QPO and (ii) bear interest on the
outstanding principal balance thereof at the rate of fifteen
percent (15%) per annum, which interest shall accrue daily in
arrears and be paid on the last day of each month, commencing
on the last day of the first month following the effective
date of such QPO.
(ii) UPON ELECTION OF CORPORATION UPON A QPO. The
Corporation may elect to redeem all (but not less than all,
other than pursuant to Section D.5(c) below) of the
outstanding shares of Series A Redeemable Preferred Stock at
any time upon the closing of a QPO. The foregoing election
shall be made by the Corporation giving each holder of Series
A Redeemable Preferred Stock written notice not less than five
(5) days prior to the closing of a QPO.
(iii) Lapse of Time.
--------------
(A) At any time after the later of the first
anniversary of the date of the conversion of the
Convertible Preferred Stock as set forth in Section
C.6 (other than in connection with an Extraordinary
Transaction) and October 15, 2001, on any one
occasion any holder of Series A Redeemable Preferred
Stock may require the Corporation to redeem up to 50%
of the outstanding shares of Series A Redeemable
Preferred Stock held by such holder at such time.
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<PAGE> 20
(B) At any time after the later of the
second anniversary of the date of the conversion of
the Convertible Preferred Stock as set forth in
Section C.6 (other than in connection with an
Extraordinary Transaction) and October 15, 2002, on
any one occasion any holder of Series A Redeemable
Preferred Stock may require the Corporation to redeem
up to all of the outstanding shares of Series A
Redeemable Preferred Stock held by such holder at
such time.
(iv) UPON EXTRAORDINARY TRANSACTIONS. Upon the
election of the holder or holders of not less than sixty-six
and two-thirds percent in voting power of the outstanding
Series A Redeemable Preferred Stock (or Convertible Stock, as
applicable, proposing to convert the same in order to effect a
redemption of the Series A Redeemable Preferred Stock received
upon such conversion hereunder), the Corporation shall redeem
all (and not less than all, other than pursuant to Section
D.5(c) below) of the outstanding shares of Series A Redeemable
Preferred Stock upon the occurrence of an Extraordinary
Transaction (as defined in Section C.5) or public offering not
constituting a QPO. The foregoing election shall be made by
such holders giving the Corporation and each other holder of
Series A Redeemable Preferred Stock (or Convertible Stock, as
applicable) not less than five (5) days prior written notice,
which notice shall set forth the date for such redemption.
(v) Upon Election of Corporation.
-----------------------------
(A) At any time after the later of the first
anniversary of the date of the conversion of the
Convertible Preferred Stock as set forth in Section
C.6 and October 15, 2001, the Corporation may redeem
50% (but not less than 50%) of the outstanding shares
of Series A Redeemable Preferred Stock. The foregoing
election shall be made by the Corporation giving each
holder of Series A Redeemable Preferred Stock written
notice not less than five (5) days prior to the date
for such redemption.
(B) At any time after the later of the
second anniversary of the date of the conversion of
the Convertible Preferred Stock as set forth in
Section C.6 and October 15, 2002, the Corporation may
redeem all (but not less than all) of the outstanding
shares of Series A Redeemable Preferred Stock. The
foregoing election shall be made by the Corporation
giving each holder of Series A Redeemable Preferred
Stock written notice not less than five (5) days
prior to such redemption.
(b) REDEMPTION DATE; REDEMPTION PRICE. Any holder of Series A
Redeemable Preferred Stock may exercise such holder's right of
redemption pursuant to Section D.5(a)(iii) by such holder giving the
Corporation not less than ten (10) days prior written notice, which
notice shall set forth the date for such redemption. Upon the election
of the holders of not less than sixty-six and two-thirds percent in
voting power of the outstanding Series A Redeemable Preferred Stock to
cause the Corporation to redeem the Series A Redeemable Preferred Stock
pursuant to Section D.5(a)(i) or (a)(iv), all holders of Series A
Redeemable Preferred Stock shall be deemed to have elected to cause the
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<PAGE> 21
Series A Redeemable Preferred Stock to be so redeemed. Any date upon
which a redemption shall actually occur in accordance with Section
D.5(a) shall be referred to as a "Series A Redemption Date." The
redemption price for each share of Series A Redeemable Preferred Stock
redeemed pursuant to this Section D.5 shall be the per share Series A
Redeemable Liquidation Preference Amount (the "Series A Redemption
Price"). The aggregate Series A Redemption Price shall be payable in
cash in immediately available funds on the Series A Redemption Date.
Until the aggregate Series A Redemption Price, including any interest
thereon, has been paid in cash for all shares of Series A Redeemable
Preferred Stock redeemed as of the applicable Series A Redemption Date
or Series A Notes have been issued pursuant to Section D.5(a)(i): (A)
no dividend whatsoever shall be paid or declared, and no distribution
shall be made, on any capital stock of the Corporation; and (B) except
as provided in Sections C.8(d)(i), (ii) and (iii), no shares of capital
stock of the Corporation (other than the Series A Redeemable Preferred
Stock in accordance with this Section D.5) shall be purchased, redeemed
or acquired by the Corporation and no monies shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption
or acquisition thereof.
(c) REDEMPTION PROHIBITED. If, at a Series A Redemption Date,
the Corporation is prohibited under Section 1701.35 from redeeming all
shares of Series A Redeemable Preferred Stock for which redemption is
required hereunder, then it shall redeem such shares on a pro-rata
basis among the holders of Series A Redeemable Preferred Stock in
proportion to the full respective redemption amounts to which they are
entitled hereunder to the extent possible and shall redeem the
remaining shares to be redeemed as soon as the Corporation is not
prohibited from redeeming some or all of such shares under Section
1701.35, subject to the last paragraph of Section C.8. The shares of
Series A Redeemable Preferred Stock not redeemed shall remain
outstanding and entitled to all of the rights and preferences provided
in this Article III. In the event that the Corporation fails for any
reason to redeem shares for which redemption is triggered pursuant to
Section D.5 (other than pursuant to the third sentence of Section
D.5(a)(i)), including without limitation due to a prohibition of such
redemption under Section 1701.35, then during the period from the
applicable Series A Redemption Date through the date on which such
shares are redeemed, the applicable Series A Redeemable Base
Liquidation Amount of such shares shall bear interest at the rate of
15% per annum, with such interest to accrue daily in arrears and to be
compounded annually.
(d) DIVIDEND AFTER REDEMPTION DATE. From and after the closing
of a QPO or an Extraordinary Transaction or a public offering not
constituting a QPO (in the case of a redemption pursuant to Section
D.5(a)(i) or (iv)) or the date specified for redemption in the election
notice as set forth in Section D.5(a)(ii) or (v) or Section D.5(b), no
shares of Series A Redeemable Preferred Stock subject to redemption
shall be entitled to any further dividends pursuant to Section D.3
hereof; PROVIDED, HOWEVER, that in the event that shares of Series A
Redeemable Preferred Stock are unable to be redeemed and continue to be
outstanding in accordance with Section D.5(c), such shares shall
continue to be entitled to dividends and interest thereon as provided
in Sections D.3 and D.5(c) until the date on which such shares are
actually redeemed by the Corporation.
(e) SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Series A Redemption Price by certified check or wire transfer or
receipt of the Series A Notes
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<PAGE> 22
pursuant to the third sentence of Section D.5(a)(i), each holder of
shares of Series A Redeemable Preferred Stock to be redeemed shall
surrender the certificate or certificates representing such shares to
the Corporation, duly assigned or endorsed for transfer (or accompanied
by duly executed stock powers relating thereto), or shall deliver an
Affidavit of Loss with respect to such certificates at the principal
executive office of the Corporation or the office of the transfer agent
for the Series A Redeemable Preferred Stock or such office or offices
in the continental United States of an agent for redemption as may from
time to time be designated by notice to the holders of Series A
Redeemable Preferred Stock (or the holders of Convertible Stock, as
applicable), and each surrendered certificate shall be canceled and
retired; PROVIDED, HOWEVER, that if the holder has exercised its
redemption right pursuant to Section D.5(a)(iii)(A), the holder shall
not be required to surrender said certificate(s) to the Corporation
until said holder has received a new stock certificate for those shares
of Series A Redeemable Preferred Stock not so redeemed.
6. NOTICE. In the event that the Corporation provides or is required to
provide notice to any holder of Convertible Stock or Common Stock in accordance
with the provisions of these Second Amended and Restated Articles of
Incorporation (including the provisions of Sections C.5(c) and C.9) and/or the
Corporation's regulations, the Corporation shall at the same time provide a copy
of any such notice to each holder of outstanding shares of Series A Redeemable
Preferred Stock.
7. NO REISSUANCE OF SERIES A REDEEMABLE PREFERRED STOCK. No share or
shares of Series A Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion, exchange or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which the Corporation shall be authorized to issue.
8. COVENANTS. So long as any shares of Series A Redeemable Preferred
Stock shall be outstanding the provisions of Section C.8 shall apply to all
shares of Series A Redeemable Preferred Stock as if such shares were shares of
Convertible Preferred Stock.
