<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRIVATE BUSINESS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TENNESSEE 7389 62-1453841
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
9010 OVERLOOK BOULEVARD
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 221-8400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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JERRY L. COVER
9010 OVERLOOK BOULEVARD
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 221-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
MARK MANNER STEPHEN A. RIDDICK
HARWELL HOWARD HYNE GABBERT & MANNER, P.C. BROBECK, PHLEGER & HARRISON LLP
1800 FIRST AMERICAN CENTER 701 PENNSYLVANIA AVENUE N.W.
NASHVILLE, TENNESSEE 37238 WASHINGTON, DC 20004
(615) 256-0500 (202) 220-6000
</TABLE>
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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 of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ] ___________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please 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
under the Securities Act of 1933, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common stock, no par value......... $115,000,000 $31,970
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</TABLE>
(1) Estimated in accordance with Rule 457(o) solely for the purpose of
calculating the registration fee.
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PRIVATE BUSINESS HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL PRIVATE BUSINESS
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 SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
MARCH 25, 1999
SHARES
PRIVATE BUSINESS, INC.
[LOGO]
COMMON STOCK
------------------
We are a leading provider of electronic commerce enabled solutions that
help community banks provide accounts receivable financing to their small
business customers.
We are offering shares of common stock in an initial public
offering. There is currently no public market for the common stock. We intend to
apply for quotation of the common stock on the Nasdaq National Market under the
symbol "PBIZ." We expect that the initial public offering price will be between
$ and $ per share. The market price of the shares of common
stock after this offering may be higher or lower than the initial public
offering price.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Private Business................................ $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock at the initial public offering
price to cover any over-allotments.
We expect to issue these shares on , 1999.
BT ALEX. BROWN
BANCBOSTON ROBERTSON STEPHENS
LEHMAN BROTHERS
, 1999
<PAGE> 3
[PHOTOGRAPH OF TWO BUSINESS MEN STANDING IN FRONT OF A LARGE SCREEN PROJECTION
OF THE BUSINESS MANAGER REPORT VIEWER COMPUTER SCREEN. THERE IS A PRIVATE
BUSINESS LOGO IN THE TOP RIGHT HAND CORNER AND BUSINESS MANAGER ACROSS THE
BOTTOM]
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus. Generally, the information in this prospectus assumes that the
over-allotment option granted to the underwriters is not exercised. This
prospectus gives effect to a for split of our common
stock to be effected in the form of a stock dividend and the conversion of all
shares of our outstanding convertible preferred stock into an aggregate of
shares of common stock, both of which will occur immediately prior
to this offering.
OUR BUSINESS
Private Business is a leading provider of electronic commerce enabled
solutions that help community banks provide accounts receivable financing to
their small business customers. Our software based solution, Business
Manager(TM), automates the management of accounts receivable financing for an
expanding network of over 1,100 community banks, from the purchase of small
business accounts receivable to the ongoing processing, billing and tracking of
those receivables. As a key element of our solution for our client banks, we
design, implement and manage the marketing and selling of Business Manager to
small businesses. We also give banks the option of outsourcing to us their
application hosting and transaction processing through secure Internet
connections, thereby allowing banks to receive accounts receivable information
and make funding decisions electronically. Business Manager uses Windows-based
technology and is easy-to-use, flexible and scalable. Business Manager has been
endorsed by the American Bankers Association through its subsidiary, Corporation
for American Banking, since 1994.
We believe that the small business sector is largely underserved by
financial service companies primarily because it is very difficult to cost
effectively manage the sale and support of sophisticated financing products to
small businesses. Community banks, in particular, frequently seek differentiated
financial products to help attract and retain small business customers in their
respective markets. However, these banks generally have not engaged in accounts
receivable financing for small businesses due to perceived credit risks and the
costs and burdens of tracking and controlling the purchased receivables.
Community banks also typically lack the product, marketing and technology
expertise needed to successfully implement a receivables financing process.
Because of the challenges created by ongoing consolidation in the banking
industry and increased competition from national and regional banks, many
community banks are changing their business practices and pursuing new
strategies for growth and customer retention. According to the Federal Deposit
Insurance Corporation these strategies may include:
- outsourcing business functions
- expanding the use of non-traditional funding
- partnering with non-bank service providers
- emphasizing personalized services and developing niches or specialty
offerings to serve a broader customer base
1
<PAGE> 5
The Business Manager solution allows banks to provide differentiated, high
margin financial services to their existing small business customers and to new
prospects without incurring the cost of internal technology development and
additional personnel.
Typically, we sign exclusive contracts with our client banks with terms
ranging from three to five years. Under our standard contracts, we receive
initial fees for set-up of Business Manager and ongoing royalty payments equal
to a percentage of every receivable purchased by our client banks. During 1998,
approximately 70% of our revenue resulted from ongoing royalty payments as our
client banks purchased approximately $5.6 billion of receivables. Our total
revenues for 1998 were approximately $50.8 million and our earnings before
interest, taxes, depreciation and amortization and recapitalization charges were
$16.9 million, or 33.2% of total revenues.
OUR STRATEGY
We intend to grow our business by implementing the following strategies:
Increase the Number of Business Development Managers. We intend to
increase the number of business development managers by approximately 45% to 146
in 1999 in order to expand into additional geographic areas and increase the
penetration of Business Manager in currently covered regions.
Expand and Market In-house Processing Facilities. We are expanding our
processing and service center in Williamson County, Tennessee and intend to
increase the marketing of our outsourced electronic processing services to our
client banks.
Expand Electronic Commerce Services. We intend to increase the number of
electronic commerce specialists by approximately 40% to 24 in 1999 to market and
implement electronic links between our client banks, their customers and our own
processing and service center.
Continue to Broaden Product and Services Offering. We have a growing
distribution network of over 1,100 client banks reaching over 8,500 small
businesses. We want to use this distribution channel to offer new products and
services, such as electronic point-of-sale communications, key man life
insurance and commercial equipment leasing. Most new offerings will be designed
to use an Internet based delivery system. We intend to establish a small
business focused Internet portal providing relevant business information and
enabling communications and commerce among small businesses and use this channel
to market additional products and services to small businesses.
Target Major Metropolitan Areas Through Our Private Business Capital
Subsidiary. In 1999 we plan to increase from seven to 26 the number of sales
managers for Private Business Capital, Inc., our wholly owned subsidiary.
Through Private Business Capital, we sell our Business Manager solution in major
metropolitan areas directly to the small business market and work with national
and regional funding sources where we do not have community bank relationships.
Pursue Strategic Acquisitions and Alliances. Our industry is in its early
stage of development, and we believe we will have opportunities to acquire or
create alliances with other companies. We have no current commitments or
understandings with respect to any material acquisitions.
2
<PAGE> 6
ABOUT US
Private Business, Inc. was incorporated in Tennessee in December 1990. From
incorporation until August 1998, our company was an S Corporation under the
federal tax laws. We are currently a C Corporation. Our executive offices are
located at 9010 Overlook Boulevard, Brentwood, Tennessee 37027. Our telephone
number is (615) 221-8400. Information contained on our Web site does not
constitute a part of this prospectus.
THE OFFERING
Shares offered by Private Business,
Inc................................. shares
Shares to be outstanding after this
offering............................ shares
Use of proceeds..................... Reduction of indebtedness and general
corporate purposes
Proposed Nasdaq National Market
symbol.............................. "PBIZ"
Shares to be outstanding after this offering is based on the number of
shares outstanding as of , 1999. It excludes:
- shares of common stock issuable upon exercise of options
outstanding as of March 23, 1999 at a weighted average exercise price of
$ per share
- shares reserved for future grants under Private Business's
stock option plan
3
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary historical consolidated financial data has been
derived from our audited consolidated financial statements and is not
necessarily indicative of the future results of operations. This financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the Consolidated Financial
Statements and the notes thereto, and the other information contained in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software license............................................ $ 2,687 $ 3,283 $ 3,193 $ 2,886 $ 2,947
Royalties................................................... 9,656 18,912 29,028 38,450 43,793
Maintenance and other....................................... 382 1,528 1,767 2,325 4,065
------- ------- ------- ------- -------
Total revenues...................................... 12,726 23,722 33,988 43,660 50,805
OPERATING EXPENSES:
General and administrative.................................. 2,908 9,189 10,958 11,835 13,397
Selling and marketing....................................... 6,761 12,474 12,911 15,867 20,494
Research and development.................................... 252 447 648 1,125 862
Amortization................................................ 10 76 115 189 443
Other operating............................................. 911 443 169 340 312
Recapitalization charges.................................... -- -- -- -- 13,781(1)
------- ------- ------- ------- -------
Total operating expenses............................ 10,842 22,629 24,801 29,357 49,289
------- ------- ------- ------- -------
Operating income............................................ 1,884 1,093 9,187 14,304 1,516
OTHER EXPENSES:
Interest expense............................................ -- -- -- 146 3,405
Minority interest........................................... -- -- -- 140 158
------- ------- ------- ------- -------
Total other expenses................................ -- -- -- 287 3,562
------- ------- ------- ------- -------
Income (loss) before income taxes........................... 1,884 1,093 9,187 14,017 (2,046)
Income tax provision (benefit).............................. 115 129 582 743 (2,585)(2)
------- ------- ------- ------- -------
Net income.................................................. 1,769 964 8,605 13,274 539
Preferred stock dividends and accretion..................... -- -- -- -- (2,204)
------- ------- ------- ------- -------
Net income (loss) available to common stockholders.......... $ 1,769 $ 964 $ 8,605 $13,274 $(1,665)
======= ======= ======= ======= =======
EARNINGS (LOSS) PER SHARE:
Basic....................................................... $ 0.18 $ 0.10 $ 0.86 $ 1.32 $ (0.21)
======= ======= ======= ======= =======
Diluted..................................................... $ 0.18 $ 0.10 $ 0.85 $ 1.30 $ (0.21)
======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES USED IN CALCULATING EARNINGS PER
SHARE:
Basic....................................................... 10,001 10,004 10,028 10,028 7,960
======= ======= ======= ======= =======
Diluted..................................................... 10,001 10,027 10,152 10,214 7,960
======= ======= ======= ======= =======
PRO FORMA INFORMATION(3)(4):
Net income (loss) available for common stockholders......... $ 1,100 $ 589 $ 5,534 $ 8,540 $(5,117)
======= ======= ======= ======= =======
Earnings (loss) per share:
Basic....................................................... $ 0.11 $ 0.06 $ 0.55 $ 0.85 $ (0.64)
======= ======= ======= ======= =======
Diluted..................................................... $ 0.11 $ 0.06 $ 0.55 $ 0.84 $ (0.64)
======= ======= ======= ======= =======
OTHER DATA:
EBITDA(5)................................................... $ 1,994 $ 1,486 $ 9,773 $15,213 $16,902
------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 285 $
Working capital............................................. (7,834)
Total assets................................................ 31,596
Long-term debt, net of current portion...................... 90,375
Total stockholders' equity (deficit)........................ (79,584)
</TABLE>
4
<PAGE> 8
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(1) Consists of charges that we incurred in connection with a series of
transactions completed on August 7, 1998 that effectively resulted in our
recapitalization. The transactions include our acquisition of term loan debt
from a bank, our purchase of approximately 5.0 million shares of our
outstanding common stock, our issuance of approximately 5.6 million shares
of our Series A Convertible Preferred Stock and our acquisition of the
minority interests of Private Business Insurance, Inc. Included in the
recapitalization charges are special bonuses paid to our employees and the
fees paid for various services performed relating to the recapitalization,
including investment banking, legal and accounting services.
(2) On August 7, 1998 we converted from an S Corporation to a C Corporation.
While an S Corporation for the first seven months of 1998, we recorded a
state tax provision of $451,000. While a C Corporation for the last five
months of 1998, we recorded a deferred tax benefit of $2.0 million. At the
time of conversion, we recorded a net deferred tax benefit of $1.1 million
for the temporary differences that existed as of the conversion date. Thus,
for the year we recorded an income tax benefit of $2.6 million.
(3) As a result of our election to be treated as an S Corporation for income tax
purposes, we have not been subject to federal or certain state income taxes.
The unaudited pro forma net income (loss) available for common stockholders
represents the estimated net income (loss) that would have been available to
common stockholders had we been a C Corporation for income tax purposes for
each of the periods presented.
(4) Supplemental pro forma net income (loss) per share of $ for the year
ending December 31, 1998 was computed by adjusting the historical net income
(loss) per share as reflected above for the reduction in interest expense
and after giving effect to the number of shares that would be required to be
sold (at the initial public offering price of $ per share) to repay $94.1
million in debt at December 31, 1998.
(5) EBITDA represents income (loss) before income taxes, interest expense,
minority interest, depreciation and amortization and recapitalization
charges. We have included EBITDA in this data because it is a widely
accepted financial indicator of a company's ability to service debt. EBITDA
is not a measurement of financial performance under generally accepted
accounting principles and should not be construed as a substitute for
operating income, net income or cash flows from operating activities for
purposes of analyzing our operating performance, financial position or cash
flow. Not all companies define EBITDA in the same way, and our EBITDA is not
necessarily comparable with similarly titled measures for other companies.
(6) The as adjusted column reflects our receipt of the estimated net proceeds
from the sale of the shares of common stock offered by this
prospectus at an assumed initial public offering price of $ per share
and the application of the net proceeds as described in "Use of Proceeds,"
after deducting the underwriting discount and estimated offering expenses.
5
<PAGE> 9
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline, and you may lose
all or part of your investment.
WE PRIMARILY DEPEND ON ONE PRODUCT, WHICH IS GENERALLY SOLD TO ONE INDUSTRY
SEGMENT.
We currently derive substantially all of our revenues from the sale of
Business Manager, and we expect to continue to derive significant revenues from
this product and related services. Any events that adversely impact Business
Manager will adversely impact our business. We cannot be certain that we will be
able to continue to successfully market and sell Business Manager or that
problems will not develop with Business Manager that could materially impact our
business. In addition, we sell Business Manager almost exclusively to banks, and
primarily to community banks. As a result, any events that adversely impact the
banking industry in general and community banks in particular, could adversely
affect us and our operations.
WE MAY BE UNSUCCESSFUL IN MARKETING TO NEW CLIENT BANKS OR RETAINING CURRENT
CLIENT BANKS.
Our success depends to a large degree on our ability to convince
prospective client banks to purchase Business Manager and offer it to small
businesses. We have spent, and will continue to spend, considerable resources
educating potential customers about our products and services. However, even
with these educational efforts, we may not be able to maintain market acceptance
and client retention. In addition, as we continue to offer new products and
expand our services, existing and potential client banks or their small business
customers may be unwilling to accept the new products or services. See
"Business -- Sales and Marketing."
WE MAY BE UNABLE TO PROMOTE BUSINESS MANAGER TO NEW AND EXISTING SMALL BUSINESS
CUSTOMERS.
Other than the initial license fee and a small annual support fee, we do
not generate any income from banks licensing Business Manager unless small
businesses finance their accounts receivable through our client banks. If we and
our client banks cannot convince existing and potential small business customers
of the benefits of Business Manager, such businesses will not be willing to use
our solution. See "Business -- Products & Services."
WE MAY NOT BE ABLE TO ATTRACT AND HIRE ENOUGH QUALIFIED SALES AND MARKETING
PERSONNEL TO MEET OUR GROWTH PLANS.
An important part of our growth strategy is to hire a significant number of
additional sales and marketing personnel in order to increase our marketing
capabilities in our current markets and expand the number of markets we serve.
Since competition for experienced sales and marketing personnel is intense, we
cannot be certain that we will be able to attract enough sales and marketing
personnel or that those we do hire will be able to generate new
6
<PAGE> 10
business at the rate we currently expect. If we are unable to hire enough sales
and marketing personnel or those we hire are not as productive as we expect, we
may not be able to implement our growth plans. See "Business -- Strategy."
WE INTEND TO GROW OUR BUSINESS AT A RAPID RATE, WHICH MAY BE DIFFICULT FOR US TO
MANAGE.
Our business has grown significantly in size and complexity over the past
several years. This growth has placed, and any additional growth would be
expected to continue to place, a significant strain on our management, systems
and operational resources. We anticipate that continued growth, if any, will
require that we recruit, hire and retain a substantial number of new managerial,
finance, sales, marketing and support personnel.
We cannot be certain that we will be successful in recruiting, hiring or
retaining such personnel. Our ability to compete effectively and to manage our
future growth, if any, will depend on our ability to maintain and improve our
operational, financial, and management information systems on a timely basis and
to expand, train, motivate and manage our work force. If we continue to grow, we
cannot be certain that our personnel, systems, procedures and controls will be
adequate to support our operations.
Also, one element of our growth strategy is to actively evaluate and pursue
strategic acquisitions of and alliances with businesses that are complementary
to ours. We cannot be certain that we will be able to integrate fully any such
acquisitions or alliances with our existing operations or otherwise implement
our growth strategy. If our management is unable to manage growth effectively,
our business, financial condition or results of operations could be materially
adversely affected.
WE INTEND TO EXPAND OUR PRODUCTS AND SERVICES OFFERING, WHICH MAY LOWER OUR
OVERALL PROFIT MARGIN.
Part of our business strategy is to expand our products and services
offering, including offering leasing services for commercial equipment. We
believe that we can provide these services profitably, but such services are
likely to generate a lower profit margin than our current products and services.
As a result, by offering additional products and services, we may lower our
overall profit margin.
THE BUSINESS MANAGER SOLUTION MAY NOT BE AS SUCCESSFUL IN A SLOWER ECONOMY.
Since the introduction of Business Manager, the United States economy
generally has been fairly strong. If the United States economy weakens or enters
into a recession or depression, our client banks and their small business
customers may view the services and benefits provided by Business Manager
differently and may be reluctant to use the products and services we provide. In
addition, in an economic recession or depression, the customers of small
businesses may reduce their purchases of goods and services thus reducing
accounts receivable eligible for our solution. This development could have a
material adverse effect on our business, operating results and financial
conditions.
THE FINANCIAL SERVICES MARKET IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
EFFECTIVELY COMPETE.
The market for small business financial services is competitive, rapidly
evolving, fragmented and highly sensitive to new product introductions and
marketing efforts by industry participants.
7
<PAGE> 11
We face primary competition from a limited number of companies that offer
to banks products similar to Business Manager. We believe that we are the
largest of the companies offering these services in terms of revenues and number
of client banks under contract.
We also compete with banks that use their internal information technology
departments to develop proprietary systems or purchase software from third
parties to offer similar services to small businesses. In addition, we compete
with traditional sources of financial services to small businesses such as lines
of credit, amortizing loans and factoring. Many banks and other traditional
providers of financing are much larger and more established than Private
Business, have significantly greater resources, generate more revenues and have
greater name recognition.
We cannot be certain that our competitors will not develop products and
services comparable or superior to those that we have developed or adapt more
quickly to new technologies, evolving industry trends or changing small business
requirements. Most providers of traditional sources of financing have already
established relationships with small businesses, may be able to leverage these
relationships to discourage these customers from purchasing the Business Manager
solution or persuade them to replace our products with their products.
We expect that competition will increase as other established and emerging
companies enter the accounts receivable financing market, as new products and
technologies are introduced and as new competitors enter the market. In
addition, as we develop new services, such as commercial equipment leasing, we
may begin competing with companies with whom we have not previously competed.
Increased competition may result in price reductions, lower profit margins and
loss of our market share, any of which could have a material adverse effect on
our business, financial condition and operating results. See
"Business -- Competition."
WE DEPEND ON CERTAIN KEY EMPLOYEES.
Our future performance will also largely depend on the efforts and
abilities of our executive officers, as well as our key technical, customer
support, and sales personnel and on our ability to retain them. The loss of any
of our executive officers or certain of our key personnel could have a material
adverse effect on our business, operating results and financial condition. See
"Management."
OUR BUSINESS IS SEASONAL.
Our revenues and operating results vary from quarter to quarter. We
generally realize lower revenues and operating income in our first quarter and,
to a lesser extent, in our second quarter. We believe that this has been due
primarily to a general decline in domestic economic activity following the
holiday season of the fourth quarter which results in a decrease in the amount
of receivables generated by small businesses. We believe this decrease leads to
a decline in the amount of receivables purchased by our client banks. As a
result of this trend, we believe that period to period comparisons of our
operating results are not necessarily meaningful and that such comparisons
cannot be relied upon as indicators of future performance.
8
<PAGE> 12
YEAR 2000 COMPLIANCE ISSUES AT CLIENT BANKS AND THEIR SMALL BUSINESS CUSTOMERS
MAY
IMPACT OUR SERVICES.
Year 2000 computer issues create certain risks for Private Business. We
have performed tests of all major functionality with the Business Manager
software and our tests showed that its is fully year 2000 compliant. However,
there may be client banks and small business customers with computers or related
software programs that are not year 2000 compliant. The failure of client banks
or their small business customers to be year 2000 compliant could have an
adverse impact on our ability to process transactions for such banks and their
customers. In addition, we do not know what the effect would be if the customers
of the small businesses have problems as a result of year 2000 issues. In
addition, we may experience reduced sales of our products as potential customers
are concerned about the year 2000. Potential client banks may reduce their
budgets for new services such as Business Manager due to increased expenditures
on their own year 2000 compliance efforts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance."
CERTAIN EXISTING STOCKHOLDERS WILL OWN A LARGE PERCENTAGE OF OUR VOTING STOCK.
Following the completion of this offering, our officers, directors and
principal stockholders and their affiliates will beneficially own approximately
% of the outstanding shares of common stock ( % if the underwriters over
allotment option is exercised in full). As a result, these stockholders will be
able to control all matters requiring stockholder approval and, thereby, our
management and affairs. Matters that typically require stockholders approval
include:
- election of directors
- approval of mergers or consolidations
- sale of all or substantially all of our assets
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control of Private Business, which in turn could reduce
the market price of our common stock. See "Principal Stockholders."
OUR CHARTER AND BYLAWS AND TENNESSEE LAW CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER.
Certain provisions of our charter and our bylaws and Tennessee law could
make it more difficult for a third party to obtain control of Private Business.
For example, our charter provides for a staggered board of directors, restricts
the ability of stockholders to call a special meeting and prohibits stockholder
action by written consent. See "Description of Capital Stock."
OUR PRIMARY CUSTOMERS, BANKS, OPERATE IN A HIGHLY REGULATED INDUSTRY AND
ADDITIONAL REGULATIONS IN THE BANKING INDUSTRY COULD ADVERSELY IMPACT OUR
BUSINESS.
Although our business is not currently highly regulated, we offer our
products and services primarily to banks, participants in a highly regulated
industry. The banking industry is subject to supervision by several federal
and/or state governmental regulatory agencies. These regulatory agencies could
change or impose new regulations on banks, including modifying the banks'
ability to offer products and services similar to ours to their small business
customers. If bank regulations were changed or expanded to regulate the purchase
of small business accounts receivable, our business, financial condition and
results of operations could be materially adversely affected.
9
<PAGE> 13
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
Sales of a substantial number of shares of common stock in the public
market following the completion of this offering could have a material adverse
effect on the market price of our common stock. All shares sold in this offering
will be freely tradable unless purchased by an affiliate of Private Business.
The remaining shares of common stock outstanding after the completion of this
offering will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- ----------------------------- ----------------
<S> <C>
Immediately after completion of this offering.......
90 days after completion of this offering...........
150 days after completion of this offering..........
180 days after completion of this offering..........
210 days after the completion of this offering......
At various times thereafter.........................
--------
Total.....................................
========
</TABLE>
See "Shares Eligible for Future Sale" and "Plan of Distribution."
After completion of this offering, the holders of approximately
shares of common stock (issued upon conversion of convertible
preferred stock in connection with this offering) will be entitled to certain
registration rights. If such holders, by exercising their registration rights,
cause a large number of securities to be registered and sold in the public
market, such sales could have an adverse effect on the market price for our
common stock. If we were to include, in a company-initiated registration, shares
held by such holders pursuant to the exercise of their registration rights, such
sales may have an adverse effect on our ability to raise needed capital. See
"Relationships and Related Party Transactions -- Registration Rights Agreement."
WE MAY BE UNABLE TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY.
Our success and ability to compete are dependent largely upon our
proprietary technology. We cannot be certain that we have taken adequate steps
to deter misappropriation or independent third-party development of our
technology. In addition, we cannot be certain that third parties will not assert
infringement claims in the future or, if infringement claims are asserted, that
such claims will be resolved in our favor. Any infringement claims resolved
against us could have a material adverse effect on our business, financial
condition or results of operations. See "Business -- Technology."
FAILURE OF OUR NETWORK INFRASTRUCTURE AND EQUIPMENT WOULD HAVE A MATERIAL EFFECT
ON OUR BUSINESS.
Failure of our network infrastructure and equipment, upon which our
business is greatly dependent, as well as the occurrence of significant human
error, a natural disaster or other unanticipated problems could halt our
services, damage network equipment and result in substantial expense to repair
or replace damaged equipment. In addition, the failure of our telecommunications
providers to supply the necessary services could also interrupt our business, in
particular, the application hosting and transaction processing services we offer
to our client banks via secure Internet connections. The inability to supply
these services to our customers could negatively affect our business, financial
condition and results of operations and may also harm our reputation.
10
<PAGE> 14
USE OF PROCEEDS
The estimated net proceeds to Private Business from the sale of the
shares of common stock, at an assumed initial public offering
price of $ per share, will be approximately $ ($ if
the underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses payable
by Private Business. We intend to use $ of the net proceeds to reduce
indebtedness. As of March 31, 1999, we had $38.5 million outstanding under a
$40.0 million loan at 7.78125%, $54.8 million outstanding under a $55.0 million
loan at 8.03125% and $3.0 million outstanding under a revolver at 9.0%. This
credit facility was incurred in connection with Private Business's
recapitalization and used to redeem certain outstanding shares of common stock
and repay certain mortgage indebtedness. The credit facility is payable in
quarterly installments with one portion due in full in August 2004 and another
portion due in full in August 2006. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Liquidity."
Any remaining balance of the net proceeds will be used for general
corporate purposes, including expansion of sales and marketing activities, and
working capital. Pending application of the net proceeds as described above,
Private Business intends to invest the net proceeds of the offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We intend to retain any future earnings to support operations and to
finance the growth and development of our business, and we do not anticipate
paying cash dividends for the foreseeable future. Under our current credit
facility, we are prohibited contractually from declaring any dividends, except
for dividends on our convertible preferred stock and dividends that are payable
solely in our common stock. As of March 31, 1999, there were $3.5 million in
accrued dividends on our convertible preferred stock. These dividends are
forfeited upon the conversion of the preferred stock.
Private Business was an S Corporation for federal income tax purposes from
incorporation until August 7, 1998. Prior to the recapitalization on August 7,
1998, Private Business paid dividends totaling $22.9 million, mainly for the
purpose of providing cash to the stockholders with which to pay the federal
income taxes applicable to our net income. Since terminating our S Corporation
status, Private Business has not paid any cash dividends on its common stock.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth our long-term debt and capitalization as of
December 31, 1998 on an actual basis and as adjusted to reflect the sale of
shares of common stock offered by us in this offering at the
assumed initial public offering price of $ per share, and after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us. This table should be read in conjunction with our financial
statements and notes thereto, which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, net.................................. $ 95,375 $
--------- -------
Stockholders' equity
Preferred stock, series A convertible, no par value;
5,624,404 authorized, issued and outstanding, actual
and no shares outstanding as adjusted.................. 60,000 --
Common stock, no par value; 11,960,455 shares authorized,
5,064,028 shares issued and outstanding, actual;
shares authorized, shares issued and outstanding
as adjusted............................................ --
Additional paid-in capital................................ (131,090)
Retained earnings (accumulated deficit)................... (8,493)
--------- -------
Total stockholders' equity (deficit).............. (79,584)
--------- -------
Total capitalization.............................. $ 15,791 $
========= =======
</TABLE>
The "As Adjusted" column:
- excludes shares of common stock issuable upon exercise of
outstanding options as of December 31, 1998 at a weighted average
exercise price of $ per share
- excludes shares reserved for future grants under our stock
option plan and
- includes shares of common stock issuable upon conversion of
convertible preferred stock to be converted in connection with this
offering. See "Relationships and Related Party Transactions -- 1998
Recapitalization" and Note 8 of Notes to Consolidated Financial
Statements
12
<PAGE> 16
DILUTION
The net tangible book value of our common stock at December 31, 1998 was
$ million or $ per share (assuming the conversion of all
shares of convertible preferred stock into common stock in connection with this
offering). Net tangible book value per share represents the amount of our
stockholders' equity less intangible assets divided by the total number of
shares of common stock outstanding for the period immediately prior to this
offering.
Net tangible book value dilution per share represents the difference
between the amount per share paid by the purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to our sale
of shares of common stock offered by this prospectus at the assumed
initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses and
giving effect to the conversion of 5,624,404 shares of outstanding convertible
preferred stock to be converted in connection with this offering, our net
tangible book value as of December 31, 1998 would have been $ million,
or $ per share. This represents an immediate increase in net tangible
book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors
purchasing shares at the assumed initial public offering price. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at December 31, 1998...... $
Increase per share attributable to new investors............ $
--------
Net tangible book value per share after this offering....... $
--------
Net tangible book value dilution per share to new
investors................................................. $
========
</TABLE>
The following table sets forth, as of December 31, 1998, the difference
between the number of shares of common stock purchased from Private Business,
the total consideration paid and the average price per share paid by the
existing stockholders and by the new investors at the public offering price of
$ per share for shares purchased in this offering, before deducting the
underwriting discounts and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... % % $
New investors.......................
------- --- -------- ---
Total..................... 100% $ 100%
======= === ======== ===
</TABLE>
The foregoing tables assume no exercise of outstanding stock options. The
tables exclude shares of common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $ per
share, and shares reserved for future grants under our stock option
plan. To the extent that outstanding options are exercised, there will be
further dilution to new investors. See "Management -- Non-Qualified Stock
Options" and Note 10 of Notes to Consolidated Financial Statements.
13
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following presents the selected historical consolidated financial data
for the five year period ended December 31, 1998. The information has been
derived from the consolidated financial statements of Private Business, Inc.
which have been audited by Arthur Andersen LLP, independent auditors, and are
included elsewhere in this prospectus. The selected historical consolidated
financial data are not necessarily indicative of results to be expected for any
future period and should be read in conjunction with "Management's Discussion
and Analysis of the Financial Condition and Results of Operations" and the
Consolidated Financial Statements, including the notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Software license...................................... $ 2,687 $ 3,283 $ 3,193 $ 2,886 $ 2,947
Royalties............................................. 9,656 18,912 29,028 38,450 43,793
Maintenance and other................................. 382 1,528 1,767 2,325 4,065
------- ------- ------- ------- -------
Total revenues................................ 12,726 23,722 33,988 43,660 50,805
OPERATING EXPENSES:
General and administrative............................ 2,908 9,189 10,958 11,835 13,397
Selling and marketing................................. 6,761 12,474 12,911 15,867 20,494
Research and development.............................. 252 447 648 1,125 862
Amortization.......................................... 10 76 115 189 443
Other operating....................................... 911 443 169 340 312
Recapitalization charges.............................. -- -- -- -- 13,781(1)
------- ------- ------- ------- -------
Total operating expenses...................... 10,842 22,629 24,801 29,357 49,289
------- ------- ------- ------- -------
Operating income...................................... 1,884 1,093 9,187 14,304 1,516
OTHER EXPENSES:
Interest expense...................................... -- -- -- 146 3,405
Minority interest..................................... -- -- -- 140 158
------- ------- ------- ------- -------
Total other expenses.......................... -- -- -- 287 3,562
------- ------- ------- ------- -------
Income (loss) before income taxes..................... 1,884 1,093 9,187 14,017 (2,046)
Income tax provision (benefit)........................ 115 129 582 743 (2,585)(2)
------- ------- ------- ------- -------
Net income............................................ 1,769 964 8,605 13,274 539
Preferred stock dividends and accretion............... -- -- -- -- (2,204)
------- ------- ------- ------- -------
Net income (loss) available to common stockholders.... $ 1,769 $ 964 $ 8,605 $13,274 $(1,665)
======= ======= ======= ======= =======
EARNINGS (LOSS) PER SHARE:
Basic................................................. $ 0.18 $ 0.10 $ 0.86 $ 1.32 $ (0.21)
======= ======= ======= ======= =======
Diluted............................................... $ 0.18 $ 0.10 $ 0.85 $ 1.30 $ (0.21)
======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES USED IN CALCULATING EARNINGS
PER SHARE:
Basic................................................. 10,001 10,004 10,028 10,028 7,960
======= ======= ======= ======= =======
Diluted............................................... 10,001 10,027 10,152 10,214 7,960
======= ======= ======= ======= =======
PRO FORMA INFORMATION(3)(4):
Net income (loss) to common stockholders.............. $ 1,100 $ 589 $ 5,534 $ 8,540 $(5,117)
======= ======= ======= ======= =======
Net income (loss) per share:
Basic................................................. $ 0.11 $ 0.06 $ 0.55 $ 0.85 $ (0.64)
======= ======= ======= ======= =======
Diluted............................................... $ 0.11 $ 0.06 $ 0.55 $ 0.84 $ (0.64)
======= ======= ======= ======= =======
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------ AS ADJUSTED
1994 1995 1996 1997 1998 1998(5)
------- ------- ------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 1,149 $ 1,986 $ 6,391 $ 4,816 $ 285 $
Working capital....................................... (495) (550) 2,852 2,772 (7,834)
Total assets.......................................... 3,158 5,466 16,386 20,995 31,596
Long-term debt, net of current portion................ -- -- 846 4,078 90,375
Total stockholders' equity (deficit).................. 378 937 8,128 8,643 (79,584)
</TABLE>
- ---------------
(1) Consists of charges that we incurred in connection with a series of
transactions completed on August 7, 1998 that effectively resulted in our
recapitalization. The transactions include our acquisition of term loan debt
from a bank, our purchase of approximately 5.0 million shares of our
outstanding common stock, our issuance of approximately 5.6 million shares
of our convertible preferred stock and our acquisition of the minority
interests of Private Business Insurance, Inc. Also included in the
recapitalization charges are a special bonus paid to our employees and the
fees paid for various services performed relating to the recapitalization,
including investment banking, legal and accounting services.
(2) On August 7, 1998 we converted from an S Corporation to a C Corporation.
While an S Corporation for the first seven months of 1998, we recorded a
state tax provision of $451,000. While a C Corporation for the last five
months of 1998, we recorded a deferred tax benefit of $2.0 million. At the
time of conversion, we recorded a net deferred tax benefit of $1.1 million
for the temporary differences that existed as of the conversion date. Thus,
for the year we recorded an income tax benefit of $2.6 million.
(3) As a result of our election to be treated as an S Corporation for income tax
purposes, we have not been subject to federal or certain state income taxes.
The unaudited pro forma net income (loss) available for common stockholders
represents the estimated net income (loss) that would have been available to
common stockholders had we been a C Corporation for income tax purposes for
each of the periods presented.
(4) Supplemental pro forma net income (loss) per share of $ for the year
ending December 31, 1998 was computed by adjusting the historical net income
(loss) per share as reflected above for the reduction in interest expense
and after giving effect to the number of shares that would be required to be
sold (at the initial public offering price of $ per share) to repay $94.1
million in debt at December 31, 1998.
(5) The as adjusted column reflects our receipt of the estimated net proceeds
from the sale of the shares of common stock offered at an assumed
initial public offering price of $ per share and the application of
the net proceeds as described in "Use of Proceeds," after deducting the
underwriting discount and estimated offering expenses.
15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus.
OVERVIEW
We are a leading provider of electronic commerce enabled solutions that
help community banks provide accounts receivable financing to their small
business customers. Our software based solution, Business Manager, is used to
automate the management of accounts receivable financing for an expanding
network of over 1,100 community banks, from the purchase of small business
accounts receivable to the ongoing processing, billing and tracking of those
receivables. As a key element of our solution for our client banks, we design,
implement and manage the marketing and selling of Business Manager to small
businesses through a dedicated sales force. We also give our client banks the
option of outsourcing to us their application hosting and transaction processing
through secure Internet connections, thereby allowing them to receive accounts
receivable information and make funding decisions electronically.
We generate revenues from three main sources:
- software license fees from new client banks
- ongoing royalties earned on client bank purchases of small business
accounts receivable
- maintenance fees and other revenues, comprised primarily of fees received
for insurance brokerage services, paper-based form sales, software
maintenance fees and processing services
Software license fees consist of two components: the license fee and the
customer training and support fee. These are one-time fees that we earn upon the
initial licensing of our Business Manager software to a community bank. Our
license agreements are executed with terms ranging from three to five years and
are renewable for subsequent terms. We recognize revenues from the license fee
at the time of initiation of the agreement and the customer training and support
fee ratably over the twelve-month service period subsequent to signing the
license agreement. Software license fees range from $17,500 to $250,000 and are
generally based on the asset size of the client bank.
There are two types of royalty fees. The first type is earned upon the
client bank's initial purchase of a small business' accounts receivable during
the first 30 days in our program. The second type is an ongoing royalty fee
earned from subsequent period purchases. Both types of fees are based on a
percentage of the receivables that a client bank purchases from its small
business customers during each month. For the year ended December 31, 1998,
ongoing royalty fees represented over 70% of our total revenues.
Maintenance fees and other revenues include several ancillary products and
services we provide to client banks. Annual software maintenance fees are
generated from our client banks starting on the first anniversary date of the
Business Manager license agreement and annually thereafter. These revenues are
recognized ratably over a twelve-month period beginning on the first anniversary
date of the agreement. Additionally, since 1995, we have brokered, through our
Private Business Insurance subsidiary, credit and fraud insurance products for a
national insurance company. We earn fees based on a percentage of the premium
that is paid to the insurance company. We also provide a standard set of forms
that
16
<PAGE> 20
client banks may purchase and use in the normal course of administering the
Business Manager program. Revenues related to these forms are recognized in the
period that they are shipped to the client bank. We offer processing services to
our client banks for an additional fee based on the volume of transactions
processed through the system. We expect revenues from processing services to
increase in the future.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain consolidated statement of operations items to total
revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Revenues:
Software license.......................................... 9.4% 6.6% 5.8%
Royalties................................................. 85.4 88.1 86.2
Maintenance and other..................................... 5.2 5.3 8.0
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
Operating expenses:
General and administrative................................ 32.2 27.1 26.4
Selling and marketing..................................... 38.0 36.3 40.3
Research and development.................................. 1.9 2.6 1.7
Amortization.............................................. 0.3 0.4 0.9
Other operating........................................... 0.5 0.8 0.6
Recapitalization charges.................................. -- -- 27.1
----- ----- -----
Total operating expenses.......................... 73.0 67.2 97.0
Operating income............................................ 27.0 32.8 3.0
Other expenses:
Interest expense....................................... -- 0.3 6.7
Minority interest...................................... -- 0.3 0.3
----- ----- -----
Total other expenses.............................. -- 0.7 7.0
----- ----- -----
Income (loss) before income taxes........................... 27.0 32.1 (4.0)
Income tax provision (benefit).............................. 1.7 1.7 (5.1)
----- ----- -----
Net income.................................................. 25.3% 30.4% 1.1%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Software license. Software license fees increased 2.1% to $2.9 million for
the year ended December 31, 1998, compared to $2.9 million for the year ended
December 31, 1997. This slight increase was primarily due to larger average fees
paid with the execution of new license agreements, partially offset by a
decrease in the number of new license agreements entered into in 1998. The
average fee increased in 1998 to $17,900 from $12,700 in 1997. Software license
fees accounted for 5.8% of total revenues for the year ended December 31, 1998,
compared to 6.6% for the year ended December 31, 1997. This decrease is
primarily due to more rapid growth of royalties and maintenance and other
revenues.
Royalties. Royalties increased 13.9% to $43.8 million for the year ended
December 31, 1998, compared to $38.5 million for the year ended December 31,
1997. This increase resulted from larger amounts of receivables purchased
through Business Manager, partially offset by a decrease in the average fee per
receivable charged by our client banks to their small business customers, of
which we receive a percentage. The decrease in the average fee is primarily due
to an increase in the average size of the receivables portfolio purchased by
17
<PAGE> 21
our client banks. Receivables purchased by our client banks increased 21.7% to
approximately $5.6 billion for the year ended December 31, 1998, compared to
approximately $4.6 billion for the year ended December 31, 1997. As a percentage
of total revenues, royalties decreased to 86.2% for the year ended December 31,
1998, from 88.1% for the year ended December 31, 1997, primarily due to a
greater increase in maintenance and other revenues during the same period.
Maintenance and other. Maintenance and other fees increased 74.9% to $4.1
million for the year ended December 31, 1998, compared to $2.3 million for the
year ended December 31, 1997. Insurance fees increased 143.6% to $2.4 million
for the year ended December 31, 1998, compared to $944,000 for the year ended
December 31, 1997. This increase primarily resulted from increased participation
of client banks and small businesses in our credit and fraud insurance programs.
Revenues from the sale of forms to client banks decreased 13.7% to $515,000 for
year ended December 31, 1998, compared to $597,000 for the year ended December
31, 1997. This decrease resulted from our client banks utilizing their own
business forms. Software maintenance fees, which were initially introduced as
part of our standard license agreement in 1995, increased 57.4% to $441,000 for
the year ended December 31, 1998, compared to $280,000 for the year ended
December 31, 1997. This increase resulted from more client banks completing
their first anniversary of participation in the Business Manager program as
compared to the year ended December 31, 1997. Processing fees increased by
$159,000 to $176,000 for the year ended December 31, 1998, compared to $16,000
for the year ended December 31, 1997. This increase resulted from increased
marketing of our processing capabilities and a significant increase in the
utilization of our processing services by our client banks. Other miscellaneous
revenues increased 16.3% to $568,000 for the year ended December 31, 1998, from
$488,000 for the year ended December 31, 1997. As a percentage of total
revenues, maintenance and other revenues increased to 8.0% for the year ended
December 31, 1998, from 5.3% for the year ended December 31, 1997.
Total revenues. As a result of changes in the foregoing revenue
categories, total revenues increased 16.3% to $50.8 million for the year ended
December 31, 1998, compared to $43.7 million for the year ended December 31,
1997.
General and administrative expenses. General and administrative expenses
include the cost of our executive, finance, human resources, information
services and administrative functions. General and administrative expenses
increased 13.2% to $13.4 million for the year ended December 31, 1998, compared
to $11.8 million for the year ended December 31, 1997. This increase was
primarily due to the hiring of additional employees to support our expanding
client base, projected growth and new product initiatives. General and
administrative expenses as a percentage of total revenues decreased to 26.4% for
the year ended December 31, 1998 from 27.1% for the year ended December 31,
1997.
Selling and marketing expenses. Selling and marketing expenses include the
cost of wages and commissions paid to our dedicated sales force, as well as
recruiting and marketing fees associated with direct marketing and telemarketing
programs. Selling and marketing expenses increased 29.2% to $20.5 million for
the year ended December 31, 1998, compared to $15.9 million for the year ended
December 31, 1997. This increase was primarily due to the hiring of additional
sales personnel, additional marketing programs and additional travel expenses
associated with our expanded marketing efforts. Selling and marketing expenses
as a percentage of total revenues increased to 40.3% for the year ended December
31, 1998 from 36.3% for the year ended December 31, 1997.
18
<PAGE> 22
Research and development. Research and development expenses include the
direct costs associated with developing new versions of the Business Manager
software. Research and development expenses decreased 23.3% to $862,000 for the
year ended December 31, 1998, compared to $1.1 million for the year ended
December 31, 1997. This decrease reflects the reassignment of certain employees
previously dedicated to software development. This reassignment resulted from
the expansion of our electronic commerce and processing services. Research and
development expenses as a percentage of total revenues decreased to 1.7% for the
year ended December 31, 1998 from 2.6% for the year ended December 31, 1997.
Amortization expenses. Amortization expenses include the cost of
amortizing intangible assets, including trademarks and the associated costs of
goodwill and debt issuance costs related to our recapitalization in 1998.
Amortization increased 134.6% to $443,000 for the year ended December 31, 1998,
compared to $189,000 for the year ended December 31, 1997. The increase is
primarily related to $6.0 million of goodwill and debt issuance costs associated
with our recapitalization transaction completed in August 1998.
Other operating expenses. Other operating expenses include property taxes
and other miscellaneous costs associated with providing support and services to
our client banks. Other operating expenses remained relatively constant at
$312,000 for the year ended December 31, 1998, compared to $340,000 for the year
ended December 31, 1997.
Recapitalization charges. Recapitalization charges were $13.8 million for
the year ended December 31, 1998. These expenses consisted of special one-time
bonuses totaling $10.0 million to employees and $3.8 million of transaction
related fees, including investment banking, legal and accounting fees.
Operating income. As a result of the above factors, our operating income
decreased 89.4% to $1.5 million for the year ended December 31, 1998, compared
to $14.3 million for the year ended December 31, 1997. Excluding
recapitalization charges of $13.8 million, operating income would have been
$15.3 million for the year ended December 31, 1998, representing an increase of
6.9% over the comparable prior year period.
Interest expense. Interest expense increased $3.2 million to $3.4 million
for the year ended December 31, 1998, from $146,000 for the year ended December
31, 1997. This increase was primarily due to $95.0 million of new long-term debt
incurred in connection with our recapitalization transaction completed in August
1998.
Minority interest expenses. Minority interest expenses increased $18,000
to $158,000 for the year ended December 31, 1998, from $140,000 for the year
ended December 31, 1997. Minority interest expense consists of the share of the
earnings of Private Business Insurance allocated to its minority stockholders.
Concurrent with the closing of the recapitalization transaction completed in
August 1998, we purchased the minority interest in Private Business Insurance.
Income tax provision (benefit). The income tax benefit was $2.6 million
for the year ended December 31, 1998 compared to a tax provision of $743,000 for
the year ended December 31, 1997. This change is a result of our conversion from
an S Corporation to a C Corporation during 1998. In 1997, the entire tax
provision was for state income taxes, whereas in 1998, the tax benefit consisted
of a benefit recorded at the time of conversion of $1.1 million and a benefit of
$2.0 million for the net operating loss incurred during the C Corporation period
in 1998 offset by a state income tax provision of $451,000 during the 1998 S
Corporation period.
19
<PAGE> 23
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Software license. Software license fees decreased 9.6% to $2.9 million for
the year ended December 31, 1997, compared to $3.2 million for the year ended
December 31, 1996. This decrease reflects lower average fees paid upon the
execution of new license agreements. Software license fees accounted for 6.6% of
total revenues for the year ended December 31, 1997, compared to 9.4% for the
year ended December 31, 1996.
Royalties. Royalties increased 32.4% to $38.4 million for the year ended
December 31, 1997, compared to $29.0 million for the year ended December 31,
1996, primarily due to an increase in the amount of receivables purchased by our
client banks during the same period. As a percentage of total revenues,
royalties increased to 88.1% for the year ended December 31, 1997, from 85.4%
for the year ended December 31, 1996.
Maintenance and other. Maintenance and other revenues increased 31.6% to
$2.3 million for the year ended December 31, 1997, compared to $1.8 million for
the year ended December 31, 1996. Insurance fees increased 252.4% to $944,000
for the year ended December 31, 1997, compared to $268,000 for the year ended
December 31, 1996. This increase primarily resulted from increased participation
of our client banks and small businesses in our credit and fraud insurance
programs. Revenues from the sale of forms to our client banks decreased 8.2% to
$596,000 for year ended December 31, 1997, compared to $651,000 for the year
ended December 31, 1996. This decrease resulted from our client banks utilizing
their own business forms. Software maintenance fees increased 198.3% to $280,000
for the year ended December 31, 1997, compared to $94,000 for the year ended
December 31, 1996. This increase represents additional software maintenance fees
charged to client banks at the end of the first year of service on the Business
Manager program. Processing fees increased to $16,000 for the year ended
December 31, 1997, compared to none for the year ended December 31, 1996. This
increase resulted from the commencement of our processing services offering in
1997. Other miscellaneous revenues decreased 35.2% to $488,000 for the year
ended December 31, 1997, from $754,000 for the year ended December 31, 1996. As
a percentage of total revenues, maintenance and other revenues increased to 5.3%
for the year ended December 31, 1997, from 5.2% for the year ended December 31,
1996.
Total revenues. As a result of the changes in the foregoing revenue
categories, total revenues increased 28.4% to $43.7 million for the year ended
December 31, 1997, compared to $34.0 million for the year ended December 31,
1996.
General and administrative expenses. General and administrative expenses
increased 8.0% to $11.8 million for the year ended December 31, 1997, compared
to $11.0 million for the year ended December 31, 1996. This increase was
primarily due to the hiring of additional employees to support our expanding
client base and new product initiatives. General and administrative expenses as
a percentage of total revenues decreased to 27.1% for the year ended December
31, 1997 from 32.2% for the year ended December 31, 1996.
Selling and marketing expenses. Selling and marketing expenses increased
22.9% to $15.9 million for the year ended December 31, 1997, compared to $12.9
million for the year ended December 31, 1996. This increase was primarily due to
the hiring of additional dedicated sales personnel and the expansion of our
existing marketing programs. Selling and marketing expenses as a percentage of
total revenues decreased to 36.3% for the year ended December 31, 1997 from
38.0% for the year ended December 31, 1996.
Research and development. Research and development expenses increased
73.6% to $1.1 million for the year ended December 31, 1997, compared to $648,000
for the year
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<PAGE> 24
ended December 31, 1996. This increase reflects the personnel costs associated
with the additional staff hired for the production of new releases of Business
Manager. Research and development expenses as a percentage of total revenues
increased to 2.6% for the year ended December 31, 1997 from 1.9% for the year
ended December 31, 1996.
Amortization expenses. Amortization expenses include the cost of
amortizing intangible assets, including trademarks and the costs of capitalized
software development. Amortization increased 63.9% to $189,000 for the year
ended December 31, 1997, compared to $115,000 for the year ended December 31,
1996. This increase was primarily due to additional capitalized software
development costs.
Other operating expenses. Other operating expenses increased 102.0% to
$340,000 for the year ended December 31, 1997, compared to $169,000 for the year
ended December 31, 1996. This increase resulted from the payment of additional
property taxes on real estate purchased in the last quarter of 1996.
Operating income. As a result of the above factors, our operating income
increased 55.6% to $14.3 million for the year ended December 31, 1997, compared
to $9.2 million for the year ended December 31, 1996.
Interest expense. Interest expense was $146,000 for the year ended
December 31, 1997. This interest expense was associated with debt incurred for
the construction of our corporate headquarters. We had no interest expense for
the year ended December 31, 1996.
Minority interest expenses. Minority interest expenses were $140,000 for
the year ended December 31, 1997. These minority interest expenses were
attributable to our majority-owned subsidiary, Private Business Insurance,
becoming profitable in 1997. We had no minority interest expenses for the year
ended December 31, 1996.
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<PAGE> 25
QUARTERLY INFORMATION
The following tables set forth our unaudited financial data for each of the
eight quarters ended December 31, 1998, including such amounts expressed as a
percentage of total revenues. This unaudited quarterly information has been
prepared on the same basis as the consolidated financial statements and, in the
opinion of management, reflects all adjustments (consisting of normal recurring
entries) necessary for a fair presentation of the information for the periods
presented. The operating results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEP. 30, DEC. 31, MARCH 31, JUNE 30, SEP. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license........ $ 575 $ 902 $ 637 $ 771 $ 749 $ 688 $ 640 $ 869
Royalties............... 8,161 9,332 10,209 10,748 9,767 11,117 11,359 11,549
Maintenance and other... 532 487 643 663 764 938 1,083 1,280
------- ------- ------- ------- ------- ------- ------- -------
Total revenues... 9,267 10,721 11,490 12,182 11,280 12,744 13,083 13,698
Operating expenses:
General and
administrative........ 3,136 2,900 2,916 2,883 3,456 3,330 3,276 3,335
Selling and marketing... 3,417 4,255 3,986 4,209 4,853 5,523 5,025 5,093
Research and
development........... 304 281 270 270 233 216 207 207
Amortization............ 47 47 47 47 59 59 136 190
Other operating......... 77 88 88 88 35 45 104 127
Recapitalization
charges............... -- -- -- -- -- -- 13,761 20
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expense........ 6,981 7,571 7,307 7,497 8,635 9,173 22,508 8,973
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)... 2,287 3,150 4,183 4,685 2,645 3,571 (9,426) 4,726
Other expenses:
Interest expense........ -- 6 70 70 58 77 1,264 2,006
Minority interest....... 17 27 34 62 59 89 9 --
------- ------- ------- ------- ------- ------- ------- -------
Total other
expense........ 17 33 104 132 117 166 1,273 2,006
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes............ 2,270 3,116 4,078 4,553 2,528 3,405 (10,699) 2,720
Income tax (benefit)
provision............... 141 203 240 159 136 185 (1,704) (1,202)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)......... $ 2,129 $ 2,913 $ 3,838 $ 4,394 $ 2,392 $ 3,220 $(8,995) $ 3,922
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEP. 30, DEC. 31, MARCH 31, JUNE 30, SEP. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license........ 6.2% 8.4% 5.5% 6.3% 6.6% 5.4% 4.9% 6.3%
Royalties............... 88.1 87.0 88.9 88.2 86.6 87.2 86.8 84.3
Maintenance and other... 5.7 4.5 5.6 5.4 6.8 7.4 8.3 9.3
------- ------- ------- ------- ------- ------- ------- -------
Total revenues... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
General and administra-
tive.................. 33.8 27.1 25.4 23.7 30.6 26.1 25.0 24.3
Selling and marketing... 36.9 39.7 34.7 34.6 43.0 43.3 38.4 37.2
Research and develop-
ment.................. 3.3 2.6 2.3 2.2 2.1 1.7 1.6 1.5
Amortization............ 0.5 0.4 0.4 0.4 0.5 0.5 1.0 1.4
Other operating......... 0.8 0.8 0.8 0.7 0.3 0.4 0.8 0.9
Recapitalization
charges............... -- -- -- -- -- -- 105.2 0.1
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses....... 75.3 70.6 63.6 61.5 76.5 72.0 172.0 65.5
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)... 24.7 29.4 36.4 38.5 23.5 28.0 (72.0) 34.5
Other expenses:
Interest expenses....... -- 0.1 0.6 0.6 0.5 0.6 9.7 14.6
Minority interest....... 0.2 0.3 0.3 0.5 0.5 0.7 0.1 --
------- ------- ------- ------- ------- ------- ------- -------
Total other ex-
penses......... 0.2 0.3 0.9 1.1 1.0 1.3 9.7 14.6
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before in-
come taxes.............. 24.5 29.1 35.5 37.4 22.4 26.7 (81.8) 19.9
Income tax provision (ben-
efit)................... 1.5 1.9 2.1 1.3 1.2 1.5 (13.0) (8.8)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)......... 23.0% 27.2% 33.4% 36.1% 21.2% 25.3% (68.8)% 28.6%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
SEASONALITY
We have generally realized lower revenues and income in the first quarter
and, to a lesser extent, in the second quarter of the year. We believe that this
is primarily due to a general slowdown in economic activity following the fourth
quarter's holiday season and more specifically a decrease in purchased
receivables by our client banks. Therefore, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that
such comparison cannot be relied upon as indicators of our future performance.
Due to the relatively fixed nature of certain costs, including personnel,
facilities and equipment costs, our revenue decline in certain quarters
typically results in lower profitability for those quarters.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our growth primarily through investments from stockholders
and funds generated from operations.
Our operating activities used cash for the year ended December 31, 1998 of
$1.2 million and provided cash for the years ended December 31, 1997 and 1996 of
$12.7 million and $10.2 million, respectively. In 1998, our operating cash was
used primarily by increases in deferred tax assets, costs associated with debt
origination fees partially offset by an increase
23
<PAGE> 27
in depreciation and amortization. In 1998, our main sources of operating cash
were increases in accounts payable, accrued liabilities and net income.
Cash used in investing activities was approximately $6.7 million, $4.9
million, and $5.2 million for years ended December 31, 1998, 1997 and 1996,
respectively. This cash was used primarily for capital expenditures in the
ordinary course of business and to purchase the minority interests of Private
Business Insurance. Our capital expenditures relate primarily to purchases of
furniture, fixtures and equipment and, in 1997 and 1996, to construction of our
corporate facilities. We expect that our cost of purchases of property and
equipment will increase as our employee base grows and as we expand our
processing and electronic commerce capabilities.
Additionally, in 1996, we purchased 12.2 acres of land for approximately
$1.9 million and began the construction of our corporate office building. In
concert with the construction, we entered into an agreement with SunTrust Bank
for a construction loan of approximately $4.1 million. Upon completion of the
building project, the construction loan converted into a five year term loan at
a rate of interest equal to LIBOR plus 1.6%. This loan was repaid upon the
completion of the recapitalization on August 7, 1998.
Cash provided by financing activities totaled $3.4 million for the year
ended December 31, 1998, which consisted of the proceeds from our credit
facility and the sale of our preferred stock, offset by cash used to redeem
shares of common stock held by certain of our stockholders, to fund an escrow
account for potential indemnification claims in connection with the
recapitalization transaction and to pay dividends to our common stockholders.
Cash used in financing activities totaled approximately $9.4 million during
1997, primarily due to distributions to stockholders totaling approximately
$12.8 million to fund their individual income tax liabilities associated with
our S Corporation taxable income, offset by cash provided by the proceeds from a
construction loan from SunTrust Bank of approximately $3.3 million incurred in
connection with our purchase of real estate. In 1996, cash used in financing
activities totaled approximately $569,000, primarily due to distributions to
stockholders totaling approximately $1.4 million, offset by cash provided by the
proceeds from a construction loan from SunTrust Bank of approximately $846,000.
In August 1998, Private Business entered into a credit facility with Fleet
National Bank and other lenders. Under the credit facility, Private Business
borrowed approximately $95.0 million at the closing of the redemption. The
credit facility provides for a term loan in the amount of $40.0 million, a
separate term loan in the amount of $55.0 million, and a revolving line of
credit in the amount of $15.0 million, including a $3.0 million sublimit for
swing line advances and a $2.0 million sublimit for standby letters of credit.
The credit facility bears interest in accordance with a grid pricing formula
based on the achievement of various financial ratios. The formula calls for
advances to bear interest ranging from 0.25% to 1.50% above prime rate and for
other advances to bear interest ranging from 1.50% to 2.75% above the Eurodollar
rate.
The $40.0 million loan is generally repayable in quarterly installments
which increase annually until the sixth anniversary of the loan. The $55.0
million loan is repayable in equal quarterly installments until December 31,
2004, at which time the required quarterly payments increase dramatically until
maturity. The revolver bears an annual commitment fee and matures concurrently
with the $40.0 million loan. As of December 31, 1998, Private Business had $39.3
million outstanding under the $40.0 million loan at 7.78125%, $54.9 million
outstanding under the $55.0 million loan at 8.03125%, no amounts outstanding
under the revolver or the swing line and no outstanding letters of credit.
24
<PAGE> 28
The credit facility is secured by a pledge of all of our assets. The common
stockholders and certain of the preferred stockholders also entered into
negative pledge agreements by which they agreed not to pledge or encumber their
shares of our capital stock prior to repayment of the credit facility in full or
a qualified public offering of our capital stock. The credit facility contains
limitations on our ability to incur additional indebtedness, sell material
assets, redeem capital stock and pay dividends, among other actions. The credit
facility also imposes financial covenants and requirements on us.
As of December, 1998, we had a deficit in working capital of approximately
$7.8 million as compared to working capital of $2.8 million and $2.9 million at
December 31, 1997 and 1996, respectively. The change in working capital from
December 31, 1998 to December 31, 1997 resulted primarily from increases in
restricted cash, which represents an escrow account for potential
indemnification claims in connection with the recapitalization transaction,
accounts payable and accrued liabilities, the current portion of our credit
facility and dividends payable.
A portion of the estimated net proceeds of this offering may be used to
provide working capital to support our potential growth. We believe that
estimated net proceeds from this offering remaining after repayment of
indebtedness, together with our current cash balances and cash flow from
operations, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next eighteen months.
We may, in the future, acquire businesses or products complementary to our
business, although we cannot be certain that any such acquisitions will be made.
The need for cash to finance additional working capital or to make acquisitions
may cause us to seek additional equity or debt financing. We cannot be certain
that such financing will be available, or that our need for higher levels of
working capital will not have a material adverse effect on our business,
financial condition or results of operations.
YEAR 2000 COMPLIANCE
The term "year 2000 issue" refers to the necessity of converting computer
information systems so that such systems recognize more than two digits to
identify a year in any given date field and are thereby able to differentiate
between years in the 20th and 21st centuries ending with the same two digits
(e.g. 1900 and 2000). We have performed tests of all major functionality within
the Business Manager software, specifically those areas which utilize date
fields. Our tests show that the Business Manager software is year 2000
compliant.
We have established a task force to review our exposure to potential year
2000 issues. The task force has and will continue to coordinate the
identification, evaluation, and implementation of changes to computer systems
and applications necessary to achieve a year 2000 date conversion with no effect
on or disruption to our business operations. We are also evaluating non-system
issues relative to the year 2000 and beyond.
We have communicated with our suppliers, client banks, financial
institutions and others to assess their year 2000 compliance. We will continue
to assess the potential impact in the event of non-compliance. Based on these
communications we believe the potential failure of third parties' systems will
not have a material adverse impact on our operations, cash flows or financial
condition.
We have completed several projects as part of planned upgrades or
replacements of our hardware and information systems and as part of our year
2000 compliance plan. We believe that the implementation of these projects had
the effect of making our hardware and information systems year 2000 compliant.
25
<PAGE> 29
During 1998, we spent approximately $100,000 to upgrade hardware and
software systems we identified as not being year 2000 compliant. We do not
anticipate expenditures related to year 2000 to be material during 1999. The
projected costs for 1999 are based upon management's best estimates, which were
derived utilizing numerous assumptions of future events. There can be no
guarantee, however, that these cost estimates will be achieved, and actual
results could differ materially. Based on our efforts, we believe that our
hardware and information systems will be year 2000 compliant by October 1999.
As part of our year 2000 preparations, we have identified our most
reasonably likely worst case scenario as having some of our client banks and
their small business customers not achieving year 2000 compliance. We do not
currently believe that a lack of year 2000 compliance by some of our client
banks and their small business customers will have a material adverse effect on
our operations, cash flows or financial condition.
NEW PRONOUNCEMENTS
SFAS 130, "Reporting Comprehensive Income" establishes standards for
displaying comprehensive income and its components in our consolidated financial
statements. Comprehensive income encompasses all changes in stockholders equity
with the exception of those transactions arising with its owners. The adoption
of this pronouncement had no material effect on our results of operations.
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in our annual consolidated financial statements and requires reporting
selected information about operating segments in interim financial reports. The
standard also establishes requirements for related disclosure about our products
and services, geographic areas and major customers. We operate in one industry
segment, and accordingly, the adoption of this pronouncement had no effect on
our presentation of operating results or financial position.
MARKET RISK
Foreign currency risk. Our revenues and expenses are both generated and
denominated in United States Dollars, and as such, changes in exchange rates
will not have an impact on our operating results, financial position or cash
flows.
Interest rate risk. Our exposure to market risk for changes in interest
rates relate primarily to our long-term debt obligations totaling $94.1 million
at December 31, 1998. These long-term debt obligations expire in 2004 and 2006.
In the event that interest rates associated with these debt obligations were to
increase 100 basis points, the impact on future cash flows would be
approximately $940,000.
INFLATION
We do not believe that inflation has had a material effect on our results
of operation. There can be no assurance, however, that our business will not be
affected by inflation in the future.
26
<PAGE> 30
BUSINESS
GENERAL
Private Business is a leading provider of electronic commerce enabled
solutions that help community banks provide accounts receivable financing to
their small business customers. Our software based solution, Business Manager,
automates the management of accounts receivable financing for an expanding
network of over 1,100 community banks, from the purchase of small business
accounts receivable to the ongoing processing, billing and tracking of those
receivables. As a key element of our solution for our client banks, we design,
implement and manage the marketing and selling of Business Manager to small
businesses. We also give banks the option of outsourcing to us their application
hosting and transaction processing through secure Internet connections, thereby
allowing banks to receive accounts receivable information and make funding
decisions electronically. Business Manager uses Windows-based technology and is
easy-to-use, flexible and scalable. Business Manager has been endorsed by the
American Bankers Association, through its subsidiary, Corporation for American
Banking, since 1994.
As a complement to Business Manager, we advise and train our client banks
concerning risk management procedures and offer insurance products that mitigate
their exposure to fraud and non-payment. We assume none of the payment risk in
the bank's purchase of receivables; all such risk falls upon the client banks
and their small business customers.
The Business Manager solution benefits both our client banks and their
small business customers. The solution introduces our client banks to a new type
of high margin fee generating service, helping them attract new small business
customers and enhance existing customer relationships. Business Manager also
provides small business customers with access to a new type of bank financing.
Typically, we provide our services under exclusive long-term contracts with
client banks with terms ranging from three to five years. We receive initial
fees for set-up and ongoing royalty payments equal to a percentage of every
receivable purchased by the banks from their small business customers. During
1998, approximately 70% of our revenue resulted from ongoing royalty payments.
During 1998, our network of client banks purchased approximately $5.6
billion of accounts receivable from approximately 8,500 small businesses. Our
total revenues for 1998 were $50.8 million and our earnings before interest,
taxes, depreciation, amortization and recapitalization charges were $16.9
million, or 33.2% of total revenues.
INDUSTRY BACKGROUND
The primary drivers of our business are:
- the growing acceptance of electronic commerce among community banks and
small businesses
- the need for alternative financing for small businesses
- the desire of community banks to attract and retain small business
customers using alternative financing products
Electronic Commerce Services for the Financial Sector. The market for
electronic commerce products and services in the United States has grown
dramatically in recent years. A large portion of the electronic commerce
services and infrastructure has been provided by
27
<PAGE> 31
third-party vendors and outsourcing companies. The financial sector has been a
major user of outsourced electronic commerce services. Examples of outsourced
electronic commerce applications in this sector include electronic
authorization, processing and settlement of credit card transactions and
electronic data interchange.
Most of the outsourced electronic commerce activity in the financial sector
has focused on servicing the larger merchants and businesses. However, small
businesses have many of the same needs as do large businesses and also some
unique needs particularly suited for electronic commerce outsourcing. While
small businesses have taken advantage of certain outsourcing and/or electronic
commerce services such as credit card and merchant services, other services
generally have been unavailable in the small business credit and cash management
market.
Financing for Small Businesses. Dun & Bradstreet tracks about 10.9 million
small businesses in the U.S. with less than $25 million of annual sales. Private
Business believes that approximately six million of these businesses are
potential prospects for the Business Manager system based on their size,
industry and receivables patterns. We believe that, for many of these small
businesses, the need for working capital is a significant obstacle to growth,
and that these businesses spend much time, money and effort on receivables and
cash management. Many of these small businesses are growing rapidly and are
financially sound, but are not eligible for sufficient traditional bank
financing. For example, some businesses are too new or operate in industries or
geographic areas that make the bank uncomfortable with the security typically
available in a traditional lending environment. In other cases, businesses have
reached their bank's credit limit for traditional bank financing.
Despite the fact that the small business sector provides a very large and
potentially profitable market opportunity, financial services providers have
encountered difficulty in managing cost effective sales and support of targeted
financial services to small businesses. Community banks have generally provided
basic financial services such as business deposit accounts and credit card
merchant services and, in some instances, traditional lines of credit to small
businesses. However, these banks typically have been unable to provide to small
businesses more sophisticated cash management products such as accounts
receivable or lease financing services.
The Community Bank Market. In response to the competitive pressures
arising from deregulation and consolidation, many community banks are adapting
their business practices to meet these new challenges. According to the Federal
Deposit Insurance Corporation ("FDIC"), strategies for coping with these
pressures may include:
- outsourcing business functions
- expanding the use of non-traditional financing
- partnering with non-bank service providers
- emphasizing personalized services and developing niches or specialty
offerings to serve a broader customer base
At the same time, given the limited asset base of community banks and the
need to improve margins, the adoption of these strategies must take into account
the need to control operating expenses, maintain proper risk control and
minimize operating complexity.
28
<PAGE> 32
OUR SOLUTION, BUSINESS MANAGER
Business Manager is an electronic commerce enabled solution that includes
software, targeted marketing services and ongoing support. This solution enables
community banks to purchase receivables from new and existing small business
customers. Business Manager automates the management of accounts receivable
financing for community banks, from the purchase of receivables from small
businesses to the ongoing processing, billing and tracking of these receivables.
The banks either process the transactions themselves or outsource this activity
to our in-house processing facility. To automate the process further, we offer
electronic links to the banks and their small business customers through secure
connections to our Internet communications infrastructure.
Our extensive network of local business development managers helps our
client banks develop new marketing strategies and facilitate the market
penetration of Business Manager. Following the initial sale of Business Manager
to our client banks, our business development managers work jointly with bank
loan officers in the direct sale of the Business Manager solution to small
business customers. We also help design the appropriate procedures and controls
to successfully implement Business Manager in order to minimize risk to our
client banks.
The Business Manager solution allows banks to provide differentiated, high
margin financial services to their existing small business customers and to new
prospects without incurring the cost of internal technology development and
additional personnel. Business Manager can benefit our client banks by:
- increasing their revenues with high margin fee income
- creating additional relationships with their existing small business
customers
- attracting new small business customers
- improving access to small business customers' financial information,
enabling better credit decisions
Business Manager can also benefit a bank's small business customers by:
- improving cash flow and making funds available for growth
- providing customized aging, sales and customer balance reports
- reducing management time, effort and cost associated with billing and
tracking receivables
- improving receivables tracking and payment by involving the bank
STRATEGY
We intend to grow our business by implementing the following strategies:
Increase the Number of Business Development Managers. We intend to hire
more business development managers in order to expand into additional geographic
areas and increase the penetration of Business Manager in currently covered
regions. Our experience indicates that increasing the number of business
development managers relative to the number of client banks results in increased
business development manager productivity. During 1998, we increased the number
of business development managers for Business Manager by over 20%, and we intend
to increase the number of business development managers by approximately 45% in
1999.
29
<PAGE> 33
Expand and Market Our In-house Processing and Service Capabilities. We are
expanding our processing and service center in Williamson County, Tennessee.
With expanded capability, we intend to increase our marketing of the processing
and service center. Our processing and service center provides our client banks
with an outsourcing alternative for processing and customer service and allows
for quick implementation of Business Manager with minimum training while
reducing the need of our client banks to assign or hire dedicated staff. These
features assist in the retention of existing client banks and in the attraction
of new client banks. Furthermore, use of the processing and service center
eliminates restrictions on the growth of Business Manager due to a client bank's
difficulty in adding staff or office space. We believe that a growing number of
our new client banks will use the processing and service center.
Expand Electronic Commerce Services. We are expanding our electronic
commerce offering by hiring new electronic commerce specialists, enhancing our
Internet communications infrastructure and more actively marketing our
electronic commerce services. Our 17 electronic commerce specialists work
directly with our client banks and their small business customers to implement
browser based electronic communications through our Internet server between the
small business and the bank. We intend to hire seven additional electronic
commerce specialists in 1999. Additionally, we are upgrading our Internet
communications infrastructure to improve security, scalability, redundancy and
availability. We are also actively marketing our capabilities in every new sale
of Business Manager to increase adoption of our electronic commerce solution. To
date, approximately 225 banks and 550 small business customers use these
services.
Continue to Broaden Product and Services Offerings. We are successfully
using our sales and distribution channel to offer new products and services to
our expanding network of over 1,100 client banks. For example, we have
introduced credit and fraud insurance, database marketing services, and industry
focused applications for the medical and dental markets. In 1999, we intend to
offer key man life insurance, electronic point of sale communications and a
leasing product for small businesses. Additionally, with the enhancement of our
Internet communications infrastructure, we intend to establish a small business
focused Internet portal providing relevant business information and enabling
communications and commerce among small businesses. In addition, we intend to
use this channel to market additional products and services to small businesses.
Target Major Metropolitan Areas Through Our Private Capital
Subsidiary. With a sales presence in Philadelphia, Chicago, Atlanta and Los
Angeles, our Private Business Capital subsidiary markets the Business Manager
solution directly to small businesses in major metropolitan markets. We intend
to increase the number of dedicated sales managers in Private Business Capital
from seven to 26 during 1999. Though Private Business typically offers these
financing opportunities to local client banks, we also work with regional and
national funding sources to provide financing if our client banks are unable to
participate.
Pursue Strategic Acquisitions and Alliances. The market for financial
services offered to small businesses through community banks is fragmented, and
our industry is still in its formative stage. We believe there is an opportunity
for strategic transactions such as acquisitions, alliances or other partnerships
to broaden our product portfolio and assist us in delivering our services
efficiently. We intend to actively evaluate and pursue strategic transactions to
better position our business. We have no current commitments or understandings
with respect to any material acquisitions.
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<PAGE> 34
SUMMARY OF THE BUSINESS MANAGER PROCESS
The following diagram describes the typical process through which we
deliver our solution.
[Diagram containing five boxes arranged in a circular format. The boxes
represent Private Business, a client bank, a small business customer, a
purchaser of the small business's goods and services and the reserve account;
each box is labeled accordingly. Numbered arrows, that correspond to the
numbered sentences below, appear between the 5 boxes, each representing a basic
step in the Business Manager solution process]
(1) We sign up a new bank for the Business Manager solution and train the bank
personnel. We assign a business development manager to help market Business
Manager to small businesses.
(2) The bank signs up a small business customer for Business Manager.
(3) The small business customer generates receivables in the normal course of
business.
(4) The small business customer submits its receivables to the bank for
purchase.
(5) The bank pays the small business customer cash for the face value of the
receivables, less a discount that the bank keeps for its services and less a
percentage of the face value of the receivables, which is paid into a
reserve account. The bank pays part of its discount to us.
(6) The purchaser of goods or services pays the receivable directly to the bank.
In the event that the purchaser of goods or services does not pay the bank
within a designated period, the small business customer repurchases the
receivable.
(7) At the end of each month, the reserve account is adjusted to reflect the
condition of the receivables.
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<PAGE> 35
PRODUCTS & SERVICES
We provide the following products and services through our Business Manager
solution:
Marketing Services. We provide comprehensive marketing services to client
banks as a key part of the Business Manager solution. We analyze a bank's market
area using our extensive database and provide a detailed assessment of the
market opportunity for Business Manager in a given geographic area. A business
development manager uses this market analysis to help the client bank sell
Business Manager to small businesses.
At February 28, 1999, we employed approximately 105 full-time business
development managers, including eight regional managers. Each business
development manager is responsible for two to 20 banks, depending on bank size
and market potential, with the typical business development manager responsible
for ten banks. The business development manager and the client bank work
together, using the market analysis, to develop a prospect list of the bank's
small business customers who would be likely Business Manager users. The master
prospect list is prioritized, and, together, the client bank and a business
development manager approach the businesses on that list. As a follow-up, a
business development manager periodically contacts small business customers on
the system to help the client bank to retain the small business customer.
Business Manager Software. We develop, update and support the Business
Manager software, a Windows-based software package installed at the client
banks, that enables banks to purchase and manage accounts receivable from their
small business customers. Business Manager provides over 50 detailed reports to
keep the client bank and the small business owner informed about the performance
and aging of the receivables. In addition, Business Manager's software enables
the client bank to periodically verify customers' receivables balances for risk
control purposes.
Processing Services. Our processing and service center can perform for the
client bank and its small business customers all the processing and service
functions that would normally be performed by the client bank's operations
staff. With this option, the processing and service center provides all data
entry, account set-up, batch processing, lock box maintenance, preparation and
mailing of statements and verification letters, invoicing and response to
customer service inquiries. The client bank retains the decision making
responsibility for credit underwriting and for monitoring the small business'
daily financial transaction activity.
Electronic Commerce Capabilities. We provide electronic commerce
capabilities that enable data exchange between the small business customer, our
client banks and our service center. This enables small business customers to
deliver new invoice information electronically and have this information
accessed by our client banks through a Web browser. The small business can
upload this data directly from their accounting software such as Peachtree or
Quickbooks or input this data into a predetermined form provided through the
Internet server and accessible via a Web browser. Our Internet communications
infrastructure provides the gateway to a central repository for this
information. This infrastructure also enables small businesses to access
critical cash management reports online through their Web browser. We believe
this capability reduces the time and cost of processing new invoices for the
small business and enhances our client banks' relationships with their small
business customers.
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<PAGE> 36
Risk Management Procedures. The Business Manager solution also assists
client banks with credit risk management. Controlled management of credit-worthy
businesses' receivables under Business Manager provides an additional level of
security for client banks including multiple payment sources:
- Underwriting Control. The client bank decides which businesses
participate in the Business Manager system and approves limits on the
amount of receivables to be purchased from those businesses.
- Monitoring Capability. Information provided by the Business Manager
software enables the bank to monitor the payment performance of the
receivables, to detect trends in the business that may impact the bank's
risk, and to facilitate verification of receivables owed.
- Primary Source of Payment. The receivables purchased by the bank are the
primary source of payment. In most cases, a small business' customer
makes payment of the receivables directly to the client bank.
- Reserve. As the client bank buys receivables from small businesses, a
portion of the purchase price is paid to a reserve account to protect the
client bank against potential losses on the receivables. The reserve is
adjusted each month to reflect the condition of the receivables.
- Repurchase Obligation. The small business maintains ultimate
responsibility for accounts receivable collection, and receivables that
age beyond a certain point (typically 90 days) are repurchased by the
small business. Client banks may require additional collateral and
personal guarantees to secure the repurchase obligation.
Credit and Fraud Insurance. Our insurance brokerage subsidiary offers two
insurance products for the Business Manager solution. Both products are
primarily underwritten by Continental Credit, an affiliate of CNA Financial
Corporation and one of the nation's major multi-line insurers. Accounts
receivable credit insurance protects the client bank and/or its small business
customers from default in payment of the receivable. Fraud insurance protects
the client bank from two types of fraudulent acts by the client banks'
commercial business customers: fraudulent invoices and diversion of customer
payments.
TRAINING AND SUPPORT
We conduct a variety of training activities for our client banks. This
training is designed to give bank personnel detailed operating knowledge of the
Business Manager solution and the roles that both bank and Private Business
personnel play in the system's success for a particular client bank.
An initial two-day training session is conducted approximately 40 times per
year at our corporate training center by experienced members of our training and
bank services departments. These sessions encompass training for both bank
credit officers and for process coordinators who operate the Business Manager
software. Process coordinators receive detailed instruction and practical
training in effective utilization of the Business Manager software. Credit
officers learn how Business Manager relationships are developed as well as how
they are underwritten, documented, and monitored. Newly licensed banks send both
a credit officer and a process coordinator to this training prior to
implementation of the program, and banks may send additional personnel to these
sessions for training or re-training at any time. In addition, both beginning
and advanced software training for bank process coordinators is offered
throughout the year at various locations around the country.
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<PAGE> 37
Other bank credit officers and relationship managers periodically receive
training in the business development and risk control aspects of the program,
either at the bank site or at mini-conferences held at various locations around
the country.
In addition to training, Private Business offers a variety of support
services to its client banks, including:
- Technical Support. We maintain a technical support department that
handles approximately 30,000 calls annually and is available five days a
week from 7 am to 7 pm (Central Standard Time) to field questions from
client banks and resolve any problems that may be encountered during
processing.
- Field Support. Our six regionally placed field support technicians visit
a client bank periodically to examine its processing procedures, and they
are available for on-site troubleshooting.