E. Common Stock.
-------------
Subject to any Preferred Stock Designation, the holders of shares of
Common Stock shall be entitled to one vote on each matter submitted to a vote at
a meeting of shareholders for each share of Common Stock held of record by such
holder as of the record date for such meeting. Each share of Common Stock will
be equal to every other share of Common Stock.
ARTICLE V
---------
The Board of Directors shall be authorized hereby to exercise all
powers now or hereafter permitted by law providing rights to the Board of
Directors to adopt amendments to these Second Amended and Restated Articles of
Incorporation (i) to fix or change the express terms of any unissued or treasury
shares of any class, including, without limiting the generality of the
foregoing: division of such shares into series and the designation and
authorized number of shares of each series; voting rights of such shares (to the
extent now or hereafter permitted by law); dividend or distribution rate; dates
of payment of dividends or distributions and the dates
- 22 -
<PAGE> 23
from which they are cumulative; liquidation price; redemption rights and price;
sinking fund requirements; conversion rights; and restrictions on the issuance
of shares of the same series or any other class or series; all as may be
established by resolution of the Board of Directors from time to time
(collectively with the terms of the Preferred Stock, a "Preferred Stock
Designation"), and (ii) to include within these Second Amended and Restated
Articles of Incorporation such additional provisions, or amendments to any
existing provisions, as may hereafter be authorized by law.
ARTICLE VI
A. Except as set forth in Section C of this Article VI, the affirmative
vote of the holders of at least 70% of the voting power of the Corporation,
voting together as a single class, is required:
1. to adopt an agreement for the merger or consolidation
of the Corporation with or into any other entity; or
2. to authorize the sale, lease, exchange, transfer or
other disposition of all or substantially all of the
assets of the Corporation, to another person,
corporation or other entity; or
3. to authorize any sale, transfer or other disposition
by the Corporation of any of its shares in a
transaction in which shareholder approval is
otherwise required by applicable Ohio law; or
4. to authorize any amendment of these Second Amended
and Restated Articles of Incorporation so as to
change issued or unissued shares of any class,
whether with or without par value, into the same or a
different number of shares of any class with or
without par value, theretofore or then authorized; or
5. to authorize any amendment of these Second Amended
and Restated Articles of Incorporation so as to
change any of the express terms of issued or unissued
shares of any class; or
6. to authorize any control share acquisition for which
shareholder approval is required pursuant to Ohio
Revised Code Section 1701.831 (or any successor
section thereto) as such provision is amended from
time to time;
provided, however, that this Article VI will not alter the voting entitlement of
shares that, by virtue of any Preferred Stock Designation, are expressly
entitled to vote on any amendment to these Second Amended and Restated Articles
of Incorporation.
B. For purposes of these Second Amended and Restated Articles of
Incorporation, (1) "voting power of the Corporation" means the aggregate voting
power of (a) all the outstanding Common Stock of the Corporation and (b) all the
outstanding shares of any class or series of shares of the Corporation that has
(i) rights to distributions senior to those of the Common Stock including,
without limitation, any relative, participating, optional, or other
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<PAGE> 24
special rights and privileges of, and any qualifications, limitations or
restrictions on, such shares and (ii) voting rights entitling such shares to
vote generally in the election of directors; and (2) "control share acquisition"
has the meaning for such term in Ohio Revised Code Section 1701.01(Z)(1) (or any
successor section thereto) as such provision is amended from time to time.
C. The provisions of Section A of this Article VI will not apply to any
vote of the shareholders made with respect to any of the matters enumerated in
Section 1 of this Article VI if, prior to such vote, all of the directors of the
Corporation then in office have, by a resolution adopted at a duly convened
meeting or by unanimous written action in lieu of a meeting, approved such
matter and recommended the approval of such matter to the shareholders.
D. The vote required under Section A.6 of this Article VI is in
addition to the requirements of Section 1701.831 of the Ohio Revised Code.
ARTICLE VII
-----------
Except as may be provided in any Preferred Stock Designation, holders
of shares of capital stock of the Corporation shall not be entitled to
cumulative voting rights in the election of directors.
ARTICLE VIII
------------
Except as may be provided in any Preferred Stock Designation, no holder
of any shares of capital stock of the Corporation shall have any preemptive
right to acquire any shares of unissued capital stock of any class or series,
now or hereafter authorized, or any treasury shares or securities convertible
into such shares or carrying a right to subscribe to or acquire such shares of
capital stock.
ARTICLE IX
----------
The Corporation may from time to time, pursuant to authorization by the
Board of Directors and without action by the shareholders, purchase or otherwise
acquire capital stock of the Corporation of any class or classes in such manner,
upon such terms and in such amounts as the Board of Directors shall determine;
subject, however, to such limitation or restriction, if any, as is contained in
any Preferred Stock Designation at the time of such purchase or acquisition.
ARTICLE X
---------
Subject to Article VI and Article XI of these Second Amended and
Restated Articles of Incorporation and any Preferred Stock Designation, and
notwithstanding any provision of the Ohio Revised Code now or hereafter in force
requiring for any purpose the vote, consent, waiver or release of the holders of
shares entitling them to exercise two-thirds, or any other proportion, of the
voting power of the Corporation or of any class or classes of shares thereof,
such action, unless otherwise expressly required by statute or by these Second
Amended and Restated Articles of Incorporation, may be taken by the vote,
consent, waiver or release of the holders of
- 24 -
<PAGE> 25
shares entitling them to exercise a majority of the voting power of the
Corporation or of such classes.
ARTICLE XI
----------
Notwithstanding anything to the contrary contained in these Second
Amended and Restated Articles of Incorporation, the affirmative vote of the
holders of at least 70% of the voting power of the Corporation, voting together
as a single class, shall be required to amend or repeal, or adopt any provision
inconsistent with, Article V, Article VI, Article VIII, Article IX, Article X or
this Article XI; provided, however, (a) that this Article XI shall not alter the
voting entitlement of shares that, by virtue of any Preferred Stock Designation,
are expressly entitled to vote on any amendment to these Second Amended and
Restated Articles of Incorporation, and (b) that this Article XI will not apply
to any amendment, repeal or adoption of any provision if, prior to such vote,
all of the directors of the Corporation then in office have, by a resolution
adopted at a duly convened meeting or by unanimous written action in lieu of a
meeting, approved such matter and recommended the approval of such matter to the
shareholders.
ARTICLE XII
-----------
Any and every statute of the State of Ohio hereafter enacted, (i)
whereby the rights, powers or privileges of corporations or of the shareholders
of corporations organized under the laws of the State of Ohio are increased or
diminished or in any way affected, or (ii) whereby effect is given to the action
taken by any number, less than all, of the shareholders of any such corporation,
or (iii) whereby the authority of the directors to adopt amendments to the
articles of incorporation without shareholder approval shall be expanded, will
apply to the Corporation and will be binding not only upon the Corporation but
upon every shareholder of the Corporation to the same extent as if such statute
had been in force at the date of filing these Second Amended and Restated
Articles of Incorporation in the office of the Secretary of State of Ohio.
ARTICLE XIII
------------
Except as may be otherwise provided in any Preferred Stock
Designation, the number of the directors of the Corporation will not be less
than six nor more than 16 as may be determined from time to time only (i) by a
vote of a majority of the total number of directors that the Corporation would
have if there were no vacancies on the Board, or (ii) by the affirmative vote of
the holders of at least 80% of the voting power of the Corporation, voting
together as a single class. The directors, other than those who may be expressly
elected by virtue of the terms of any Preferred Stock Designation, will be
classified with respect to the time for which they severally hold office into
two classes, as nearly equal in size as possible and consisting of not less than
three directors in each class, designated Class I and Class II. The directors
first appointed to Class I will hold office for a term expiring at the annual
meeting of shareholders to be held in 1999 and the directors first appointed to
Class II will hold office for a term expiring at the annual meeting of
shareholders to be held in 2000. The members of each class will hold office
until their successors are elected. Except as may be otherwise provided in any
Preferred Stock Designation, at each annual meeting of the shareholders of the
Corporation, the successors of the class of directors whose terms expire at that
meeting shall be elected by plurality vote of all votes cast at such meeting to
hold office for a term expiring at the annual meeting of
- 25 -
<PAGE> 26
shareholders held in the third year following the year of their election. Except
as may be otherwise provided in any Preferred Stock Designation, directors may
be elected by the shareholders only at an annual meeting of shareholders. No
decrease in the number of directors constituting the Board of Directors may
shorten the term of any incumbent director. Election of directors of the
Corporation need not be by written ballot unless requested by the presiding
officer or by the holders of a majority of the voting power of the Corporation
present in person or represented by proxy at a meeting of the shareholders at
which directors are to be elected.
ARTICLE XIV
-----------
These Second Amended and Restated Articles of Incorporation supersede
the existing Amended and Restated Articles of Incorporation of the Corporation,
as amended.
- 26 -
<PAGE> 1
Exhibit 5
March 1, 1999
Conley, Canitano & Associates, Inc.