- Electronic Commerce Analysts. We have 17 electronic commerce analysts
that help banks and small business customers set up secure Internet
connections to the processing facility in the bank or to our own
processing and service center. These analysts also assist small business
customers in facilitating electronic communication between their
accounting systems and the processing facilities.
- Bank Services. Our bank services department, comprised of three former
commercial bankers, works with client banks on a variety of banking
issues that arise related to the Business Manager solution, including
dealing with regulatory issues, documentation, credit policies, risk
control and operational issues.
- Reference Guide. We provide full documentation in our reference guide as
a comprehensive resource for the ongoing operation of the Business
Manager solution. This reference guide serves as a source book for
answers to day-to-day questions about the software, as well as credit and
operations issues.
SALES AND MARKETING
Our sales effort is focused on marketing Business Manager to banks and
their small business customers.
Our dedicated bank sales force of 15 sales professionals (at February 28,
1999) targets community banks, primarily those which have assets of $1 billion
or less. As of September 30, 1998, there were 8,527 FDIC insured commercial
banks with total assets less than $1 billion. These sales professionals utilize
our database marketing tools to provide a detailed analysis of small businesses
that are likely candidates for the Business Manager product in the prospect
bank's market area.
Once a bank has licensed Business Manager, one of our approximately 105
business development managers works with the bank, combining the bank's customer
list with our prospect analysis and creating a prioritized master prospect list.
Our business development managers and our network of banks together form a
channel for the sale of Business Manager to small businesses.
We also have ten dedicated direct sales professionals (at February 28,
1999) as part of our Private Business Capital subsidiary. These sales
professionals market directly to small businesses in certain major metropolitan
markets. Though Private Business typically offers these financing opportunities
to local client banks, we also work with regional and national funding sources
to provide financing if our client banks are unable to participate.
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<PAGE> 38
We also employ six marketing professionals (at February 28, 1999) who are
responsible for the design and production of internal and external marketing
materials. These marketing professionals also attend trade shows and coordinate
various marketing programs, such as direct mail campaigns and conferences.
CUSTOMERS AND CONTRACTS
As of December 31, 1998, Business Manager was licensed to over 1,100 banks.
No client bank contributed more than 5% of our revenue in 1996, 1997 or 1998. As
of December 31, 1998, over 8,500 small businesses had signed agreements with our
client banks to sell their accounts receivable.
The typical licensing agreement between Private Business and a client bank
provides that the bank pay an initial fee upon execution of the agreement and an
annual maintenance fee on each anniversary date thereafter. In addition, the
license agreement provides that the bank pay a fee equal to a percentage of the
receivables purchased by the bank from a new small business customer during the
first thirty days after signing such small business customer. Thereafter, the
license agreement provides for a monthly ongoing fee based on a percentage of
the discount charged against the receivables purchased from each small business
customer.
The licensing agreements generally have terms of three to five years plus
provisions that the bank pay ongoing fees on all accounts transferred to a
similar program for a period of 48 months after termination.
If we provide the processing services to the bank, there is a processing
addendum to the licensing agreement which generally has a one year term and
automatically renews for successive one year terms unless terminated. The
processing addendum provides for set up fees and transaction processing fees.
The processing addendum includes a confidentiality provision with respect to all
information received from the client bank relating to the small business
customer and its accounts.
We also provide client banks with a form Business Manager agreement to be
used between the client bank and its small business customers. Private Business
is not a party to this agreement, but the general form of the agreement provides
that the bank will purchase up to a set amount of the small business' accounts
receivable for the face amount less a discount. The Business Manager agreement
provides that the bank will establish an interest bearing reserve account for
the benefit of the small business and will deposit a portion (generally between
ten percent and 20 percent) of the face amount of each receivable purchased into
such reserve account. The agreement further provides that the bank may require
the small business to repurchase all or any portion of any receivable if any
minimum payment remains unpaid after a designated period (generally 90 to 120
days). These agreements have a term of one year and are automatically extended
for additional one year periods, but may be terminated upon 60 days written
notice.
TECHNOLOGY
The Business Manager software program is a PC-based system written
primarily in Smalltalk and "C." It is capable of running in stand-alone mode or
supporting multiple users on Novell or Microsoft NT networks. It exists both in
a fully 32 bit version and a version utilizing Win32s. This enables the software
to run under Windows 3.1, Windows 95/98, or Windows NT. For reporting, it relies
on the Crystal Reports report writer. It requires at least 32 MB of RAM and
approximately 25 MB of disk space to install. Disk space needed for usage varies
with the size of the bank's portfolio, but is usually under 200 MB. Upgrades to
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<PAGE> 39
the program are released periodically and generally no less than annually. As of
February 28, 1999, we had 21 people engaged in software engineering, product
development and quality assurance.
Our processing and service facility receives invoice information from
businesses, via our Internet server and uses a PC-based server system to process
this information. The processing and service center uses fail-safe fiber ring
communications and is connected to two separate telecommunications service
providers. The facility has a back-up power generator used in case of power
outage.
COMPETITION
The market for small business financial services is intensely competitive,
fragmented and rapidly changing. We believe that we compete effectively as a
result of our highly trained and motivated sales force as well as the
functionality of Business Manager.
We face primary competition from companies offering products similar to
Business Manager to banks. Only a limited number of companies offer solutions
similar to the Business Manager solution. We believe that we are the largest of
such companies offering these services in terms of revenue and number of client
banks.
We also compete with banks that use their internal information technology
departments to develop proprietary systems or purchase software from third
parties to offer similar services to small businesses, and with providers of
traditional sources of financing to small businesses such as lines of credit,
amortizing loans and factoring. Many banks and other traditional providers of
financing are much larger and more established than Private Business. Most
providers of traditional sources of financing and banks have already established
relationships with small businesses, may be able to leverage their relationships
to discourage these customers from purchasing the Business Manager solution or
persuade them to replace our products with their products.
We expect that competition will increase as other established and emerging
companies enter the accounts receivable financing market, as new products and
technologies are introduced and as new competitors enter the market. In
addition, as we develop new services, such as equipment leasing, we may begin
competing with companies with whom we have not previously competed. Increased
competition may result in price reductions, lower profit margins and loss of our
market share, any of which could materially adversely affect our business,
financial condition and operating results.
EQUIPMENT AND FACILITIES
We own a 36,000 square foot modern corporate office building in Brentwood,
Tennessee, situated on 5.1 acres of land. This building houses our executive
offices as well as administration/operations and other staffs. We lease
approximately 23,500 square feet of office space in Brentwood, Tennessee and
Franklin, Tennessee for processing, insurance and certain staffs. We own 7.8
acres of undeveloped land adjacent to the corporate office, and we have
contracted to sell the property to a developer who will build a new building. We
will lease approximately 45,000 square feet of office space in this building on
a long-term basis. We intend to move our processing and service center into the
new building which will replace our currently leased space and allow for future
expansion. We expect to occupy the new facility in mid to late 2000.
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<PAGE> 40
EMPLOYEES
At February 28, 1999, Private Business employed 347 people, four of whom
were part-time employees. We have 136 employees involved in direct sales,
marketing and business development activities.
LEGAL PROCEEDINGS
From time to time, Private Business is subject to claims and suits arising
in the ordinary course of business. We are not currently a party to any
proceeding which, in management's opinion, would have a material adverse effect
on our business, financial condition or results of operations.
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<PAGE> 41
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding Private Business's
Directors and Executive Officers as of February 28, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William B. King......................... 54 Chairman of the Board
Jerry L. Cover.......................... 47 President, Chief Executive Officer and
Director
Fred P. Read............................ 43 Vice President, Finance and Chief
Financial Officer
Jeffrey R. Cantwell..................... 41 Chief Technical Officer
Thomas L. Black......................... 47 Director
Gary W. Cage............................ 54 Director
Brian J. Conway......................... 40 Director
Bruce R. Evans.......................... 39 Director
Gregory A. Thurman...................... 49 Director
</TABLE>
William B. King co-founded Private Business in 1991 and has served as
Chairman of the Board since that time. In 1970, he co-founded Madison Financial
Corporation, a provider of certain marketing products and services to community
banks. Mr. King sold Madison Financial Corporation in 1986 and served as
chairman of the board of its successor FISI*Madison Financial Corporation from
1986 to 1995. Mr. King is a private investor, and he has served as a major
stockholder, director and/or chairman of a number of privately-held companies
during the past five years. He currently serves as a director of one
publicly-held company, Harbinger Corporation, Atlanta, Georgia.
Jerry L. Cover joined Private Business in 1991 and currently serves as
President, Chief Executive Officer and Director. Mr. Cover served as our
Executive Vice President and Chief Operating Officer from 1994 until 1997 and
has served as President and a Director since 1997.
Fred P. Read joined Private Business in 1995 and has served as Vice
President, Finance since that time. Mr. Read became Chief Financial Officer in
1998. Prior to joining Private Business, Mr. Read served as division
controller/chief financial officer of Columbia/HCA Information Services, Inc.,
Nashville, Tennessee, the information services subsidiary of Columbia/HCA
Corporation, from 1986 through 1995.
Jeffrey R. Cantwell joined Private Business in 1993 as Vice President,
Research and Development and currently serves as Chief Technical Officer, a
position which he has held since 1997. Prior to 1993, Mr. Cantwell was a member
of the faculty of the Electrical Engineering Department at Vanderbilt University
for more than seven years.
Thomas L. Black co-founded Private Business in 1991 and has served as a
Director since that time. Mr. Black currently serves as chief executive officer
of Imagic Corporation, Nashville, Tennessee, a check imaging software company,
and as chief executive officer of Tecniflex Inc., Republic, Missouri, a check
processing equipment maintenance and servicing company. Mr. Black served as our
Chief Executive Officer from 1991 until 1995.
Gary W. Cage has served as a Director since March 1999. Mr. Cage currently
serves as president, chief executive officer and director of Monarch Dental
Corporation, Dallas, Texas, a dental services company. He served as chief
operating officer of Monarch from 1996 to 1997 and, from 1992 to 1996, Mr. Cage
served as chief financial officer, senior vice president,
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<PAGE> 42
treasurer and secretary of EmCare Holdings, Inc., Dallas, Texas, a provider of
management services to emergency physicians.
Brian J. Conway has served as a Director since August 1998. He has been a
managing director of TA Associates, Inc., a private equity investment firm in
Boston, Massachusetts since 1988.
Bruce R. Evans has served as a Director since August 1998. Since 1991, Mr.
Evans has been a general partner of Summit Partners, a venture capital firm in
Boston, Massachusetts where he has been employed since 1986. Mr. Evans serves as
a director of Pediatrix Medical Group, Inc., Omtool, Ltd., DSET Corporation and
several privately-held companies.
Gregory A. Thurman co-founded Private Business in 1991 and has served as a
Director since that time. He served as our President from 1995 until 1997. From
1990 to 1995, he served as chief executive officer and President of FISI*Madison
Financial Corporation. Since March 1999, he has been the chairman of the board
of Journal Communications, Inc., a magazine publishing company in Franklin,
Tennessee.
BOARD COMMITTEES
The Audit Committee consists of Messrs. Black, Thurman and Cage. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent public accountants, reviews the results and scope of
the audit and other services provided by Private Business's independent public
accountants and reviews and evaluates Private Business's control functions.
The Compensation Committee consists of Messrs. Black, Evans, and King. The
Compensation Committee administers the issuance of stock options under Private
Business's stock option plan, makes recommendations regarding Private Business's
"non-qualified" stock options and various incentive compensation and benefit
plans and determines salaries for the executive officers and incentive
compensation for employees and consultants of Private Business.
DIRECTOR COMPENSATION
Commencing upon completion of this offering, non-employee directors will
receive $1,000 cash compensation for each board meeting they attend. Directors
are reimbursed for expenses incurred in connection with attendance at board and
committee meetings. In March 1999, Mr. Cage, an independent director who does
not own any of our stock, was granted an option to purchase shares of
our common stock at an exercise price per share equal to the initial public
offering price. No other non-employee directors have received stock option
grants. Mr. Cover, Private Business's only employee director, received his stock
option grants for his service as an employee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to March 1999, Private Business did not have a Compensation Committee
of the Board of Directors, and the entire board participated in all compensation
decisions. In March 1999, the Board formed Private Business's Compensation
Committee to review and recommend to the Board the compensation and benefits for
Private Business's executive officers and administer Private Business's stock
option plan. All of Private Business's directors, or affiliated entities, except
Mr. Cage and Mr. Cover, have purchased securities of Private Business. See
"Relationships and Related Party Transactions" and "Principal Stockholders."
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<PAGE> 43
EXECUTIVE COMPENSATION
The following table sets forth the compensation we paid during the fiscal
year ended December 31, 1998 to Private Business's Chief Executive Officer and
the two other most highly compensated executive officers serving at December 31,
1998, who received compensation in excess of $100,000 in fiscal 1998:
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jerry L. Cover 1998 $202,000 $150,000 $3,002,132(2)
Chief Executive Officer 1997 154,802 118,000
1996 133,725 75,000
Fred P. Read 1998 101,305 40,000 202,441(2)
Chief Financial Officer 1997 85,125 25,000
1996 75,308 12,000
Jeffrey R. Cantwell 1998 100,100 35,000 249,766(2)
Chief Technical Officer 1997 89,007 30,000
1996 85,808 25,000
</TABLE>
- ---------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by these executive officers which are
available generally to all salaried employees of Private Business and
certain perquisites and other personal benefits received by these executive
officers, which do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(2) Mr. Cover, Mr. Read and Mr. Cantwell received special bonuses in 1998 in
conjunction with our recapitalization that reflect their long-term
contributions to our business. These bonuses do not represent the customary
incentive structure of Private Business.
Option Grants. The table below provides information on grants of stock
options pursuant to Private Business's option plans during the 1998 fiscal year
to those named executive officers listed in the Summary Compensation Table
above. Additional grants have been made to certain officers, directors and other
employees since December 31, 1998. See "Principal Stockholders." Private
Business grants no stock appreciation rights.
OPTION GRANTS IN THE FISCAL YEAR ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS EXERCISE ANNUAL RATES OF
UNDERLYING GRANTED TO OR STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jerry L. Cover................. 8.4%(1) $ 09/01/2008 $134,181 $340,041
Fred P. Read................... 3.4%(1) 09/01/2008 53,672 136,016
Jeffrey R. Cantwell............ 4.2%(1) 09/01/2008 67,090 170,020
</TABLE>
- ---------------
(1) Percentages are based on a total of options granted to employees,
officers and directors in fiscal 1998.
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<PAGE> 44
(2) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates set by the Securities and Exchange Commission and, therefore,
are not intended to forecast possible future appreciation, if any, of
Private Business's common stock price.
Option Exercises and Values. The table below provides information as to
exercises of options by Messrs. Cover, Read and Cantwell during the 1998 fiscal
year under the option plans and the year-end value of unexercised options.
OPTION HOLDINGS AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jerry L. Cover............................ $ (1) $ (1)
Fred P. Read.............................. (1) (1)
Jeffrey R. Cantwell....................... (1) (1)
</TABLE>
- ---------------
(1) Options are classified as "in-the-money" if the market value of the
underlying common stock exceeds the exercise price of the option. The per
share value of such in-the-money options is the difference between the
option exercise price and $ , the assumed initial public offering
price. Such amounts may not necessarily be realized. Actual values which may
be realized, if any, upon the exercise of options will be based on the per
share market price of the common stock at the time of exercise and are thus
dependent upon future performance of the common stock.
NON-QUALIFIED STOCK OPTIONS
Private Business has issued non-qualified options to purchase an aggregate
of shares of its common stock to a number of its employees,
providing them with an equity interest in Private Business and the opportunity
to benefit from any appreciation in the value of our stock. These options were
not issued pursuant to a plan and are considered non-qualified options as that
phrase is described in Treasury Regulation Section 1-83-7. The options are
evidenced by individual stock option agreements.
Each stock option agreement specifies when each option vests and the
exercise price for each option. Payment for shares of Private Business common
stock to be issued upon exercise of an option may be made, at the discretion of
the Board of Directors, either in cash, common stock or unexercised portions of
vested options. Options are nontransferable, other than by will or the laws of
descent and distribution. Generally, under each stock option agreement, the
option terminates on the earlier of ten years from the date such option is
granted or the employee's termination.
The number of shares of common stock that may be granted under the stock
option agreements or the options granted thereunder will be proportionately
adjusted in the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split or
other change in corporate structure affecting our common stock.
Generally, in the event an optionee is terminated by reason of retirement,
disability, or death, the option will immediately become vested and the optionee
or his or her representative may exercise the option for twelve months following
termination or until the expiration of the term of the option, whichever occurs
first. If the employment of an optionee is terminated for "cause," as defined in
the stock option plan, any unexercised
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<PAGE> 45
options held by optionee will expire. In the event the option holder is
terminated for any reason other than disability, death or cause, the holder may
exercise his or her option for three months following termination or the
expiration of the stated term of the option, whichever occurs first.
The stock option agreements provide that options will be fully vested
immediately prior to a change of control of Private Business. A change in
control occurs in the event of a merger or consolidation with another
corporation resulting in less than 75% of the outstanding voting securities of
the surviving or resulting corporation being owned by the former stockholders of
Private Business, a sale of all or substantially all of our assets to another
corporation which is not a wholly-owned subsidiary, or a person acquiring more
than 60% of the outstanding voting securities of Private Business.
INCENTIVE STOCK OPTION PLAN
Under Private Business's 1999 incentive stock option plan, incentive stock
options to purchase shares of our common stock are available for grant to our
employees, providing them with an equity interest in Private Business and the
opportunity to benefit from any appreciation of the value of such stock. The
stock option plan allows for incentive stock options to purchase in the
aggregate up to shares of our common stock to be granted by the Board
of Directors. As of March 23, 1999, we had granted incentive options to purchase
shares at the initial public offering price.
The stock option plan is administered by the compensation committee of the
Board of Directors. Subject to some limitations, this committee has the
authority to determine the recipients of incentive stock options, the number of
shares of common stock to be issued upon exercise of each incentive stock
option, the exercise periods of each incentive stock option and conditions
subject to which incentive stock options may be exercised.
The stock option plan provides that the exercise price of an incentive
stock option must not be less than 100% of the fair market value of Private
Business's common stock on the day the incentive stock option is granted as
determined in good faith by the committee. The exercise price in the case of an
employee who owns stock representing more than ten percent of the total combined
voting power of all classes of stock of Private Business must not be less than
110% of the fair market value of Private Business's common stock on the day that
incentive stock option is granted. Options are nontransferable other than by
will or the laws of descent and distribution. Shares subject to incentive stock
options granted under the stock option plan that expire, terminate or are
canceled without having been exercised in full are again eligible for issuance
under the stock option plan.
Generally, in the event an incentive stock option holder is terminated as
an employee due to disability or death, the holder or his or her representative
may exercise any unexercised stock options for a period of one year following
termination. If the stock option holder is terminated for "cause," as defined in
the stock option plan, the unexercised incentive stock options expire. If the
incentive stock option holder is terminated for any reason other than
disability, death, or cause, the holder may exercise his or her incentive stock
option for a period of three months following termination. Private Business may
allow an incentive stock option to continue beyond the three month period, in
which case the incentive stock option will become a non-qualified option.
In the event of any sale of or transfer of not less than 50% of Private
Business's common stock, the sale of substantially all of the assets of Private
Business, or the dissolution or liquidation of Private Business, one-half of an
optionee's unvested incentive stock options will become fully vested and be
exercisable prior to any such transaction.
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401(K) PLAN
Private Business and its affiliates offer a 401(k) Plan for all eligible
employees who are over 18 years of age. Private Business may make matching
discretionary contributions and the Board of Directors has authorized a matching
contribution for 1998 of 100% of each participant's contributions up to a
maximum of $1,000 per participant. No employee may contribute more than 15% of
wages to the 401(k) Plan, and employees are limited to a contribution of no more
than $10,000. Matching funds vest in the participant's account over a period of
seven years of vesting service. The total matching contribution for 1998 was
$151,858.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of , 1999 and immediately following
the offering by: (1) each person who is known by us to own beneficially more
than five percent of our common stock; (2) each director and executive officer
named in the Summary Compensation Table; and (3) all of our directors and
executive officers as a group. To our knowledge, each of the persons named in
the following table has sole voting and investment power as to the shares shown
unless otherwise noted. Unless otherwise noted, the address of each holder
listed below is our corporate address.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES PERCENTAGE OF
BENEFICIALLY SHARES
OWNED PRIOR TO BENEFICIALLY
SHARES BENEFICIALLY THE OWNED AFTER THE
NAME OWNED OFFERING(1) OFFERING(1)
- ---- ------------------- -------------- ---------------
<S> <C> <C> <C>
Summit Partners, LLC(2)(3)(4).......... % %
TA Associates Group(2)(4)(5)........... % %
Thomas L. Black........................ % %
William B. King(6)..................... % %
The William B. King Jr. Annuity
Trust -- 1997........................ % %
Cendant Corporation(2)(4).............. % %
Gregory A. Thurman(7).................. % %
The Gregory A. Thurman Annuity
Trust -- 1997........................ % %
Jerry L. Cover(8)...................... % %
Gary W. Cage........................... % %
Brian J. Conway(5)..................... % %
Bruce R. Evans(3)...................... % %
All directors and officers as a group
(17 persons)(9)...................... % %
</TABLE>
- ---------------
* Indicates less than one percent
(1) The percentages shown are based on shares of common stock
outstanding prior to the offering and shares of common stock
outstanding after the offering. Pursuant to Rule 13d-3 under the Exchange
Act, shares of common stock which a person has the right to acquire pursuant
to the exercise of stock options and warrants held by such holder that are
exercisable within 60 days of such date are deemed outstanding for the
purpose of computing the percentage ownership of such person, but are not
deemed outstanding for computing the percentage ownership of any other
person.
(2) The address for Summit Partners, LLC is care of Summit Ventures V, L.P. is
600 Atlantic Avenue, Suite 2800, Boston, MA 02210. The address for TA
Associates Group is 125 High Street Tower, Suite 2500, Boston, MA 02110. The
address for Cendant Corporation is 6 Sylvan Way, Parsippany, NJ 07054.
(3) Includes shares held by Summit Ventures V, L.P. shares held by
Summit V Companion Fund, L.P., shares held by Summit V Advisors Fund
(QP), L.P., shares held by Summit V Advisors Fund, L.P. and
shares held by Summit Investors III, L.P. Mr. Evans is a general partner of
Summit Investors III, L.P. and is a member of Summit Partners, LLC, which is
the general partner of Summit Partners V,
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<PAGE> 48
L.P., Summit V Companion Fund, L.P., Summit V Advisors Fund (QP), L.P. and
Summit V Advisors Fund, L.P. Mr. Evans may be deemed to share voting and
investment power with respect to all shares held by the partnerships. Mr.
Evans disclaims beneficial ownership of these shares, except to the extent
of his pecuniary interest therein.
(4) Summit Ventures V, L.P. Summit V Advisors Fund(QP), L.P., Summit V Advisors
Fund, L.P., Summit Investors III, L.P., Summit V Companion Fund, L.P., TA
Associates Group, and Cendant Corporation currently own convertible
preferred stock which will be converted into common stock immediately prior
to the completion of this offering.
(5) Includes shares owned by TA/Advent VIII, L.P.; shares
owned by Advent Atlantic & Pacific III L.P.; shares owned by TA
Executives Fund LLC; shares owned by TA Investors LLC. TA/Advent
VIII, Advent Atlantic & Pacific III L.P., TA Executives Fund LLC and TA
Investors LLC are part of an affiliated group of investment partnerships
referred to, collectively, as the TA Associates Group. The general partner
of TA/Advent VIII, L.P. is TA Associates VIII LLC. The general partner of
Advent Atlantic & Pacific III L.P. is TA Associates AAP III Partners. The
general partner of TA Associates AAP III Partners, L.P. is TA Associates,
Inc. The manager of each of TA Associates VIII, LLC, TA Executives Fund, LLC
and TA Investors, LLC is TA Associates, Inc. In such capacity, TA
Associates, Inc. exercises sole voting and investment power with respect to
all of the shares held of record by the named investment partnerships.
Individually no stockholder, director or officer of TA Associates, Inc. is
deemed to have or share voting and investment power. Principals and
employees of TA Associates, Inc. (including Mr. Conway, a Director of
Private Business) comprise the members of TA Investors LLC. Mr. Conway has a
pecuniary interest in shares held by TA Investors, LLC.
(6) Includes shares owned by The William B. King Jr. Annuity
Trust-1997, a trust for which Mr. King is trustee.
(7) Includes shares owned by The Gregory A. Thurman Annuity
Trust-1997, a trust for which Mr. Thurman is trustee.
(8) Includes options to purchase shares of common stock.
(9) Includes options to purchase shares of common stock.
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<PAGE> 49
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
1998 LEVERAGED RECAPITALIZATION
On August 7, 1998, Private Business and its stockholders consummated three
related transactions: (a) the redemption from its stockholders (the "Selling
Stockholders") of 4,963,751 shares of its common stock for an aggregate purchase
price of $138,340,358; (b) a $110,000,000 credit agreement with Fleet National
Bank and other lenders; and (c) the issuance of 5,624,404 shares of newly
authorized Series A convertible preferred stock (the "Convertible Preferred")
for an aggregate purchase price of $60,000,000. Private Business used the
proceeds from the issuance of the Convertible Preferred and the credit facility
(1) to fund the redemption; (2) to pay aggregate bonuses of $10,006,000 to
employees of Private Business; (3) to repay mortgage indebtedness of Private
Business; and (4) for general working capital purposes, including the payment of
fees and expenses related to these transactions.
In connection with the recapitalization, Messrs. King, Thurman and Black
received $34,612,863, $35,279,098 and $37,701,169, respectively, for the
redemption of a portion of their common stock. In addition, Messrs. Cover, Read
and Cantwell received special bonuses in connection with the recapitalization of
$3,002,132, $202,441 and $249,766, respectively.
The shares acquired by Private Business in the redemption constituted 49.5%
of the then-outstanding common stock. An escrow reserve of $5,000,000 of the
price paid in the redemption is being held until 30 days after Private Business
delivers audited financial statements for its 1999 fiscal year to the holders of
the Convertible Preferred (the "Preferred Holders") to secure any claims for
indemnification that may be made by the Preferred Holders in connection with the
redemption of common stock and the issuance of the Convertible Preferred. To the
extent not claimed, the escrow reserve will be distributed to the Selling
Stockholders at the conclusion of the escrow period.
STOCKHOLDERS AGREEMENT
In connection with the recapitalization, the Preferred Holders and the
Selling Stockholders entered into a stockholders agreement on August 7, 1998.
Prior to a qualified public offering of Private Business's capital stock, the
stockholders agreement restricts the sale or transfer of shares of common stock
except in limited instances or in compliance with a co-sale procedure which
permits Preferred Holders to participate in the proposed sale. A qualified
public offering is defined as a registered public offering of common stock in
which Private Business receives gross proceeds exceeding $40 million, at a price
per share of at least $16 (if the offering closes on or before June 30, 1999) or
$23.34 (if the offering closes after June 30, 1999) which prices will be
adjusted in the event of certain corporate actions, including our proposed stock
split. The stockholders agreement also grants "drag-along" rights in which
two-thirds of the Preferred Holders can cause the remaining Preferred Holders to
participate in significant events such as a merger of Private Business or a sale
of stock or substantially all of Private Business's assets. Subject to specified
parameters, the stockholders agreement also grants contractual pre-emptive
rights to stockholders of Private Business to participate in offerings of
capital stock, other securities or rights to acquire securities of Private
Business. All of the Preferred Holders have waived their preemptive rights under
the stockholders agreement with respect to this offering.
The stockholders agreement also obligates stockholders to vote their shares
of capital stock to elect up to nine directors, as follows:
- Mr. King, Mr. Thurman and Mr. Black (so long as each owns at least 10% of
Private Business's fully diluted capital stock)
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<PAGE> 50
- subject to ownership thresholds, one individual nominated by TA
Associates, Inc., one individual nominated by Summit Partners, LLC and
one individual nominated by holders of two-thirds of the Convertible
Preferred
- one member of Private Business's management
- two non-employee directors
By its terms, the stockholders agreement will terminate upon the
consummation of this offering.
In addition, Private Business's charter prior to the initial public
offering contained certain voting provisions that allowed the Selling
Stockholders to maintain voting control over Private Business even though they
no longer owned 50% of our stock. To accomplish this result, the charter
provided that the Preferred Holders would be entitled to approximately
nine-tenths of a vote per share on the majority of matters submitted to the
stockholders of Private Business for a vote. In connection with this offering,
we have amended and restated our charter again and it no longer contains these
provisions.
REGISTRATION RIGHTS AGREEMENT
In connection with the recapitalization, the Preferred Holders, Private
Business and the Selling Stockholders entered into a registration rights
agreement on August 7, 1998, which grants demand registration rights to the
Preferred Holders, exercisable generally by two-thirds of the Preferred Holders.
These demand registration rights can be exercised (subject to limitations) up to
two times after the earlier of August 7, 2000 or ninety days after an initial
public offering of Private Business's common stock. Notwithstanding the above,
the registration rights agreement provides for unlimited demand registration
rights (subject to limitations) with respect to registrations on Form S-3 so
long as the aggregate sales proceeds to Preferred Holders is anticipated to
exceed $1.5 million. Other conditions must also be met before Private Business
must honor a demand registration request. Private Business is required to pay
all registration expenses pursuant to the registration rights agreement, subject
to limitations in the agreement.
The registration rights agreement also provides that, subject to
limitations including the discretion of the managing underwriter in an
underwritten offering, the Preferred Holders may request inclusion of their
shares in any registration of securities by Private Business. All of the
Preferred Holders have waived any right under the registration rights agreements
to participate in this offering.
NONCOMPETITION AGREEMENTS
In connection with the recapitalization, Private Business entered into
noncompetition agreements on August 7, 1998, with each of Messrs. King, Black,
Thurman, Brasser, Keith and Cover. The noncompetition agreements generally
expire on the earlier of five years from execution or three years after the
restricted individual is no longer an employee or director of Private Business
or its subsidiaries. The noncompetition agreements generally prohibit these
individuals from competing with business activities which Private Business or
its affiliates actually conduct while the individual serves as a director,
officer or employee of Private Business or activities which Private Business or
its affiliates are actively planning to conduct at the time the individual
ceases to be a director, officer or employee and actually conduct within the
following twelve months. The noncompetition agreements also restrict these
individuals from soliciting employees of Private Business. Private Business also
entered into key employee noncompetition agreements with various non-stockholder
employees.
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<PAGE> 51
CENDANT TERMINATION AND NONCOMPETITION AGREEMENT
In connection with the recapitalization, Private Business, Mr. King, Mr.
Keith and Cendant Corporation entered into a termination and noncompetition
agreement on August 7, 1998, which terminated a right of first refusal in favor
of Cendant which Mr. King granted in 1995 with respect to his equity interest in
Private Business. The termination and noncompetition agreement also restricts
Cendant, subject to exceptions, from competing against Private Business for
three years with respect to the purchase or financing of merchant receivables.
In addition, Private Business agreed that for three years, subject to
exceptions, it would not offer products or services similar to products offered
to banks by Cendant's subsidiary, FISI-Madison Financial Corporation, or offer
products or services related to the sale to individual consumers of accidental
death and injury insurance.
LEASE AGREEMENT
On October 27, 1997, Private Business leased a building containing
approximately 6,740 square feet of property in Franklin, Tennessee from Madison
Land Company, a company which is co-owned by Mr. King, one of our directors.
Private Business uses this building for its electronic commerce operations. The
lease expires on November 30, 1999, with an option to renew the lease on a
month-to-month basis for no more than four months. The base annual rent under
the lease is $78,750 per annum, payable in advance monthly installments of
$6,562.50. Private Business believes this lease is on terms no less favorable to
us then we could have obtained in an arms-length negotiation with unaffiliated
third parties.
ADMINISTRATIVE SUPPORT AGREEMENTS
Private Business has, in the past, provided various management and
administrative functions for Board Member, Inc., Magellan Corp., Madison Land
Company, Maryland Farms Land, LLC, Maryland Farms South, LLC, Private Business
Partners, Inc., Careers, Inc., Imagic Corporation, Discount Brokerage Services,
Inc. and Senior Achievement. These companies are owned or partially owned by
various stockholders of Private Business. The services that were provided
included provision of general accounting as well as allowing employees to
participate in our benefits programs. The companies paid for these services
based upon their actual use of the services and in 1998 paid an aggregate of
$180,000 for such services. All of these arrangements have been terminated.
INDEMNIFICATION AGREEMENTS
In connection with the recapitalization, Private Business entered into
indemnification agreements as of August 7, 1998, with each of Messrs. King,
Black, Thurman, Conway, and Evans, as Directors of Private Business. Subject to
limitations, the indemnification agreements grant broad contractual rights of
indemnification to the directors for liabilities and expenses they may incur
arising from their activities on behalf of Private Business. In March 1999,
Private Business entered into indemnification agreements with its executive
officers and certain key employees. The indemnification agreements also obligate
Private Business in selected instances to advance indemnifiable expenses to the
indemnitee.
RELATED PARTY TRANSACTION POLICY
Any future transactions between Private Business and its officers,
directors and affiliates will be on terms no less favorable to Private Business
than can be obtained from unaffiliated third parties. Such transactions with
such persons will be subject to approval by a majority of our outside directors
or will be consistent with policies approved by such outside directors.
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DESCRIPTION OF CAPITAL STOCK
Private Business's authorized capital stock consists of shares of
common stock, no par value and shares of Convertible Preferred. At
, 1999, there were shares of common stock and shares of
preferred stock outstanding. Upon completion of this offering and the conversion
of the Convertible Preferred in connection with this offering, shares of
common stock will be issued and outstanding, and no shares of preferred stock
will be outstanding. The discussion below assumes the conversion of all of the
Convertible Preferred has occurred. The following summary of certain provisions
of Private Business's capital stock describes all material provisions of, but
does not purport to be complete, and is subject to, and qualified in its
entirety by, Private Business's charter and the bylaws that are included as
exhibits to the Registration Statement of which this prospectus forms a part and
by the provisions of applicable law.
COMMON STOCK
The issued and outstanding shares of common stock are, and the shares of
common stock being offered will be upon payment therefor, validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
preferred stock, the holders of outstanding shares of common stock are entitled
to receive dividends out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time determine. The
shares of common stock are not redeemable or convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
Private Business. Upon liquidation, dissolution or winding up of Private
Business, the holders of common stock are entitled to receive pro rata the
assets of Private Business which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of preferred stock then outstanding. Each outstanding share of
common stock is entitled to vote on all matters submitted to a vote of
stockholders.
We intend to apply for quotation of the common stock on the Nasdaq National
Market under the symbol "PBIZ."
PREFERRED STOCK
The Board of Directors may, without any further vote or action by our
stockholders, from time to time, direct the issuance of shares of preferred
stock in one or more series with such designations, rights, preferences and
limitations as the Board of Directors may determine, including the consideration
received therefor. The Board of Directors also has the authority to determine
the number of shares comprising each series, dividend rates, redemption
provisions, liquidation preferences, sinking fund provisions, conversion rights
and voting rights without the approval by the holders of common stock. Although
it is not possible to state the effect that any issuance of preferred stock
might have on the rights of holders of common stock, the issuance of preferred
stock may have one or more of the following effects: (1) to restrict common
stock dividends if preferred stock dividends have not been paid; (2) to dilute
the voting power and equity interest of holders of common stock to the extent
that any series of preferred stock has voting rights or is convertible into
common stock; or (3) to prevent current holders of common stock from
participating in the distribution of the company's assets upon liquidation until
any liquidation preferences granted to holders of preferred stock are satisfied.
In addition, the issuance of preferred stock may, under certain circumstances,
have the effect of discouraging a change in control of Private Business by, for
example, granting voting rights to holders of preferred stock that require
approval by the separate vote of the holders of preferred stock for any
amendment to
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our charter or any reorganization, consolidation, merger or other similar
transaction involving Private Business. As a result, the issuance of the
preferred stock may discourage bids for the common stock at a premium over the
market price therefor, and could have a materially adverse effect on the market
value of the common stock. Upon consummation of the offering and the conversion
in full of the Convertible Preferred, there will be no shares of preferred stock
outstanding. The Board of Directors does not presently intend to issue any
shares of preferred stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND BYLAWS
General. Certain provisions of our charter and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of Private Business. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change in control of
Private Business. These provisions are designed to reduce the vulnerability of
Private Business to an unsolicited acquisition proposal and to discourage
certain tactics that may be used in proxy fights. However, such provisions may
discourage third parties from making tender offers for our shares. As a result,
the market price of the common stock may not benefit from any premium which
might occur in anticipation of a threatened or actual change in control. Such
provisions also may have the effect of preventing changes in the management of
Private Business.
Board of Directors. The charter and bylaws provide for the Board of
Directors of Private Business to be divided into three classes, as nearly equal
in number as possible. The term of the Class 1 Directors will expire at the 2000
annual meeting of stockholders; the term of the Class 2 Directors will expire at
the 2001 annual meeting of stockholders; and the term of the Class 3 Directors
will expire at the 2002 annual meeting of stockholders (and in all cases when
their respective successors are duly elected and qualified). At each annual
meeting of stockholders, successors to the class of directors whose term expires
at such meeting will be elected to serve for three-year terms or until their
successors are duly elected and qualified. Directors may be removed by the
stockholders only for cause.
The charter and bylaws provide that the Board of Directors shall consist of
no less than one nor more than twelve members (except that such maximum number
may be increased from time to time to reflect the rights of holders of preferred
stock) with the actual number set from time to time by resolution adopted by a
majority of the Board of Directors. Upon the completion of this offering, the
Board of Directors will consist of seven members. The charter and the bylaws
provide that the Board of Directors is authorized to create additional
directorships (up to the maximum number permitted) and to elect additional
directors thereto to serve for the full term of the class of directors in which
such directorship was created. The provisions of the Tennessee Business Code,
the charter and the bylaws relating to the removal of directors and the filling
of vacancies on the Board of Directors will preclude a third party from removing
incumbent directors' without cause and simultaneously gaining control of the
Board of Directors by filling, with its own nominees, the vacancies created by
removal. These provisions also reduce the power of stockholders generally, even
those with a majority voting power in the company, to remove incumbent directors
without cause and to fill vacancies on the Board of Directors.
Stockholder Action and Special Meetings. The charter and bylaws provide
that any action of the common stockholders must be effected at a duly called
meeting and not by a consent in writing.
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Our charter and bylaws do not permit our stockholders to call special
meetings of stockholders. A special meeting of stockholders may only be called
by the President or a majority of the Board of Directors.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors as well as for other
stockholder proposals to be considered at stockholders' meetings. Notice to
Private Business from a stockholder who proposes to nominate a person at a
meeting for election as a director must contain: (1) the name and residence
address of the stockholder who intends to make the nomination and the name, age
and address of the nominee; (2) the principal occupation and business address of
the nominee; (3) the class and number of shares held of record, beneficially and
by proxy, by the stockholder and the nominee as of the record date of such
meeting (if such record date is publicly available) and as of the date of such
notice; and (4) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement or
otherwise required pursuant to Regulation 14A under the Exchange Act, including
the consent of each nominee to serve as a director of the company if so elected.
The presiding officer of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with this nomination procedure. The purpose of
requiring advance notice is to afford the Board of Directors an opportunity to
consider the qualifications of the proposed nominees or the merits of other
stockholder proposals and, to the extent deemed necessary or desirable by the
Board of Directors, to inform stockholders about those matters. Although the
advance notice provisions do not give the Board of Directors any power to
approve or disapprove of stockholder nominations or proposals for action by the
company, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the procedures
established by the bylaws are not followed and of discouraging or deterring a
third party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposals, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
Private Business and its stockholders.