5800 Landerbrook Drive
Mayfield Heights, Ohio 44124
Re: 5,000,000 Shares of Common Stock,
no par value, of Conley, Canitano &
Associates, Inc. to Be Offered Through Underwriters
---------------------------------------------------
Gentlemen:
We are acting as counsel for Conley, Canitano & Associates,
Inc., an Ohio corporation (the "Corporation"), in connection with (i) the
issuance and sale of 4,000,000 shares of Common Stock, no par value, of the
Corporation (the "Primary Shares") in accordance with the Underwriting
Agreement (the "Underwriting Agreement") among the Corporation, the
shareholders of the Corporation named in Schedule II to the Underwriting
Agreement (collectively, the "Selling Shareholders"), and the Representatives
of the several Underwriters named in Schedule I to the Underwriting Agreement
(collectively, the "Underwriters"), (ii) the sale by the Selling Shareholders
identified on ATTACHMENT A hereto of up to 20,010 shares of Common Stock, no
par value, of the Corporation and (iii) the sale by the remaining Selling
Shareholders of up to 979,990 shares of Common Stock, no par value, of the
Corporation ((ii) and (iii) collectively, the "Secondary Shares") in accordance
with the Underwriting Agreement.
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereon we are
of the opinion that:
1. The Primary Shares are duly authorized and, when issued and
delivered to the Underwriters pursuant to the Underwriting Agreement against
payment of the consideration therefor as provided therein, will be validly
issued, fully paid and nonassessable.
2. The Secondary Shares to be sold by the Selling Shareholders
identified on ATTACHMENT A hereto are duly authorized and, when issued and
delivered in accordance with the terms of the respective option agreements
between the Corporation and such Selling Shareholders, will be validly issued,
fully paid and nonassessable.
3. The remainder of the Secondary Shares are duly authorized,
validly issued, fully paid and nonassessable.
<PAGE> 2
Conley, Canitano & Associates, Inc
March 1, 1999
Page 2
We hereby consent to the filing of this opinion as Exhibit 5
to the Registration Statement No. 33-59909 on Form S-1 filed by the Corporation
to effect registration of the Primary Shares and the Secondary Shares under the
Securities Act of 1933, as amended (the "Registration Statement"), and to the
reference to us under the caption "Legal Matters" in the Prospectus comprising
a part of the Registration Statement.
Very truly yours,
Jones, Day, Reavis & Pogue
<PAGE> 3
ATTACHMENT A
------------
1. Option Agreement, dated April 3, 1998, between Brent Bearden and
Conley, Canitano & Associates, Inc.
2. Option Agreement, dated April 3, 1998, between John Gravitt and Conley,
Canitano & Associates, Inc.
3. Option Agreement, dated April 3, 1998, between Claudia Kendler and
Conley, Canitano & Associates, Inc.
4. Option Agreement, dated April 3, 1998, between Laura McDonel and
Conley, Canitano & Associates, Inc.
5. Option Agreement, dated April 3, 1998, between Bryan Pepper and Conley,
Canitano & Associates, Inc.
6. Option Agreement, dated April 3, 1998, between Rob Peterson and Conley,
Canitano & Associates, Inc.
7. Option Agreement, dated April 3, 1998, between Ted Renneker and Conley,
Canitano & Associates, Inc.
<PAGE> 1
Exhibit 10.31
RESTATED AND AMENDED
LOAN AGREEMENT
BY AND BETWEEN
CONLEY, CANITANO & ASSOCIATES, INC.
AND
FLEET NATIONAL BANK, AS AGENT AND A LENDER
AND
THE OTHER FINANCIAL INSTITUTIONS NOW OR
HEREAFTER PARTIES HERETO
$20,000,000 SECURED TERM LOAN
AND
$7,500,000 SECURED REVOLVING CREDIT LOAN
JANUARY 12, 1999
<PAGE> 2
INDEX TO
LOAN AGREEMENT
<TABLE>
<CAPTION>
Page
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<S> <C>
RECITALS.........................................................................................................1
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........................................................................16
SECTION 2.1. THE LOANS.....................................................................................16
Section 2.1.0. The Revolving Credit Loans.............................................................16
Section 2.1.1. Term Loans.............................................................................17
SECTION 2.2. INTEREST AND FEES ON THE LOANS................................................................18
Section 2.2.1. Interest...............................................................................18
Section 2.2.2. Fees...................................................................................19
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...............................................................24
Section 2.6.1. Mandatory Payments.....................................................................24
Section 2.6.2. Voluntary Prepayments..................................................................25
Section 2.6.3. Prepayment of Libor Loans..............................................................25
Section 2.6.4. Permanent Reduction of Commitment......................................................25
SECTION 2.7. PAYMENT ON NON-BUSINESS DAYS..................................................................25
SECTION 2.8. USE OF PROCEEDS...............................................................................26
SECTION 2.9. SPECIAL LIBOR LOAN PROVISIONS.................................................................26
Section 2.9.1. Requests...............................................................................26
Section 2.9.2. Libor Loans Unavailable................................................................26
Section 2.9.3. Libor Lending Unlawful.................................................................27
Section 2.9.4. Additional Costs on Libor Loans........................................................28
Section 2.9.5. Libor Funding Losses...................................................................29
Section 2.9.6. Banking Practices......................................................................29
Section 2.9.7. Borrower's Options on Unavailability or Increased Cost of Libor Loans.................30
Section 2.9.8. Assumptions Concerning Funding of Libor Loans..........................................30
SECTION 2.10. INTEREST RATE PROTECTION.....................................................................30
ARTICLE 3. CONDITIONS OF LENDING................................................................................31
SECTION 3.1. CONDITIONS PRECEDENT TO THE COMMITMENT AND TO ALL LOANS.......................................31
Section 3.1.1. The Commitment and Initial Loans.......................................................31
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 3.1.2. The Commitment and the Loans...........................................................34
ARTICLE 4. REPRESENTATIONS AND WARRANTIES.......................................................................34
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER................................................34
Section 4.1.1. Organization and Existence.............................................................34
Section 4.1.2. Authorization and Absence of Defaults..................................................35
Section 4.1.3. Acquisition of Consents................................................................35
Section 4.1.4. Validity and Enforceability............................................................35
Section 4.1.5. Financial Information..................................................................35
Section 4.1.6. No Litigation..........................................................................36
Section 4.1.7. Regulation U...........................................................................36
Section 4.1.8. Absence of Adverse Agreements..........................................................36
Section 4.1.9. Taxes..................................................................................37
Section 4.1.10. ERISA.................................................................................37
Section 4.1.11. Ownership of Properties...............................................................37
Section 4.1.12. Accuracy of Representations and Warranties............................................38
Section 4.1.13. No Investment Company.................................................................38
Section 4.1.14. Solvency, etc.........................................................................38
Section 4.1.15. Approvals.............................................................................38
Section 4.1.16. Ownership Interests...................................................................38
Section 4.1.17. Licenses, Registrations, Compliance with Laws, etc....................................39
Section 4.1.18. Principal Place of Business; Books and Records........................................39
Section 4.1.19. Subsidiaries..........................................................................39
Section 4.1.20. Copyright.............................................................................39
Section 4.1.21. Environmental Compliance..............................................................39
Section 4.1.22. Material Agreements, etc..............................................................40
Section 4.1.23. Patents, Trademarks and Other Property Rights.........................................40
Section 4.1.24. Related Transaction Documents.........................................................40
Section 4.1.25. Material Adverse Effect...............................................................40
Section 4.1.26. Year 2000.............................................................................40
ARTICLE 5. COVENANTS OF THE BORROWER............................................................................41
SECTION 5.1. AFFIRMATIVE COVENANTS OF THE BORROWER OTHER THAN REPORTING REQUIREMENTS.......................41
Section 5.1.1. Payment of Taxes, etc..................................................................41
Section 5.1.2. Maintenance of Insurance...............................................................41
Section 5.1.3. Preservation of Existence, etc.........................................................42
Section 5.1.4. Compliance with Laws, etc..............................................................42
Section 5.1.5. Visitation Rights......................................................................42
Section 5.1.6. Keeping of Records and Books of Account................................................42
Section 5.1.7. Maintenance of Properties, etc.........................................................42
Section 5.1.8. Post-Closing Items.....................................................................42
Section 5.1.9. Other Documents, etc...................................................................42
Section 5.1.10. Minimum Interest Coverage Ratio.......................................................43
Section 5.1.11. Minimum Fixed Charge Coverage Ratio...................................................43
Section 5.1.12. Maximum Ratio of Total Indebtedness for Borrowed Money to EBITDA......................43
Section 5.1.13. Officer's Certificates and Requests...................................................43
Section 5.1.14. Depository............................................................................43
Section 5.1.15. Chief Executive Officer...............................................................43
Section 5.1.16. Notice of Purchase of Real Estate and Leases..........................................43
Section 5.1.17. Additional Assurances.................................................................44
Section 5.1.18. Appraisals............................................................................44
Section 5.1.19. Environmental Compliance..............................................................44
Section 5.1.20. Remediation...........................................................................44