Amendment of the Charter. The charter requires the affirmative vote of the
holders of at least 70% of the outstanding shares of the company's capital stock
entitled to vote thereon and 50% of the members of the Board of Directors in
order to amend certain of its provisions. These voting requirements will make it
more difficult for stockholders to make changes in the charter which would be
designed to facilitate the exercise of control over Private Business. In
addition, the requirement for approval by at least a 70% stockholder vote will
enable the holders of a minority of the voting securities of the company to
prevent the holders of a majority or more of such securities from amending these
provisions of the charter.
ANTITAKEOVER LEGISLATION
Business Combination Act. The Tennessee Business Combination Act (the
"Combination Act") provides that any corporation to which the Combination Act
applies, which includes Private Business, shall not engage in any business
combination with an interested stockholder for a period of five years from the
date that such stockholder became an interested stockholder unless prior to such
date the Board of Directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder.
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The Combination Act defines business combination generally to mean any: (1)
merger or consolidation; (2) share exchange; (3) sale, lease, exchange, pledge,
mortgage, transfer or other disposition (in one transaction or a series of
transactions) of assets representing 10% or more of (A) the market value of the
corporation's consolidated assets, (B) the market value of the corporation's
outstanding shares or (C) the corporation's consolidated net income; (4)
issuance or transfer of shares from the corporation to the interested
stockholder; (5) plan of liquidation or dissolution; (6) transaction in which
the interested stockholder's proportionate share of the outstanding shares of
any class of securities is increased; or (7) financing arrangements pursuant to
which the interested stockholder, directly or indirectly, receives a benefit
except proportionately as a stockholder.
Under the Combination Act an interested stockholder generally is defined as
any person who is the direct or indirect beneficial owner of ten percent or more
of any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the direct or indirect beneficial
owner of ten percent of more of the voting power of any class or series of the
corporation's stock at any time within the five year period preceding the date
in question.
Certain business combinations are exempt from the Combination Act,
including those of the selling shareholders who were interested stockholders
prior to the time the corporation's stock is registered under Section 12(g) of
the Exchange Act. Consummation of a business combination that is subject to the
five-year moratorium is permitted after such period provided the transaction
complies with all applicable charter and bylaw requirements and applicable
Tennessee law and is approved by at least two-thirds of the outstanding voting
stock not beneficially owned by the interested stockholder, or when the
transaction meets certain fair price criteria. The fair price criteria include,
without limitation, the requirement that the per share consideration received in
any such business combination by each of the stockholders is equal to the
highest of (1) the highest per share price paid by the interested stockholder
during the preceding five-year period for shares of this same class or series
plus interest thereon from such date at a treasury bill rate, less the aggregate
amount of any cash dividends paid and the market value of any dividends paid
other than in cash since such earliest date, up to the amount of such interest,
(2) the highest preferential amount, if any, such class or series is entitled to
receive on liquidation or (3) the market value of the shares on either the date
the business combination is announced or the date when the interested
stockholder reaches the ten percent threshold, whichever is higher, plus
interest thereon less dividends as set forth above.
Greenmail Act. The Tennessee Greenmail Act (the "Greenmail Act") prohibits
any publicly-traded Tennessee corporation from purchasing any of its shares at a
price above the market value from any person who holds more than three percent
of the class of securities to be purchased if such person has held the shares
for less than two years. For purposes of the Greenmail Act, the market value is
the average of the highest and lowest closing market price for such shares
during the 30 trading days preceding the purchase and sale of the shares;
provided that, if the seller of such shares has commenced a tender offer or has
announced an intention to seek control of the corporation, such market price
shall be based upon the average of the highest and lowest closing price for such
shares during the thirty trading days preceding the commencement of such tender
offer or the making of such announcement. The Greenmail Act permits the
corporation to purchase such shares if the purchase has been approved by the
affirmative vote of a majority of the outstanding shares of each class of voting
stock issued by the corporation or if the corporation makes an offer of at least
equal value per share to all holders of shares of such class. Any person who
sells securities to a corporation in violation of the Greenmail Act is liable to
the corporation for
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damages equal to two times the amount by which the aggregate sum paid by the
corporation for such securities exceeds the maximum amount permitted under the
Greenmail Act.
The effects of the Combination Act and the Greenmail Act may be to render
more difficult a change of control of Private Business by delaying, deferring or
preventing a tender offer or takeover attempt that a stockholder might consider
to be in such stockholder's best interest, including an attempt that might
result in the payment of a premium over the market price for the shares held by
such stockholder.
LIMITATION ON DIRECTORS' LIABILITY
The Tennessee Business Corporation Act (the "TBCA") permits corporations to
limit or terminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of the directors' fiduciary duties
of care. The duty of care requires that, when acting on behalf of the
corporation, directors must exercise informed business judgment based on all
material information reasonably available to them. Absent the limitations now
authorized by such legislation, directors are accountable to corporations and
their stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their fiduciary duties of care. Although the TBCA
does not change the directors' duties of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission.
Our charter limits the liability of directors (in their capacity as
directors but not in their capacity as officers) to Private Business or its
stockholders to the fullest extent permitted by the TBCA, as so amended.
Specifically, no director of Private Business will be personally liable for
monetary damages for breach of the director's fiduciary duty as a director,
except for liability: (1) for any breach of the director's duty of loyalty to
Private Business or its stockholders; (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (3)
under Section 48-18-304 of the TBCA, which relates to unlawful payments of
dividends or unlawful stock repurchases or redemptions; or (4) for any
transaction from which the director derived an improper personal benefit. The
inclusion of this provision in the charter may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefitted Private Business and its stockholders.
INDEMNIFICATION AND INSURANCE
Under our charter, and in accordance with Section 48-18-502 of the TBCA,
Private Business will 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 a "derivative" action by or in the right of Private Business) by
reason of the fact that such person is or was a director of Private Business,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of Private Business, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe was unlawful.
The charter provides that Private Business will pay for the expenses
incurred by an indemnified director in defending the proceedings specified above
in advance of their final disposition, provided that such person agrees to
reimburse Private Business if it is ultimately
53
<PAGE> 57
determined that such person is not entitled to indemnification. The charter also
provides that Private Business may, in its sole discretion, indemnify any person
who is or was one of its employees and agents or any person who is or was
serving at the request of Private Business as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise to the same degree as the foregoing indemnification of directors and
officers. In addition, Private Business may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
Private Business or another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against and incurred by such
person in such capacity, or arising out of the person's status as such whether
or not Private Business would have the power or obligation to indemnify such
person against such liability under the provisions of the TBCA. Private Business
maintains insurance for the benefit of Private Business's officers and directors
insuring such persons against various liabilities, including liabilities under
the securities laws.
In addition, Private Business has entered into indemnification agreements
with its officers, directors and certain key employees. See "Relationships and
Related Party Transactions -- Indemnification Agreements."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is SunTrust Bank,
Atlanta.
54
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Upon completion of this offering, we will have outstanding an aggregate
of shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act (the "Affiliates"). The remaining shares
of common stock held by existing stockholders are "restricted securities" as
that term is defined in Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or 701 promulgated under the
Securities Act, which rules are summarized below.
As a result of such contractual restrictions described below and the
provisions of Rules 144 and 701, additional shares will be available for sale in
the public market, subject to presentation of evidence satisfactory to Private
Business, including an opinion of counsel acceptable to Private Business, that
such sales may be made without registration pursuant to the Securities Act as
follows:
- shares of common stock currently outstanding will be available for
sale into the public market following the effectiveness of the
registration statement
- shares of common stock issuable upon exercise of currently
outstanding options will be eligible for sale following the effectiveness
of a registration statement on Form S-8 covering the stock options, which
we expect to file shortly after the completion of this offering
- shares of common stock currently outstanding will be eligible for
sale under Rule 144 (including shares of common stock eligible for
sale under Rule 701) 91 days after the date of this prospectus
- the remainder of the restricted securities will be eligible for sale from
time to time thereafter upon expiration of their respective one-year
holding periods
LOCK-UP AGREEMENTS
Directors and executive officers and some stockholders, holding
shares of Private Business common stock and an additional
shares issuable upon exercise of vested options have agreed not
to offer, sell, sell short, transfer, hypothecate, pledge or otherwise dispose
of any shares of common stock or any other securities convertible into or
exchangeable or exercisable for shares of common stock or derivative of our
common stock owned by them (or as they have the right to direct the disposition
of) as follows: (1) no more than 20% of these securities within 150 days after
the date of this prospectus and (2) no more than an additional 60% of these
securities within 180 days after the date of this prospectus, directly or
indirectly, except with the prior written consent of BT Alex. Brown
Incorporated. The balance of these securities may be disposed of after 210 days
following the date of this prospectus.
55
<PAGE> 59
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
Affiliates 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,
including the holding period of any prior owner other than an Affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock or option plan or other written agreement
are eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of
our common stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. After such
a registration, these shares that are registered will be freely tradable without
restriction under the Securities Act. See "Relationships and Related Party
Transactions -- Registration Rights Agreement."
STOCK OPTIONS
Shortly after completion of this offering, Private Business plans to file a
registration statement on Form S-8 under the Securities Act covering shares of
common stock reserved for issuance under the 1999 stock option plan and also
shares of common stock issuable upon exercise of options granted outside the
1999 stock option plan. As of March 23, 1999, options to purchase
shares of common stock were issued and outstanding. Upon the
expiration of the Lock-Up Agreements described above, at least
shares of common stock will be subject to vested options (based on options
outstanding as of
56
<PAGE> 60
March 1, 1999). This registration statement is expected to be filed and become
effective as soon as practicable after the date of this prospectus. Accordingly,
shares registered under such registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our Affiliates, be
available for sale in the open market immediately after the lock-up agreements
expire. See "Management -- Employee Benefit Plans."
57
<PAGE> 61
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the underwriting agreement, the
underwriters, named below through their representatives BT Alex. Brown
Incorporated, BancBoston Robertson Stephens Inc. and Lehman Brothers Inc. have
severally agreed to purchase from us the following respective numbers of shares
of common stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
BancBoston Robertson Stephens Inc...........................
Lehman Brothers Inc.........................................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will purchase all of the shares of common stock offered hereby if
any of such shares are purchased.
We have been advised by the representatives that the underwriters propose
to offer the shares of our common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial public offering,
the offering price and other selling terms may be changed by the
representatives.
We have granted the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to additional shares
of common stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. To the
extent that the underwriters exercise such option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
that the number of shares of common stock to be purchased by it in the above
table bears to , and we will be obligated, pursuant to the option to sell
such shares to the underwriters. The underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the common stock
offered hereby. If purchased, the underwriters will offer such additional shares
on the same terms as those on which the shares are being offered.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
We have agreed not to offer, sell, sell short, transfer, hypothecate,
pledge or otherwise dispose of any shares of our common stock or other
securities convertible into or exchangeable or exercisable for shares of our
common stock or derivatives of our common stock (or agreement for such) for a
period of 180 days after the date of this prospectus, directly or indirectly, by
us or otherwise, except as consideration for business acquisitions, on exercise
of currently outstanding stock options or on the issuance of options to key
employees and directors under our stock option plans and the exercise of such
options, without the prior written consent of BT Alex. Brown Incorporated.
Our directors and executive officers and some of our stockholders have
agreed not to offer, sell, sell short, transfer, hypothecate, pledge or
otherwise dispose of any shares of our
58
<PAGE> 62
common stock, or any other securities convertible into or exchangeable or
exercisable for shares of our common stock or derivative of our common stock
owned by these persons (or as to which such person has the right to direct the
disposition of) as follows: (1) no more than 20% of these securities within 150
days after the date of this prospectus and (2) no more than an additional 60% of
these securities within 180 days after the date of this prospectus, directly or
indirectly, except with the prior written consent of BT Alex. Brown
Incorporated. The balance of these securities may be disposed of after 210 days
following the date of this prospectus.
The representatives have advised us that the underwriters do not intend to
confirm sales to any account over which they exercise discretionary authority.
To facilitate this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of our common
stock. Specifically, the underwriters may over-allot shares of our common stock
in connection with this offering, thereby creating a short position in the
underwriters' syndicate account. Additionally, to cover such over-allotments or
to stabilize the market price of our common stock, the underwriters may bid for,
and purchase, shares of our common stock in the open market. Any of these
activities may maintain the market price of our common stock at a level above
that which might otherwise prevail in the open market. The underwriters are not
required to engage in these activities, and, if commenced, any such activities
may be discontinued at any time. The representatives of the underwriters, on
behalf of the syndicate of underwriters, also may reclaim selling concessions
allowed to an underwriter or dealer, if the syndicate repurchases shares
distributed by that underwriter or dealer.
The underwriters and their respective affiliates may be lenders to, engage
in transactions with, and perform services for us in the ordinary course of
business. We paid $3.0 million to BT Alex. Brown in consideration of its
providing advisory services to us in connection with the recapitalization. The
amount paid for these services was determined by arms' length negotiations
between us and BT Alex. Brown. We believe that such amount is within standard
industry parameters for a transaction of that nature. In addition, BankBoston,
N.A., is a participant in our credit facility, which will be repaid in part with
a portion of the estimated net proceeds of this offering. BankBoston is an
affiliate of BancBoston Robertson Stephens, a member of the National Association
of Securities Dealers, Inc. and one of the managing underwriters of this
offering. Since the amount to be repaid to BankBoston exceeds 10% of the
estimated net proceeds from the sale of the common stock offered by this
prospectus, this offering is being made pursuant to the provisions of Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. In addition, BT Investment Partners, Inc. owns approximately 1.75%
of our outstanding common stock.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in such negotiations will be
prevailing market conditions, the results of our operations in recent periods,
the market capitalizations and stages of development of other companies which we
and the representatives of the underwriters believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
59
<PAGE> 63
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Private Business by Harwell Howard Hyne Gabbert & Manner, P.C.,
Nashville, Tennessee. Certain legal matters related to this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, Washington,
D.C.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1998, and for each of the three years in the respective periods ended
December 31, 1996, December 31, 1997 and December 31, 1998 included in this
prospectus and Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
FORWARD-LOOKING STATEMENTS
Some statements in the Prospectus Summary and in the Risk Factors,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Business sections, and elsewhere in the prospectus, constitute
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of Private Business or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others:
- general economic and business conditions, both nationally and in regions
where Private Business operates
- the effect of existing or future governmental regulation and federal and
state legislative and enforcement initiatives on Private Business's
business
- our ability to attract and hire enough qualified business development
managers to meet our growth plans
- our ability to enter into contractual relationships with new banks
- the effect of new and existing competition
- the effect of changes in technology decreasing the advantages our system
offers
- our ability to adequately protect our trademarks and proprietary rights
- sale of all or substantially all our asset
Some of these factors are discussed in more detail elsewhere in this
prospectus. There can be no assurance that the forward-looking statements
included in this prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of this information should not be regarded as a
representation by Private Business or any other person that the objectives and
plans of Private Business will be achieved. Private Business disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments. See "Risk Factors."
60
<PAGE> 64
WHERE YOU CAN FIND MORE INFORMATION
Private Business has filed with the SEC a registration statement on Form
S-l pursuant to the Securities Act with respect to the common stock offered
hereby. The prospectus does not contain all the information set forth in the
registration statement, some of which is omitted as permitted by the rules and
regulations of the SEC. Statements contained in the prospectus as to the
contents of any contract, agreement or other document filed with the
registration statement as exhibits are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the copy of
the applicable document filed as an exhibit to the registration statement. For
further information about Private Business and the securities offered hereby,
reference is made to the registration statement and to the consolidated
financial statements, schedules and exhibits filed as a part thereof.
Upon completion of the offering, Private Business will be subject to the
information requirements of the Exchange Act, and, in accordance therewith, will
file reports and other information with the SEC. The registration statement, the
exhibits and schedules forming a part thereof and the reports and other
information filed by Private Business with the SEC in accordance with the
Exchange Act may be inspected without charge at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following regional offices of the SEC: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or any part
thereof may also be obtained from the Public Reference Room of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain
information regarding the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at
http://www.sec.gov that contains reports, proxy statements and other
information.
61
<PAGE> 65
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1996, 1997 and 1998.................... F-5
Consolidated Statements of Cash Flows for the years December
31, 1996, 1997 and 1998................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Private Business, Inc.:
We have audited the accompanying consolidated balance sheets of PRIVATE
BUSINESS, INC. (a Tennessee Corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity 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 Private Business, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 17, 1999
F-2
<PAGE> 67
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,815,720 $ 285,370
Accounts receivable -- trade, net of allowance for
doubtful accounts of $60,000 and $60,000,
respectively............................................ 5,404,754 5,527,200
Accounts receivable -- other.............................. 410,314 151,528
Deferred tax asset........................................ -- 1,103,749
Other current assets...................................... 275,246 903,356
----------- -------------
Total current assets............................... 10,906,034 7,971,203
----------- -------------
PROPERTY AND EQUIPMENT, NET................................. 9,679,106 10,455,587
OTHER ASSETS:
Restricted cash........................................... -- 5,000,000
Note receivable........................................... 19,911 7,474
Software development costs, net........................... 332,444 309,061
Deferred tax asset........................................ -- 1,932,117
Intangible and other assets, net.......................... 57,309 5,920,730
----------- -------------
Total other assets................................. 409,664 13,169,382
----------- -------------
Total assets....................................... $20,994,804 $ 31,596,172
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,369,863 $ 2,448,759
Accrued liabilities....................................... 4,818,518 5,754,453
Dividends payable......................................... -- 2,174,564
Deferred revenue.......................................... 1,839,676 1,677,239
Current portion of long-term debt......................... 105,723 3,750,000
----------- -------------
Total current liabilities.......................... 8,133,780 15,805,015
----------- -------------
OTHER LONG-TERM PAYABLE..................................... -- 5,000,000
LONG TERM DEBT, net of current portion...................... 4,078,277 90,375,000
----------- -------------
Total liabilities.................................. 12,212,057 111,180,015
----------- -------------
MINORITY INTEREST........................................... 140,126 --
----------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, Series A Convertible, no par value;
5,624,404 authorized, issued and outstanding in 1998.... -- 60,000,000
Common stock, no par value; 12,000,000 and 11,960,455
shares authorized and 10,027,779 and 5,064,028 shares
issued and outstanding, respectively.................... -- --
Additional paid-in capital................................ 1,190,000 (131,090,397)
Retained earnings (accumulated deficit)................... 7,452,621 (8,493,446)
----------- -------------
Total stockholders' equity (deficit)............... 8,642,621 (79,583,843)
----------- -------------
Total liabilities and stockholders' equity......... $20,994,804 $ 31,596,172
=========== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 68
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Software license.............................. $ 3,193,475 $ 2,885,575 $ 2,946,846
Royalties..................................... 29,027,633 38,449,795 43,792,518
Maintenance and other......................... 1,767,289 2,325,005 4,065,196
----------- ----------- -----------
Total revenues........................ 33,988,397 43,660,375 50,804,560
----------- ----------- -----------
OPERATING EXPENSES:
General and administrative.................... 10,958,473 11,835,326 13,396,932
Selling and marketing......................... 12,910,929 15,867,499 20,493,785
Research and development...................... 647,741 1,124,550 862,102
Amortization.................................. 115,277 188,947 443,339
Other operating............................... 168,508 340,361 311,787
Recapitalization charges...................... -- -- 13,780,741
----------- ----------- -----------
Total operating expenses.............. 24,800,928 29,356,683 49,288,686
----------- ----------- -----------
OPERATING INCOME................................ 9,187,469 14,303,692 1,515,874
OTHER EXPENSES:
Interest expense.............................. -- 146,438 3,404,581
Minority interest............................. -- 140,126 157,551
----------- ----------- -----------
Total other expenses.................. 286,564 3,562,132
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............... 9,187,469 14,017,128 (2,046,258)
Income tax provision (benefit).................. 582,038 743,448 (2,584,909)
----------- ----------- -----------
NET INCOME...................................... 8,605,431 13,273,680 538,651
Preferred stock dividends and accretion......... -- -- (2,203,776)
----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS.................................. $ 8,605,431 $13,273,680 $(1,665,125)
----------- ----------- -----------
EARNINGS (LOSS) PER SHARE:
Basic......................................... $ 0.86 $ 1.32 $ (0.21)
----------- ----------- -----------
Diluted....................................... $ 0.85 $ 1.30 $ (0.21)
----------- ----------- -----------
PRO FORMA INFORMATION ASSUMING CONVERSION TO C
CORP (Note 11):
Net income (loss) available to common
stockholders............................... $ 5,534,156 $ 8,540,375 $(5,116,903)
----------- ----------- -----------
Basic......................................... $ 0.55 $ 0.85 $ (0.64)
----------- ----------- -----------
Diluted....................................... $ 0.55 $ 0.84 $ (0.64)
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 69
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
PREFERRED STOCK RETAINED
SERIES A CONVERTIBLE ADDITIONAL EARNINGS
----------------------- COMMON PAID-IN (ACCUMULATED
SHARES AMOUNT STOCK CAPITAL DEFICIT) TOTAL
--------- ----------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1995.......................... -- $ -- 10,027,779 $ 1,190,000 $ (252,802) $ 937,198
Common stock dividends..................... -- -- -- -- (1,414,839) (1,414,839)
Net income................................. -- -- -- -- 8,605,431 8,605,431
--------- ----------- ---------- ------------- ------------ -------------
BALANCE,
December 31, 1996.......................... -- -- 10,027,779 1,190,000 6,937,790 8,127,790
Common stock dividends..................... -- -- -- -- (12,758,849) (12,758,849)
Net income................................. -- -- -- -- 13,273,680 13,273,680
--------- ----------- ---------- ------------- ------------ -------------
BALANCE,
December 31, 1997.......................... -- -- 10,027,779 1,190,000 7,452,621 8,642,621
Net income through August 7, 1998.......... -- -- -- -- 6,828,321 6,828,321
Common stock dividends..................... -- -- -- -- (7,775,615) (7,775,615)
Preferred stock dividends.................. -- -- -- -- (2,174,564) (2,174,564)
Issuance of preferred stock................ 5,624,404 60,000,000 -- (322,005) -- 59,677,995
Payments to common stockholders in
recapitalization......................... -- -- (4,963,751) (131,987,604) (6,505,327) (138,492,931)
Net loss for C Corp period................. -- -- -- -- (6,289,670) (6,289,670)
Accretion on preferred stock............... -- -- -- 29,212 (29,212)
------------
Comprehensive income (loss) for C Corp
period................................. (6,318,882)
--------- ----------- ---------- ------------- ------------ -------------
BALANCE,
December 31, 1998.......................... 5,624,404 $60,000,000 5,064,028 $(131,090,397) $(8,493,446) $ (79,583,843)
========= =========== ========== ============= ============ =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 70
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 8,605,431 $13,273,680 $ 538,651
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 585,871 909,549 1,605,259
Bad debt expense.......................................... -- 60,000 --
Deferred taxes............................................ -- -- (3,035,866)
Minority interest......................................... -- 140,126 157,551
Changes in assets and liabilities:
Accounts receivable..................................... (1,164,934) (2,308,909) (122,446)
Other current assets.................................... (714,422) 31,263 (369,324)
Other noncurrent assets................................. 9,747 (3,428) (1,851,945)
Accounts payable........................................ 1,994,261 (858,573) 1,078,894
Accrued liabilities..................................... 1,230,150 1,005,237 935,935
Deferred revenue........................................ (341,206) 469,104 (162,437)
------------ ----------- ------------
Net cash provided by (used in) operating
activities....................................... 10,204,898 12,718,049 (1,225,728)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (5,103,050) (4,644,158) (1,938,401)
Software development costs................................ (151,540) (284,865) (229,107)
Proceeds from sale of equipment........................... 5,969 38,209 --
Acquisition of minority interest.......................... -- -- (4,500,00)
Payments received on notes receivable..................... 17,911 18,035 12,437
------------ ----------- ------------
Net cash used in investing activities.............. (5,230,710) (4,872,779) (6,655,071)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance..................... 845,613 3,338,387 95,000,000
Repayments on not payable................................. -- -- (4,184,000)
Repayments on long-term debt.............................. -- -- (875,000)
Proceeds from sale of preferred stock, net................ -- -- 59,677,995
Payments to common stockholders in recapitalization....... -- -- (138,492,931)
Dividends on common stock................................. (1,414,839) (12,758,849) (7,775,615)
------------ ----------- ------------
Net cash provided by (used in) financing
activities....................................... (569,226) (9,420,462) 3,350,449
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH............................. 4,404,962 (1,575,192) (4,530,350)
CASH at beginning of year................................... 1,985,950 6,390,912 4,815,720
------------ ----------- ------------
CASH at end of year......................................... $ 6,390,912 $ 4,815,720 $ 285,370
============ =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes during period.............. $ 202,560 $ 762,214 $ 851,957
============ =========== ============
Cash payments of interest during period................... $ 2,344 $ 194,555 $ 3,404,581
============ =========== ============
SUPPLEMENTAL NONCASH DISCLOSURES:
Dividends declared on preferred stock..................... $ -- $ -- $ 2,174,564
============ =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 71
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Private Business, Inc. ("the Company") was incorporated under the laws of
the state of Tennessee on December 26, 1990 for the purpose of developing,
marketing and servicing a software package to be used by financial institutions
to purchase and manage small business receivables. The Company operates
primarily in the United States and its customers consist of banks of various
sizes, primarily community banks. During 1998, the Company purchased the
minority interests in three majority owned subsidiaries, Private Business
Insurance, Inc. ("Insurance"), Private Business-Medical Processing, Inc.
("Medical") and Private Business Capital, Inc. ("Capital"). Insurance offers
credit and fraud insurance, which is underwritten through a third party to its
customers. Medical provides third party billing and collection services to its
customers and Capital administrates and manages a small business receivable
portfolio for a third party financial institution.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. The Company records minority interest in
earnings to the extent of earnings allocable to minority interests and minority
interests in losses to the extent minority interests capital exists. As
mentioned above, all minority interest in subsidiaries were purchased by the
Company during 1998. All significant intercompany transactions and balances have
been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
In connection with the purchase of the treasury stock by the Company during
1998, the Company is required to maintain cash in escrow for payment to the
buyers of the convertible preferred stock if claims arise in connection with the
purchase and to the sellers of the treasury shares to the extent the escrow is
not subject to such claims. The cash is held in escrow until the 30th day
following the delivery of the Company's 1999 audited financial statements to the
purchasers. The restricted cash balance is offset by a long term payable to
either the buyers of the convertible preferred stock, if so claimed, or to the
sellers of the treasury stock when the escrow agreement terminates.
PROPERTY AND EQUIPMENT
Depreciation is calculated using an accelerated method over 5 to 10 years
for equipment and software and the life of the lease for all leasehold
improvements. Expenditures for maintenance and repairs are charged to expense as
incurred, whereas expenditures for renewals and betterments are capitalized.
F-7
<PAGE> 72
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After such time, any
additional costs are capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Capitalized software
development costs are amortized on a straight-line basis over three years.
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the excess of purchase
price over the fair value of the identifiable assets acquired for the minority
share of Insurance purchased during 1998 and debt issuance costs associated with
the bank debt acquired during 1998. The excess of the purchase price over the
fair value of unidentifiable assets acquired (goodwill) is being amortized on a
straight-line basis over a period of 20 years. Debt issuance costs are being
amortized on a straight-line basis over the respective terms of the bank loans.
REVENUE RECOGNITION
The Company accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 98-4, Software
Revenue Recognition ("SOP 98-4"), which supercedes SOP 97-2 and clarifies
certain issues under SOP 97-2.
Software Licenses
The Company licenses its software under automatically renewing agreements,
which allows the licensees use of the software for the term of the agreement and
each renewal period. The fee charged for this license is specifically stated in
the contract and is not inclusive of any postcontract customer support. This
entire fee is recognized at the time a contract is signed and executed and the
software has been mailed.
The original license agreement also includes a fee for postcontract
customer support (PCS), which must be renewed annually. This fee covers all
customer training costs, marketing assistance, phone support, and any and all
software enhancements and upgrades. The Company defers the entire amount of this
fee and recognizes it over the twelve-month period in which the PCS services are
provided.
Royalties
The Company's license agreements are structured in a manner that provides
for a continuing royalty to be paid for all receivables purchased by customers.
These royalties are recognized as earned based on the volume of receivables
purchased by customers.
MAINTENANCE AND OTHER
Maintenance revenue is deferred and recognized over the period in which PCS
services are provided. Insurance's, Medical's and Capital's revenues are
recognized as the services are performed.
F-8
<PAGE> 73
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
During 1996 and 1997 and through August 7, 1998, the Company was an S
Corporation, which resulted in all federal tax liability flowing through to the
stockholders. On August 7, 1998 the Company converted to a C Corporation,
therefore income earned from that date through December 31, 1998 is subject to
federal income taxes. The income tax provisions recorded in both 1996 and 1997
and through August 7, 1998 in the accompanying financial statements are for
state income taxes.
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
fiscal years in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
CONCENTRATION OF REVENUES
Substantially all of the Company's revenues are generated from financial
institutions who in turn provide cash management services to small and medium
size operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
To meet the reporting requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, the Company calculates the fair value of
financial instruments at quoted market prices. At December 31, 1998, there were
no material differences in the book values of the Company's financial
instruments and their related fair values.
LONG-LIVED ASSETS
The Company utilizes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of, to periodically
evaluate the carrying value of its properties and other long-lived assets in
relation to the future undiscounted cash flows of the related assets to assess
recoverability.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires that the changes in the amounts of certain items,
including gains and
F-9
<PAGE> 74
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
losses on certain securities, be shown in the financial statements. The Company
adopted the provisions of SFAS No. 130 on January 1, 1998.
SEGMENT DISCLOSURES
During 1998, the Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes standards for
the method that business enterprises report information about operating segments
in annual and interim financial statements. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic area
and major customers. The Company operates in one industry segment, and
accordingly, the adoption of SFAS No. 131 had no impact on the Company's
financial statement disclosures.
RECLASSIFICATION
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.
2. RECAPITALIZATION
On August 7, 1998 the Company completed a series of transactions
effectively resulting in a recapitalization of the Company. A summary of the
transactions is as follows:
- The Company acquired term loan debt from a bank of $ 93,429,311, net
of debt issuance costs of $1,570,689. (Note 5)
- The Company purchased 4,963,751 (49.5%) shares of the Company's common
stock outstanding for $138,492,931, which includes acquisition costs
of approximately $152,000. The common stock was immediately retired.
In accordance with generally accepted accounting principles, the
consideration paid has been reflected as cost of the common stock and
other consideration to stockholders, all of which has been reflected
as a reduction of paid-in-capital and undistributed earnings as of the
recapitalization date.
- The Company issued 5,624,404 shares of Series A Convertible Preferred
Stock for $10.67 per share, or $60,000,000. Costs associated with the
issuance of these shares approximated $322,000 and have been netted
against additional paid-in capital in the accompanying consolidated
financial statements. (Note 8)
- The Company acquired the minority interests of Insurance for
$4,500,000, which resulted in approximately $4,100,000 of goodwill
being recorded.
Taking into consideration the above events, the Company also adjusted the
exercise prices for all stock options outstanding as of August 7, 1998. The
adjusted exercise prices meet the criteria set forth in Emerging Issues Task
Force 90-9, therefore the repricing of the options did not result in a new
measurement date and no additional compensation expense has been recorded in the
accompanying consolidated financial statements. Furthermore, the Company's Board
of Directors approved a special bonus to employees totaling approximately
$10,000,000, which is included in Recapitalization charges in the accompanying
consolidated statement of operations. Also included in Recapitalization charges
are fees paid for various services performed relating to the recapitalization,
including investment banking, legal and accounting services, which amounted to
approximately $3,800,000.
F-10
<PAGE> 75
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment are classified as follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Building.............................................. $5,650,950 $ 5,826,015
Land.................................................. 1,968,000 1,968,000
Purchased software.................................... 602,599 1,204,244
Leasehold improvements................................ 167,685 174,640
Furniture and equipment............................... 2,978,325 4,095,475
---------- -----------
11,367,559 13,268,374
Less accumulated depreciation....................... (1,688,453) (2,812,787)
---------- -----------
$9,679,106 $10,455,587
========== ===========
</TABLE>
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of $3,000 and
$86,152................................................. $17,000 $4,046,171
Debt issuance costs, net of accumulated amortization of
$111,010................................................ -- 1,758,239
Other, net................................................ 40,309 116,320
------- ----------
$57,309 $5,920,730
======= ==========
</TABLE>
5. SHORT-TERM BORROWINGS
The Company has a revolving credit facility agreement in place with a bank
that allows for the Company to draw up to a maximum of $15,000,000. The facility
matures August 7, 2004. The interest rate is based on the Eurodollar or prime
rate plus a margin (7.78125% at December 31, 1998). As of December 31, 1998
there were no amounts drawn against this facility. See Note 6 for additional
information.
F-11
<PAGE> 76
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DESCRIPTION 1997 1998
- ----------- ---------- -----------
<S> <C> <C>
Term Loan A with a bank, principal due quarterly
beginning December 31, 1998; interest due monthly at
the Eurodollar or bank prime rate plus a margin
(7.78125% at December 31, 1998); matures August 7,
2004................................................ $ -- $39,250,000
Term Loan B with a bank, principal due quarterly
beginning December 31, 1998; interest due monthly at
the Eurodollar or bank prime plus a margin (8.03125%
at December 31, 1998); matures August 7, 2006....... -- 54,875,000
Note payable with a bank, interest payable monthly at
LIBOR plus 1.60%, retired in 1998................... 4,184,000 --
---------- -----------
4,184,000 94,125,000
Less current portion................................ (105,723) (3,750,000)
---------- -----------
$4,078,277 $90,375,000
========== ===========
</TABLE>
Term Loans A and B and the revolving credit facility are secured by
substantially all assets of the Company and its subsidiaries. All three debt
instruments include certain restrictive financial covenants related to maximum
capital expenditures, minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA"), ratio of consolidated debt to EBITDA, interest coverage
ratio and fixed coverage ratio. As of December 31, 1998, the Company was in
compliance with these covenants.
The interest margin for the term loans above is determined by the lender
based on the ratio of consolidated debt to EBITDA.
Future maturities of long-term debt are due as follows:
<TABLE>
<S> <C>
1999........................................................ $ 3,750,000
2000........................................................ 5,000,000
2001........................................................ 7,000,000
2002........................................................ 8,750,000
2003........................................................ 9,750,000
Thereafter.................................................. 59,875,000
-----------
$94,125,000
===========
</TABLE>
F-12
<PAGE> 77
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Income tax benefit (expense) consisted of the following for the three years
ended December 31, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Current state income tax expense............. $582,038 $743,448 $ 450,957
Conversion from S Corp to C Corp status...... -- -- (1,053,581)
Deferred tax benefit (expense)............... -- -- (1,982,285)
-------- -------- -----------
Income tax benefit (expense), net............ $582,038 $743,448 $(2,584,909)
======== ======== ===========
</TABLE>
For the first seven months of 1998, the Company, as a S Corp, had income
before taxes of approximately $7,300,000 for which a state tax provision of
$450,957 was recorded. At the time of conversion from an S Corp to a C Corp, the
Company recorded a net deferred tax asset of approximately $1,054,000 for the
temporary differences that existed as of the conversion date. For the last five
months of 1998, the Company, as C Corp, had a taxable loss of approximately
$5,300,000, resulting in an income tax benefit of approximately $1,982,000. A
reconciliation of the tax benefit from the U.S. Federal statutory rate to the
effective rate for the C Corp period ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Tax benefit at U.S. Federal statutory rate.................. $(3,263,938)
State tax benefit........................................... (279,766)
Expenses not deductible..................................... 1,561,419
-----------
$(1,982,285)
===========
</TABLE>
All tax provisions for 1996, 1997 and the first seven months of 1998 were
state income tax provisions.
Significant components of the Company's deferred tax liabilities and
assets, using a tax rate of 38% at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Current assets (liabilities):
Reserves on assets........................................ $ (131,956)
Liabilities not yet deductible............................ 1,235,705
----------
Net current assets................................ 1,103,749
----------
Noncurrent assets (liabilities):
Net operating loss carryforwards.......................... 1,942,757
Other..................................................... (10,640)
----------
Net noncurrent asset.............................. 1,932,117
----------
Total net deferred tax asset...................... $3,035,866
==========
</TABLE>
8. PREFERRED STOCK
On August 7, 1998 the Company sold 5,624,404 shares of Series A Convertible
Preferred Stock for a total of $60,000,000. The preferred stock is entitled to
dividends, in preference to the holders of any and all other classes of capital
stock of the Company, at a rate of $.96 per share of preferred stock per annum
commencing on the date of issuance.
F-13
<PAGE> 78
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Series A Convertible Preferred Stock, in the event of any liquidation,
dissolution or winding up of the Company, contains a liquidation preference over
all other capital stock of the Company equal to the greater of $10.6678 per
share plus any accumulated but unpaid dividends or the fair market value
redemption price as determined by the Board of Directors.
Beginning in 2003 and annually thereafter through 2005, the holders of not
less than two-thirds of the voting power of the Convertible Preferred Stock may
elect to require the Company to redeem up to one-third of the Convertible
Preferred Stock in each period for an amount equal to the face amount of the
preferred or convertible stock. For Convertible Preferred Stock redeemed in
2005, the amount required to be paid by the Company is the higher of the market
value as defined or face amount.
The Series A Convertible Preferred Stock is convertible to common stock on
a one share for one share basis at the option of the preferred stockholders at
any time, upon the written election of the shareholders, without the payment of
any additional consideration. The common stock conversion rate is subject to
adjustment from time to time as outlined in the Company's Certificate of
Incorporation ("Certificate"). In the event of the Company's first underwritten
offering to the public at a designated offering price and yielding a minimum net
proceeds pursuant to an effective registration statement under the Securities
Act of 1933, each share of Series A Convertible Preferred Stock shall be
automatically converted, without the payment of any additional consideration or
any accumulated but undeclared dividends, into shares of common stock.
In the event that any public offering of the Company's common stock does
not meet the minimum offering price or net proceed amounts as defined in the
Certificate, the Company intends to obtain a commitment from each preferred
stockholder to convert the preferred stock to common stock prior to the
consummation of the public offering.
9. DIVIDENDS
The amounts declared in 1996, 1997 and 1998 are included in the
consolidated statements of stockholders' equity in the years declared. All
amounts declared during the calendar years 1996, 1997 and 1998 were paid during
that year. The 1998 preferred stock dividend of $2,174,564 is recorded as a
payable in the accompanying consolidated balance sheet.
10. EMPLOYEE STOCK OPTION PLAN
On December 28, 1994, the Board of Directors of the Company approved an
employee stock option plan covering all eligible employees. In addition, on
September 1, 1998, the Board of Directors approved a 1998 stock option plan that
is substantially identical to the plan adopted in 1994. As of December 31, 1996,
the Board of Directors had authorized up to 1,000,000 of the authorized shares
of the Company's stock to be reserved for issuance under the plan. As part of
the 1998 stock option plan, an additional 598,023 shares of the Company's common
stock has been reserved for issuance under the plans. Under the terms of the
plans, the Board of Directors has the sole discretion to grant employees options
with exercise prices determined at the time of grant. All options, if not
exercised or otherwise specified, expire after 10 years and cannot be sold or
transferred to any other party. All options granted, unless otherwise specified,
require a five year vesting period from the date of grant. If an employee is
terminated or leaves the Company prior to the options being
F-14
<PAGE> 79
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vested, the options are forfeited and must be returned to the Company. All stock
options granted under this plan are accounted for in accordance with Accounting
Principles Board ("APB") Opinion No. 25., which requires that compensation cost
be measured by the difference between the quoted market price of the stock at
the date of grant or award and the option price.
A summary of the status of the Company's option plans is as follows for the
three years ended December 31, 1998:
<TABLE>
<CAPTION>
1996
--------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of period.................... 210,500 $0.83
Granted............................................. 183,000 3.06
Exercised........................................... -- --
Canceled............................................ -- --
------- -----
Outstanding at end of period.......................... 393,500 $1.86
------- -----
Available for future grant.......................... 606,500
-------
Exercisable......................................... 35,000 $0.66
======= =====
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of period.................... 393,500 $1.86
Granted............................................. 293,000 4.12
Exercised........................................... -- --
Canceled............................................ (12,500) 1.93
------- -----
Outstanding at end of period.......................... 674,000 $2.84
------- -----
Available for future grant............................ 326,000
-------
Exercisable........................................... 35,000 $0.66
======= =====
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of period.................... 674,000 $ 2.84
Granted.......................................... 237,000 10.67
Exercised........................................ -- --
Canceled......................................... (27,500) 3.14
------- ------
Outstanding at end of period.......................... 883,500 $ 4.93
------- ------
Available for future grant............................ 714,523
-------
Exercisable........................................... 35,000 $ 0.66
======= ======
</TABLE>
F-15
<PAGE> 80
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has not recorded compensation expense relating to these
options, as in the opinion of the Board of Directors and management, the
Company's common stock had a market value as of the date of grant that
approximated the respective exercise prices above.
As discussed above, the Company accounts for all options using APB No. 25,
however all 1996 through 1998 options are subject to the disclosure requirements
of SFAS No. 123. SFAS No. 123 requires that compensation expense, related to
options granted, be calculated based on the fair value of the options as of the
date of grant. The fair value calculations take into account the exercise prices
and expected lives of the options, the current price of the underlying stock,
its expected volatility, the expected dividends on the stock, and the current
risk-free interest rate for the expected life of the option. Under SFAS No. 123,
the fair value of the 1996, 1997 and 1998 options at the date of grant was
approximately $1.78, $2.25 and $3.19 per share, respectively. The fair value was
calculated using a risk-free rate of 6.065%, 5.75% and 4.45% for 1996, 1997 and
1998, respectively, and an expected life of the options of eight years. Had the
Company adopted SFAS 123 to account for such options, the Company's net income
would have been reduced by approximately $41,000, $123,000 and $217,000 in 1996,
1997 and 1998, respectively.
11. NET INCOME PER SHARE
Basic earnings per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by dividing
net income by the weighted average number of common and common equivalent shares
outstanding during the fiscal year, which includes the additional dilution
related to conversion of stock options as computed under the treasury stock
method. Neither the outstanding stock options nor the Series A Convertible
Preferred Stock have been included in the adjusted weighted average common
shares outstanding for 1998 as the effects of conversion are antidilutive.
The following table presents information necessary to calculate earnings
per share for the three years ended December 31, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income available to common
stockholders.......................... $ 8,605,431 $13,273,680 $(1,665,125)
=========== =========== ===========
Weighted average common shares
outstanding........................... 10,027,779 10,027,779 7,959,550
Plus additional shares from common stock
equivalent shares:
Options............................... 124,559 186,038 --
----------- ----------- -----------
Adjusted weighted average common shares
outstanding........................... 10,152,338 10,213,817 7,959,550
=========== =========== ===========
</TABLE>
F-16
<PAGE> 81
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As mentioned in Note 7, the Company converted from an S Corp to a C Corp on
August 7, 1998. The following pro forma amounts present the basic earnings per
share and diluted earnings per share as if the Company had been a C Corp for all
three years ended December 31, 1998:
<TABLE>
<CAPTION>
(PRO FORMA)
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) available to common
stockholders.......................... $ 8,605,431 $13,273,680 $(1,665,125)
Additional tax provision................ (3,071,275) (4,733,305) (3,451,778)
----------- ----------- -----------
Pro forma net income available to
common stockholders................ $ 5,534,156 $ 8,540,375 $(5,116,903)
=========== =========== ===========
Basic earnings (loss) per share......... $ 0.55 $ 0.85 $ (0.64)
=========== =========== ===========
Diluted earnings (loss) per share....... $ 0.55 $ 0.84 $ (0.64)
=========== =========== ===========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company leases office space and office equipment under various
operating lease agreements. Rent expense for the years ended December 31, 1996,
1997 and 1998 totaled approximately $475,000, $370,000 and $379,000,
respectively, and is included in general and administrative expense in the
consolidated statement of operations.
As of December 31, 1998, the future minimum lease payments relating to the
operating lease obligations are as follows:
<TABLE>
<S> <C>
1999........................................................ $382,900
2000........................................................ 208,971
2001........................................................ 107,714
2002........................................................ 85,246
2003........................................................ 65,255
--------
$850,086
========
</TABLE>
The Company is also subject to various legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position of the Company.
13. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan, the Private Business, Inc. 401(k)
Profit Sharing Plan ("the Plan"), which permits participants to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. The Company matches contributions ($.50, $.50 and $1 in 1996, 1997
and 1998, respectively, for every $1 contributed by employees) up to a maximum
of $500, $750 and $1,000 per employee per year for 1996, 1997 and 1998,
respectively, and may, at its discretion, make additional contributions to the
plan. Employees are eligible for participation beginning with the quarter
immediately following one year of service. Total contributions made by the
Company to the plan were $44,754, $105,767 and $151,858 in 1996, 1997 and 1998,
respectively, and is
F-17
<PAGE> 82
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
included in the general and administrative expense in the consolidated
statements of operations.
14. RELATED PARTY TRANSACTIONS
The Company performs various management and administration functions for
Board Member, Inc.; Madison Land; Maryland Farms Land, LLC; Maryland Farms
South, LLC; Private Business Partners, Inc.; Careers, Inc.; Discount Brokerage
Services, Inc.; Senior Achievement; and Imagic Corporation, which are owned by
some of the principal stockholders of the Company. The Company charges a monthly
management fee, which is equal to a percentage of certain Company employees'
salaries for these services. These charges totaled approximately $55,000,
$74,000 and $180,000 for 1996, 1997 and 1998, respectively and have been netted
against general and administrative expenses in the accompanying statements of
operations.
The Company entered into two promissory note agreements dated February 7,
1994 and June 15, 1994 for $50,000 and $15,000, respectively, with A.R. Systems,
Inc. ("A.R. Systems") and Monty E. Strecker, the sole stockholder of A.R.
Systems and a former employee of the Company. The terms of the notes call for
quarterly principal and interest payments beginning January 1 and July 1, 1995,
respectively, and ending on February 1 and April 1, 1999, respectively.
Outstanding principal on the notes totaled $37,946, $19,911 and $7,474 at
December 31, 1996, 1997 and 1998, respectively. The Company has also entered
into an option agreement dated February 7, 1994 with A.R. Systems and Monty E.
Strecker, which gives the Company the exclusive right to purchase A.R. Systems
for a term of five years from the date of the agreement. The agreement is
nonbinding to the Company and the formula for calculating the purchase price is
explicitly stated in the agreement. As of December 31, 1998, the Company has not
exercised this option.
The Company leases office space from Madison Land Co., which is owned by
some of the principal stockholders of the Company. Effective December 1, 1997,
there is a formal lease agreement between the two parties for rental payments of
$75,000 and a term of one year. Total rent paid to Madison Land Co. was
approximately $75,000, $43,000 and $75,000 for 1996, 1997 and 1998,
respectively.
As of December 31, 1996 and 1997, Board Member, Inc. owed the Company
$111,384 and $148,262, respectively for payables processed and paid by the
Company, which are reimbursed by Board Member, Inc. as funds are available. As
of December 31, 1998, the Company owed Board Member, Inc. $34,462, relating to
an overpayment made by Board Member, Inc. to the Company. This amount is
included in Accounts receivable -- other in the accompanying consolidated
balance sheet.
During 1996, the Company financed the start-up of Careers, Inc., which is
owned by some of the principal stockholders of the Company. As of December 31,
1997 and 1998, respectively, Careers, Inc. owed the Company $41,728 and $803
related to payables processed and paid by the Company which is included in
Accounts receivable -- other in the accompanying consolidated balance sheet.
During 1996, the Company purchased land from Private Business Partners,
Inc., which is owned by some of the principal stockholders of the Company. The
purchase price was $1,963,000.
F-18
<PAGE> 83
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Company financed the start-up of Imagic Corporation, which
is owned by some of the principal stockholders of the Company. As of December
31, 1997 and 1998, respectively, Imagic Corporation owed the Company $53,265 and
$2,712.
F-19
<PAGE> 84
[map of the United States with marks indicating each location where Private
Business has a client bank. Private Business's logo appears over the place on
the map where Nashville, TN is located. Above the map there is a caption that
states as follows: "Our Distribution Network of Client Banks Throughout the
U.S."]
<PAGE> 85
- ------------------------------------------------------
- ------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THE PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Use of Proceeds..................... 11
Dividend Policy..................... 11
Capitalization...................... 12
Dilution............................ 13
Selected Consolidated Financial
Data.............................. 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 16
Business............................ 27
Management.......................... 38
Principal Stockholders.............. 44
Relationships and Related Party
Transactions...................... 46
Description of Capital Stock........ 49
Shares Eligible for Future Sale..... 55
Plan of Distribution................ 58
Legal Matters....................... 60
Experts............................. 60
Forward-looking Statements.......... 60
Where You Can Find More
Information....................... 61
Index to Financial Statements....... F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
SHARES
[PRIVATE BUSINESS
LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
BANCBOSTON
ROBERTSON STEPHENS
LEHMAN BROTHERS
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses (all of
which will be paid by Private Business) in connection with the offering
described in the registration statement.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 33,925
NASD Filing Fee............................................. 12,000
NASDAQ National Market Listing Fee.......................... 95,000
Printing and Engraving Expense.............................. 125,000
Legal Fees and Expenses..................................... 300,000
Auditors' Fees and Expenses................................. 125,000
Transfer Agent and Registrar Fees and Expenses.............. 11,500
Miscellaneous............................................... 22,575
--------
Total............................................. $725,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Tennessee Business Corporation Act provides that a corporation may
indemnify any of its directors against liability incurred in connection with a
proceeding except for liability (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 48-18-304 of the TBCA, or (d) for any transaction from
which the director derived an improper personal benefit.
(b) Article VIII of our charter sets forth the extent to which officers or
directors of Private Business may be insured or indemnified against any
liabilities which they may incur. The general effect of this provision is that
any person made a party to any action, suit or proceeding by reason of the fact
that he or she is or was a director of Private Business will be indemnified by
Private Business against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, to the fullest extent permitted
under the laws of the State of Tennessee. In addition, this provision provides
that, in Private Business's sole discretion, Private Business may, by specific
action of the board of directors, indemnify officers, employees or agents to the
same extent as a director. Private Business a policy of directors' and officers'
insurance that would generally provide the funds necessary for Private Business
to meet its obligations under its charter.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with our recapitalization, on August 7, 1998 we purchased
4,963,751 shares of our common stock for an aggregate purchase price of
$138,340,358. Immediately thereafter on August 7, 1998, we sold 5,624,404 shares
of our Series A convertible preferred stock in connection with our
recapitalization for an aggregate purchase price of $60,000,000. Both of these
transactions were deemed to be exempt from registration under Section 4(2) of
the Securities Act as transactions not involving a public offering.
II-1
<PAGE> 87
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
*1 -- Form of Underwriting Agreement.
*3.1 -- Amended and Restated Charter of Private Business.
*3.2 -- Amended and Restated Bylaws of Private Business.
4.1 -- Provisions of Articles of Incorporation defining the rights
of security holders. See Exhibit 3.1.
*4.2 -- Form of common stock certificate.
*5 -- Opinion of Harwell Howard Hyne Gabbert & Manner, P.C.
10.1 -- Stock Purchase Agreement dated as of July 24, 1998.
10.2 -- Stockholders Agreement dated as of August 7, 1998.
10.3 -- Registration Rights Agreement dated as of August 7, 1998.
10.4 -- Credit Agreement dated as of August 7, 1998.
10.5 -- Form of Indemnification Agreement between Private Business
and each of its Officers and Directors.
10.6 -- Form of Nonqualified Stock Option Agreement without change
of control provision.
10.7 -- Form of Nonqualified Stock Option Agreement with change of
control provision.
*10.8 -- Private Business, Inc. 1999 Incentive Stock Option Plan.
21 -- Subsidiaries of Private Business.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Harwell Howard Hyne Gabbert & Manner, P.C.
(included in Exhibit 5).
24 -- Power of Attorney (included on page II-4).
27 -- Financial Data Schedule (FOR SEC USE ONLY).
</TABLE>
- ---------------
* To be filed by amendment
The attachments referenced in these exhibits are not included in this
filing but are available from Private Business upon request.
(b) The following report and schedule is filed as part of the Registration
Statement:
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
</TABLE>
No other schedules are required or are applicable.
II-2
<PAGE> 88
ITEM 17. UNDERTAKINGS.
Private Business hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement 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 Private
Business pursuant to the foregoing provisions, or otherwise, Private Business
has been advised that in the opinion of the SEC this indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against these liabilities (other
than the payment by Private Business of expenses incurred or paid by a director,
officer or controlling person of Private Business in the successful defense of
any action, suit or proceeding) is asserted against Private Business by the
director, officer or controlling person in connection with the securities being
registered, Private Business 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 indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of the issue.
Private Business hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Private Business 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 the securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Private
Business has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Brentwood, State
of Tennessee, on March 23, 1999.
PRIVATE BUSINESS, INC.
By: /s/ JERRY L. COVER
------------------------------------
Principal Executive Officer
POWER OF ATTORNEY
Each person whose signature to the registration statement appears below
hereby appoints Jerry L. Cover and Fred P. Read, and each of them, any one of
whom may act without the joinder of the other, as his attorney-in-fact to
execute in the name and on behalf of any such person, individually and in the
capacity stated below, and to file all amendments and post-effective amendments
to this registration statement, which amendment or amendments may make such
changes and additions in this registration statement as such attorney-in-fact
may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
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>
/s/ WILLIAM B. KING Chairman of the Board March 23, 1999
- --------------------------------------------------------
William B. King
/s/ JERRY L. COVER President (Principal March 23, 1999
- -------------------------------------------------------- Executive Officer)
Jerry L. Cover
/s/ FRED P. READ Vice President, Chief March 23, 1999
- -------------------------------------------------------- Financial Officer
Fred P. Read (Principal Financial and
Accounting Officer)
Director March , 1999
- --------------------------------------------------------
Thomas L. Black
/s/ GREGORY A. THURMAN Director March 23, 1999
- --------------------------------------------------------
Gregory A. Thurman
/s/ BRIAN J. CONWAY Director March 23, 1999
- --------------------------------------------------------
Brian J. Conway
/s/ BRUCE R. EVANS Director March 23, 1999
- --------------------------------------------------------
Bruce R. Evans
/s/ GARY W. CAGE Director March 23, 1999
- --------------------------------------------------------
Gary W. Cage
</TABLE>
II-4
<PAGE> 90
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Private Business, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Private Business, Inc. and subsidiaries
for the three years ended December 31, 1998 included in the Form S-1 and have
issued our report thereon dated March 17, 1999. Our audits were made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule listed under Item 14(a)(ii) is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth herein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 17, 1999
S-1
<PAGE> 91
SCHEDULE II
PRIVATE BUSINESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO COSTS
BEGINNING OF AND DEDUCTIONS BALANCE AT
PERIOD EXPENSES(1) (CHARGE OFFS)(1) END OF PERIOD
------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts...... $60,000 $ -- $ -- $60,000
======= ======= ======= =======
Year ended December 31, 1997:
Allowance for doubtful accounts...... $ 0 $60,000 $ -- $60,000
======= ======= ======= =======
Year ended December 31, 1996:
Allowance for doubtful accounts...... $ 0 $ -- $ -- $ 0
======= ======= ======= =======
</TABLE>
- ---------------
(1) Additions to the allowance for doubtful accounts are included in general and
administrative expense. All deductions or charge offs are charged against
the allowance for doubtful accounts.
S-2
<PAGE> 1
EXHIBIT 10.1
PRIVATE BUSINESS, INC.
----------
STOCK PURCHASE AGREEMENT
----------
As of July 24, 1998
<PAGE> 2
PRIVATE BUSINESS, INC.
Stock Purchase Agreement
As of July 24, 1998
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. REDEMPTION; PURCHASE AND SALE...................................................................1
1.1 Description of Securities.......................................................................1
1.2 Redemption......................................................................................2
1.3 Sale and Purchase...............................................................................2
1.4 Use of Proceeds.................................................................................3
1.5 Final Excess Cash Distribution..................................................................4
1.6 Outstanding Option Price Adjustment.............................................................4
1.7 Closing.........................................................................................4
1.8 Escrow Arrangements.............................................................................5
1.9 Stockholders' Representative....................................................................5
1.10 Transfer Taxes..................................................................................6
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDING STOCKHOLDERS.....................6
2.1 Organization and Corporate Power................................................................6
2.2 Authorization and Non-Contravention.............................................................7
2.3 Capitalization; Ownership of Stock..............................................................7
2.4 Subsidiaries; Investments.......................................................................9
2.5 Financial Statements and Matters................................................................9
2.6 Absence of Undisclosed Liabilities..............................................................9
2.7 Absence of Certain Developments................................................................10
2.8 Ordinary Course................................................................................11
2.9 Accounts Receivable; Accounts Payable..........................................................11
2.10 Real and Personal Property.....................................................................11
2.11 Tax Matters....................................................................................14
2.12 Certain Contracts and Arrangements.............................................................15
2.13 Intellectual Property Rights; Employee Restrictions............................................17
2.14 Litigation.....................................................................................19
2.15 Employee Benefit Plans.........................................................................20
2.16 Labor Matters..................................................................................21
2.17 List of Certain Employees and Suppliers........................................................22
2.18 Environmental Matters..........................................................................22
2.19 Business; Compliance with Laws.................................................................23
2.20 Investment Banking; Brokerage..................................................................24
2.21 Insurance......................................................................................24
2.22 Transactions with Affiliates...................................................................24
2.23 Customers......................................................................................24
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.24 Warranty and Related Matters...................................................................25
2.25 Banking Relations..............................................................................25
2.26 Corporate Records..............................................................................25
2.27 Disclosure.....................................................................................25
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS................................................26
3.1 Investment Status..............................................................................26
3.2 Authority......................................................................................26
3.3 Investment Banking; Brokerage Fees.............................................................26
SECTION 4. PRE-CLOSING COVENANTS OF THE COMPANY AND THE FOUNDING STOCKHOLDERS.............................26
4.1 Making of Covenants and Agreements.............................................................26
4.2 Conduct of Business............................................................................27
4.3 Authorization From Others; Hart-Scott-Rodino...................................................28
4.4 Notice of Default..............................................................................29
4.5 Consummation of Agreement......................................................................29
4.6 No Solicitation of Other Offers................................................................29
4.7 No Transfer of Shares; Voting..................................................................30
SECTION 5. CONDITIONS OF PURCHASE BY THE INVESTORS........................................................30
5.1 Pre-Closing Transactions.......................................................................30
5.2 Satisfaction of Conditions.....................................................................31
5.3 Opinion of Counsel.............................................................................31
5.4 Authorization..................................................................................31
5.5 June Financials................................................................................31
5.6 Stockholders' Equity; Working Capital; Cash....................................................31
5.7 Subsidiaries...................................................................................32
5.8 Hart-Scott-Rodino..............................................................................32
5.9 Escrow Agreement...............................................................................32
5.10 Delivery of Closing Documents..................................................................32
5.11 No Material Adverse Change.....................................................................33
5.12 All Proceedings Satisfactory...................................................................34
5.13 Investors' Fees................................................................................34
5.14 No Violation or Injunction.....................................................................34
5.15 Consents and Waivers...........................................................................34
5.16 Cendant Termination and Non-Competition Agreement..............................................34
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING STOCKHOLDERS..............................35
6.1 Representations; Warranties; Covenants.........................................................35
6.2 Certain Agreements.............................................................................35
6.3 Senior Debt Facility...........................................................................35
6.4 Hart-Scott-Rodino..............................................................................35
6.5 Escrow Agreement...............................................................................36
6.6 The Redemption.................................................................................36
6.7 Delivery of Cendant Termination and Non-Competition Agreement..................................36
6.8 Delivery of Final Excess Cash Notes............................................................36
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED....................................................36
7.1 Termination....................................................................................36
7.2 Effect of Termination..........................................................................37
7.3 Right to Proceed...............................................................................37
SECTION 8. COVENANTS OF THE COMPANY.......................................................................37
8.1 Financial Statements...........................................................................37
8.2 Budget and Operating Forecast; Inspection......................................................38
8.3 Board of Directors; Meetings; Indemnification..................................................38
8.4 Conduct of Business............................................................................39
8.5 Payment of Taxes, Compliance with Laws, etc....................................................39
8.6 Insurance......................................................................................39
8.7 Maintenance of Properties......................................................................39
8.8 Material Adverse Changes.......................................................................40
8.9 Management Compensation........................................................................40
8.10 Issuance of Common Stock, Convertible Securities, Options, Warrants or Rights..................40
8.11 Affiliate Transactions.........................................................................41
8.12 Enforcement of Rights..........................................................................41
8.13 Distributions on, and Redemptions of, Capital Stock............................................41
8.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other Actions..........................42
8.15 Election of Directors..........................................................................42
8.16 Affiliated Transaction Receivables.............................................................42
8.17 Non-Competition Agreements.....................................................................42
8.18 S-Corporation Allocation Election..............................................................42
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 9. SURVIVAL; INDEMNIFICATION.........................................................................43
9.1 Survival of Representations; Warranties and Covenants; Assignability of Rights.................43
9.2 Transaction Related Indemnification............................................................43
9.3 Company Indemnification........................................................................45
9.4 Notice; Payment of Losses; Defense of Claims...................................................47
9.5 Tax Effects of Losses; Meaning of After-Tax Basis..............................................49
9.6 Exclusive Remedy...............................................................................49
9.7 Limitation on Contribution and Certain Other Rights............................................49
SECTION 10. GENERAL........................................................................................50
10.1 Amendments, Waivers and Consents...............................................................50
10.2 Legend on Securities...........................................................................50
10.3 Governing Law..................................................................................51
10.4 Section Headings and Gender....................................................................51
10.5 Counterparts...................................................................................51
10.6 Notices and Demands............................................................................51
10.7 Dispute Resolution.............................................................................52
10.8 Remedies; Severability.........................................................................53
10.9 Integration....................................................................................53
10.10 No Third-Party Beneficiaries...................................................................53
10.11 Investor Assignees.............................................................................53
10.12 Right to Purchase Cendant Shares...............................................................54
10.13 Certain Definitions............................................................................54
</TABLE>
(iv)
<PAGE> 6
EXHIBITS
Exhibit A - Stockholders and Stock Ownership
Exhibit B-1 - Investors
Exhibit B-2 - Investor Assignees
Exhibit C - Amended and Restated Charter
Exhibit D - Amended and Restated By-laws
Exhibit E-1 - Form of Redemption Promissory Note
Exhibit E-2 - Form of Final Excess Cash Note
Exhibit F - Form of Escrow Agreement
Exhibit G - Opinion of Counsel
Exhibit H - Stockholders Agreement
Exhibit I - Registration Rights Agreement
Exhibit J-1 - Form of Non-Competition Agreement for Founding Stockholders
Exhibit J-2 - Form of Non-Competition Agreement for Key Employees
Exhibit K - General Release Agreement
Exhibit L - Consent of Spouse
Exhibit M - Cendant Termination and Non-Competition Agreement
Exhibit N - Director Indemnification Agreement
(v)
<PAGE> 7
SCHEDULES
Schedule 2.1 - Foreign Qualification
Schedule 2.2 - Authorization and Non-Contravention
Schedule 2.3 - Capitalization; Ownership of Stock
Schedule 2.4 - Subsidiaries
Schedule 2.5 - Financial Matters
Schedule 2.6 - Undisclosed Liabilities
Schedule 2.7 - Certain Developments
Schedule 2.10 - Real and Personal Property
Schedule 2.12 - Certain Contracts and Arrangements
Schedule 2.13 - Intellectual Property Rights; Employee Restrictions
Schedule 2.14 - Litigation
Schedule 2.15 - Employee Benefit Plans
Schedule 2.16 - Labor Matters
Schedule 2.17 - List of Certain Employees and Suppliers
Schedule 2.18 - Environmental Matters
Schedule 2.20 - Investment Banking; Brokerage
Schedule 2.22 - Transactions with Affiliates
Schedule 2.23 - Customers, Distributors and Brokers
Schedule 2.24 - Product Warranties
Schedule 2.25 - Banking Relations
Schedule 8.9 - Compensation and Benefit Arrangements of Founding
Stockholders
(vi)
<PAGE> 8
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT made as of this 24th day of July, 1998, by and
among Private Business, Inc., a Tennessee corporation (together with any
predecessors or successors thereto as the context requires, "PBI" or the
"Company"), the persons named in Exhibit A attached hereto (collectively, the
"Selling Stockholders" and, each individually, a "Selling Stockholder," and all
such Selling Stockholders except the Community Foundation of Middle Tennessee
collectively referred to as the "Founding Stockholders" and, each individually,
a "Founding Stockholder"), and the investors named in Exhibit B-1 attached
hereto (collectively, the "Investors," and, each individually, an "Investor").
WHEREAS, all of the outstanding shares of the Company's capital stock
prior to the date hereof are owned by the Selling Stockholders;
WHEREAS, the Company has agreed to redeem and the Selling Stockholders
of the Company have agreed to sell to the Company an aggregate of 4,963,751
shares of the Company's Common Stock, without par value ("Common Stock"), for an
aggregate purchase price of $138,340,358;
WHEREAS, the Company has authorized the subsequent issuance and sale to
the Investors of a total of 5,624,404 shares of Series A Convertible Preferred
Stock, without par value ("Convertible Preferred Stock"), having the rights and
preferences set forth in Exhibit C hereto for an aggregate purchase price of
$60,000,000;
WHEREAS, immediately prior to the Closing (as hereinafter defined in
Section 1.7) and after the Redemption (as hereinafter defined in Section 1.2),
the Company will enter into a Credit Agreement with Fleet National Bank, among
other lenders, with respect to a $110,000,000 credit facility, including a
$95,000,000 senior term financing and a $15,000,000 senior revolving line of
credit (the "Credit Facility"); and
WHEREAS, the parties hereto desire to set forth herein the terms of
their ongoing relationship in connection with the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
SECTION 1. REDEMPTION; PURCHASE AND SALE
1.1 Description of Securities. The Company's authorized capital stock
consists of Common Stock and, upon consummation of transactions contemplated by
this Agreement, Convertible Preferred Stock. The Common Stock and Convertible
Preferred Stock will, upon consummation of transactions contemplated by this
Agreement, have the rights, preferences and other terms set forth in Exhibit C
attached hereto. All of the issued and outstanding equity securities of the
Company are owned beneficially and of record by the Selling Stockholders.
<PAGE> 9
For purposes of this Agreement, the shares of Convertible Preferred Stock to be
acquired by the Investors from the Company hereunder are referred to as the
"Convertible Preferred Shares," the shares of Common Stock issuable upon
conversion of the Convertible Preferred Shares are referred to as the
"Conversion Shares," and the Convertible Preferred Shares and the Conversion
Shares are sometimes referred to herein as the "Securities." The Company will,
upon consummation of transactions contemplated by this Agreement, have
authorized and reserved, and covenants to continue to reserve, a sufficient
number of shares of its Common Stock necessary to satisfy the rights of
conversion of the holders of Convertible Preferred Stock as set forth in
Exhibit C.
1.2 Redemption. Before the Closing, the Company shall acquire from each
of the Selling Stockholders, and each of the Selling Stockholders shall sell to
the Company, the number of shares of Common Stock set forth opposite the name of
such Selling Stockholder in Exhibit A, or an aggregate of 4,963,751 shares of
Common Stock (the "Redemption Shares"), for a price of $27.87 per share, or an
aggregate redemption price of $138,340,358 (the "Aggregate Redemption Price"),
of which $5,000,000 shall be paid to an escrow agent as described in Section 1.8
(the "Redemption"). Upon such Redemption, (i) each of the Selling Stockholders
shall deliver or cause to be delivered to the Company a stock certificate or
certificates, duly endorsed in blank or with stock powers duly executed in
blank, representing the Redemption Shares to be sold by such Selling Stockholder
hereunder, together with such signature guarantees and such other documents as
may be required by the Company to effect a valid transfer to the Company of such
Redemption Shares, free and clear of any and all liens, claims, options,
charges, pledges, security interests, voting agreements (except as provided
herein), voting trusts, encumbrances, rights or restrictions of any nature
("Encumbrances") and (ii) the Company shall deliver to each of the Selling
Stockholders promissory notes (the "Redemption Notes") in substantially the form
attached hereto as Exhibit E-1 representing its obligation to pay the amount of
the Redemption Price set forth opposite such Selling Stockholder's name under
the column entitled "Total Redemption Price" in Exhibit A hereto. The closing of
the Redemption shall occur prior to, and shall not be conditioned upon, the
purchase and sale of the Convertible Preferred Shares or the closing of the
Credit Facility.
1.3 Sale and Purchase. Upon the terms and subject to the conditions
herein, and in reliance on the representations and warranties set forth in
Section 2, at the Closing each of the Investors shall purchase from the Company,
and the Company shall issue and sell to each of the Investors, the number of
shares of Convertible Preferred Stock set forth opposite the name of such
Investor in Exhibit B-1, or an aggregate of 5,624,404 shares of Convertible
Preferred Stock, for a per share purchase price of $10.6678 per share, or an
aggregate purchase price of SIXTY MILLION DOLLARS ($60,000,000) (the "Purchase
Price"), and the Company shall without further action grant the Investors the
rights set forth herein. At the Closing, the Company shall deliver or cause to
be delivered to each of the Investors stock certificates representing all of the
Convertible Preferred Shares free and clear of any and all Encumbrances. All
cash payments hereunder shall be made by wire transfer of same day available
funds.
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<PAGE> 10
1.4 Use of Proceeds.
(a) General. The Company agrees to apply the proceeds from the
sale of the Convertible Preferred Shares and the borrowings under the Credit
Facility (i) to pay in full the Redemption Notes issued by the Company in
connection with the Redemption, (ii) to pay the Optionee Bonuses as described in
1.4(c), (iii) to pay the Discretionary Bonuses as described in Section 1.4(d)
and (iv) for working capital purposes, including the payment of certain fees and
expenses relating to the transactions contemplated hereby.
(b) Redemption Notes. Promptly after the Closing, upon tender
of all of the Redemption Notes by the Selling Stockholders to the Company, the
Company shall (i) pay to each Selling Stockholder cash equal to the amount set
forth opposite such Selling Stockholder's name under the column entitled
"Redemption Price Paid at Closing" in Exhibit A hereto and (ii) deliver to the
Escrow Agent named in Section 1.8 the sum of the amounts set forth opposite each
Founding Stockholder's name under the column entitled "Escrow Payment" in
Exhibit A hereto, or an aggregate amount of FIVE MILLION DOLLARS ($5,000,000)
(the "Escrow Payment" or "Escrow Fund"), in accordance with Section 1.8. Upon
payment of the Aggregate Redemption Amount as provided herein, the Redemption
Notes shall be canceled and deemed to be paid in full, and the Company shall
have no further obligation or liability thereunder.
(c) Optionee Bonuses. Promptly after the Closing and the
transactions contemplated hereby (including the conversion of the Company to a
C-corporation (the "C Corp Conversion") for purposes of the Internal Revenue
Code of 1986, as amended), the Company shall pay bonuses of up to an aggregate
amount of $5,159,642 (the "Optionee Bonuses") to holders ("Optionees") of
options to purchase shares of Common Stock (the "Outstanding Options") that are
outstanding immediately prior to the Closing, with the amount of bonus payment
to particular Optionees to be determined by the Board of Directors of the
Company. It is agreed that such Optionee Bonuses shall be a liability of, and
therefore deductible by, the Company subsequent to the C Corp Conversion and
that the Founding Stockholders shall cooperate with the Investors so that such
bonus payments will be deductible by the Company subsequent to the C Corp
Conversion.
(d) Discretionary Bonuses. Promptly after the Closing and the
transactions contemplated hereby (including the C Corp Conversion), the Company
shall pay bonuses of up to an aggregate amount of $4,000,000 (the "Discretionary
Bonuses") to such employees of the Company that the Board of Directors of the
Company shall designate. It is agreed that such Discretionary Bonuses shall be a
liability of, and therefore deductible by, the Company subsequent to the C Corp
Conversion and that the Founding Stockholders shall cooperate with the Investors
so that such bonus payments will be deductible by the Company subsequent to the
C Corp Conversion.
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<PAGE> 11
1.5 Final Excess Cash Distribution. Prior to the Closing, the Company
shall deliver to the Investors a pro forma balance sheet as of the Closing Date,
after giving effect to the Final Excess Cash Distribution (as hereinafter
defined) but prior to giving effect to any of the transactions contemplated
hereby (including the Redemption), showing the Company's pro forma cash, working
capital and stockholders' equity as of such date, in each case determined in
accordance with generally accepted accounting principles and consistent with
past practices. Within sixty (60) days subsequent to the Closing, the Company's
internal accountants shall prepare and deliver to the parties hereto an actual
balance sheet as of the Closing Date, after giving effect to the Final Excess
Cash Distribution (as hereinafter defined) but prior to giving effect to any of
the transactions contemplated hereby (including the Redemption), prepared in
accordance with generally accepted accounting principles and consistent with
past practices (the "Closing Balance Sheet"), together with a statement setting
forth the net income of the Company for the period commencing June 1, 1998 and
ending on the Closing Date (the "Final Excess Cash Period") and a certificate
from the Company's Chief Financial Officer attesting to the accuracy of such
balance sheet. The Investors shall have the opportunity, at their election and
their cost, to have such Closing Balance Sheet audited by outside independent
accountants of their choosing. Immediately prior to the Closing, the Company
shall distribute as a dividend to the Selling Stockholders promissory notes
("Final Excess Cash Notes") substantially in the form attached hereto as Exhibit
E-2 under which the Company shall pay each Selling Stockholder, promptly
following delivery of the Closing Balance Sheet, his or its pro rata share of
the Company's net income as so determined for the Final Excess Cash Period less
(i) all amounts of such estimated net income previously distributed and (ii), if
the Closing Balance Sheet indicates shortfalls in any of the Company's cash,
working capital or stockholders' equity as of the Closing Date relative to the
amounts specified in Section 2.5(b), the greatest of such shortfalls (the "Final
Excess Cash Distribution").
1.6 Outstanding Option Price Adjustment. The Company shall take
appropriate action under the terms of the applicable Option Agreements by and
between the Company and each Optionee, including proper notices to Optionees, to
adjust the exercise price of each Outstanding Option effective as of the Closing
Date to take into account the effect of the Redemption and the issuance of the
Convertible Preferred Shares, such that thereafter the weighted average exercise
price of such Outstanding Options shall equal $2.857.
1.7 Closing. The closing of the purchase and sale of the Convertible
Preferred Shares (the "Closing") shall take place at a mutually agreeable
location on the date (the "Closing Date") as soon as practicable after all of
the conditions to closing set forth in Sections 5 and 6 hereof are satisfied or,
if applicable, waived, or as otherwise mutually agreed to by the Investors and
the Company and following completion of the Redemption. At the Closing (i) the
Company shall issue and deliver stock certificates representing the applicable
number of Convertible Preferred Shares to be sold by the Company hereunder to
each of the Investors free and clear of all Encumbrances, (ii) each of the
Investors shall pay to the Company a pro rata share of the Purchase Price (as
set forth opposite such Investor's name in Exhibit B-1 hereto) and (iii) the
Company shall apply the proceeds from the purchase and sale of the
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<PAGE> 12
Convertible Preferred Shares and the financing under the Credit Facility as
provided in Section 1.4. All cash payments hereunder shall be made by wire
transfer of same day available funds.
1.8 Escrow Arrangements. At the Closing, the Company shall deliver to
Fleet National Bank, as escrow agent (the "Escrow Agent"), under the terms of an
escrow agreement substantially in the form of Exhibit F hereto (the "Escrow
Agreement"), cash in the amount of the Escrow Payment, which amount shall be
paid to the respective Founding Stockholders only pursuant to and in accordance
with the terms of the Escrow Agreement. The Escrow Fund shall be held by the
Escrow Agent in accordance with and subject to the limitations set forth in the
Escrow Agreement to secure the payment of claims for indemnification made in
accordance with Section 9 of this Agreement.
1.9 Stockholders' Representative.
(a) In order to administer efficiently (i) the implementation
of this Agreement and the other related agreements contemplated hereunder (the
"Related Agreements") by the Selling Stockholders and (ii) the settlement of any
dispute with respect to this Agreement and the Related Agreements, the Selling
Stockholders hereby designate William B. King as their representative (the
"Stockholders' Representative").
(b) The Selling Stockholders hereby authorize the
Stockholders' Representative (i) to take all action necessary in connection with
the implementation of this Agreement and the Related Agreements on behalf of the
Selling Stockholders or the settlement of any dispute, (ii) to give and receive
all notices required to be given under this Agreement or the Related Agreements
and (iii) to take any and all additional action as is contemplated to be taken
by or on behalf of the Selling Stockholders by the terms of this Agreement.
(c) In the event that the Stockholders' Representative dies,
becomes legally incapacitated or resigns from such position, Greg Thurman or
such other person appointed by all of the Selling Stockholders shall fill such
vacancy and shall be deemed to be the Stockholders' Representative for all
purposes of this Agreement; however, no change in the Stockholders'
Representative shall be effective until the Investors are given written notice
of it by the Selling Stockholders.
(d) By their execution of this Agreement, the Selling
Stockholders agree that:
(i) the Investors shall be able to rely conclusively
on the instructions and decisions of the Stockholders' Representative
as to any actions required or permitted to be taken by the Selling
Stockholders or the Stockholders' Representative under this Agreement
and the Related Agreements, and no party hereunder shall have any cause
of action against any Investor for any action taken by such Investor in
reliance upon such instructions or decisions of the Stockholders'
Representative; and
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<PAGE> 13
(ii) all actions, decisions and instructions of the
Stockholders' Representative shall be conclusive and binding upon all
of the Selling Stockholders and no Selling Stockholder shall have any
cause of action against the Stockholders' Representative for any action
taken, decision made or instruction given by the Stockholders'
Representative under this Agreement and the Related Agreements, except
for fraud or willful breach of this Agreement by the Stockholders'
Representative.
1.10 Transfer Taxes. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the
Convertible Preferred Shares under this Agreement will be borne and paid by the
Company and it shall promptly reimburse the Investors for any such tax, fee or
duty which any of them is required to pay under applicable law.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDING
STOCKHOLDERS
In order to induce the Investors to enter into this Agreement, the
Company and each of the Founding Stockholders jointly and severally as to the
Company, but individually as to themselves, respectively, make the following
representations and warranties to each of the Investors. For purposes of this
Section 2 unless otherwise indicated, all references to the Company shall
include all subsidiaries of the Company as set forth on Schedule 2.4 (the
"Subsidiaries"). For purposes of this Agreement, references to the "best
knowledge" of the Company or words of similar meaning shall be deemed to refer
to the actual knowledge after due inquiry by any of the Founding Stockholders,
Fred Read, Jerry Cover, Jeffrey Cantwell, Paul McCulloch, Clarence Paul Sims,
James A. Wrigley, James T. Quinn, Stephen D. Giddens or Tea Hoffmann.
2.1 Organization and Corporate Power. On and as of the Closing Date,
the Company will be a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee. Except as set forth in
Schedule 2.1, on and as of the Closing Date, the Company will be qualified to do
business as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the assets, liabilities,
condition (financial or other), business or results of operations of the Company
and the Subsidiaries, taken as a whole (a "Material Adverse Effect"). The
Company has all requisite corporate power and authority to own or lease its
properties, to carry on its business as presently conducted, to enter into and
perform this Agreement and the agreements contemplated hereby to which it is a
party and to carry out the transactions contemplated hereby and thereby,
including the issuance of the Securities. The copies of the Charter and By-laws
of the Company, as amended as of the Closing Date (the "Charter" and the
"By-laws," respectively), each certified by the Secretary of State of the State
of Tennessee and the Secretary of the Company, respectively, which will be
furnished to the Investors by the
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<PAGE> 14
Company, are correct and complete and no amendments thereto will be pending. The
Company is not in violation of any term of its Charter or By-laws.