Section 5.1.21. Site Assessments......................................................................44
Section 5.1.22. Indemnity.............................................................................44
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 5.1.23. Trademarks, Copyrights, etc................................................................45
SECTION 5.2. NEGATIVE COVENANTS OF THE BORROWER.................................................................45
Section 5.2.1. Liens, etc..................................................................................45
Section 5.2.2. Assumptions, Guaranties, etc. of Indebtedness of Other Persons..............................46
Section 5.2.3. Acquisitions, Dissolution, etc..............................................................46
Section 5.2.4. Change in Nature of Business................................................................47
Section 5.2.5. Ownership...................................................................................47
Section 5.2.6. Sale and Leaseback..........................................................................47
Section 5.2.7. Sale of Accounts, etc.......................................................................47
Section 5.2.8. Indebtedness................................................................................47
Section 5.2.9. Other Agreements............................................................................48
Section 5.2.11. Dividends, Payments and Distributions......................................................48
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 or Dividends....................................................49
Section 5.2.20 Limitation on Creation of Subsidiaries, etc.................................................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.......................................................................................53
ARTICLE 8. AGENT.....................................................................................................54
SECTION 8.1. APPOINTMENT........................................................................................54
SECTION 8.2. POWERS; GENERAL IMMUNITY...........................................................................54
Section 8.2.1. Duties Specified............................................................................54
Section 8.2.2. No Responsibility For Certain Matters.......................................................54
Section 8.2.3. Exculpatory Provisions......................................................................54
Section 8.2.4. Agent Entitled to Act as Lender.............................................................55
SECTION 8.3. REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDITWORTHINESS................55
SECTION 8.4. RIGHT TO INDEMNITY.................................................................................55
SECTION 8.5. PAYEE OF NOTE TREATED AS OWNER.....................................................................56
SECTION 8.6. RESIGNATION BY AGENT...............................................................................56
SECTION 8.6. SUCCESSOR AGENT....................................................................................56
ARTICLE 9. MISCELLANEOUS.............................................................................................57
SECTION 9.1. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.....................................................57
SECTION 9.2. RIGHTS AND REMEDIES CUMULATIVE.....................................................................57
SECTION 9.3. DELAY OR OMISSION NOT WAIVER.......................................................................58
SECTION 9.4. WAIVER OF STAY OR EXTENSION LAWS...................................................................58
SECTION 9.5. AMENDMENTS, ETC....................................................................................58
SECTION 9.6. ADDRESSES FOR NOTICES, ETC.........................................................................59
SECTION 9.7. COSTS, EXPENSES AND TAXES..........................................................................60
SECTION 9.8. PARTICIPATIONS.....................................................................................60
SECTION 9.9. BINDING EFFECT; ASSIGNMENT.........................................................................60
SECTION 9.10. ACTUAL KNOWLEDGE..................................................................................60
SECTION 9.11. SUBSTITUTIONS AND ASSIGNMENTS.....................................................................61
SECTION 9.12. PAYMENTS PRO RATA.................................................................................62
SECTION 9.13. INDEMNIFICATION...................................................................................63
</TABLE>
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<TABLE>
<S> <C>
SECTION 9.14. GOVERNING LAW...................................................................................64
SECTION 9.15. SEVERABILITY OF PROVISIONS......................................................................64
SECTION 9.16. HEADINGS........................................................................................64
SECTION 9.17. COUNTERPARTS....................................................................................64
</TABLE>
iv
<PAGE> 6
SCHEDULE OF EXHIBITS
EXHIBIT 1.1 EQUITY INVESTMENTS, 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 NOTE
EXHIBIT 1.6 FORM OF TERM NOTE
EXHIBIT 1.8 PERMITTED ENCUMBRANCES
EXHIBIT 1.9 PRO RATA SHARES, AGENT'S AND LENDERS' NOTICE ADDRESSES AND
WIRE TRANSFER INSTRUCTIONS
EXHIBIT 1.10 FORM OF REQUEST
EXHIBIT 2.1.0 BORROWING BASE CERTIFICATE
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
v
<PAGE> 7
RESTATED AND AMENDED
LOAN AGREEMENT
Conley, Canitano & Associates, 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 an office at One Federal Street, Boston, Massachusetts 02110 (hereinafter
sometimes the "Agent") as Agent for itself (sometimes "Fleet") 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 sometimes in its capacity as a Lender
("Lender"), and the Lenders hereby agree as follows:
RECITALS
WHEREAS, on or about April 7, 1998, the Borrower obtained from Fleet a
secured revolving credit/term loan commitment of up to $15,000,000 all on the
terms and conditions contained in that certain Loan Agreement by and between the
Borrower, Fleet and the Agent dated as of April 7, 1998 (the "Existing Credit
Agreement"); and
WHEREAS, the Borrower has requested that the Agent and the Lenders
amend and restate said credit facility by replacing same with a Revolving Credit
Loan Commitment in a maximum principal amount not to exceed $7,500,000 and a
Term Loan in the amount of $20,000,000 and the Agent and the Lenders are willing
to amend and restate the Existing Credit Agreement to permit certain
indebtedness outstanding thereunder to remain outstanding on the terms and
conditions set forth in this Amended and Restated Loan Agreement, to provide for
the Revolving Credit Loan Commitment and the Term Loan and to amend and restate
certain other provisions thereof.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Borrower, the Lenders and the
Agent agree that the Existing Credit Agreement is hereby amended and restated
and shall remain in effect as amended and restated hereby on the terms and
conditions contained herein, each of which are agreed to by the Borrower, the
Lenders and the Agent 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 Bureau Van Dijk Computer Services, Inc., a
Georgia corporation and a Subsidiary.
1
<PAGE> 8
"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 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.
"Adjusted Four Quarterly Basis" means (i) for the Borrower fiscal
quarter ending December 31, 1998, EBITDA, Interest Expense and Total Debt
Service, respectively shall be the sum of (a) the EBITDA, Interest Expense and
Total Debt Service, respectively, of the Borrower and any Subsidiaries for said
Borrower fiscal quarter and for the immediately preceding two Borrower fiscal
quarters times 1.33, plus, (b) the Acquired Company EBITDA, Interest Expense and
Total Debt Service, respectively, calculated in the same manner as the
Borrower's EBITDA, Interest Expense and Total Debt Service, respectively, set
forth above for the Acquired Company fiscal quarter ending December 31, 1998 and
the immediately preceding three Acquired Company fiscal quarters; (ii) for the
Borrower fiscal quarter ending March 31, 1999, EBITDA, Interest Expense and
Total Debt Service, respectively, shall be the sum of (c) the EBITDA, Interest
Expense and Total Debt Service, respectively, of the Borrower and any
Subsidiaries for said fiscal quarter and for the immediately preceding three
Borrower fiscal quarters plus (d) the Acquired Company's EBITDA, Interest
Expense and Total Debt Service, respectively, for the Acquired Company's fiscal
quarters ending June 30, September 30, and December 31, of 1998; (iii) for the
Borrower fiscal quarter ending June 30, 1999, EBITDA, Interest Expense and Total
Debt Service, respectively, shall be the sum of (e) the EBITDA, Interest Expense
and Total Debt Service, respectively, of the Borrower and any Subsidiaries for
said fiscal quarter and for the immediately preceding three Borrower fiscal
quarters plus (f) the Acquired Company's EBITDA, Interest Expense and Total Debt
Service, respectively, for the Acquired Company's fiscal
2
<PAGE> 9
quarters ending September 30, 1998 and December 31, 1998; (iv) for the Borrower
fiscal quarter ending September 30, 1999, EBITDA, Interest Expense and Total
Debt Service, respectively, shall be the sum of (g) the EBITDA, Interest Expense
and Total Debt Service, respectively, of the Borrower and any Subsidiaries for
said fiscal quarter and for the immediately preceding three Borrower fiscal
quarters plus (h) the EBITDA, Interest Expense and Total Debt Service,
respectively, of the Acquired Company for the Acquired Company's fiscal quarter
ending December 31, 1998; and for the Borrower fiscal quarter ending December
31, 1999 and thereafter, EBITDA, Interest Expense and Total Debt Service,
respectively, shall be the EBITDA, Interest Expense and Total Debt Service,
respectively, of the Borrower and any Subsidiaries for the Borrower fiscal
quarter in question and the immediately preceding three Borrower fiscal
quarters.
"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, (i) for each Libor Loan, 3.25% per annum,
and (ii) for each Prime Rate Loan, 1.50% per annum; provided, however, that if,
at any time on or after the receipt by the Agent (a) of the Borrower's quarterly
financial statements for the Borrower's December 31, 1998 fiscal quarter (which
for purposes of this definition shall be adjusted to give effect to the Loans
and the closing of the Related Transactions as provided in Section 3.1.10) and
(b) the Borrower's quarterly financial statements for each subsequent Borrower
fiscal quarter provided to the Agent by the Borrower pursuant to Section 5.3.3
hereof, the ratio of 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 Borrower fiscal quarter to EBITDA calculated on the Adjusted Four
Quarterly Basis is within the ratios set forth below and if and so long as no
Default or Event of Default exists, the applicable margin, shall, subject to the
last sentence of this definition, equal the rate set forth below opposite the
applicable ratio:
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Ratio Prime Rate+ LIBOR Rate+
< 3.00:1.00 > 2.50:1.00 1.00% 2.75%
-
< 2.50:1.00 > 1.50:1.00 .50% 2.25%
-
< 1.50 .00% 1.50%
Any change in the Applicable Margin required pursuant to the foregoing
shall become effective on the first day of the calendar month commencing after
the month in which 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 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 endeavor to
provide the Borrower with written notice of any such rate increases.