2.2 Authorization and Non-Contravention. The execution, delivery and
performance by the Company of this Agreement and all other agreements, documents
and instruments to be executed and delivered by the Company as contemplated
hereby, and the issuance and delivery of (i) the Convertible Preferred Shares,
and (ii) upon the conversion of the Convertible Preferred Shares in accordance
with the Charter, the Conversion Shares, have been duly authorized by all
necessary corporate and other action of the Company. This Agreement and all
documents to be executed by the Company or the Selling Stockholders pursuant
hereto are valid and binding obligations of the Company and the Selling
Stockholders enforceable in accordance with their terms. Except as set forth in
Schedule 2.2, the execution, delivery and performance by the Company of this
Agreement and all other agreements, documents and instruments to be executed and
delivered by the Company and any Selling Stockholder as contemplated hereby and
the issuance and delivery of (i) the Convertible Preferred Shares and (ii) upon
the conversion of the Convertible Preferred Shares in accordance with the
Charter, the Conversion Shares, do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) or loss of benefit under any contract or obligation to which the Company
or any Selling Stockholder is a party or by which any of their assets are bound,
or any provision of the Charter or By-laws of the Company; (B) violate or result
in a violation of, or constitute a default under, any provision of any law,
regulation or rule, or any order of, or any restriction imposed by, any court or
governmental agency applicable to the Company or any Selling Stockholder; (C)
except as contemplated by Sections 4.3, 5.8 and 6.4, require from the Company or
any Selling Stockholder any notice to, declaration or filing with, or consent or
approval of any governmental authority or third party; or (D) accelerate any
obligation under or give rise to a right of termination of or result in a loss
of benefit under any indenture or loan or credit agreement or any other material
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which the Company or any Selling Stockholder is a party or by which the property
of the Company or any Selling Stockholder is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the assets or properties of the Company or any
Selling Stockholder.
2.3 Capitalization; Ownership of Stock.
(a) As of the Closing and after giving effect to the
transactions contemplated by this Agreement, the authorized capital stock of the
Company will consist of 11,960,455 shares of Common Stock, of which 5,064,028
shares will be issued and outstanding, and 5,624,404 shares of Convertible
Preferred Stock, all of which will be issued and outstanding. As of the Closing
the Company will have authorized and reserved for issuance upon conversion of
the Convertible Preferred Shares 5,624,404 shares of Common Stock (subject to
adjustment for stock splits, stock dividends and the like) and following the
Closing the
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<PAGE> 15
Company will reserve for issuance upon exercise of the Outstanding Options and
options or grants of stock awards under the Company's 1998 Stock Plan (as
defined in Section 8.10) 1,272,023 shares of Common Stock (subject in each case
to adjustments for stock splits, stock dividends and the like). Except for the
Conversion Shares and the 674,000 shares of Common Stock issuable upon exercise
of the Outstanding Options, and except as set forth on Schedule 2.3, the Company
has not issued or agreed to issue, and is not obligated to issue any warrants,
options or other rights to purchase or acquire any shares of its capital stock,
nor any outstanding securities (other than the Convertible Preferred Shares)
convertible into such shares or any warrants, options or other rights to acquire
any such convertible securities, nor to accelerate the vesting of any of the
foregoing. As of the Closing, and after giving effect to the transactions
contemplated hereby, all of the outstanding shares of capital stock of the
Company (including, without limitation, the Convertible Preferred Shares) will
have been duly and validly authorized and issued and will be fully paid and
nonassessable and will have been offered, issued, sold and delivered in
compliance with applicable federal and state securities laws. Except as
contemplated herein or described on Schedule 2.3, the Company has not redeemed
any capital stock or securities from any shareholder or former shareholder or
otherwise repurchased the interest of any equity holder in the Company. The
Conversion Shares issuable upon conversion of the Convertible Preferred Shares
in accordance with the Charter will, upon issuance, be duly and validly
authorized and issued, fully paid and nonassessable and not subject to any
preemptive rights and will be issued in compliance with federal and state
securities laws. The relative rights, preferences and other provisions relating
to the shares of Convertible Preferred Stock and Common Stock will, after giving
effect to the transactions contemplated hereby, be as set forth in Exhibit C
attached hereto. There are no preemptive rights, rights of first refusal, put or
call rights or obligations or anti-dilution rights with respect to the issuance,
sale or redemption of the Company's capital stock, other than as described in
Schedule 2.3 hereto and rights to which the Investors and the Founding
Stockholders will be entitled as set forth in this Agreement, the Stockholders
Agreement described in Section 5.10(a) and the Charter. Except as contemplated
herein or pursuant to the Stockholders Agreement or the Registration Rights
Agreement described in Section 5.10(b), there are no rights to have the
Company's capital stock registered for sale to the public under the laws of any
jurisdiction, no agreements relating to the voting of the Company's voting
securities (including voting trusts), and no restrictions on the transfer of the
Company's capital stock. Prior to giving effect to the transactions contemplated
hereby, the outstanding shares of the Company's capital stock are held
beneficially and of record by the persons identified in Exhibit A attached
hereto in the amounts indicated thereon and the Outstanding Options are held by
the persons set forth on Schedule 2.12(n), in each case free and clear of all
Encumbrances, except as set forth in Schedule 2.3.
(b) Each of the Selling Stockholders is the sole legal and
beneficial owner of the shares of Common Stock set forth opposite his or its
name on Exhibit A attached hereto, free and clear of any Encumbrances, except as
set forth in Schedule 2.3.
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2.4 Subsidiaries; Investments. Each of the Subsidiaries of the Company
is identified on Schedule 2.4. All of the outstanding capital stock of each of
the Subsidiaries will, at Closing, be owned by the Company free and clear of any
claims, encumbrances, liens, pledges, security interests and rights of any kind
or nature whatsoever. Except as described in Schedule 2.4, neither the Company
nor any of the Subsidiaries has any subsidiaries or owns any securities or
interests issued by any other business organization or governmental authority or
any direct or indirect interest in or control over any corporation, joint
venture, partnership, limited liability company or other entity, other than, as
to the Company, the Subsidiaries.
2.5 Financial Statements and Matters.
(a) The Company has previously furnished to the Investors
copies of its audited consolidated financial statements for the fiscal years
ended December 31, 1997, 1996, 1995 and 1994, together with copies of its
unaudited consolidated financial statements for the five-month period ended May
31, 1998. Such financial statements were prepared, except as noted thereon, in
conformity with generally accepted accounting principles, applied on a
consistent basis, and except as set forth on Schedule 2.5 attached hereto, are
complete, correct and consistent in all material respects with the books and
records of the Company and fairly and accurately present the financial position
of the Company as of the dates thereof and the results of operations and cash
flows of the Company for the periods shown therein (subject to the absence of
footnotes and normal year-end adjustments in the case of the unaudited
statements).
(b) Prior to giving effect to the transactions contemplated
hereby (including the Redemption, the Optionee Bonuses, the Discretionary
Bonuses, the Minority Payouts (as defined in Section 5.7) and the payment of the
Affiliated Accounts Receivable (as defined in Section 8.16)) and the associated
fees and expenses and immediately prior to the C Corp Conversion, but after
giving effect to the Final Excess Cash Distribution, the Company shall have (a)
a consolidated stockholders' equity (total assets minus total liabilities) of at
least $7,537,000, (b) working capital (current assets minus current liabilities)
of at least $1,429,000 and (c) cash and cash equivalent accounts of at least
$750,000, in each case computed in accordance with generally accepted accounting
principles applied on a consistent basis and determined in accordance with the
Company's historical practices.
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the audited consolidated balance sheet of the
Company at December 31, 1997 contained in the financial statements referred to
in Section 2.5(a) (the "Base Balance Sheet") or as set forth in Schedule 2.6
attached hereto, the Company does not have and is not subject to any liability
or obligation of any nature, whether accrued, absolute, contingent or otherwise,
other than those incurred in the ordinary course of business subsequent to
December 31, 1997.
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2.7 Absence of Certain Developments. Since the date of the Base Balance
Sheet, except as contemplated herein or as set forth in Schedule 2.7 attached
hereto, there has not been any: (i) material adverse change in the financial
condition of the Company or in the assets, liabilities, condition (financial or
other), business or results of operations of the Company, (ii) declaration,
setting aside or payment of any dividend or other distribution with respect to,
or any direct or indirect redemption, purchase or acquisition of, any of the
capital stock of the Company, or any issuance or sale by the Company of any
shares of its capital stock, including, without limitation, any cash dividend or
in kind distribution of accounts receivable, inventory or other assets of the
Company, (iii) waiver or release of any valuable right of the Company or
cancellation or discharge of any debt or claim held by the Company, including
any write-off or other compromise of any accounts receivable, (iv) loss,
destruction or damage to any property which is material to the assets,
liabilities, condition (financial or other), properties, business or results of
operations of the Company, whether or not covered by insurance, (v) acquisition
or disposition, or any agreement or other arrangement for the acquisition or
disposition of, any assets or properties of the Company or other transaction by
the Company other than in the ordinary course of business, (vi) transaction or
agreement involving the Company and any officer, director, employee, shareholder
or member of the Company, or any loans to any of the foregoing, (vii) material
increase, direct or indirect, or other change in the compensation paid or
payable to any officer, director, employee, independent contractor or agent of
the Company or any establishment or creation of any employment, deferred
compensation or severance agreement or employee benefit plan with respect to
such persons or the amendment to any of the foregoing, (viii) material loss of
personnel of the Company, material change in the terms and conditions of the
employment of the Company's key personnel or any labor trouble involving the
Company, (ix) arrangements relating to any royalty, dividend or similar payment
based on the sales volume of the Company, whether as part of the terms of the
Company's capital stock or by any separate agreement, except bonuses based on
sales volume under the Company's incentive compensation program for its
employees, the terms of which have been disclosed to the Investors (the
"Incentive Compensation Program"), (x) agreement with respect to the endorsement
of the Company's products or services, (xi) loss or any development that could
result in a loss of any significant customer, account or employee of the
Company, (xii) incurrence of indebtedness for borrowed money or the mortgage,
encumbrance or placement of any lien on any properties or assets used in the
business of the Company, (xiii) transaction or agreement involving fixed price
terms or fixed volume arrangements, (xiv) transaction not occurring in the
ordinary course of business, (xv) change in accounting methods or practices,
collection policies, pricing policies or payment policies, (xvi) revaluation by
the Company of any of its material assets, (xvii) amendment or termination of
any material contract, agreement or license to which the Company is a party or
by which either is bound, (xviii) amendment to the Charter or By-laws, or (xix)
agreement or understanding, whether in writing or otherwise, by the Company or
any other person that would result in any of the foregoing transactions or
events or require the Company to take any of the foregoing actions.
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2.8 Ordinary Course. Since the date of the Base Balance Sheet, the
Company has conducted its business only in the ordinary course and in a manner
consistent with its prior practices, except as contemplated hereunder.
2.9 Accounts Receivable; Accounts Payable.
(a) All of the accounts receivable of the Company shown on the
Base Balance Sheet represent bona fide completed sales made in the ordinary
course of business. Since the date of the Base Balance Sheet, the Company has
collected its accounts receivable in the ordinary course and in a manner which
is consistent with its prior practices and has not accelerated any such
collection. Except as set forth in Schedule 2.22, the Company has no accounts
receivable or loans receivable from any person, firm or corporation which is an
affiliate of the Company or the Founding Stockholders or from any director,
officer or employee of the Company or any affiliate thereof.
(b) All of the accounts payable and notes payable of the
Company arose in bona fide arms' length transactions in the ordinary course of
business, and no such account payable or note payable is delinquent by more than
sixty (60) days in its payment unless the Company has a good faith reason for
contesting such payable. Since the date of the Base Balance Sheet, the Company
has paid its accounts payable in the ordinary course and in a manner which is
consistent with its prior practices. Except as set forth in Schedule 2.22, as of
the date hereof, the Company has no accounts payable to any person, firm or
corporation which is an affiliate of the Company or the Founding Stockholders or
to any director, officer or employee of the Company or any affiliate thereof.
2.10 Real and Personal Property.
(a) Owned Real Property. All of the real property owned by the
Company is identified on Schedule 2.10 attached hereto (collectively referred to
herein as the "Owned Real Property"). The Company hereby makes the following
representations and warranties with respect to the Owned Real Property:
(i) Title and Description. The Company has good,
clear, record and marketable fee simple title to the Owned Real
Property, free and clear of all mortgages, deeds of trust, ground
leases, assessments, leases and tenancies, claims, covenants,
conditions, restrictions, easements, judgments or other encumbrances
and free of encroachments onto or off of the Owned Real Property,
except for (x) easements, covenants, restrictions and similar
encumbrances that do not and could not materially interfere with the
use of the Owned Real Property as currently used and improved, and (y)
minor encroachments that do not and could not materially adversely
affect the value or use of the Owned Real Property as currently used
and improved and that could be removed without material cost ((x) and
(y) are collectively referred to as "Permitted
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Encumbrances"), and except for the Mortgages (as defined below) and
matters set forth on Schedule 2.10.
(ii) Security Interests. All of the mortgages, deeds
of trust, ground leases, security interests or similar encumbrances on
the Owned Real Property are set forth on Schedule 2.10 (collectively,
the "Mortgages"). Except as set forth on Schedule 2.10, the Company has
obtained the consent of the holder of any Mortgage if the consummation
of the transactions contemplated hereby would otherwise cause a default
under the Mortgage, and such transactions will not give the holder of
any Mortgage any remedy, or the right to charge any premium or penalty.
Schedule 2.10 also indicates all Mortgages which are, by their terms,
by means of a separate guaranty or otherwise, recourse, in whole or in
part, to the Company.
(iii) Condition. Except as set forth on Schedule
2.10, to the Company's best knowledge, there are no material defects in
the physical condition of any improvements constituting a part of the
Owned Real Property, including, without limitation, structural
elements, mechanical systems, roofs or parking and loading areas, and,
to the Company's best knowledge, all of such improvements are in good
operating condition and repair and have been well maintained.
(iv) Compliance with Law; Government Approvals. The
Company has received no notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or
authorization issued with respect to any of the Owned Real Property
that has not been corrected, and, to the Company's best knowledge, no
such violation exists which could have a material adverse effect on the
operation or value of any of the Owned Real Property. All improvements
constituting part of the Owned Real Property have been completed and
are now in compliance in all respects with all applicable laws,
ordinances, regulations, licenses, permits and authorizations, and
there are presently in effect all licenses, permits and authorizations
required by law, ordinance, or regulation, the noncompliance with or
absence of which would reasonably be expected to result in a Material
Adverse Effect. The Company has received no notice of any pending or
threatened real estate tax deficiency or reassessment or condemnation
of all or any portion of any of the Owned Real Property.
(b) Leased Real Property. All of the real property leased by
the Company as tenant or lessee is identified on Schedule 2.10 (collectively
referred to herein as the "Leased Real Property"). The Company hereby makes the
following representations and warranties with respect to the Leased Real
Property:
(i) Leases. The copies of the leases of the Leased
Real Property (collectively, the "Leases") delivered by the Company to
the Investors and the information with respect to each of the Leases
set forth in Schedule 2.10 is complete,
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accurate, true and correct. With respect to each of the Leases, except
as set forth on Schedule 2.10:
(A) each of the Leases is in full force and
effect and has not been modified, amended, or altered, in
writing or otherwise;
(B) all obligations of the landlord or
lessor under the Leases which have accrued have been
performed, and to the best of the knowledge of the Company and
the Founding Stockholders, no landlord or lessor is in default
under any Lease;
(C) all obligations of the tenant or lessee
under the Leases which have accrued have been performed, and
the Company is not in default under any Lease, and no
circumstance presently exists which, with notice or the
passage of time, or both, would give rise to a default by the
Company; and
(D) The Company has obtained or will,
subject to Section 5.15, obtain prior to the Closing the
consent of each landlord or lessor under any Leases whose
consent is required to consummate the transactions
contemplated hereby, and such transactions will not give any
landlord or lessor under any Lease any remedy, including,
without limitation, any right to declare a default under any
Lease.
(ii) Title and Description. The Company holds a good,
clear, marketable, valid and enforceable leasehold interest in the
Leased Real Property pursuant to the Leases, subject only to the right
of reversion of the landlord or lessor under the Leases, except for (x)
easements, covenants, restrictions and similar encumbrances that do not
and could not materially interfere with the use of the Leased Real
Property as currently used and improved, (y) minor encroachments that
do not and could not materially adversely affect the value or use of
the Leased Real Property as currently used and improved and that could
be removed without material cost and (z) mortgages, deeds of trust and
other rights of third parties granted by the landlord or lessor under
the Leases ((x), (y) and (z) are collectively referred to as "Permitted
Encumbrances"), and except for matters set forth on Schedule 2.10.
(iii) Compliance with Law; Government Approvals. The
Company has received no notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or
authorization issued with respect to any of the Leased Real Property
that has not been corrected. The Company has received no notice of any
pending or threatened real estate tax deficiency or reassessment or
condemnation of all or any portion of any of the Leased Real Property.
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(c) Personal Property. Except as specifically disclosed in
Schedule 2.10 or in the Base Balance Sheet, the Company has good and marketable
title to all of its personal property. None of such personal property or assets
is subject to any mortgage, pledge, lien, conditional sale agreement, security
agreement, encumbrance or other charge except as specifically disclosed in the
Base Balance Sheet or Schedule 2.10.
2.11 Tax Matters. Except for the failure to file state sales tax
returns as described in Schedule 2.14, the Company has timely filed all federal,
Tennessee, local and foreign income, excise and franchise tax returns, real
estate and personal property tax returns, sales and use tax returns and all
other tax returns required to be filed by the Company and has paid all Taxes (as
hereinafter defined) required to be paid by it through the date hereof whether
shown as due on such returns or not, except Taxes which have not yet accrued or
otherwise become due, for which adequate provision has been made in the
pertinent financial statements referred to in Section 2.5 above. The provision
or reserve for Taxes on the Base Balance Sheet is sufficient as of its date for
the payment of all accrued and unpaid federal, state, county and local Taxes of
any nature of the Company, and any applicable Taxes owing to any foreign
jurisdiction, whether or not assessed or disputed. All Taxes and other
assessments and levies which the Company was or is required to withhold or
collect have been withheld and collected and have been paid over to the proper
governmental authorities. With regard to the federal income tax returns of the
Company and the Founding Stockholders, neither the Company nor any of the
Founding Stockholders has received notice of any audit or of any proposed
deficiencies from the Internal Revenue Service or any other taxing authority
(other than routine audits undertaken in the ordinary course and which have been
resolved on or prior to the date hereof). There are in effect no waivers of
applicable statutes of limitations with respect to any Taxes owed by the Company
or any of the Founding Stockholders for any year. Neither the Internal Revenue
Service nor any other taxing authority is now asserting or, to the best
knowledge of the Company and the Founding Stockholders, threatening to assert
against the Company or any Founding Stockholder any deficiency or claim for
additional Taxes or interest thereon or penalties in connection therewith.
Neither the Company nor, within eight (8) years prior to the date hereof, any
Founding Stockholder has been a member of an affiliated group of corporations
filing a combined federal income tax return nor does the Company or any Founding
Stockholder have any liability for Taxes of any other person under Treasury
Regulations ss.1.1502.6 (or any similar provision of foreign, state or local
law) or otherwise. Neither the Company nor any Founding Stockholder is a party
to any tax allocation or sharing arrangement. The Company has, at all times
since its incorporation, qualified and presently qualifies as an entity properly
taxable as an S corporation (as defined in Section 1361 of the Internal Revenue
Code of 1986, as amended (the "Code")) under the Code. The Company is, and at
all times since its incorporation has been, a "small business corporation" with
a valid election pursuant to Section 1362(a) of the Code. The Company is not a
party to any contract, agreement, plan or arrangement covering any employee or
former employee thereof, that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to Section 280G
or 162 of the Code. As used herein, the term "Taxes" shall mean any federal,
state, local, foreign or other taxes (including, without limitation,
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income (net or gross), gross receipts, profits, alternative or add-on minimum,
franchise, goods, services, transfer, sales, use, ad valorem, wage, severance,
employment, payroll, occupation, property (real or personal), windfall profits,
import, excise, withholding or estimated taxes), fees, duties, assessments or
withholdings (including interest, penalties, additions to tax or additional
amounts with respect to such items.
2.12 Certain Contracts and Arrangements. Except as set forth in
Schedule 2.12 attached hereto (with true and correct copies heretofore delivered
or made available to the Investors) or as otherwise expressly contemplated
hereby, the Company is not a party or subject to or bound by (and with respect
to paragraph (f) below, the Company has not been a party or subject to or bound
by within the last five (5) years):
(a) any plan or contract providing for collective bargaining
or the like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation
of the Company to pay to any third party $100,000 or more with respect to any
single such contract or agreement, which such contract, lease or agreement is
not cancelable without penalty upon sixty (60) days' notice or less;
(c) any contract or agreement for the sale, license, lease or
disposition of products in excess of $100,000;
(d) any contract or agreement for the marketing of products
for services or a price in excess of $100,000;
(e) any contract or agreement relating to the licensing,
distribution, development, purchase, sale, maintenance or servicing of its
software products, other than those that conform in all material respects to the
Company's standard license agreements pursuant to which direct or indirect
end-users of the Company's software products are granted the right to use such
software products ("End-User Licenses"), representative forms of which have been
delivered to the Investors;
(f) any contract containing covenants directly or explicitly
limiting the freedom of the Company to compete in any line of business or with
any person or entity;
(g) except for the End-User Licenses, any license agreement
(as licensor or licensee);
(h) any contract or agreement for the purchase of any
leasehold improvements, equipment or fixed assets for a price in excess of
$100,000;
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(i) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $100,000 or
any pledge or security arrangement;
(j) any joint venture, partnership, manufacturing, or
development agreement;
(k) any endorsement or any other advertising, promotional or
marketing agreement;
(l) any employment contracts, non-competition agreements, or
agreements with present or former (to the extent currently in force) officers,
directors, employees or stockholders of the Company or persons or organizations
related to or affiliated with any such persons;
(m) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of the Company with any
party other than an Investor as contemplated hereby, including, without
limitation, any agreement with any stockholder of the Company which includes,
without limitation, anti-dilution rights, registration rights, voting
arrangements, operating covenants or similar provisions;
(n) any pension, profit sharing, retirement or stock options
plans;
(o) except under the Company's Incentive Compensation Program,
any royalty, dividend or similar arrangement based on the sales volume of the
Company;
(p) [Reserved]
(q) any acquisition, merger or similar agreement;
(r) any contract with a governmental body;
(s) any outstanding power of attorney;
(t) any agreement with any stockholder or former stockholder
of the Company or any affiliate of any such stockholder;
(u) any agreements with independent contractors;
(v) any administrative service agreements or arrangements with
any affiliated or unaffiliated persons or entities; or
(w) any other contract not executed in the ordinary course of
business.
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<PAGE> 24
All of the contracts and commitments of the Company are in full force
and effect and neither the Company, nor, to the best knowledge of the Company
and the Founding Stockholders, any other party is in default thereunder (nor, to
the best knowledge of the Company and the Founding Stockholders, has any event
occurred which with notice, lapse of time or both would constitute a default
thereunder), except to the extent that any such default would not have a
Material Adverse Effect or is otherwise disclosed in Schedules hereto, and the
Company has not received notice of any alleged default under any such contract,
agreement, understanding or commitment.
2.13 Intellectual Property Rights; Employee Restrictions. Schedule 2.13
attached hereto sets forth a complete list and brief description of all
Intellectual Property Rights (as hereinafter defined) believed to be owned by or
registered in the name of the Company or of which the Company is the licensor or
licensee or in which the Company has any material right (other than with respect
to "off-the-shelf" software which is generally commercially available) or which
is otherwise material to the conduct of the Company's business as presently
conducted or proposed to be conducted. Except as set forth in Schedule 2.13:
(a) The Company has exclusive ownership of, free and clear of
claims or rights of any other person, or possesses exclusive licenses or other
rights to use, all Intellectual Property Rights listed in Schedule 2.13 and all
other Intellectual Property Rights which are material to the Company's business
with full right to use, sell, license, sublicense, dispose of, and bring actions
for infringement of, which rights are sufficient for the conduct of its business
as presently conducted or proposed to be conducted (other than with respect to
"off-the-shelf" software utilized in the Company's internal operations and which
is generally commercially available to the public at retail). All Intellectual
Property Rights that are used or incorporated into the Company's products
developed within the last four (4) years or products actively under development
and which are proprietary to the Company were developed by the Company or for
the Company by current or former employees, consultants or independent
contractors of the Company or its predecessors-in-interest or purchased by the
Company or its predecessors-in-interest pursuant to written agreements
providing for the assignment of such Intellectual Property Rights and are owned
exclusively by the Company, free and clear of claims and rights of any other
person.
(b) The business of the Company as presently conducted and the
production, marketing, licensing, use and servicing of any products or services
of the Company do not infringe or conflict with any patent, trademark, trade
name, copyright or trade secret rights of any third party or any other
Intellectual Property Rights of any third party and the Company has not received
notice from any third party asserting that any Intellectual Property Rights
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company and, to the best knowledge of
the Company and the Founding Stockholders, there is no basis for any such claim
(whether or not pending or threatened), except as set forth in Schedule 2.14.
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(c) No claim is pending or, to the best knowledge of the
Company and the Founding Stockholders, threatened against the Company or the
Founding Stockholders nor has the Company or the Founding Stockholders received
any written notice or other written claim that is still pending from any person
asserting that any of the Company's present or contemplated activities infringe
or may infringe any Intellectual Property Rights of such person nor, to the best
knowledge of the Company and the Founding Stockholders, is there a basis for any
such claim (whether or not pending or threatened), and neither the Company nor
any Founding Stockholder is aware of any infringement by any other person of any
rights of the Company under any Intellectual Property Rights.
(d) All licenses or other agreements under which the Company
is granted Intellectual Property Rights by others or has granted Intellectual
Property Rights to others (excluding all End-User Licenses that conform to the
standard agreements provided by the Company to the Investors and excluding
licenses to use off-the-shelf software utilized in the Company's internal
operations and which is generally commercially available to the public at
retail) are listed in Schedule 2.13. All such licenses or other agreements are
in full force and effect, to the best knowledge of the Company and the Founding
Stockholders, there is no material default by any party thereto and, except as
set forth in Schedule 2.13, to the best knowledge of Company and the Founding
Stockholders, all of the rights of the Company thereunder are freely assignable.
True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been provided to the Investors and neither the Company
nor any Founding Stockholder has any reason to believe that the licensors under
such licenses and other agreements do not have and did not have all requisite
power and authority to grant the Intellectual Property Rights purported to be
conferred thereby.
(e) The Company has taken all reasonable steps required in
accordance with sound business practices to establish and preserve its ownership
and license of all Intellectual Property rights with respect to its products,
services and technology (including source code), including reasonable security
measures to protect its trade secret rights, and neither the Company nor any
Founding Stockholder has any reason to believe that any person has obtained
unauthorized access to any of its trade secrets. To the best knowledge of the
Company and the Founding Stockholders, the Company is not making unlawful use of
any Intellectual Property Rights of any other person, including, without
limitation, any former employer of any past or present employees, consultants or
independent contractors of the Company. To the best knowledge of the Company or
the Founding Stockholders, neither the Company nor any of its employees,
consultants or independent contractors has any agreements or arrangements with
former employers of such employees, consultants or independent contractors
relating to any Intellectual Property Rights of such employers, which materially
interfere or conflict with the performance of the duties of such employees,
consultants or independent contractors to the Company or result in any former
employers of such employees, consultants or independent contractors having any
rights in, or claims on, the Company's Intellectual Property Rights. To the best
knowledge of the Company and the Founding Stockholders, the activities of the
Company's employees, consultants and independent contractors do not violate any
agreements
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or arrangements which any such employees, consultants or independent contractors
have with former employers and the Company has not received any notice of any
such alleged violations. The Founding Stockholders and each current or former
employee, consultant or independent contractor of the Company who had or has
responsibility for coding the Company's products or who had or has access to
source code or other proprietary product information of a similar nature has
executed an agreement regarding confidentiality, proprietary information and
assignment of inventions and copyrights to the Company in the form provided to
the Investors.
(f) Except as set forth in Schedule 2.13, the Business
Manager(R) software is Year 2000 Compliant. As used herein, "Year 2000
Compliant" shall mean with respect to any such Software, the ability of such
Software to perform the following-date related functions:
(i) consistently handle date information before,
during and after January 1, 2000, including, but not limited to,
accepting date input, providing date output and performing calculations
on dates or portions of dates;
(ii) function accurately in accordance with the
documentation relating to the applicable software and without
interruption before, during and after January 1, 2000, without any
change in operations associated with the advent of the new century;
(iii) respond to two-digit date input in a way that
resolves any ambiguity as to the century; and
(iv) store and provide output of date information in
ways that are unambiguous as to century.
As used herein, the term "Intellectual Property Rights" means all
intellectual property rights, including all patents, patent applications, patent
rights, trademarks, trademark applications, trade names, service marks, service
mark applications, copyrights, copyright applications, computer programs and
other computer software (including, without limitation, all source and object
code, algorithms, architecture, structure, display screens, layouts and
development tools), inventions, designs, samples, specifications, schematics,
know-how, trade secrets, proprietary processes and formulae, and development
tools, promotional materials, databases, customer lists, supplier, vendor and
dealer lists and marketing research, and all documentation and media
constituting, describing or relating to the foregoing, including without
limitation, manuals, memoranda and records.
2.14 Litigation. Except as set forth in Schedule 2.14, there is no
litigation or governmental proceeding or investigation pending or, to the best
knowledge of the Company and the Founding Stockholders, threatened against the
Company or affecting any of its properties or assets or against any officer,
director or key employee of the Company in his or her capacity as an officer,
director or employee of the Company, which litigation, proceeding or
investigation is reasonably likely to have a Material Adverse Effect, or which
may call into
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question the validity or hinder the enforceability of this Agreement or any
other agreements or transactions contemplated hereby; nor, to the best knowledge
of the Company and the Founding Stockholders, has there occurred any event nor
does there exist any condition on the basis of which any such litigation,
proceeding or investigation might be properly instituted or commenced. None of
the matters listed on Schedule 2.14 is reasonably expected to have a "Material
Adverse Effect." Schedule 2.14 attached hereto describes all material
litigation, claims, proceedings or investigations involving the Company or any
of its officers, directors and shareholders in connection with the business of
the Company occurring, arising or existing during the previous five (5) years.
2.15 Employee Benefit Plans. The Company does not maintain or
contribute to any employee benefit plan, fringe benefit, stock option, bonus or
incentive plan, severance pay policy or agreement, deferred compensation
agreement, or any similar plan or agreement (an "Employee Benefit Plan") other
than the Employee Benefit Plans identified and described in Schedule 2.15
attached hereto. The terms and operation of each Employee Benefit Plan have
complied in all material respects with all applicable laws and regulations
relating to such Employee Benefit Plans. There are no unfunded obligations of
the Company under any retirement, pension, profit-sharing, deferred compensation
plan or similar program. The Company is not required to make any payments or
contributions to any Employee Benefit Plan pursuant to any collective bargaining
agreement or, to the best knowledge of the Company and the Founding
Stockholders, any applicable labor relations law, and all Employee Benefit Plans
are terminable at the discretion of the Company without liability to the Company
upon or following such termination. Except as described in Schedule 2.15, the
Company has never maintained or contributed to any Employee Benefit Plan
providing or promising any health or other nonpension benefits to terminated
employees other than as required by part 6 of subtitle B of title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). With
respect to any Employee Benefit Plan, there has occurred no "prohibited
transaction," as defined in Section 406 of ERISA or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law which could result,
directly or indirectly, in any taxes, penalties or other liability to the
Company. No litigation, arbitration or governmental administrative proceeding
(or investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or, to the best knowledge of the Company and the
Founding Stockholders, threatened with respect to any such Employee Benefit
Plan.
Each Employee Benefit Plan which has ever been maintained by the
Company and which has been intended to qualify under Section 401(a) or 501(c)(9)
of the Code has received a favorable determination or approval letter from the
Internal Revenue Service ("IRS") regarding its qualification under such section
and has, in fact, been qualified under the applicable section of the Code from
the effective date of such Employee Benefit Plan through and including the
Closing Date (or, if earlier, the date that all of such Employee Benefit Plan's
assets were distributed). To the Company's knowledge, no event or omission has
occurred which would cause any such Employee Benefit Plan to lose its
qualification under the applicable Code section and each asset held under any
such Employee Benefit Plan may be
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liquidated or terminated without the imposition of any redemption for surrender
charge or comparable liability. The Company has never maintained any Employee
Benefit Plan which has been subject to title IV of ERISA or Code Section 412,
including, but not limited to, any "multiemployer plan" (as defined in Section
3(37) or Section 4001(a)(3) of ERISA).
Each reference to "Company" in this Section 2.15 also refers to any
other entity which would have ever been considered a single employer with the
Company under ERISA Section 4001(b) or part of the same "controlled group" as
the Company for purposes of ERISA Section 302(d)(8)(C).
2.16 Labor Matters. The Company employs approximately 297 full-time
employees and five part-time employees and has contracts with approximately one
independent contractor. The Company is not delinquent in payments to any of its
employees or independent contractors for any wages, salaries, commissions,
bonuses or other direct compensation for any services performed for it to the
date hereof or amounts required to be reimbursed to such employees or
independent contractors. Except as set forth in Schedule 2.16 attached hereto,
upon termination of the employment of any of said employees or independent
contractors, no severance or other similar termination payments will become due.
Except as set forth in Schedule 2.16, the Company has no policy, practice, plan
or program of paying severance pay or any form of severance compensation in
connection with the termination of employment or services. The Company is and
for the past five (5) years has been in compliance in all material respects with
all applicable laws and regulations respecting labor, employment, fair
employment practices, terms and conditions of employment, and wages and hours.
There are no charges of employment discrimination or unfair labor practices
except as set forth in Schedule 2.16, nor are there any strikes, slowdowns,
stoppages of work, or any other concerted interference with normal operations
existing, pending or, to the best knowledge of the Company and the Founding
Stockholders, threatened against or involving the Company. There are no union
organizing activities pending, or, to the best knowledge of the Company and the
Founding Stockholders, threatened with respect to the Company and no question
concerning representation exists respecting the employees of the Company. To the
best knowledge of the Company and the Founding Stockholders, there are no
grievances, complaints or charges that have been filed under any dispute
resolution procedure (including, but not limited to, any proceedings under any
dispute resolution procedure under any collective bargaining agreement) that
might have a Material Adverse Effect. No arbitration or similar proceeding is
pending and no claim therefor has been asserted. To the best knowledge of the
Company and the Founding Stockholders, no collective bargaining agreement is in
effect or is currently being or is about to be negotiated by the Company. The
Company is, and at all times the Company has been, in compliance in all material
respects with the requirements of the Immigration Reform Control Act of 1986.
There are no changes pending or, to the best knowledge of the Company and the
Founding Stockholders, threatened with respect to (including, without
limitation, the resignation of) the senior management or key supervisory
personnel or independent contractors of the Company nor has the Company received
any notice or information concerning any prospective change with respect to such
senior management or
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key supervisory personnel, except as disclosed in Schedule 2.16 with respect to
certain Founding Stockholders employed by the Company.
2.17 List of Certain Employees and Suppliers. Schedule 2.17 attached
hereto contains a list of all managers, employees, consultants, independent
contractors brokers and sales persons of the Company who, individually, have
received compensation for the fiscal year ended December 31, 1997 in excess of
$150,000, including the current job title and aggregate annual compensation of
each such individual. Schedule 2.17 sets forth a list of all suppliers of the
Company to whom during the fiscal year ended December 31, 1997 the Company made
payments aggregating $100,000 or more, showing, with respect to each, the name,
and dollar volume involved. To the best knowledge of the Company and the
Founding Stockholders, no supplier has any plan or intention to terminate or
reduce its business with the Company or to materially and adversely modify its
relationship with the Company.
2.18 Environmental Matters.
(a) Except as set forth in Schedule 2.18 attached hereto, the
Company has never generated, transported, used, stored, treated, disposed of, or
managed any Hazardous Waste (as defined below).
(b) Except as set forth in Schedule 2.18 hereto, (i) the
Company has not violated in any material respect, any Environmental Law (as
defined below); (ii) the Company, any property owned by the Company, and any
facilities and operations thereon, are presently in compliance with all
applicable Environmental Laws; (iii) the Company has never entered into or been
subject to any judgment, consent decree, compliance order, or administrative
order with respect to any environmental or health and safety matter or received
any request for information, notice, demand letter, administrative inquiry, or
formal or informal complaint or claim with respect to any environmental or
health and safety matter or the enforcement of any Environmental Law; and (iv)
neither the Company nor any Founding Stockholder has any reason to believe that
any of the items enumerated in clause (iii) of this subsection will be
forthcoming.
(c) Except as set forth in Schedule 2.18 hereto, no site owned
by the Company contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls (PCBs) or equipment containing PCBs, or any urea
formaldehyde foam insulation.
(d) The Company has provided or made available to the
Investors copies of all documents, records, and information available to the
Company concerning any environmental or health and safety matter relevant to the
Company, whether generated by the Company or others, including, without
limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans, and reports, correspondence, permits, licenses, approvals,
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consents, and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(e) For purposes of this Section 2.18, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant, or other substance which may pose a threat to the environment or to
human health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law and (iii) "Environmental Law" shall mean
any environmental or health and safety-related law, regulation, rule, ordinance,
or by-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted.
2.19 Business; Compliance with Laws. The Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently
conducted. The Company is not in the business of, and does not have any plans to
enter the business of (i), directly or indirectly, purchasing, collecting or
servicing, or assisting third parties in the business of purchasing, collecting
or servicing, accounts receivable or other indebtedness attributable to
consumers which are in default or (ii) making or creating loans. The Company is
currently and has heretofore been in compliance in all material respects with
all federal, state, local and foreign laws and regulations, including, without
limitation, all applicable laws and regulations relating to banking, debt
collection or reporting practices. None of the Company or any of the Founding
Stockholders, or any executive officer or director of the Company, or any
affiliate of any of the foregoing has, at any time within the past five (5)
years: (i) filed, or has had filed against any such person, a petition under the
federal bankruptcy laws or any state insolvency laws or has had a receiver,
fiscal agent or similar officer appointed by a court for the business or
property of any such person, or any partnership of which any such person was a
general partner at or within two (2) years before the time of such filing, or
any corporation or business association of which such person was an executive
officer at or within two (2) years prior to such filing; (ii) been convicted in
a criminal proceeding or named as a subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (iii) been subject to
any order, judgment, or decree (not subsequently reversed, suspended or vacated)
of any court of competent jurisdiction permanently or temporarily enjoining it
or him from, or otherwise imposing limits or conditions on its or his engaging
in any securities, investment advisory, banking, insurance or other type of
business or acting as an officer or director of a public company; (iv) been
found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission (the "Commission") or the Commodity Futures
Trading Commission or similar state agency to have violated any federal or state
commodities, securities or unfair trade practices law, which such judgment or
finding has not been subsequently reversed, suspended, or vacated; or (v) taken
any action, been a party to or subject to any proceeding or been otherwise
involved in any matter which, if the Company
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were to file a registration statement on Form S-1 with the Commission on the
date hereof, would be required to be disclosed pursuant to Item 401(f) or Item
401(g) of Regulation S-K.
2.20 Investment Banking; Brokerage. Except as set forth in Schedule
2.20 attached hereto, there are no claims for investment banking fees, brokerage
commissions, finder's fees or similar compensation (exclusive of professional
fees to lawyers and accountants) in connection with the transactions
contemplated by this Agreement payable by the Company or based on any
arrangement or agreement made by or on behalf of the Company or the Selling
Stockholders.
2.21 Insurance. The Company has fire, casualty and business
interruption and other insurance policies, with extended coverage, sufficient in
amount to allow it to replace any of its material properties which might be
damaged or destroyed or sufficient to cover liabilities to which the Company may
reasonably become subject, and such types and amounts of other insurance with
respect to its business and properties, on both a per occurrence and an
aggregate basis, as the Company's management considers reasonable. There is no
default by the Company, or to the best knowledge of the Company or the Founding
Stockholders, by any insurance carrier of such policies, or event which could
give rise to a default under any such policy.
2.22 Transactions with Affiliates. Except as set forth in Schedule
2.22, there are no loans, leases, contracts or other continuing transactions
between the Company and any officer, director or five percent (5%) shareholder
thereof or any family member or affiliate of the foregoing persons and there
have been no such transactions within the past five (5) years. No shareholder,
director or officer of the Company, any of their respective family members or
any affiliate of the foregoing persons, owns directly or indirectly on an
individual or joint basis any interest in, or serves as an officer or director
or in another similar capacity of, any competitor or supplier of the Company, or
any organization which has a material contract or arrangement with the Company,
except as set forth in Schedule 2.22.
2.23 Customers. Schedule 2.23 attached hereto sets forth the name of
the top ten (10) customers of the Company, as determined by the gross revenues
of the Company attributable to such customers for the twelve (12) months ended
December 31, 1997 (the "Customers"). The relationships of the Company with its
Customers are good commercial working relationships. Except as set forth in
Schedule 2.23, no Customer of the Company has canceled or otherwise terminated
its relationship with the Company, or has during the last twelve (12) months
decreased materially or its usage or purchases of the services or products of
the Company. Except as set forth in Schedule 2.23 no Customer, has, to the best
knowledge of the Company and the Founding Stockholders, any plan or intention to
terminate, to cancel or otherwise materially and adversely modify its
relationship with the Company or to decrease materially or limit its usage,
purchase or distribution of the services or products of the Company.
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2.24 Warranty and Related Matters. Schedule 2.24 attached hereto sets
forth a complete list of all outstanding product and service warranties and
guarantees on any of the products or services that the Company distributes,
services, markets, sells or produces for itself, a customer or a third party
(each such product or service shall be referred to herein as a "Company
Product"). There are no existing or, to the best knowledge of the Company and
the Founding Stockholders, threatened in writing, product liability, warranty or
other similar claims against the Company alleging that any Company Product is
defective or fails to meet any product or service warranties except as set forth
in Schedule 2.24. There is (a) no material inherent design defects or systemic
or chronic problems or known software "bugs" in any Company Product and (b)
except as described on Schedules 2.24 or 2.14 no liability for warranty or other
claim or return with respect to any Company Product relating to any such
defects, problems or bugs.
2.25 Banking Relations. All of the arrangements with any banking
institution relating to the Company's depository accounts are accurately and in
all material respects described in Schedule 2.25, indicating with respect to
each of such arrangements the type of arrangement maintained (such as checking
account, borrowing arrangements, safe deposit box, etc.) and the person or
persons authorized in respect thereof.
2.26 Corporate Records. The corporate record books of the Company
accurately record in all material respects all corporate action taken by its
stockholders (or members), board of directors, governing bodies and committees.
The copies of the corporate records of the Company and its subsidiaries provided
to the Investors for review, are true and complete copies of the originals of
such documents.
2.27 Disclosure.
(a) The representations and warranties made or contained in
this Agreement, the schedules and exhibits hereto and the certificates and
statements executed or delivered in connection herewith, and the information
concerning the business of the Company delivered to the Investors in connection
with or pursuant to this Agreement when taken together, do not and shall not
contain any untrue statement of a material fact and do not and shall not omit to
state a material fact required to be stated therein or necessary in order to
make such representations, warranties or other material not misleading in light
of the circumstances in which they were made or delivered. There have been no
events or transactions, or facts or information which have come to the attention
of the management of the Company or any of the Founding Stockholders and which
have not been disclosed herein or in a schedule hereto, having a direct impact
on the Company or its assets, liabilities, financial condition, business,
results of operations or prospects which, in the reasonable judgment of such
persons, have or could be expected to have a Material Adverse Effect.
(b) The Company and the Founding Stockholders have provided
to, or made available for inspection and copying by, the Investors and their
counsel true, correct and
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complete copies of all documents referred to in this Section 2 or in the
Schedules attached hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
3.1 Investment Status. Each Investor represents that it is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act of 1933, as amended (the "Securities Act"). Each Investor represents to the
Company that it is purchasing the Convertible Preferred Shares for its own
account, for investment only and not with a view to, or any present intention
of, effecting a distribution of such securities or any part thereof except
pursuant to a registration or an available exemption under applicable law. Each
such Investor acknowledges that its respective Convertible Preferred Shares have
not been registered under the Securities Act or the securities laws of any state
or other jurisdiction and cannot be disposed of unless they are subsequently
registered under the Securities Act and any applicable state laws or exemption
from such registration is available.
3.2 Authority. Each Investor represents that it has full right,
authority and power under its charter, by-laws or governing partnership
agreement, as applicable, to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Investor pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action under
such Investor's charter, by-laws or governing partnership agreement, as
applicable. This Agreement and each agreement, document and instrument executed
and delivered by each Investor pursuant to or as contemplated by this Agreement
constitute, or when executed and delivered will constitute, valid and binding
obligations of each of the Investors enforceable in accordance with their
respective terms.
3.3 Investment Banking; Brokerage Fees. No Investor has incurred or
become liable for any broker's or finder's fee, banking fees or similar
compensation relating to or in connection with the transactions contemplated
hereby.
SECTION 4. PRE-CLOSING COVENANTS OF THE COMPANY AND THE FOUNDING
STOCKHOLDERS
4.1 Making of Covenants and Agreements. The Company and the Founding
Stockholders jointly and severally hereby make the covenants and agreements set
forth in this Section 4 and the Founding Stockholders agree to cause the Company
and its Subsidiaries to comply with such agreements and covenants. The Founding
Stockholders shall not have any right of indemnity or contribution from the
Company with respect to the breach of any covenant or agreement hereunder.
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4.2 Conduct of Business. Between the date of this Agreement and the
Closing Date, the Company will, and will cause each of its Subsidiaries to,
unless otherwise agreed by the Investors (pursuant to Section 10.1):
(a) Conduct its business only in the ordinary course and
refrain from changing or introducing any method of management or operations
except in the ordinary course of business and consistent with prior practices;
(b) Refrain from making any purchase, sale, lease (other than
as described on Schedule 2.10 as to the lease of additional office space) or
disposition of any product, asset or property other than in the ordinary course
of business, from purchasing any capital asset costing more than $100,000 and
from mortgaging, pledging, subjecting to a lien or otherwise encumbering any of
its properties or assets other than in the ordinary course of business;
(c) Refrain from incurring any contingent liability as a
guarantor or otherwise with respect to the obligations of others, and from
incurring any other contingent or fixed obligations or liabilities except in the
ordinary course of business;
(d) Refrain from making any change or incurring any obligation
to make a change in its Charter, By-laws or authorized or issued capital stock,
except as contemplated by and in order to effect the proposed capitalization of
the Company immediately following the Closing as reflected herein;
(e) Except as contemplated herein, refrain from declaring,
setting aside or paying any dividend, making any other distribution in respect
of its capital stock (to the extent it would cause the condition set forth in
Section 5.6 not to be satisfied) or making any direct or indirect redemption,
purchase or other acquisition of its stock;
(f) Except as set forth in Schedule 2.7 or contemplated
herein, refrain from making any change in the compensation payable or to become
payable to any of its officers, employees, agents or independent contractors
other than increases in the ordinary course of business consistent with past
practices, provided that no compensation payable to any of the officers,
employees, agents or independent contractors of the Company or any of its
Subsidiaries shall be increased by more than 5% of the annualized compensation
received to date by such person for the fiscal year ending December 31, 1998, or
granting any severance or termination pay to, or entering into or amending any
employment, severance or other agreement or arrangement with, any of its
directors, officers, independent contractors or employees, or establishing,
adopting or entering into or amending any collective bargaining, bonus,
incentive, deferred compensation, profit sharing, stock option or purchase,
insurance, pension, retirement or other employee benefit plan;
(g) Refrain from prepaying any loans, including without
limitation from its stockholders, officers or directors, making any change in
its borrowing arrangements or
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modifying, amending or terminating any of its contracts except in the ordinary
course of business, or waiving, releasing or assigning any material rights or
claims;
(h) Use commercially reasonable efforts to prevent any change
with respect to its management (other than with respect to those Founding
Stockholders employed by the Company as disclosed in Schedule 2.16) and
supervisory personnel and banking arrangements;
(i) Use commercially reasonable efforts to keep intact its
business organization, to keep available its present officers, employees and
independent contractors and to preserve the goodwill of all suppliers,
customers, independent contractors and others having business relations with it
and refrain from amending any independent contract agreement except as the
Investors may otherwise consent;
(j) Have in effect and maintain at all times insurance as
described in Section 2.21.
(k) Refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable) or from making any tax
election or settling or compromising any federal, state, local or foreign income
tax liability;
(l) Refrain from entering into any executory agreement,
commitment or undertaking to do any of the activities prohibited by the
foregoing provisions;
(m) Permit the Investors and its authorized representatives to
have full access to all its properties, assets, records, tax returns, contracts
and documents and furnish to the Investors or their authorized representatives
such financial and other information with respect to its business or properties
as the Investors may from time to time reasonably request;
(n) Refrain from any action which would result in the
termination of the Company's status as an S-corporation as defined in Section
1361(b) of the Code; and
(o) Not collect any payment on the Affiliated Accounts
Receivable on or prior to the Closing Date.
4.3 Authorization From Others; Hart-Scott-Rodino. Prior to the Closing
Date, the Founding Stockholders and the Company will use their respective
reasonable commercial efforts to obtain all authorizations, consents and permits
of others required to permit the consummation by the Founding Stockholders and
the Company of the transactions contemplated by this Agreement. Without
limitation of the foregoing, the Company shall make any and all filings not
heretofore made which are required by them under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), cooperate with the Investors in
providing such information to them as may be necessary to enable them to make
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any required filings under such Act and reimburse the Investors for all filing
fees paid in connection therewith.
4.4 Notice of Default. Promptly upon the occurrence of, or promptly
upon the Company or the Founding Stockholders becoming aware of the impending or
threatened occurrence of, any event which would cause or constitute a breach or
default, or would have caused or constituted a breach or default had such event
occurred or been known to the Company or the Founding Stockholders prior to the
date hereof, of any of the representations, warranties or covenants of the
Company or the Founding Stockholders contained in or referred to in this
Agreement or in any Schedule or Exhibit referred to in this Agreement, the
Company and the Founding Stockholders shall give detailed written notice thereof
to the Investors and the Company and the Founding Stockholders shall use their
reasonable commercial efforts to prevent or promptly remedy the same.
4.5 Consummation of Agreement. The Company and the Founding
Stockholders shall use their respective reasonable best efforts to perform and
fulfill all conditions and obligations on their parts to be performed and
fulfilled under this Agreement, to the end that the transactions contemplated by
this Agreement shall be fully carried out, including without limitation,
consummating the Redemption prior to the purchase and sale of the Convertible
Preferred Shares, cooperating with obtaining the Credit Facility under a Credit
Agreement with Fleet National Bank, as administrative agent for the Lenders
named therein, and related bank financing documents (the "Bank Financing
Agreement").
4.6 No Solicitation of Other Offers. Unless and until this Agreement
shall have been terminated in accordance with the provisions of Section 7 of
this Agreement, none of the Company, any Subsidiary or any Founding Stockholder
shall, nor shall the Company or any Subsidiary permit any of its directors,
officers, employees or agents to, directly or indirectly, (i) take any action to
solicit, initiate submission of or encourage, proposals or offers from any
person relating to any acquisition or purchase of all or (other than in the
ordinary course of business) a portion of the assets of, or any equity interest
in, the Company or any Subsidiary, any merger or business combination with the
Company or any Subsidiary or any public or private offering of interests in the
Company or any Subsidiary (an "Acquisition Proposal"), (ii) participate in any
discussions or negotiations regarding an Acquisition Proposal with any person or
entity other than the Investors and their representatives, (iii) furnish any
information or afford access to the properties, books or records of the Company
or any Subsidiary to any person or entity that may consider making or has made
an offer with respect to an Acquisition Proposal other than the Investors and
their representatives, or (iv) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort to attempt by any other
person to do any of the foregoing. The Company will promptly notify the
Investors upon receipt of any offer or indication that any person is considering
making an offer with respect to an Acquisition Proposal or any request for
information relative to the Company or any Subsidiary or for access to the
properties, books and records of the Company or any Subsidiary, and will
promptly reject any such offer or request.
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4.7 No Transfer of Shares; Voting. Unless and until this Agreement
shall have been terminated for any reason in accordance with the provisions of
Section 7 of this Agreement, no Founding Stockholder shall directly or
indirectly exchange, deliver, assign, pledge, encumber or otherwise transfer or
dispose of any shares of capital stock of the Company (including options in
respect thereof), or directly or indirectly grant any right of any kind to
acquire, dispose of, vote or otherwise control in any manner any shares of
capital stock of the Company; provided that a transfer (a) to or for the benefit
of charitable donees or (b) to the executor or administrator of a Founding
Stockholder upon his death shall not be deemed prohibited by this Section 4.7.
SECTION 5. CONDITIONS OF PURCHASE BY THE INVESTORS
Each Investor's obligation to purchase and pay for the Convertible
Preferred Shares to be purchased by it shall be subject to compliance by the
Company and the Founding Stockholders with the agreements herein contained and
to the fulfillment to the Investors' satisfaction, or the waiver by the
Investors (including the waiver of Cendant Corporation ("Cendant") with respect
to matters set forth in Sections 5.6, 5.9, 5.10, 5.11 and 5.14 and, with respect
to the execution and delivery by the Company and Mr. King of the Cendant
Termination and Non-Competition Agreement, Section 5.16) on or before and at the
Closing Date of the following conditions:
5.1 Pre-Closing Transactions. The Company shall have completed the
following transactions on terms satisfactory to the Investors:
(a) The Company shall have obtained at least $95,000,000 of
senior term financing and a $15,000,000 senior revolving line of credit pursuant
to the Bank Financing Agreement on terms acceptable to the Investors and the
Company and the Stockholders' Representative shall have delivered on behalf of
the Selling Stockholders a certificate confirming that the representations and
warranties set forth therein are true with respect to the Company and its
operations.
(b) Before the Closing, the Company shall have effected the
Redemption and issued the Redemption Notes in accordance with Section 1.2.
(c) Immediately prior to the Closing, the Company shall have
issued the Final Excess Cash Notes in accordance with Section 1.5.
(d) The Company shall have adopted the Amended and Restated
Charter and the Amended and Restated By-Laws in the form attached hereto as
Exhibit C and Exhibit D, respectively, and such Amended and Restated Charter and
Amended and Restated By-Laws shall have become effective under the laws of the
State of Tennessee.
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5.2 Satisfaction of Conditions. The representations and warranties of
the Company and the Founding Stockholders contained in this Agreement shall be
true and correct on and as of the Closing Date and each of the conditions
specified in this Section 5 shall have been satisfied or waived in writing by
the Investors as set forth in the first paragraph of this Section 5.
5.3 Opinion of Counsel. The Investors shall have received from Harwell
Howard Hyne Gabbert & Manner, P.C. an opinion dated as of the Closing Date
substantially in the form attached hereto as Exhibit G.
5.4 Authorization. The Board of Directors and stockholders of the
Company shall have duly adopted resolutions in the form reasonably satisfactory
to the Investors and shall have taken all action necessary for the purpose of
authorizing the Company to consummate all of the transactions contemplated
hereby (including, without limitation, each of the transactions set forth in
Section 5.1 and the issuance of the Convertible Preferred Shares as contemplated
by Section 1.3) and the Investors shall have received a certificate of the
Secretary of the Company setting forth a copy of such resolutions and the
Amended and Restated Charter and Amended and Restated By-laws of the Company and
such other matters as may be reasonably requested by the Investors.
5.5 June Financials. The Company shall have delivered to the Investors
unaudited consolidated financial statements as of and for the period ended June
30, 1998 (the "June Financials") at least two (2) business days prior to the
Closing. The June Financials shall indicate initial royalties, on-going
royalties, total revenues, earnings from operations and net gain for on a
year-to-date basis and shall have been prepared by the Company in accordance
with past practices and generally accepted accounting principles. The June
Financials shall not include or reflect any extraordinary items or reflect any
prior period adjustments. The June Financials shall reflect initial royalties of
at least $3,539,898, on-going royalties of at least $17,564,228, total revenues
of at least $26,875,651, earnings from operations of at least $6,685,283 and net
gain of at least $5,365,712, in each case computed in accordance with past
practices and generally accepted accounting principles. If the Investors
(pursuant to Section 10.1) shall fail by the second business day after receipt
by the Investors of the June Financials to provide written notice to the Company
objecting that the minimum targets set forth in the immediately preceding
sentence were not achieved, the conditions set forth in this Section 5.5 shall
automatically be deemed to have been satisfied.
5.6 Stockholders' Equity; Working Capital; Cash. Prior to giving effect
to the transactions contemplated hereby (including the Redemption, the Optionee
Bonuses, the Discretionary Bonuses, the Minority Payouts (as defined in Section
5.7) and the payment of the Affiliated Accounts Receivable (as defined in
Section 8.16)) and the associated fees and expenses and immediately prior to the
C Corp Conversion, but after giving effect to the distribution of the Final
Excess Cash Distribution, the Company shall have (a) consolidated stockholders'
equity (total assets minus total liabilities) of at least $7,537,000, (b)
working
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capital (current assets minus current liabilities) of at least $1,429,000 and
(c) cash and cash equivalent accounts of at least $750,000, in each case
computed in accordance with generally accepted accounting principles applied on
a consistent basis and determined in accordance with the Company's historical
practices.
5.7 Subsidiaries. Each of the Subsidiaries shall have been reorganized
as a corporation and all of the outstanding capital stock of each such
Subsidiary shall be owned by the Company free and clear of any claims,
encumbrances, liens, pledges, security interests and rights of any kind or
nature whatsoever. Without limiting the generality of the foregoing, the Company
shall have purchased all of the membership interests in Private Business
Insurance, LLC that are not owned by the Company for an amount, including any
bonuses and other payments contemplated in connection therewith, not to exceed
$4,500,000 (the "Minority Payouts") and Paul McCulloch shall have delivered a
release of all claims against the Company on terms reasonably satisfactory to
the Investors.
5.8 Hart-Scott-Rodino. All required filings under the HSR Act shall
have been made and the waiting period specified in the HSR Act, including any
extensions thereof, shall have expired or otherwise terminated, and none of the
Company, the Selling Stockholders or the Investors shall be subject to any
injunction or temporary restraining order against consummation of the
transactions contemplated hereby.
5.9 Escrow Agreement. The Escrow Agreement shall have been executed and
delivered by the Stockholders' Representative on behalf of the Founding
Stockholders, the Investors and the Escrow Agent.
5.10 Delivery of Closing Documents. On the Closing Date, the Company
and the Selling Stockholders, as the case may be, shall have delivered, or shall
have caused to be delivered, to the Investors (or shall have caused to be
delivered to the Investors), all in form and substance satisfactory to the
Investors, the following documents:
(a) a Stockholders Agreement (together with the Consent of
Spouse attached thereto, if applicable) substantially in the form attached
hereto as Exhibit H (the "Stockholders Agreement"), executed by each Founding
Stockholder named therein and the Company;
(b) a Registration Rights Agreement substantially in the form
attached hereto as Exhibit I (the "Registration Rights Agreement"), executed by
each Founding Stockholder named therein and the Company;
(c) a Non-Competition Agreement substantially in the form
attached hereto as Exhibit J-1, executed by each Founding Stockholder, other
than Kenneth L. Keith, and also executed by Jerry Cover;
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(d) a General Release substantially in the form attached
hereto as Exhibit K, executed by each Selling Stockholder;
(e) a Consent of Spouse in substantially the form of Exhibit L
attached hereto, executed by the spouse of each Founding Stockholder;
(f) to the extent Cendant Corporation participates in the
transactions contemplated hereby, the Cendant Termination and Non-Competition
Agreement (as defined in Section 5.16), executed by Cendant Corporation, the
Company, Kenneth L. Keith and William B. King;
(g) Certificates issued by (i) the Secretary of State of the
State of Tennessee certifying that each of the Company and its Subsidiaries has
legal existence and is in good standing; and (ii) the Secretary of State (or
similar authority) of each jurisdiction in which each of the Company and its
Subsidiaries has qualified to do business as a foreign corporation as to such
foreign qualification;
(h) Certificates executed by the President of the Company and
the Stockholders' Representative (on behalf of the Selling Stockholders) to the
effect that the representations and warranties of the Company and the Selling
Stockholders, including, without limitation, as to the matters set forth in
Section 2.5(b) hereof, are true and correct on and as of the Closing Date shall
have been delivered to the Investors.
(i) A certificate of the Secretary of the Company which shall
certify the names of the officers of the Company authorized to sign this
Agreement and the other documents, instruments or certificates to be delivered
pursuant to this Agreement by the Company or any of its officers, together with
the true signatures of such officers;
(j) A certificate of the Chief Financial Officer of the
Company to the effect that the representations and warranties of the Company set
forth in Section 2.5(b) hereof is true as of the Closing Date;
(k) A certificate of the Chief Financial Officer of the
Company to the effect that the June Financials were prepared in accordance with
past practices and generally accepted accounting principles and that, if
appropriate, the amounts set forth therein satisfy the minimum targets set forth
in Section 5.5.
(l) Such other supporting documents and certificates as the
Investors may reasonably request and as may be required pursuant to this
Agreement.
5.11 No Material Adverse Change. Since the date of the Base Balance
Sheet, there shall have been no material adverse change in the financial
condition, properties, assets,
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liabilities, business, operations or prospects of the Company or any of its
Subsidiaries, whether or not in the ordinary course of business.
5.12 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the Investors
and the issuance and sale of the Convertible Preferred Shares shall be made in
compliance with applicable federal and state laws.
5.13 Investors' Fees. The Company shall have paid on behalf of the
Investors affiliated with TA Associates, Inc. and Summit Partners, LLC all out
of pocket expenses and legal and accounting fees and related expenses incurred
by the Investors in connection with the transactions contemplated by this
Agreement. In the event that the transactions contemplated under this Agreement
are not consummated due to factors which are not attributable to the Investors,
the Company shall be obligated to reimburse the Investors such fees and expenses
incurred by such Investors, which amount shall not exceed $350,000.
5.14 No Violation or Injunction. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
5.15 Consents and Waivers. The Company, the Selling Stockholders and
each party to the Bank Financing Agreement shall have made all filings with and
notifications of governmental authorities, regulatory agencies and other
entities required to be made by such parties in connection with the execution
and delivery of this Agreement, the Bank Financing Agreement, the performance of
the transactions contemplated hereby and thereby and the continued operation of
the business of the Company and its subsidiaries subsequent to the Closing. The
Company, the Selling Stockholders and the Investors shall have received all
authorizations, waivers, consents and permits, in form and substance reasonably
satisfactory to the Investors, including any and all notices, consents (other
than the consent of Corim, Inc. under the Lease Agreement dated May 5, 1997 and
any subsequent lease with Corim, Inc. which the Company will use its best
efforts to obtain) and waivers required from all third parties, including,
without limitation, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of the Company and its subsidiaries and the consummation of the
transactions contemplated by this Agreement and the Bank Financing Agreement,
and to avoid a breach, default, termination, acceleration or modification of any
indenture, loan or credit agreement or any other material agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a result of, or in
connection with, the execution and performance of this Agreement and the Bank
Financing Agreement.
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5.16 Cendant Termination and Non-Competition Agreement. Cendant, by its
execution of this Agreement, hereby waives its right of first refusal on
securities of the Company held by William B. King ("Mr. King") and his
transferees conferred to it pursuant to Exhibit B of that certain Agreement
dated as of January 10, 1995 by and between Cendant and Mr. King (the "Cendant
Right of First Refusal") with respect to the shares of Common Stock held by Mr.
King and his transferees that are to be redeemed by the Company in accordance
with Section 1.2 hereof; provided that the Cendant Right of First Refusal shall
continue to be in effect with respect to any other transactions involving the
remaining securities which are the subject of the Cendant Right of First
Refusal. On and as of the Closing Date, so long as Cendant participates in the
transactions contemplated hereby, Cendant hereby agrees that the Cendant Right
of First Refusal shall terminate and have no further force or effect and further
agrees, and Kenneth L. Keith also agrees, to execute and deliver at the Closing
a Termination and Non-Competition Agreement (the "Cendant Termination and
Non-Competition Agreement") in substantially the form attached hereto as Exhibit
M. To the extent Cendant participates in the transactions contemplated hereby,
it shall be a further condition to the obligations of the Investors hereunder
that each of Cendant, Kenneth L. Keith, the Company and Mr. King shall have
executed and delivered at the Closing the Cendant Termination and
Non-Competition Agreement.
SECTION 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING STOCKHOLDERS
The obligation of the Company, and with respect to Section 6.8, the
Selling Stockholders, to consummate this Agreement and the transactions
contemplated hereby is subject to the fulfillment, prior to or at the Closing,
of the following conditions precedent:
6.1 Representations; Warranties; Covenants. Each of the representations
and warranties of the Investors contained in Section 3 shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing; and the Investors shall, on or
before the Closing, have performed in all material respects all of its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
6.2 Certain Agreements. On the Closing Date, the Investors shall have
executed and delivered the Stockholders Agreement and Registration Rights
Agreement.
6.3 Senior Debt Facility. The Company shall have obtained at least
$95,000,000 of senior term financing and a $15,000,000 senior revolving credit
line pursuant to the Bank Financing Agreement on terms acceptable to the
Company.
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6.4 Hart-Scott-Rodino. All required filings under the HSR Act shall
have been contemplated and the waiting period specified in the HSR Act,
including any extensions thereof, shall have expired or otherwise terminated,
and none of the Company, the Founding Stockholders or the Investors shall be
subject to any injunction or temporary restraining order against consummation of
the transactions contemplated hereby.
6.5 Escrow Agreement. The Escrow Agreement shall have been executed and
delivered by the Stockholders' Representative on behalf of the Founding
Stockholders, the Investors and the Escrow Agent.
6.6 The Redemption. The Redemption shall have been effected in
accordance with Section 1.2 hereof.
6.7 Delivery of Cendant Termination and Non-Competition Agreement.
Cendant and Kenneth Keith shall have executed and delivered at the Closing the
Cendant Termination and Non-Competition Agreement.
6.8 Delivery of Final Excess Cash Notes. The Selling Stockholders shall
have received the Final Excess Cash Notes in accordance with Section 1.5.
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED
7.1 Termination. At any time prior to the Closing, this Agreement may
be terminated as follows:
(a) by mutual written consent of all of the parties to this
Agreement;
(b) by the Company, provided that neither the Company nor any
of the Selling Stockholders is in breach of this Agreement, (i) if the Investors
are in material breach of this Agreement and such breach shall remain uncured
for a period of ten (10) business days after the Stockholders' Representative
shall have given written notice of such breach to the Investors, or (ii) if by
August 31, 1998, any of the conditions in Section 6 shall not have been
satisfied, complied with or performed (unless such failure of satisfaction,
noncompliance or nonperformance is the result directly or indirectly of any
action or failure to act on the part of the Company or the Selling Stockholders)
and the Selling Stockholders shall not have waived such failure of satisfaction,
noncompliance or nonperformance; or
(c) by the Investors, provided that the Investors are not in
breach of this Agreement, (i) if either the Company or any of the Selling
Stockholders is in material breach of this Agreement and such breach shall
remain uncured for a period of ten (10) business days after the Investors shall
have given written notice of such breach to the Selling Stockholders, or (ii) if
by August 31, 1998, any of the conditions in Section 5 shall not have been
satisfied,
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complied with or performed (unless such failure of satisfaction, noncompliance
or nonperformance is the result directly or indirectly of any action or failure
to act on the part of the Investors) and the Investors shall not have waived
such failure of satisfaction, noncompliance or nonperformance.
7.2 Effect of Termination. All obligations of the parties hereunder
shall cease upon any termination pursuant to Section 7.1; provided, however,
that (i) the provisions of Section 5.13 and this Section 7 hereof shall survive
any termination of this Agreement; (ii) nothing herein shall relieve any party
from any liability for any material breach of this Agreement and (iii) any party
may proceed as further set forth in Section 7.3 below.
7.3 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, (i) if any of the conditions specified in Section 5 hereof have
not been satisfied, the Investors shall have the right to proceed with the
transactions contemplated hereby without waiving any of their rights hereunder,
and (ii) if any of the conditions specified in Section 6 hereof have not been
satisfied, the Company and the Selling Stockholders shall have the right to
proceed with the transactions contemplated hereby without waiving any of its or
their rights hereunder.
SECTION 8. COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, for purposes of
this Section 8, the Subsidiaries and any other subsidiary of the Company formed
after the date of this Agreement) agrees with the Investors that it shall comply
with the following covenants except as shall otherwise be expressly agreed
pursuant to a written consent or consents executed by Investors holding not less
than sixty-six and two-thirds percent (66 2/3%) of the Convertible Preferred
Shares or the Conversion Shares held by the Investors as a group (or pursuant to
a written consent or consents executed by all Investors (i) with respect to the
matters set forth in Sections 8.1, 8.2 and 8.8 below until the third anniversary
hereof and (ii) thereafter with respect to the matters set forth in clauses (a)
and (b) of Section 8.1 below), until the closing of a Qualified Public Offering
(as defined in the Company's Amended and Restated Charter attached hereto as
Exhibit C); provided that the Company's obligation under Section 8.3 hereof
shall survive for so long as the Investors (or their successors or transferees)
shall hold any Convertible Preferred Shares or Conversion Shares representing,
in the aggregate, at least ten percent (10%) of the fully-diluted capital stock
of the Company.
8.1 Financial Statements. The Company will maintain a comparative
system of accounts in accordance with generally accepted accounting principles,
keep full and complete financial records and furnish to the Investors the
following reports: (a) within ninety (90) days after the end of each fiscal year
commencing with the year ended December 31, 1998, a copy of the consolidated
balance sheet of the Company as of the end of such year, together with a
consolidated statement of income and retained earnings of the Company for such
year, audited and certified by independent public accountants of recognized
national standing reasonably
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satisfactory to the Board of Directors, prepared in accordance with generally
accepted accounting principles and practices consistently applied; (b) within
thirty (30) days after the end of each month commencing with the month ending
June 30, 1998, a consolidated unaudited balance sheet of the Company as of the
end of such month and an unaudited statement of income and retained earnings for
the Company for such month and for the year to date, each of the foregoing
balance sheets and statements of income and retained earnings to set forth in
comparative form the corresponding figures for the prior fiscal period and to
include a brief written discussion and analysis by management of such annual,
quarterly and monthly financial statements; and (c) such other financial
information as Investors holding sixty-six and two-thirds percent (66 2/3%) of
the Convertible Preferred Stock may reasonably request, including, without
limitation, certificates of the principal financial officer of the Company
concerning compliance with the covenants of the Company under this Section 8.
8.2 Budget and Operating Forecast; Inspection.
(a) The Company will prepare and submit to the Board of
Directors of the Company a budget for the Company for each fiscal year of the
Company at least thirty (30) days prior to the beginning of such fiscal year,
together with management's written discussion and analysis of such budget. The
budget shall be accepted as the budget for such fiscal year when it has been
approved by a majority of the full Board of Directors of the Company and,
thereupon, a copy of such budget promptly shall be sent to the Investors. The
Company shall review the budget periodically and shall advise the Board of
Directors and the Investors of all changes therein and all material deviations
therefrom.
(b) The Company will, upon reasonable prior notice to the
Company, permit authorized representatives (including, without limitation,
accountants and legal counsel) of the Investors to visit and inspect any of the
properties of the Company and its subsidiaries, including its books of account
(and to make copies thereof and take extracts therefrom), and to discuss its
affairs, finances and accounts with its officers, administrative employees and
independent accountants, all at such reasonable times and as often as may be
reasonably requested by the Investors.
(c) After the third (3rd) anniversary of the Closing Date,
Cendant shall no longer be entitled to the rights provided to the Investors in
clause (c) of Section 8.1 and subparagraphs (a) and (b) of this Section 8.2 and
Cendant thereafter waives any such rights arising under this Agreement (but
shall not waive any rights granted to stockholders under applicable state or
federal laws).
8.3 Board of Directors; Meetings; Indemnification. The Company will
ensure that meetings of its Board of Directors are held at least four (4) times
each year at intervals of not more than four (4) months. The Company shall pay
to directors of the Company who were nominated by an Investor or a Founding
Stockholder holding not more than 5% of the voting stock of the Company fees in
an amount equal to any fees that are paid to other
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non-management directors of the Company and shall pay such Directors for their
reasonable travel expenses incurred in connection with attending meetings or
other functions of the Board of Directors and for their reasonable costs
associated with any other work on behalf of the Company. The Charter and By-laws
of the Company will in respect of all times during which any nominee of any of
the Investors serves as a director of the Company provide for exculpation and
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law, and the
Company shall obtain and maintain directors and officers' liability insurance
coverage on terms satisfactory to the Investors' Nominees, covering, among other
things, violations of federal or state securities laws by the Company and shall
use its reasonable best efforts to obtain prior to an initial public offering of
the Company's capital stock additional directors and officers' liability
insurance coverage to include claims under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended.
8.4 Conduct of Business.
(a) The Company will continue to engage principally in the
business now conducted by the Company or a business or businesses similar
thereto or reasonably compatible therewith. The Company will keep in full force
and effect its corporate existence and all Intellectual Property Rights useful
in its business (except such rights as the Board of Directors has reasonably
determined are not material to the continuing operations of the Company).
(b) The Business Manager(R) software shall continue to be Year
2000 Compliant.
8.5 Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful Taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, all applicable federal and state
securities laws in connection with the issuance of any shares of its capital
stock.
8.6 Insurance. The Company will keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage, and
shall maintain insurance against other hazards, in amounts of coverage at least
equal to coverage customarily maintained by the Company.
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8.7 Maintenance of Properties. The Company will maintain all properties
used in the conduct of its business in good repair, working order and condition,
ordinary wear and tear excepted, as necessary to permit such business to be
properly and advantageously conducted.
8.8 Material Adverse Changes. The Company will promptly advise the
Investors of any event which represents or is reasonably likely to result in a
material adverse change in the condition (financial or otherwise) or business of
the Company, and of each suit or proceeding commenced or threatened against the
Company which, if adversely determined, in the reasonable judgment of the
Company, is reasonably likely to have a Material Adverse Effect. The Company
will promptly advise the Investors of any recall of the Company's products, any
other adverse developments relating to the Company's products, and any suit or
proceeding commenced or threatened which is related to the Company's products
which, if adversely determined, in the reasonable judgment of the Company, is
reasonably likely to have a Material Adverse Effect.
8.9 Management Compensation. Compensation paid by the Company to its
management (except with respect to compensation paid to David F. Anderson
pursuant to the Employment Agreement dated January 1, 1991) will be comparable
to compensation paid to management in companies in the same or similar
businesses of similar size and maturity and with comparable financial
performance. Any bonuses paid to employees (other than bonuses within any bonus
plan previously approved by the Compensation Committee) of the Company shall be
approved by a three-person Compensation Committee of the Company including one
(1) of the Investors' Nominees. The compensation and other benefit arrangements
(other than continued coverage under Company-provided group insurance plans for
so long as such individual is employed by or serves as a director of the
Company, and personal office space for one (1) year post-Closing) of William B.
King, Gregory A. Thurman, Carl E. Brasser and Tom Black, the founding
stockholders of the Company, as described on Schedule 8.9, shall be terminated
on or before the Closing; provided, however, any such amounts which shall have
accrued prior to the Closing Date as set forth on Schedule 8.9, shall be paid to
such persons at the regularly scheduled time for payment but in no event after
February 28, 1999. The compensation of any individual employed by the Company
who owns 5% or more of the voting stock of the Company shall be approved by the
unanimous resolution of the Compensation Committee of the Company.
8.10 Issuance of Common Stock, Convertible Securities, Options,
Warrants or Rights. The Company covenants and agrees that it will not take any
action or enter into any agreement to authorize, sell or issue any Common Stock
or other equity securities or bonds, certificates of indebtedness, debentures or
other securities convertible into or exchangeable for Common Stock or other
equity securities, or options, warrants or rights carrying any rights to
purchase Common Stock or other equity securities or convertible or exchangeable
securities of the Company other than pursuant to this Agreement; provided,
however, that the Company may, subject to the approval of the Compensation
Committee of the Board of Directors, issue options and stock awards with respect
to up to 598,023 shares of Common Stock (as
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appropriately adjusted for any stock split, combination, reorganizations,
recapitalization, reclassification, stock distribution, stock dividend or
similar event) pursuant to a stock option and grant plan which shall be adopted
by the Board of Directors of the Company and approved by the stockholders of the
Company, the terms of which shall have been approved by the Investors (the "1998
Stock Plan").
8.11 Affiliate Transactions. All transactions by and between the
Company and the Founding Stockholders or any other officer or key employee of
the Company or persons controlling, controlled by, under common control with or
otherwise affiliated with or members of the families of such Founding
Stockholders, officer or key employee, shall be conducted on an arm's-length
basis, shall be on terms and conditions no less favorable to the Company than
could be obtained from nonrelated persons and shall be approved in advance by
the Board of Directors and by each of the Investors' Nominees (in writing) after
full disclosure of the terms thereof. The Company shall discontinue all
affiliated transactions described in Schedule 2.22 and the Company and the
Founding Stockholders agree to terminate any oral or written agreements or
arrangements providing for such transactions by no later than December 31, 1998.
8.12 Enforcement of Rights. The Company will diligently enforce all of
its rights under each of, and will not amend any of, the Non-Competition
Agreements referred to in Sections 5.10(c) and 8.17 hereof and the General
Releases referred to in Section 5.10(d) hereof. The Company will not effect any
transfer of any of the outstanding capital stock of the Company on the stock
record books of the Company unless such transfer is made in accordance with the
terms of this Agreement and the Stockholders Agreement. The Company will not
waive or release any rights under, or consent to the amendment of, any such
agreement without the written consent of Investors holding sixty-six and
two-thirds percent (66 2/3%) of the Convertible Preferred Stock. The Company
will observe and perform all of the covenants set forth in the Charter.
8.13 Distributions on, and Redemptions of, Capital Stock. Except as
otherwise expressly provided in this Agreement or dividends declared or paid on
the Convertible Preferred Stock pursuant to the Amended and Restated Charter,
the Company will not declare or pay any dividends or make any distributions of
cash, property or securities of the Company with respect to any shares of its
Common Stock or any other class of its capital stock, or directly or indirectly
redeem, purchase, or otherwise acquire for consideration any shares of its
Common Stock, or any other class of its capital stock; provided, however, that
this restriction shall not apply to the repurchase of shares of Common Stock
(subject to adjustment in connection with stock splits, stock dividends and the
like) issued or issuable under the 1998 Stock Plan or the Outstanding Options
and pursuant to agreements under which the Company has the option or obligation
to repurchase such shares upon the occurrence of certain events, including
termination of employment, and a right of first refusal to acquire shares in the
event of certain proposed transfers. Any redemption, repurchase or other
acquisition by the
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Company of any shares of its capital stock shall be made in compliance with all
laws, including but not limited to, federal and state securities laws.