"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.
"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, any obligations in respect of
banker's and other acceptances or similar obligations and the maximum amount of
KLA Deferred Payments which could be owed by the Borrower at or after the date
of determination.
"Borrower" has the meaning assigned in the first paragraph of this
Agreement.
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<PAGE> 11
"Borrowing Base" means an amount equal to eighty percent (80%) of the
Net Outstanding Amount of Eligible Receivables.
"Budget" has the meaning assigned to such term in Section 5.3.7.
"Business Condition" means the financial condition, business, assets,
liabilities and 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 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
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<PAGE> 12
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, at any time:
(i) any "person" or "group" (each as used in Sections 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934, as amended from time to time)
either (A) becomes the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of voting capital stock of the Borrower
(or securities convertible into or exchangeable for such voting capital stock)
representing 30% or more of the combined voting power of all voting capital
stock of the Borrower (on a fully diluted basis) or (B) otherwise has the
ability, directly or indirectly, to elect a majority of the board of directors
of the Borrower; or
(ii) during any period of up to 24 consecutive months, commencing on
the Closing Date, individuals who at the beginning of such 24-month period were
directors of the Borrower shall cease for any reason (other than (A) the death,
disability or retirement of a director or (B) the death, disability or
retirement of an officer of the Borrower that is serving as a director at such
time so long as another officer of the Borrower replaces such Person as a
director) to constitute a majority of the board of directors of 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 Term 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 $27,500,000 less the reductions set forth in
Section 2.1 and less any reductions and prepayments or repayments of the Term
Loan as set forth in Section 2.6.
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<PAGE> 13
"Commonly Controlled Entity" means a Person, whether or not
incorporated, which is under common control with the Borrower within the meaning
of section 414(b) or (c) of the Code.
"Current Liabilities" means all liabilities of the Borrower and the
Subsidiaries which would, in accordance with GAAP on a consolidated basis, be
classified as current liabilities of corporations conducting a business the same
as or similar to that of the Borrower and any Subsidiaries, including without
limitation, all lease rental payments under Capitalized Lease Obligations and
fixed prepayments of, and sinking fund payments and reserves with respect to,
Indebtedness, in each case required to be made within one year from the date of
determination.
"Default" means an event or condition which with the giving of notice
or lapse of time or both would become an Event of Default.
"Discharged Rights and Obligations" shall have the meaning assigned to
such term in Section 9.11.4.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"EBITDA" means, for any fiscal period, Net Income plus, to the extent
accounted for in Net Income: (i) Interest Expense, (ii) taxes, (iii)
depreciation, (iv) amortization, (v) other noncash charges, (vi) non-recurring
extraordinary costs incurred by the Borrower and any Subsidiaries prior to March
31, 1999 in connection with closing of the Loans and the Related Transactions
and (vii) accrued KLA Deferred Payments, for such period determined on an
accrual and consolidated basis in accordance with GAAP.
"Effective Prime" means the Prime Rate plus the Applicable Margin for
Prime Rate Loans.
"Eligible Receivables" means accounts receivable of the Borrower
evidencing Indebtedness of Persons located in the United States of America to
the Borrower for goods actually sold and delivered or services actually
performed in the ordinary course of business by the Borrower to or for such
Person, as to which goods or services no written notice has been received by
Borrower from such Person that alleges a breach by the Borrower of its
obligation to deliver such goods and/or services and which accounts receivable
have been outstanding for less than ninety (90) days since their respective
invoicing dates, but excluding, however, (i) accounts receivable owing by
officers, directors, shareholders or employees of Borrower, (ii) accounts
receivable with respect to which goods are placed on consignment, guaranteed
sale, "bill and hold" or other terms by reason of which the payment by the
account debtor may be conditional, (iii) accounts receivable owing by the United
States or any agency, department or instrumentality thereof unless such accounts
are freely assignable to the Agent under the United States Assignment of Claims
Act and the Borrower has separately assigned each such account to the Agent in
compliance with such Act, (iv) accounts receivable owing by any Subsidiary or
Affiliate of Borrower, (v) accounts receivable with respect to which Borrower or
any Subsidiary or Affiliate is liable to the account debtor for goods sold or
services provided to Borrower or any Subsidiary or Affiliate by such account
debtor to the extent of Borrower's or any Subsidiary's or
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<PAGE> 14
Affiliate's liability to such account debtor, (vi) any accounts receivable as to
which the account debtor has claimed in writing any setoff or any dispute as to
the amount owing by the account debtor to the extent of the amount in dispute,
(vii) any accounts receivable subject to any Lien other than pursuant to the
Security Documents, (viii) any accounts receivable owing by any Person which is
insolvent and/or the subject of any bankruptcy, receivership or other insolvency
proceeding, and (ix) any accounts receivable deemed by the Agent in the Agent's
sole discretion exercised in good faith difficult to collect or uncollectible.
"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 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) KLA
Deferred Payments paid during such fiscal year, (iv) taxes payable during each
Borrower fiscal quarter in such fiscal year and (v) non-recurring extraordinary
costs incurred by the Borrower and any Subsidiaries prior to March 31, 1999 in
connection with the closing of the Loans and the Related Transactions and (v)
plus decreases and minus increases in working capital for the fiscal period in
question.
"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 Section 2.2.2 and accordance with the Fee Letter.
"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.
"Fee 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.
"Financing Documents" means, collectively, this Agreement, each Note,
the Security Documents, the Fee Letter, the Post-Closing Letter, any Letter of
Credit, any Letter of Credit
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<PAGE> 15
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.
"Fixed Charge Coverage Ratio" means the ratio of (i) EBITDA calculated
on the Adjusted Four Quarterly Basis minus all Capital Expenditures permitted
under Section 5.2.17 and paid during each Borrower fiscal quarter during the
period in question, and taxes payable during each Borrower fiscal quarter during
the period in question to (ii) Total Debt Service calculated on the Adjusted
Four Quarterly Basis.
"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.
"Ineligible Securities" means Securities which may not be underwritten
or dealt in by member banks of the Federal Reserve System under Section 16 of
the Banking Act of 1993 (12 U.S.C. ss.24, Seventh), as amended.
"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
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<PAGE> 16
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 and
by the Acquired Company when calculated on the Adjusted Four Quarterly Basis in
such fiscal quarter for interest, fees (excluding, however, the Facility Fee
being paid to the Agent on or after the Closing Date), 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:
(a) With respect to each Libor Loan:
(i) initially, the period commencing on the date of such Libor
Loan and ending one, two, three, four 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, four 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) for the Term Loan, no Interest Period shall end after the
Term Loan Repayment Date and for the Revolving Credit Loan, no
Interest Period shall end after the Revolving Credit Repayment Date;
and
(D) with respect to all Libor Loans, no more than six (6)
Interest Periods may be in effect at any time.
(b) With respect to each Prime Rate Loan, the period during which such
Loan is outstanding:
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<PAGE> 17
"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 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, 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.
"KLA" means Kelley-Levey & Associates, Inc., a Kentucky corporation.
"KLA Deferred Payments" means the financial obligations of Borrower
under the Retention Incentive Bonus Plan Agreements between the Borrower and
certain former employees of KLA each dated as of April 3, 1998 and the Earnout
Agreement among the Borrower, KLA, Anthony Kelley, Gary Levey and Ronnie
Crumpler, dated as of April 3, 1998.
"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.
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<PAGE> 18
"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.
"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 equal to or 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 or (ii) the Business Condition of the Borrower or any
Subsidiary.
"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.
"Net Outstanding Amount of Eligible Receivables" means the net amount
of Eligible Receivables outstanding after eliminating from the aggregate amount
of outstanding Eligible Receivables all payments, adjustments and credits
applicable thereto.
"Note" means any promissory note of the Borrower payable to the order
of a Lender and substantially in the form of Exhibit 1.5 or Exhibit 1.6 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.
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<PAGE> 19
"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, 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 4.1.21.1.
"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.
"Prior Permitted Acquisition" means Borrower's acquisition of KLA.
"Projections" means the Borrower's written projections of Borrower's
three-year future performance on a consolidated basis delivered to the Agent
prior to the Closing.
"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,
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<PAGE> 20
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.
"Qualified Initial Public Offering" means the Borrower and/or any
Subsidiary filing a Form S-1 or any other form of registration statement then
available for registration with the Securities and Exchange Commission or
otherwise conducting an initial public offering of any class of the Borrower's
or any Subsidiary's securities, which such offering generates $35,000,000 or
more in net proceeds and results in a price per share of $11.00 or more (subject
to adjustment for stock splits, stock dividends, recapitalizations and the
like).
"Quick Ratio" means the (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)), (y) Net Outstanding
Amount of Eligible Receivables and (z) the excess, if any, of the Revolving
Credit Loan Commitment over the sum of the outstanding principal balance of the
Revolving Credit Loans, the outstanding stated amounts of any Letters of Credit
and Letter of Credit Agreements and the amount of any unreimbursed drawings
thereunder to (ii) (a) Current Liabilities plus the maximum KLA Deferred
Payments which could be payable by the Borrower during the immediately
succeeding twelve-month period, but excluding any KLA Deferred Payments which
have been accrued in Borrower's Current Liabilities. Each item described in
clauses (i) and (ii) of this Section 5.1.11 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.
"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 Transactions" means the acquisition by the Borrowers of the
issued and outstanding capital stock of the Acquired Company.
"Related Transaction Documents" means the documents listed on Exhibit
1.2.
"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 Loan" means the revolving credit loans to be made by
the Lenders to the Borrower from time to time in the maximum outstanding
principal amount of the Revolving Credit Loan Commitment, all subject and
pursuant to Section 2.1.0.
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<PAGE> 21
"Revolving Credit Loan Commitment" means the Lenders' several
commitments to make Revolving Credit Loans to the Borrower in accordance with
Section 2.1.0 and this Agreement and in the maximum outstanding amount of each
Lender's Pro Rata Share of the lesser of (i) the Borrowing Base and (ii)
$7,500,000, as such amount may be reduced pursuant to Section 2.6.4.
"Revolving Credit Note" means each revolving credit 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 Loan.
"Revolving Credit Repayment Date" means the earlier to occur of (i)
June 30, 2001 and (ii) such earlier date on which the Revolving Credit Loan
becomes due and payable pursuant to the terms hereof.
"Section" means, when followed by a number, the section or subsection
of this Agreement bearing that number.
"Section 20 Subsidiary" means a subsidiary of the bank holding company
controlling any Lender, which subsidiary has been granted authority by the
Federal Reserve Board to underwrite and deal in certain Ineligible Securities.
"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 and
patents; any 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.
"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 for the benefit of Nicholas
A. and Annette M. Canitano), Kenneth L. and Karen M. Conley (and/or any trusts
established for the benefit of Kenneth L. and Karen M. Conley) and Paul A.
Farmer.
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<PAGE> 22
"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 TA Venture Investors Limited Partnership,
TA/Advent VIII L.P., Advent Atlantic and Pacific III, L.P., McDonald Investments
Inc., McD Venture Capital Fund, L.P., GHK Investments, L.L.C. and 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.
"Term Loan" means the term loan in the aggregate principal amount of
$20,000,000 to be made or maintained by the Lenders pursuant to Section 2.1.1
hereof.
"Term Note" means a term note of the Borrower payable to the order of a
Lender in the form of Exhibit 1.6 hereto evidencing the Indebtedness of the
Borrower to such Lender with respect to the Term Loan.
"Term Loan Repayment Date" means the earlier to occur of (i) December
31, 2003 and (ii) such earlier date on which the Term Loan becomes due and
payable pursuant to the terms hereof.
"Total Debt Service" means, at any date of determination, the sum of
(i) Interest Expense, 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 and (iii) KLA Deferred Payments accrued over the
fiscal period in question all calculated on the Adjusted Four Quarterly Basis.
"Unused Fees" has the meaning assigned to such term in Section 2.2.2.
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
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<PAGE> 23
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 Loans. Each of the Lenders
severally agrees, subject to the terms and conditions of this Agreement, to make
Advances of Revolving Credit Loans to the Borrower from time to time after
receipt by the Agent from time to time before the Revolving Credit Repayment
Date 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 Revolving Credit Repayment 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 Loan Commitment less (ii) in each case, such
Lender's Pro Rata Share of the aggregate outstanding stated amount of any
Letters of Credit or Letter of Credit Agreements and any unreimbursed amounts
drawn thereunder.
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
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<PAGE> 24
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.
Throughout the term of the Revolving Credit Loans, $2,500,000 of the
Revolving Credit Loan Commitment and principal amount of the Revolving Credit
Loans may, in the Agent's discretion, be made available to the Borrower prior to
the Revolving Credit Repayment Date by issuance of Letters of Credit having 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 Revolving Credit Repayment Date, 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 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 Agent's account 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 Letter of Credit multiplied by (ii) the Applicable Margin then in
effect with respect to any Revolving Credit Loan which is a 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
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<PAGE> 25
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.
As soon as is practicable following the close of each month after the
Closing Date and in any event within fifteen (15) days thereafter, the Borrower
will submit to the Agent a borrowing base certificate in the form of Exhibit
2.1.0 or on such other form as the Agent may from time to time prescribe, which
certificate shall contain information adequate to identify accounts receivable
which the Borrower wishes to include in Eligible Receivables. During the
continuance of a Default or Event of Default, the Borrower shall also, if the
Lender so requests, accompany such information with assignments of accounts in
form and substance satisfactory to the Lender which assignments shall give the
Lender full power to collect, compromise or otherwise deal with the assigned
accounts as the sole owner thereof. Concurrently with each of such reports, and
immediately if material in amount, the Borrower shall notify the Lender of each
return or adjustment, rejection, repossession or loss, theft or damage of or to
merchandise represented by Eligible Receivables or any other collateral for any
Indebtedness of the Borrower to the Lender and of any credit, adjustment or
dispute arising in connection with the goods or services represented by Eligible
Receivables. All payments on Eligible Receivables and all adjustments and
credits with respect thereto, whether unilateral, negotiated or otherwise, shall
be immediately reflected in the Net Outstanding Amount of Eligible Receivables.
Section 2.1.1. Term Loans. Each of the Lenders severally agrees,
subject to the terms and conditions of this Agreement, to make a Term Loan to
the Borrower in the amount of its respective Pro Rata Share of $20,000,000.
Borrower shall pay on the last day of each calendar quarter ending on or in
between the dates set forth below the amount of the Term Loans set forth
immediately opposite such dates below:
<TABLE>
<CAPTION>
Repayment Quarterly
Dates Payment Amount
--------- --------------
<S> <C>
September 30, 1999 through June 30, 2000 $ 500,000
September 30, 2000 through June 30, 2001 750,000
September 30, 2001 and December 31, 2001 1,000,000
March 31, 2002 and June 30, 2002 1,250,000
September 30, 2002 through June 30, 2003 1,500,000
September 30, 2003 2,250,000
December 31, 2003 the greater of $2,250,000 and the
entire outstanding principal amount
of the Term Loan
</TABLE>
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 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
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<PAGE> 26
exists and is continuing, no Interest Rate Election electing the Libor Rate
shall be effective and any Prime Rate Loan shall bear interest, payable on
demand, at Effective Prime plus, so long as an Event of Default exists and is
continuing, two percent (2.0%) and each Libor Loan shall bear interest, payable
on demand, at the Libor Rate plus 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 2.1.1 a regularly scheduled payment of
principal of the Term Loans is to be made, at least the amount of the Term 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
Term 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 and with respect to Prime
Rate Loans, quarterly on the last Business Day of each calendar quarter of each
year commencing March 31, 1999. 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 Closing Date and thereafter if so
provided in the Fee Letter, the Borrower shall pay the Facility Fee to the Agent
for the account of Fleet. In addition, on the last Business Day of each March,
June, September and December commencing March 31, 1999 and continuing through
the Revolving Credit Repayment 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 Revolving
Credit Loan Commitment for the quarterly period just ended (or in the case of
the first such payment, the
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<PAGE> 27
period from the Closing Date to the date such payment is due) exceeds the
average of the actual daily outstanding principal balances of the Revolving
Credit Loans plus (y) 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; provided, however, that if at any time
after the receipt by the Agent of the quarterly financial statements for the
Borrower's December 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) EBITDA calculated on the Adjusted
Four Quarterly Basis, (i) is less than 2.5:1.0 and if and so long as no Event of
Default or Default exists and is continuing, the Borrower shall pay to the Agent
for the pro rata account of each Lender a fee in an amount equal to .35% per
annum of the amount, if any, by which the average actual daily amount of the
Revolving Credit Loan Commitment for the quarterly period just ended (or in the
case of the first such payment, the period from the Closing Date to the date
such payment is due) exceeds the sum of (x) the average of the actual daily
outstanding principal balance of the Revolving Credit Loans plus (y) 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),
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
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<PAGE> 28
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.
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
22
<PAGE> 29
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 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
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(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.
Section 2.5.3. Unconditional Obligations and No Deductions.
Section 2.5.3.1 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 (except to the extent provided in
Section 2.5.3.2) and regardless of whether any claims, defenses or offsets of
any type exist.
Section 2.5.3.2. (a) Any and all payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any other Financing
Document shall be made free and clear of and without deduction for any and all
present or future taxes, duties, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Lender (or its
applicable lending office) or the Agent (as the case may be) is organized or any
political subdivision thereof, other than to the extent such income or franchise
tax is imposed solely as a result of the activities of the Agent or a Lender
pursuant to or in respect of this Agreement or any of the other Financing
Documents (all such non-excluded taxes, duties, levies, imposts, deductions,
charges, withholdings, and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable under this Agreement or any other Financing
Document to any Lender or the Agent,(i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.5.3.2) such Lender or
the Agent receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law, and (iv) the Borrower
shall furnish to the Agent, at its address referred to in Section 9.6 hereof,
the original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this Agreement
or any other Financing Document or from the
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execution or delivery of, or otherwise with respect to, this Agreement or any
other Loan Document (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 2.5.3.2) paid by such Lender or the Agent (as the case may be) and
any liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
or the Agent (but only so long as such Lender remains lawfully able to do so),
shall provide the Borrower and the Agent with (i) a properly completed Internal
Revenue Service Form 1001 or 4224, as appropriate, or any successor form
prescribed by the Internal Revenue Service, certifying that such Lender is
entitled to benefits under an income tax treaty to which the United States is a
party which reduces the rate of withholding tax on payments of interest or
certifying that the income receivable pursuant to this Agreement is effectively
connected with the conduct of a trade or business in the United States, (ii) a
properly completed Internal Revenue Service Form W-8 or W-9, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
such Lender is exempt from United States backup withholding, and (iii) any other
form or certificate required by any taxing authority (including any certificate
required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying
that such Lender is entitled to an exemption from or a reduced rate of tax on
payments pursuant to this Agreement or any of the other Financing Documents.
(e) For any period with respect to which a Lender has failed to provide
the Borrower and the Agent with the appropriate form pursuant to Section
2.5.3.2(d) hereof (unless such failure is due to a change in treaty, law, or
regulation occurring subsequent to the date on which a form originally was
required to be provided), such Lender shall not be entitled to indemnification
under Section 2.5.3.2(a) or 2.5.3.2(b) hereof with respect to Taxes imposed by
the United States; provided, however, that should a Lender, which is otherwise
exempt from or subject to a reduced rate of withholding tax, become subject to
Taxes because of its failure to deliver a form required hereunder, the Borrower
shall take such steps as such Lender shall reasonably request and at such
Lender's cost to assist such Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section 2.5.3.2, then such Lender will
agree to use reasonable efforts to change the jurisdiction of its applicable
lending office so as to eliminate or reduce any such additional payment which
may thereafter accrue if such change, in the judgment of such Lender, is not
otherwise disadvantageous to such Lender. Alternatively, in the event of such an
additional cost, the Borrower shall have the right to substitute another bank
satisfactory to the Agent, and the Agent and such Lender shall use reasonable
efforts at no cost to the Agent and such Lender to assist the Borrower to locate
and effect the substitution in favor of such substitute bank. Any such
substitution shall take place in accordance with Section 9.11 and shall
otherwise
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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.
(g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.5.3.2 shall survive until the first anniversary of the Repayment
Date.
(i) If the Borrower makes any additional payment to any Lender pursuant
to this Section 2.5.3.2 in respect of any Taxes, and such Lender determines that
it has received (i) a refund of such Taxes, or (ii) a credit against, relief or
remission for, or a reduction in the amount of, any tax or other governmental
charge as a result of any deduction or credit for any Taxes with respect to
which it has received payments under this Section 2.5.3.2, such Lender shall, to
the extent that it can do so without prejudice to the retention of such refund,
credit, relief, remission or reduction, pay to the Borrower such amount as shall
be reasonably determined by such Lender to be solely attributable to the
deduction or withholding of such Taxes. If such Lender later determines that it
was not entitled to such refund, credit, relief, remission or reduction to the
full extent of any payment made pursuant to the first sentence of this Section
2.5.3.2(i), the Borrower shall upon demand of such Lender promptly repay the
amount of such overpayment. Nothing in this Section 2.5.3.2(i) shall be
construed as requiring such Lender to conduct its business or to arrange or
alter in any respect its tax or financial affairs so that it is entitled to
receive such a refund, credit or reduction or as allowing any Person to inspect
any records, including tax returns, of such Lender.
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 Term Loans
shall be repaid on the Term Loan Repayment Date and the outstanding principal
balances of the Revolving Credit Loans shall be repaid on the Revolving Credit
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 Term Loans equal to (i) 50% of the amount,
if any, of Excess Cash Flow for such fiscal year less (ii) voluntary prepayments
of the Term Loan 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
Term Loans in the inverse order of their maturities.
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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 Term 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
Term 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 Term
Loans in the inverse order of their maturities 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 other equipment which is
useful or necessary in the operation of Borrower's business.
Section 2.6.1.5. [Intentionally omitted.]
Section 2.6.1.6. If at any time the aggregate
principal amount of the Revolving Credit Loans shall exceed the Revolving Credit
Loan Commitment, 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 3 days' 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 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 Term Loans shall be applied to the
principal installments of the Term 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
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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 and the Revolving Credit Loan 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 three (3) Business Days prior to the effective
date thereof, (ii) the aggregate outstanding balance of the Loans, if any, does
not exceed the Commitment and the aggregate outstanding balance of the Revolving
Credit Loans, plus the aggregate outstanding amount of any Letters of Credit or
Letter of Credit Agreement and any unreimbursed drawn amounts thereunder, if
any, does not exceed the Revolving Credit Loan Commitment, both 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 and the Revolving Credit Loan
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.
Section 2.8. Use of Proceeds. (a) The Borrower shall use the proceeds
of the Term Loans to complete the Related Transactions and to pay costs incurred
by the Borrower in connection with the closing of the Loans, including without
limitation, the Facility Fee and costs incurred in connection with the Related
Transactions and shall use the proceeds of the Revolving Credit Loans for
Borrower's working capital needs and for Investments permitted by Section
5.2.12. The Borrower shall obtain any Letters of Credit solely for working
capital and general corporate purposes.
(b) No portion of the proceeds of any Loans is to be
used, and no portion of any Letter of Credit is to be obtained, for the purpose
of (a) knowingly purchasing, or providing credit support for the purchase of,
Ineligible Securities from a Section 20 Subsidiary during any period in which
such Section 20 Subsidiary makes a market in such Ineligible Securities, (b)
knowingly purchasing, or providing credit support for the purchase of, during
the underwriting or placement period, any Ineligible Securities being
underwritten or privately placed by a Section 20 Subsidiary, or (c) making, or
providing credit support for the making of, payments of principal or interest on
Ineligible Securities underwritten or privately placed by a Section 20
Subsidiary and issued by or for the benefit of the Borrower or any Subsidiary or
other Affiliate of the Borrower.
Section 2.9. Special Libor Loan Provisions. The Libor Loans shall be
subject to and governed by the following terms and conditions:
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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 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.
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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 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
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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 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
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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 conclusive 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 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.
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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 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.
Section 2.10. Interest Rate Protection. On or before January 31, 1999,
the Borrower shall enter into an interest rate protection arrangement covering
not less than $10,000,000 of the
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then outstanding Term Loans. Such interest rate protection arrangement may
consist of any one or a combination of the following: (i) the purchase of an
interest rate swap arrangement from a financial institution reasonably
acceptable to the Majority Lenders covering such Loans effectively converting
the Borrower's interest payment obligations with respect to such portion of the
Term Loans to a fixed rate per annum reasonably acceptable to the Majority
Lenders for a term expiring not earlier than two years from the effective date
of such arrangement or (ii) the purchase of an interest rate cap from a
financial institution reasonably acceptable to the Majority Lenders covering
such Loans at a cap rate per annum reasonably acceptable to the Majority Lenders
for a term expiring not earlier than two years from the effective date of such
arrangement. The other terms and conditions of any such interest rate swap or
interest rate cap shall be reasonably satisfactory to the Majority Lenders.
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,
by-laws and each agreement or instrument relating thereto.
Section 3.1.1.2. Certificate of the secretary, clerk
or similar officer 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.
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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:
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 (or equivalent officials) of the
states (or jurisdictions) 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
Transactions have 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 Fee Letter as being payable on
the Closing Date and all reasonable out-of-pocket costs and expenses incurred by
the Agent and Fleet 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 the Financing Documents 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
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to the Loans made on the Closing Date and completion of the Related Transactions
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, any Subsidiaries and/or their 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 effect to the Loans and completion of
the Related Transactions 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.
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 Transactions and the Loans have
been obtained and remain in effect without the imposition of any terms or
condition not reasonably acceptable to the Lenders and all required filings with
any governmental authority have been duly completed.
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
(i) the representations of the Borrower set forth in Section 4.1.14 are accurate
as of the Closing Date and (ii) 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 and Letter of Credit Agreement
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)
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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 Transactions.
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 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
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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 limitation, Regulations U, T and X of
the Board of Governors of the Federal Reserve System; and
(e) 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 or limited liability company, duly organized,
validly existing and in good standing under the laws of the state (or applicable
jurisdiction) 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
requisite corporate 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,
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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 of any Financing 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 December 31, 1997 ; and
Section 4.1.5.2. Interim, consolidated balance sheets of the
Borrower and any Subsidiaries as of the end of the most recent fiscal quarter
prior to the Closing for which such statements are available and the related
statements of income and cash flows and shareholders' equity, 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 4.1.5.3. The Projections.
Section 4.1.5.4. The pro forma financial statements
of the Borrower as of the Closing Date provided pursuant to Section 3.1.1.12.
Section 4.1.5.5. The (a) unaudited balance sheets of
Acquired Company as of December 31, 1996 and 1997 and the related statements of
operations and cash flows for the years then ended and (b) the reviewed balance
sheet of the Acquired Company as of September 30, 1998 and the related
statements of operations and cash flows for the nine-month period then ended.
Each of the financial statements referred to above in
Section 4.1.5.1 and 4.1.5.2 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
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stated therein. To the best of the Borrower's knowledge, each of the financial
statements referred to above in Sections 4.1.5.1, 4.1.5.2 and 4.1.5.4 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 not own and has no present
intention of acquiring any such margin stock or a "margin security" within the
meaning of Regulation U 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 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 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
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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.
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.
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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.
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 and the Investments to be made for all ownership interests
disclosed therein have in fact been fully paid in immediately available Dollars
after giving effect to the closing of the Related Transactions.
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'
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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.
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;
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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 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, prior to the date hereof, delivered to the Lenders true copies of the
Related Transaction Documents, and each and every amendment or modification
thereto and, except for receipt and application of certain proceeds of the
Loans, the Related Transactions have 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 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.
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Section 4.1.26. Year 2000. On the basis of comprehensive
review and assessment undertaken by the Borrower of the Borrowers' and its
Subsidiaries' computer applications and an assessment by the Borrower of its and
its Subsidiaries' material suppliers, vendors and customers, the Borrower
reasonably believes that the "Year 2000 Problem" (that is, the risk that
computer applications used by any person may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999) will not result in a Material Adverse Effect.
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, 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 on the
collateral under any of the Security Documents insurance against loss by fire,
hazards included within the term "extended coverage", and such other hazards,
casualties and contingencies as the Agent may from time to time require, in an
amount equal to one hundred percent (100%) of the replacement cost of the
collateral under any of the Security Documents and business interruption
insurance in an amount reasonably acceptable to the Agent. All policies of such
insurance and all renewals thereof shall be in form and substance acceptable to
Agent, shall be made payable in case of loss to the Agent as loss payee and
mortgagee and shall contain an endorsement requiring thirty (30) days prior
written notice to the Agent prior to cancellation or change in the coverage,
scope or amount of any such policies. Borrower shall also keep in full force and
effect a policy of public liability insurance against claims of bodily injury,
death or property damage occurring in any building in which the limits of
liability shall not be less than One Million Dollars ($1,000,000) per person and
One Million Dollars ($1,000,000) per accident, together with an excess liability
policy in the amount of Two Million Dollars ($2,000,000) which shall be in
addition to the limits above set forth. Borrower shall increase the limits of
such liability insurance to such higher
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amounts as the Agent may from time to time reasonably require. 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 policyholders' 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;
provided that Borrower may liquidate or dissolve Consulting Professionals
Limited.
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. 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.
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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 EBITDA to Interest Expense of not less than 4.0:1.0, such ratio to be
calculated at each Borrower fiscal quarter end on the Adjusted Four Quarterly
Basis.
Section 5.1.11. Minimum Fixed Charge Coverage Ratio. Maintain
a Fixed Charge Coverage Ratio of not less than 1.25:1.00, such ratio to be
calculated at each Borrower fiscal quarter end on the Adjusted Four Quarterly
Basis.
Section 5.1.12. Maximum Ratio of Total Indebtedness for
Borrowed Money to EBITDA. Maintain at the end of each fiscal quarter of the
Borrower in each period set forth below 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) EBITDA calculated on the Adjusted
Four Quarterly Basis of not greater than the ratio set forth below opposite such
period:
Borrower Fiscal Quarter(s) Ending Ratio
- --------------------------------- -----
December 31, 1998 3.50:1.00
March 31, 1999 3.25:1.00
June 30, 1999 3.00:1.00
September 30, 1999 2.75:1.00
December 31, 1999 2.25:1.00
Thereafter 2.00:1.00
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Section 5.1.12 (A). Minimum Quick Ratio. Maintain at the end
of Borrower's fiscal quarters ending December 31, 1998 and March 31, 1999, a
Quick Ratio of not less than 1.15:1.00 and at the end of each Borrower fiscal
quarter thereafter, a Quick Ratio of not less than 1.05:1.00.
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 Chief Executive Officer of the Borrower and Kenneth L. Conley as
President 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 Borrower's industry reasonably satisfactory to
the Majority Lenders within 120 days of his 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
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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.
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:
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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;
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;
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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.
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 30 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 $2,500,000 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
and 5.1.12.(A) 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.
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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.
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 owing by the Borrower
to any Subsidiary or by any Subsidiary to the Borrower or any other Subsidiary;
provided, however, that any Indebtedness owing by the Borrower or any Subsidiary
to an Affiliate shall be subordinated to the Obligations on terms and conditions
satisfactory to the Required Lenders.
Section 5.2.8.7. Indebtedness permitted by Section
5.2.2.
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Section 5.2.8.8. 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 5.2.8.8; 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,
bylaws (or comparable applicable charter or governance document), the
Subordination Agreement, any other 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. [Intentionally omitted.]
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 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 $25,000 in the aggregate outstanding for any one employee
and not to exceed $500,000 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. Except as
contemplated by the Related Transaction Documents, 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, as permitted by any other provision of this
Agreement and then only 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 those 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.
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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.
Section 5.2.17. Capital Expenditures. Incur Capital
Expenditures in excess of $1,750,000, in any Borrower fiscal year.
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 or Dividends.
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 additional Liens to secure
the Obligations.
Section 5.2.20. Limitation on Creation of Subsidiaries, etc..
Establish, create or acquire any Subsidiary or become the general partner in any
general partnership.
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,
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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
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,
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bureau, agency or instrumentality, domestic or foreign, affecting the Borrower
and/or any Subsidiary;
Section 5.3.6. The borrowing base certificates required
pursuant to Section 2.1 hereof;
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;
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.
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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 except that it shall not be an Event of Default if any
interest, fees and/or other amounts (excluding principal) is paid within 5 days
after it 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
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), or if any default shall have occurred
and be continuing after any applicable grace period under any mortgage, note
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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 5.1.13 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
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.
ARTICLE 7.
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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
administrative and collateral 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 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
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towards or relationship of agency or trust with or for the Borrower, any of the
Stockholders, any Affiliate or any Subsidiary.
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 Affiliates, 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 Affiliates, and/or any Subsidiary), accountants, experts and other
professional advisors selected by it; and (ii) no Lender shall have any right of
action
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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 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 in its individual capacity as a
Lender hereunder. With respect to its participation in the Loans and the
Commitment, Fleet 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 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
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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.
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.
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
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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
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 or any
Subsidiary'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 or any Subsidiary'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
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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.
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
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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.
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: Lucie Burke, 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)
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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.
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, syndication and
administration 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
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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 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 or an affiliate
of such Lender 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 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. The Agent, [and] each Selling Lender [and the Borrower] shall
countersign and accept delivery of each Substitution Agreement.
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
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connection therewith, (b) the financial condition, creditworthiness, affairs,
status or nature of the Borrower, any of the Affiliates 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 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.
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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
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
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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 any of (i) the Related Transactions, (ii) any of the
Financing Documents, (iii) any of Loans, (iv) any use made or proposed to be
made with the proceeds of the Loans, (v) 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), (vi) 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 and/or (vii) 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, any Affiliates 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, any
Affiliates or any Subsidiary 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
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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 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.
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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 January 12, 1999.
In the presence of: CONLEY, CANITANO & ASSOCIATES, INC.
- ----------------------------- By: /s/ Paul A. Farmer
------------------------------------
Name: Paul A. Farmer
Title: CFO
In the presence of: FLEET NATIONAL BANK as Agent for the
Lenders and as a Lender
- ----------------------------- By: /s/ Lucie Burke
------------------------------------
Name: Lucie Burke
Title: Vice President
STATE OF
-------------------------
COUNTY OF
-------------------------
In _________________, in said County and State, on the _______ day of
______________, 199_, before me personally appeared the within-named
_____________, the _______________ of Conley, Canitano & Associates, Inc., me
known and known by me to be the party executing the foregoing instrument and
he/she has acknowledged said instrument by him executed to be his/her free act
and deed and the free act and deed of said Conley, Canitano & Associates, Inc.
----------------------------------------
Notary Public:
Print Name:
My Commission Expires:
72
<PAGE> 1
Exhibit 23.2
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 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
March 1, 1999
<PAGE> 1
Exhibit 23.3
[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.
March 1, 1999
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
MEMBER OF THE SEC PRACTICE SECTION
1100 South Tower, 225 Peachtree Street, N.E., Atlanta, Georgia 30303
Telephone 404/525-2600 Fax 404/577-4947