8.14 Merger, Consolidation, Sale of Assets, Acquisitions and Other
Actions. The Company will not: (a) sell, lease or otherwise dispose of (whether
in one transaction or a series of related transactions) all or substantially all
of its assets, (b) merge with or into or consolidate with another entity (except
into or with a wholly-owned subsidiary of the Company with the requisite
stockholder approval), (c) acquire any other corporation or business concern,
whether by acquisition of assets, capital stock or otherwise, and whether in
consideration of the payment of cash, the issuance of capital stock or
otherwise, or make any material investment in another business entity or any
joint venture or similar arrangement, (d) voluntarily liquidate or wind up its
operations, (e) 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, (f) create, incur, assume, become liable for, or permit to
exist any indebtedness for borrowed money (other than indebtedness as
contemplated by Section 5.1(a) hereof), capital leases, or other similar
commitments or obligations, which, for any one such borrowing or series of
related borrowings, is in excess of $1,000,000, or (g) enter into any agreement
or arrangement or take any other action that eliminates, amends, restricts or
otherwise adversely affects the rights of the holders of the Convertible
Preferred Shares or the Company's ability to perform its obligations hereunder
or under the Amended and Restated Charter; without limitation of the foregoing,
the Company shall take all action necessary or appropriate to remove promptly
any impediment to the redemption of the Convertible Preferred Shares as
contemplated by the Amended and Restated Charter.
8.15 Election of Directors. Immediately following the Closing, the
Company shall take proper corporate action to enlarge the size of the Board of
Directors to nine (9) members, the members of which shall be as set forth in the
Stockholders Agreement. The director nominees of the Investors, as provided in
the Stockholders Agreement, shall be elected as directors of the Company
(together with any subsequent nominee of the Investors, the "Investors'
Nominees"), one of the Investors' Nominees shall be appointed to the
Compensation Committee, and the Company shall enter into an Indemnification
Agreement with each of the Investors' Nominees in the form attached hereto as
Exhibit N.
8.16 Affiliated Transaction Receivables. All accounts receivable
arising from the affiliated transactions set forth in Schedule 2.22 (the
"Affiliated Accounts Receivable") shall be paid in full promptly after, but not
on or before, the Closing Date, but in any event within thirty (30) days after
the Closing.
8.17 Non-Competition Agreements. At or promptly following the Closing,
the Company shall use best efforts to obtain from certain key employees of the
Company, as shall be designated by the Board of Directors of the Company with
the prior written approval of the Investors (which approval shall not be
unreasonably withheld), a Non-Competition Agreement in substantially the form
attached hereto as Exhibit J-2.
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8.18 S-Corporation Allocation Election. In accordance with Section
1362(e)(3) of the Code and Treas. Reg. Section 1.1362-6(a)(5), the Company,
Selling Stockholders and Investors agree to elect not to apply the pro rata
allocation rules for the S termination year. Such election shall be filed with
the Company's C short year return and the Selling Stockholders will provide the
requisite consents as described in Treas. Reg. 1.1362-6(a)(5)(b).
SECTION 9. SURVIVAL; INDEMNIFICATION
9.1 Survival of Representations; Warranties and Covenants;
Assignability of Rights. All covenants, agreements, representations and
warranties of the Company, the Founding Stockholders and the Investors made
herein and in the certificates, exhibits and schedules delivered or furnished to
any Investor in connection herewith (a) are material, shall be deemed to have
been relied upon by the party or parties to whom they are made and shall survive
the Closing regardless of any investigation on the part of such party or its
representatives, subject to Section 9.2, and (b) shall bind the parties'
successors and assigns (including, without limitation, any successor to the
Company by way of acquisition, merger or otherwise), whether so expressed or
not, and, except as otherwise provided in this Agreement, all such covenants,
agreements, representations and warranties shall inure to the benefit of the
Investors' successors and assigns and to their transferees of Securities,
whether so expressed or not.
9.2 Transaction Related Indemnification.
(a) The Founding Stockholders (on their behalf and on behalf
of their successors, executors, administrators, estate, heirs, assigns and any
transferees of the proceeds received by a Founding Stockholder in the
transactions contemplated by this Agreement, including, without limitation, any
members of a Founding Stockholder's family (collectively, for the purposes of
this Section 9, the "Indemnifying Parties"), jointly and severally, agree to
defend, indemnify and hold the Investors, their affiliates and respective direct
and indirect partners (including partners of partners and stockholders and
members of partners), members, stockholders, directors, officers, employees and
agents each of the foregoing and each person who controls any of them within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended, (parties receiving the benefit of the
indemnification agreement herein shall be referred to collectively as
"Indemnified Parties" and individually as an "Indemnified Party") harmless from
and against any and all damages, liabilities, losses, Taxes, fines, penalties,
costs, and expenses (including without limitation, reasonable fees of counsel),
as the same are incurred, of any kind or nature whatsoever ("Claims") (whether
or not arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) which may be sustained or
suffered by any such Indemnified Party (a "Loss" or "Losses"), based upon,
arising out of, by reason of or otherwise in respect of or in connection with:
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(i) any inaccuracy in or breach of any representation
or warranty made by the Indemnifying Parties in this Agreement, or in
any Schedule or certificate delivered by or on behalf of the
Indemnifying Parties as part of or pursuant to this Agreement, or any
claim, action or proceeding asserted or instituted or arising out of
any matter or thing covered by such representations or warranties
(collectively, "Warranty Claims");
(ii) any breach of any covenant or agreement
pertaining to matters relating to the period prior to the Closing made
by or on behalf of the Indemnifying Parties in this Agreement, or in
any Schedule, exhibit or certificate delivered by or on behalf of the
Indemnifying Parties as part of or pursuant to this Agreement;
(iii) any liability or Loss of the Company for Taxes
(including any liability for state sales taxes in excess of the $1.4
million accrued on the Company's financial statements) in respect of
any period ending or any transaction or business occurring on or before
the Closing Date, including without limitation, any increase in Taxes
due to the unavailability of any loss or deduction claimed by the
Company; or
The rights of Indemnified Parties to recover indemnification in respect
of any occurrence referred to in either of clause (ii) or (iii) of this Section
9.2(a) shall not be limited by the fact that such occurrence may not constitute
an inaccuracy in or breach of any representation, warranty or agreement referred
to in clause (a) of this Section 9.2.
(b) The right of Indemnified Parties to indemnification under
Section 9.1 shall be subject to the following provisions:
(i) Indemnification with respect to Warranty Claims
shall expire on the thirtieth (30th) day following delivery to the
Investors of audited financial statement for the Company's 1999 fiscal
year; provided, however, that the limitation of this clause (i) shall
not apply to Warranty Claims involving fraud, intentional
misrepresentation, capitalization (Section 2.3) and Section 2.5(b)
hereof or Taxes (collectively, "Primary Warranty Claims"), for which
the period for making such claims shall expire on the date which is six
(6) months after the termination of the applicable statute of
limitations relating thereto. If prior to the relevant date of
expiration a specific state of facts shall have become known which may
constitute or give rise to any Warranty Claim as to which indemnity may
be payable and a Indemnified Party shall have given notice of such
facts to the Founding Stockholders then the right to indemnification
with respect thereto shall remain in effect without regard to when such
matter shall have been finally determined and disposed of, according to
the date on which notice of the applicable claim is given.
(ii) No indemnification shall be payable with respect
to Warranty Claims (other than Primary Warranty Claims) unless the
total of all Warranty Claims
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exceeds $750,000 in the aggregate, whereupon only the amount of such
claims in excess of such amount shall be recoverable in accordance with
the terms hereof.
(iii) The Indemnifying Parties shall not be obligated
to indemnify the Indemnified Parties for Warranty Claims (other than
Primary Warranty Claims) after the cumulative amount of all amounts
paid by the Indemnifying Parties to the Indemnified Parties with
respect thereto exceeds $22,000,000 (the "Maximum Warranty Claim
Amount"); provided, however, that no Founding Stockholder shall be
obligated to indemnify the Indemnified Parties for Warranty Claims in
excess of the amount set forth opposite such Founding Stockholder's,
name under the column entitled "Total Redemption Price" in Exhibit A
hereto.
(iv) In the event of any Loss, the Indemnified
Parties shall be required to seek indemnification or reimbursement from
the Escrow Fund prior to obtaining recovery from any Indemnifying Party
directly, but shall have recourse to the Indemnifying Parties to the
extent contemplated herein if and to the extent the Escrow Fund is
insufficient fully to provide for such claims, subject to clause (iii)
immediately above. Subject to Section 9.4, the Indemnifying Parties
shall agree to give prompt direction to the Escrow Agent directing the
release of funds to satisfy indemnification or reimbursement
obligations arising out of this Section 9.
9.3 Company Indemnification.
(a) Without limitation of any other provision of this
Agreement, the Company agrees to defend, indemnify and hold each Indemnified
Party harmless from and against any and all losses, claims, damages,
obligations, liens, assessments, judgments, fines, liabilities, and other costs
and expenses (including, without limitation, interest, penalties and any
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted, as the same are incurred, of any kind or nature whatsoever which may
be sustained or suffered by any such Indemnified Party, based upon, arising out
of, by reason of or otherwise in respect of or in connection with (i) any breach
of any covenant or agreement made by the Company in this Agreement, the
Stockholders Agreement, the Registration Rights Agreement or the Amended and
Restated Charter or (ii) third party or governmental claims relating in any way
to their status as a security holder, creditor, director, agent, representative
or controlling person of the Company or otherwise relating to their involvement
with the Company (including, without limitation, any and all Losses under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, which relates directly or indirectly to
the registration, purchase, sale or ownership of any securities of the Company
or to any fiduciary obligation owed with respect thereto), including, without
limitation, in connection with any third party or governmental action or claim
relating to any action taken or omitted to be taken or alleged to have been
taken or omitted to have been taken by any Indemnified Party as shareholder,
director, agent, representative or controlling person of the Company or
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<PAGE> 53
otherwise, alleging so-called control person liability or securities law
liability; provided, however, that the Company will not be liable to the extent
that such loss, claim, damage, expense or liability arises from and is based on
(A) an untrue statement or omission or alleged untrue statement or omission in a
registration statement or prospectus which is made in reliance on and in
conformity with written information furnished to the Company in an instrument
duly executed by or on behalf of such Indemnified Party specifically stating
that it is for use in the preparation thereof or (B) a knowing and willful
violation of the federal securities laws by an Indemnified Party, as finally
determined by a court of competent jurisdiction.
(b) If the indemnification provided for in Section 9.3(a)(ii)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party in respect of any losses, claims, damages,
expenses or liabilities referred to therein, then the Company, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages, expenses or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Investors, or (ii)
if the allocation provided by clause (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 (i) above but also the relative fault of the
Company and the Investors in connection with the action or inaction which
resulted in such losses, claims, damages, expenses or liabilities, as well as
any other relevant equitable considerations. In connection with any registration
of the Company's securities, the relative benefits received by the Company and
the Investors shall be deemed to be in the same respective proportions that the
net proceeds from the offering (before deducting expenses) received by the
Company and the Investors, in each case as set forth in the table on the cover
page of the applicable prospectus, bear to the aggregate public offering price
of the securities so offered. The relative fault of the Company and the
Investors 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
and the Investors and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Each of the Company and the Investors agrees that it would not
be just and equitable if contribution pursuant to this Section 9.3(b) were
determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In connection with the registration
of the Company's securities, in no event shall an Investor be required to
contribute any amount under this Section 9.3(b) in excess of the lesser of (i)
that proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total securities sold under
such registration statement which is being sold by such Investor or (ii) the
proceeds received by such Investor from its sale of securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the
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<PAGE> 54
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(c) The provisions of this Section 9.3 are in addition to and
shall supplement those set forth in the Registration Rights Agreement referred
to in Section 5.10(b).
(d) The Company agrees to pay and hold the Investors harmless
against liability for payment of all reasonable out-of-pocket costs and expenses
incurred by them, including, without limitation, the fees and disbursements of
counsel and other professionals in connection with the performance and
enforcement of this Agreement and the agreements, documents and instruments
contemplated hereby and executed pursuant hereto. In addition, the Company
agrees to pay any and all stamp, transfer and other similar Taxes, if any,
payable or determined to be payable in connection with the execution and
delivery of this Agreement and the issuance of securities hereunder.
9.4 Notice; Payment of Losses; Defense of Claims. For purposes of this
Section 9.4 the term "Indemnifying Party" shall include the Company with respect
to matters arising under Section 9.3.
(a) An Indemnified Party shall give written notice to the
Indemnifying Party promptly, and in any event not later than sixty (60) business
days after assertion of any written claim by any third party, specifying in
reasonable detail the amount, nature and source of the claim, and including
therewith copies of any notices or other documents received from third parties
with respect to such claim; provided, however, that failure to give such notice
shall not limit the right of an Indemnified Party to recover indemnity or
reimbursement except to the extent that the Indemnifying Party suffer any
material damages as a result of such failure. The Indemnified Party shall also
provide the Indemnifying Party with such further information concerning any such
claims as the Indemnifying Party may reasonably request by written notice.
(b) Within thirty (30) days after receiving notice of a claim
for indemnification or reimbursement, the Indemnifying Party shall, by written
notice to the Indemnified Party, either (1) concede or deny liability for the
claim in whole or in part, or (2) in the case of a claim asserted by a third
party, advise that the matters set forth in the notice are, or will be, subject
to contest or legal proceedings not yet finally resolved. If the Indemnifying
Party concedes liability in whole or in part, it shall, within three (3)
business days of such concession, pay the amount of the claim to the Indemnified
Party to the extent of the liability conceded. Any such payment shall be made in
immediately available funds equal to the amount of such claim so payable. If the
Indemnifying Party denies liability in whole or in part or advises that the
matters set forth in the notice are, or will be, subject to contest or legal
proceedings not yet finally resolved, then the Indemnifying Party shall make no
payment (except for the amount of any conceded liability payable as set forth
above) until the matter is resolved in accordance with this Agreement.
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In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph (a) the Indemnifying
Party or Parties (i) give written notice to the Indemnified Party or Parties
stating that they would be liable under the provisions hereof for indemnity in
the amount of such claim if such claim were valid and that they dispute and
intend to defend against such claim, liability or expense at their own cost and
expense and (ii) provide assurance and security reasonably acceptable to such
Indemnified Party or Parties that such indemnification will be paid fully and
promptly if required and such Indemnified Party or Parties will not incur cost
or expense during the proceeding, then counsel for the defense shall be selected
by the Indemnifying Party or Parties (subject to the consent of such Indemnified
Party or Parties which consent shall not be unreasonably withheld) and such
Indemnified Party or Parties shall not be required to make any payment with
respect to such claim, liability or expense as long as the Indemnifying Party or
Parties are conducting a good faith and diligent defense at their own expense;
provided, however, that the assumption of defense of any such matters by the
Indemnifying Party or Parties shall relate solely to the claim, liability or
expense that is subject or potentially subject to indemnification and, provided,
further, that the Indemnifying Party and the Indemnified Party shall jointly
control any claim which is reasonably likely to involve damages or costs which
reduce or exceed the $750,000 deductible under Section 9.2(b)(ii) or which is
reasonably likely to cause the Maximum Warranty Claim Amount to be exceeded. If
the Indemnifying Party or Parties assume such defense in accordance with the
preceding sentence, they shall have the right, with the consent of such
Indemnified Party or Parties, which consent shall not be unreasonably withheld,
to settle all indemnifiable matters related to claims by third parties which are
susceptible to being settled provided the Indemnifying Party or Parties'
obligation to indemnify such Indemnified Party or Parties therefor will be fully
satisfied by payment of money by the Indemnifying Party or from the Escrow Fund
and the settlement includes a complete release of such Indemnified Party or
Parties. The Indemnifying Party or Parties shall keep such Indemnified Party or
Parties apprised of the status of the claim, liability or expense and any
resulting suit, proceeding or enforcement action, shall furnish such Indemnified
Party or Parties with all documents and information that such Indemnified Party
or Parties shall reasonably request and shall consult with such Indemnified
Party or Parties prior to acting on major matters, including settlement
discussions. Notwithstanding anything herein stated, such Indemnified Party or
Parties shall at all times have the right to fully participate in such defense
at its own expense directly or through counsel; provided, however, if the named
parties to the action or proceeding include both the Indemnifying Party or
Parties and the Indemnified Party or Parties and representation of both parties
by the same counsel would be inappropriate under applicable standards of
professional conduct, the reasonable expense of separate counsel for such
Indemnified Party or Parties shall be paid by the Indemnifying Party or Parties.
If no such notice of intent to dispute and defend is given by the Indemnifying
Party or Parties, or if such diligent good faith defense is not being or ceases
to be conducted, such Indemnified Party or Parties shall, at the expense of the
Indemnifying Party or Parties, undertake the defense of (with counsel selected
by such Indemnified Party or Parties), and shall have the right to compromise or
settle, such claim, liability or expense. If such claim, liability or expense is
one that by its nature cannot be defended solely by the Indemnifying Party or
Parties, then
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such Indemnified Party or Parties shall make available all information and
assistance that the Indemnifying Party or Parties may reasonably request and
shall cooperate with the Indemnifying Party or Parties in such defense.
9.5 Tax Effects of Losses; Meaning of After-Tax Basis.
(a) In calculating any Loss for which indemnification is
provided under this Section 9, other than a Loss to the extent such Loss is
associated with a reduction in the adjusted tax basis of a depreciable asset
from the adjusted tax basis such asset would have had absent such Loss, such
indemnification payment shall be made on an after-tax basis such that the amount
of any such Loss shall in each case be reduced to take account of any Tax
Benefit (as hereinafter defined) to the Indemnified Party arising from the
payment of or relating to any such Loss, as described in and subject to
paragraph (b) below.
(b) For purposes of this Section 9, an indemnification payment
that is to be made on an "after-tax" basis to an Indemnified Party shall be made
net of Tax Benefits which the Indemnified Party has received or is entitled to
receive in respect to the Loss giving rise to such payment. As used herein, the
term "Tax Benefit" shall mean the federal, state and local tax savings (net of
any tax increases) that have resulted or will result from any tax deduction or
tax credit that (i) the Indemnified Party has claimed or is entitled to claim on
a federal, state or local income tax return filed for the tax year of such party
in which the Loss is paid or incurred and (ii) is directly attributable to such
Loss. In the event the Company realizes tax savings (net of any tax increases)
attributable to depreciation, amortization or similar deductions attributable to
the required capitalization of a Loss in years following the payment of the
Loss, the Indemnified Party or Parties shall make an appropriate adjustment and
repayment of indemnification amounts previously paid. Further, in the event the
Company or its Subsidiaries receives a refund of any Taxes in respect of which
the Indemnifying Parties have provided indemnity under Sections 9.2 and 9.3,
then such refund shall be remitted promptly to the Indemnifying Parties to the
extent of such indemnity payments.
9.6 Exclusive Remedy. The parties agree and acknowledge that subsequent
to the Closing the indemnification rights provided in this Section 9 shall be
the exclusive remedy of the parties hereto for breaches of this Agreement,
subject to the terms and conditions set forth herein.
9.7 Limitation on Contribution and Certain Other Rights. Each of the
Founding Stockholders hereby agrees that if, following the Closing, any payment
is made by such Founding Stockholder, or otherwise becomes due from such
Founding Stockholder, pursuant to this Section 9 in respect of any Losses (a
"Loss Payment"), such Founding Stockholder shall have no rights against the
Company, or any director, officer or employee thereof (in their capacity as
such), whether by reason of contribution, indemnification, subrogation or
otherwise, in respect of any such Loss Payment, and shall not take any action
against the Company or any such person with respect thereto.
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SECTION 10. GENERAL
10.1 Amendments, Waivers and Consents.
(a) For the purposes of this Agreement and all agreements
executed pursuant hereto, no course of dealing between or among any of the
parties hereto and no delay on the part of any party hereto in exercising any
rights hereunder or thereunder shall operate as a waiver of the rights hereof
and thereof. No provision hereof may be waived otherwise than by a written
instrument signed by the party or parties so waiving such covenant or other
provision as contemplated herein. Except as otherwise set forth in Sections 5
and 8 hereof, any actions required to be taken with respect to consents,
approvals or waivers hereunder (other than with respect to amendments, which
shall be governed by paragraph (b) below) required or contemplated to be given
by the Investors hereunder shall require a vote of sixty-six and two-thirds
percent (66 2/3%) of the Investors based on the relative holdings of capital
stock of the Company of the Investors as a group at the relevant time (or, if
the Investors have not yet been issued capital stock of the Company, based on
the intended relative holdings of capital stock of the Company of the Investors
as a group as contemplated herein) (a "Two Thirds Interest"), and any such
action by such percentage of Investors shall bind all of the Investors.
(b) No amendment to this Agreement may be made without the
written consent of the Company, the Stockholders' Representative (on behalf of
the Selling Stockholders, which action of the Stockholders' Representative shall
bind all of the Selling Stockholders) and a Two Thirds Interest, except that an
amendment of Section 8 and 9.3 shall only require the written consent of the
Company and a Two Thirds Interest and an amendment of Section 9.2 and 9.7 shall
only require the written consent of the Stockholders' Representative and a Two
Thirds Interest; provided, however, that any such amendment shall also require
the approval of Cendant unless (x) such amendment does not impose any additional
obligations on Cendant to pay any amounts or assume financial liabilities and
(y) in connection with such amendment Cendant would not get treated any less
favorably than any of the other Investors or any of their respective Affiliates
(as defined in the Stockholders Agreement); and provided further that any
amendment to Section 5.6, 5.9, 5.10, 5.11, 5.14, 5.16, 8.1, 8.2 or 8.8 hereof
shall in any event also require the approval of Cendant. Any action by the
requisite percentage of Investors set forth above shall bind all of the
Investors.
10.2 Legend on Securities. The Company, the Investors and the Founding
Stockholders acknowledge and agree that the following legend shall be typed on
each certificate evidencing any of the securities issued hereunder held at any
time by an Investor or a Founding Stockholder:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD,
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TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES AND (2) IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES AND BLUE SKY LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
STOCKHOLDERS AGREEMENT DATED AS OF [______ __], 1998, INCLUDING THEREIN CERTAIN
RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
10.3 Governing Law. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the State of
Tennessee, without giving effect to conflict of laws principles thereof.
10.4 Section Headings and Gender. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
10.5 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
10.6 Notices and Demands. Any notice or demand which is required or
provided to be given under this Agreement shall be deemed to have been
sufficiently given and received for all purposes when delivered by hand,
telecopy, telex or other method of facsimile, or five (5) days after being sent
by certified or registered mail, postage and charges prepaid, return receipt
requested, or two (2) days after being sent by overnight delivery providing
receipt of delivery, to:
(a) if to the Company, c/o Private Business, Inc., 9010
Overlook Boulevard, Brentwood, TN 37027, with a copy to Harwell Howard Hyne
Gabbert & Manner, P.C., attention to Lee C. Dilworth, Esq., 1800 First American
Center, Nashville, TN 37238, or at such other address designated by the Company
to the Investors and the other parties hereto in writing;
(b) if to the Selling Stockholders, at the mailing addresses
shown on Exhibit A-1 attached hereto, with a copy to Goodwin, Procter & Hoar
LLP, attention to John
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R. LeClaire, P.C., Exchange Place, Boston, MA 02109, or at such other address
designated by a Selling Stockholder to the Investors and the other parties
hereto in writing; and
(c) if to the Investors, at the mailing addresses as shown on
Exhibit B-1 or Exhibit B-2 attached hereto, or at such other address designated
by an Investor to the Company and the Selling Stockholders in writing.
10.7 Dispute Resolution. Except as provided below, any dispute arising
out of or relating to this Agreement or the breach, termination or validity
hereof shall be finally settled by binding arbitration conducted expeditiously
in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and
Procedures (the "J.A.M.S. Rules"). The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss.ss.1-16, and judgment upon the award
rendered by the arbitrators may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Baltimore, Maryland.
Such proceedings shall be administered by the neutral arbitrator in
accordance with the J.A.M.S. Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(i) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the
initiation of the procedure;
(ii) no other discovery;
(iii) hearings before the neutral arbitrator which shall
consist of a summary presentation by each side of not
more than three (3) hours; such hearings to take
place on one or two days at a maximum; and
(iv) decision to be rendered not more than ten (10) days
following such hearings.
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 10.7 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of any United States District Court of competent jurisdiction for
the purpose of enforcing the award or decision in any such proceeding, (b)
hereby waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution (except as protected
by applicable law), that the suit,
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action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and hereby waives and
agrees not to seek any review by any court of any other jurisdiction which may
be called upon to grant an enforcement of the judgment of any such court. Each
of the parties hereto hereby consents to service of process by registered mail
at the address to which notices are to be given. Each of the parties hereto
agrees that its or his submission to jurisdiction and its or his consent to
service of process by mail is made for the express benefit of the other parties
hereto. Final judgment against any party hereto in any such action, suit or
proceeding may be enforced in other jurisdictions by suit, action or proceeding
on the judgment, or in any other manner provided by or pursuant to the laws of
such other jurisdiction.
10.8 Remedies; Severability. Notwithstanding Section 10.7, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement and the Stockholders Agreement. Whenever possible,
each provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be deemed prohibited or invalid under such applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
10.9 Integration. This Agreement, including the exhibits, documents and
instruments referred to herein or therein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent between the parties hereto in respect of the
transactions contemplated herein, which letter of intent shall be completely
superseded by the representations, warranties and covenants of the Company
contained herein.
10.10 No Third-Party Beneficiaries. The parties hereto specially
acknowledge and agree that there are no intended third-party beneficiaries to
this Agreement other than as provided in Section 10.11 hereof.
10.11 Investor Assignees. Cendant shall have the right to assign to any
of its wholly-owned subsidiaries and each of the Investors affiliated with TA
Associates, Inc. (the "TA Investors") and each of the Investors affiliated with
Summit Partners, LLC (the "Summit
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<PAGE> 61
Investors") shall have the right to assign to certain parties identified on
Exhibit B-2 (any such assignee to be referred to herein as an "Investor
Assignee") the right to purchase up to the number of shares of Convertible
Preferred Stock allocated to each such assigning party in Exhibit B-1 attached
hereto. Furthermore, each TA Investor shall have the right to assign to each
other TA Investor and each Summit Investor shall have the right to assign to
each other Summit Investor the right to purchase up to the number of shares of
Convertible Preferred Stock allocated to such assigning party in Exhibit B-1
attached hereto. The rights of the Investors hereunder shall be assignable to
transferees of the shares of capital stock of the Company held by the Investors,
and any such transferee shall be treated for all purposes as an Investor
hereunder. Notwithstanding Section 10.10 hereof, the parties hereto acknowledge
and agree that the Investor Assignees are specifically intended as third-party
beneficiaries of this Agreement.
10.12 Right to Purchase Cendant Shares. In the event that Cendant shall
elect not to proceed with the consummation of the purchase of the Convertible
Preferred Shares allocated to Cendant as provided in Exhibit B-1 hereto (the
"Cendant Shares") for any reason, the TA Investors and the Summit Investors
will, subject to compliance by the Company and the Founding Stockholders with
the agreements herein contained and to the fulfillment to the satisfaction of,
or waiver by, the TA Investors and the Summit Investors of the conditions set
forth in Section 5 hereof (except with respect to the execution and delivery of
the Cendant Termination and Non-Competition Agreement pursuant to Section 5.16),
purchase all of the Cendant Shares in proportion to their initial allocation as
set forth in Exhibit B-1 hereto on the same terms and conditions set forth
herein.
10.13 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" of a person shall (i) with respect to a
person, any member of such person's family (including any child, step-child,
parent, step-parent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law); (ii) with respect to an
entity, any officer, director, stockholder, partner or investor in such entity
or of or in any affiliate of such entity; and (iii) with respect to a person or
entity, any person or entity which directly or indirectly controls, is
controlled by, or is under common control with such person or entity.
(b) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(c) "person" means an individual, corporation, partnership,
association, trust or any unincorporated organization; and
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(d) "subsidiary" of a person means any corporation more than
fifty (50%) percent of whose outstanding voting securities, or any partnership,
limited liability company joint venture or other entity more than fifty percent
(50%) of whose total equity interest, is directly or indirectly owned by such
person.
[END OF TEXT - SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed and delivered by their proper and duly authorized
representatives as of the day and year first above written.
THE COMPANY:
PRIVATE BUSINESS, INC.
By:
----------------------------------------
Name: William B. King, Jr.
Title: Chairman
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 64
SELLING STOCKHOLDERS:
THE WILLIAM B. KING, JR. ANNUITY
TRUST - 1997
By:
----------------------------------------
William B. King, Jr., Trustee
--------------------------------------------
William B. King, individually
THE GREGORY A. THURMAN
ANNUITY TRUST - 1997
By:
----------------------------------------
Gregory A. Thurman, Trustee
--------------------------------------------
Gregory A. Thurman, individually
THE CARL E. BRASSER ANNUITY
TRUST - 1997
By:
----------------------------------------
Carl E. Brasser, Trustee
--------------------------------------------
Carl E. Brasser, individually
--------------------------------------------
Tom Black, individually
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 65
--------------------------------------------
Kenneth L. Keith, individually
--------------------------------------------
David F. Anderson, individually
COMMUNITY FOUNDATION OF
MIDDLE TENNESSEE
By:
----------------------------------------
Name:
Title:
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 66
INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII, LLC
Its: General Partner
By: TA Associates, Inc.
Its: Manager
By:
----------------------------------------
Name: Brian J. Conway
Title: Managing Director
ADVENT ATLANTIC AND PACIFIC III, L.P.
By: TA Associates AAP III Partners, L.P.
Its: General Partner
By: TA Associates, Inc.
Its: General Partner
By:
----------------------------------------
Name: Brian J. Conway
Title: Managing Director
TA INVESTORS LLC
By: TA Associates, Inc.
Its: Manager
By:
----------------------------------------
Name: Brian J. Conway
Title: Managing Director
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 67
TA EXECUTIVES LLC
By: TA Associates, Inc.
Its: Manager
By:
----------------------------------------
Name: Brian J. Conway
Title: Managing Director
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 68
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
----------------------------------------
Name:
Title:
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
----------------------------------------
Name:
Title:
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
----------------------------------------
Name:
Title:
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 69
SUMMIT INVESTORS III, L.P.
By:
----------------------------------------
Name:
Title:
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 70
CENDANT CORPORATION
By:
----------------------------------------
Name:
Title:
[SIGNATURE PAGE TO THE STOCK PURCHASE AGREEMENT]
<PAGE> 71
EXHIBIT A
SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
No. of Shares of Total Redemption
Common Stock No. of Shares Redemption Escrow Price Paid at
Selling Stockholders Owned to be Redeemed Price Payment Closing
- -------------------- ----- -------------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
The William B. King, Jr. Annuity 1,874,229 449,870 12,537,933 521,867 12,016,066
Trust -1997
3946 Woodlawn Drive
Nashville, TN 37205
William B. King, Jr 762,460.0 762,460 21,249,855 884,483 20,365,372
3946 Woodlawn Drive
Nashville, TN 37026
Tom Black 2,746,984.0 1,322,625 36,861,723 1,406,350 35,455,373
6204 Old Harding Pike
Nashville, TN 37205
The Gregory A. Thurman Annuity 937,528.5 0 0 0 0
Trust - 1997
4001 Lynnwood Court
Franklin, TN 37069
Gregory A. Thurman 1,735,925.5 1,249,095 34,812,433 1,406,350 33,406,083
4001 Lynnwood Court
Franklin, TN 37069
The Carl E. Brasser Annuity Trust - 1997 511,155.0 122,693 3,419,469 123,589 3,295,880
618 Hunters Lane
Brentwood, TN 37027
Carl E. Brasser 258,076.0 258,076 7,192,610 259,961 6,932,649
618 Hunters Lane
Brentwood, TN 37023
Kenneth L. Keith 769,231.0 380,769 10,612,080 383,550 10,228,530
309 Deerwood Lane
Brentwood, TN 37027
David F. Anderson 27,778.0 13,751 383,242 13,850 369,392
25743 Country Club Lane
Nevada, IA 50201
Community Foundation of Middle Tennessee 404,412.0 404,412.0 11,271,013 0 11,271,013
210 23rd Avenue North
Nashville, TN 37203
10,027,779 4,963,751 138,340,358 $ 5,000,000 $133,340,358
</TABLE>
<PAGE> 72
EXHIBIT B-1
<TABLE>
<CAPTION>
INVESTORS
- --------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SHARES PURCHASE PRICE
INVESTORS PURCHASED FROM THE COMPANY PAID AT CLOSING
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
TA/ADVENT VIII, L.P. 1,833,930.66 $19,564,000.00
ADVENT ATLANTIC AND PACIFIC III, L.P. 445,265.32 4,750,000.00
TA INVESTORS LLC 32,340.32 345,000.00
TA EXECUTIVES FUND LLC 31,965.36 341,000.00
c/o TA Associates, Inc.
High Street Tower
Suite 2500
125 High Street
Boston, MA 02110
- --------------------------------------------------------------------------------------------------------
SUMMIT VENTURES V, L.P. 2,139,700.08 $22,825,886
SUMMIT V ADVISORS FUND (QP) L.P. 110,258.19 1,176,212
SUMMIT V ADVISORS FUND, L.P. 33,694.12 359,442
SUMMIT V INVESTORS III, L.P. 59,849.28 638,460
c/o Summit Partners, LLC
600 Atlantic Avenue
Suite 2800
Boston, MA 02210
- --------------------------------------------------------------------------------------------------------
Cendant Corporation 937,400.67 $10,000,000
6 Sylvan Way
Parsippany, NJ 07054
- --------------------------------------------------------------------------------------------------------
TOTAL 5,624,404.00 $60,000,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 73
EXHIBIT B-2
INVESTOR ASSIGNEES
Summit V Companion Fund, L.P.
BT Investment Partners, Inc.
The John Ryan Tyrrell Trust
W. Patrick Orale, III
The Jack and Sandra Tyrrell Joint Revocable Trust
Laura Farish Chadwick Management Trust
Sunapee Securities, Inc.
Squam Lake Investors III, L.P.
1998 GPH Fund, LLC
GPH PB Fund, LLC
<PAGE> 1
EXHIBIT 10.2
================================================================================
STOCKHOLDERS AGREEMENT
By and Among
Private Business, Inc.,
The Stockholders as defined herein
and
The Investors
as defined herein
Dated as of August 7, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.........................................................................................1
Section 1.1 Construction of Terms..................................................................1
Section 1.2 Terms Not Defined......................................................................1
Section 1.3 Number of Shares of Stock..............................................................1
Section 1.4 Defined Terms..........................................................................2
ARTICLE II RESTRICTIONS ON TRANSFER AND CO-SALE PROVISIONS....................................................3
Section 2.1 General Restriction....................................................................3
Section 2.2 Co-Sale Procedure......................................................................4
Section 2.3 Drag-Along Obligations.................................................................5
Section 2.4 Assignment.............................................................................6
ARTICLE III RIGHTS TO PURCHASE................................................................................6
Section 3.1 Right to Participate in Certain Sales of Additional Securities.........................6
Section 3.2 Assignment of Rights...................................................................7
ARTICLE IV ELECTION OF DIRECTORS..............................................................................7
Section 4.1 Board Composition......................................................................7
Section 4.2 Removal; Vacancies.....................................................................9
Section 4.3 Committees of the Board................................................................9
Section 4.4 Irrevocable Proxy......................................................................9
Section 4.5 Assignment............................................................................10
ARTICLE IV.A CERTAIN TRANSACTIONS............................................................................10
Section 4A.1 Restrictions on Certain Affiliated Transactions and Arrangements......................10
ARTICLE V MISCELLANEOUS PROVISIONS...........................................................................10
Section 5.1 Survival of Covenants.................................................................10
Section 5.2 Legend on Securities..................................................................11
Section 5.3 Amendment and Waiver..................................................................11
Section 5.4 Notices...............................................................................12
Section 5.5 Headings..............................................................................13
Section 5.6 Counterparts..........................................................................13
Section 5.7 Remedies; Severability................................................................13
Section 5.8 Entire Agreement......................................................................14
Section 5.9 Adjustments...........................................................................14
Section 5.10 Law Governing.........................................................................14
Section 5.11 Successors and Assigns................................................................14
Section 5.12 Dispute Resolution....................................................................14
Section 5.13 Term..................................................................................15
Exhibit A - Form of Joinder Agreement
</TABLE>
<PAGE> 3
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT is made as of this ____ day of August 1998
by and among Private Business, Inc., a Tennessee corporation (the "Company"),
the founding stockholders of the Company identified as such on the signature
pages hereto (the "Founding Stockholders"), the persons identified on the
signature pages hereto as the Investors (each, an "Investor" and collectively,
the "Investors"), and any other stockholder or optionholder who from time to
time becomes party to this Agreement by execution of a Joinder Agreement in
substantially the form attached hereto as Exhibit A (the "Other Stockholders").
The Founding Stockholders and the Other Stockholders are herein referred to
collectively as the "Stockholders" and individually as a "Stockholder."
WHEREAS, reference is made to the Stock Purchase Agreement, dated as of
July 24, 1998, by and among the Company, the Founding Stockholders and the
Investors (the "Purchase Agreement"), pursuant to which the Investors have
agreed to purchase shares of Series A Convertible Preferred Stock, without par
value per share, of the Company (the "Preferred Stock");
WHEREAS, the Preferred Stock is convertible into shares of Common
Stock;
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the transactions contemplated by the Purchase Agreement; and
WHEREAS, the parties hereto desire to agree upon the terms upon which
the outstanding securities of the Company, now or hereafter outstanding and held
by them will be held, transferred and voted.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I DEFINITIONS
SECTION 1.1 CONSTRUCTION OF TERMS. As used herein, the masculine,
feminine or neuter gender, and the singular or plural number, shall be deemed to
be or to include the other genders or number, as the case may be, whenever the
context so indicates or requires.
SECTION 1.2 TERMS NOT DEFINED. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Purchase
Agreement.
SECTION 1.3 NUMBER OF SHARES OF STOCK. Whenever any provision of this
Agreement calls for any calculation based on a number of shares of capital stock
held by a
<PAGE> 4
Stockholder or an Investor, the number of Shares deemed to be held by that
Stockholder or Investor shall be the total number of shares of Common Stock then
owned by the Stockholder or Investor, plus the total number of shares of Common
Stock issuable upon the conversion of any Preferred Stock or other convertible
securities or the exercise of any vested options, warrants or subscription
rights then owned by such Stockholder or Investor.
SECTION 1.4 DEFINED TERMS. The following capitalized terms, as used in
this Agreement, shall have the meanings set forth below.
An "AFFILIATE" of any Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with the first mentioned Person. A Person shall be deemed
to control another Person if such first Person possesses directly or indirectly
the power to direct, or cause the direction of, the management and policies of
the second Person, whether through the ownership of voting securities, by
contract or otherwise.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"COMMON STOCK" means the Common Stock, without par value of the Company
and any other common equity securities issued by the Company, and any other
shares of stock issued or issuable with respect thereto (whether by way of a
stock dividend or stock split or in exchange for or upon conversion of such
shares or otherwise in connection with a combination of shares,
recapitalization, merger, consolidation or other corporate reorganization).
"COMPANY" shall refer to the Company and any successor or successors
thereto.
"PERSON" means an individual, a corporation, an association, a
partnership, an estate, a trust, and any other entity or organization,
governmental or otherwise.
"PREFERRED STOCK" means the Preferred Stock, together with any shares
issued or issuable with respect thereto (whether by way of a stock dividend or
stock split or in exchange for or in replacement of such shares or otherwise in
connection with a combination of shares, recapitalization, merger, consolidation
or other corporate reorganization).
"QUALIFIED PUBLIC OFFERING" has the meaning set forth in Section A.6(b)
of Article IV of the Company's Amended and Restated Charter in effect as of the
date hereof.
"SHARES" means (i) with respect to the Investors, the shares of Common
Stock subject to acquisition upon the conversion of the Preferred Stock at the
relevant time (such number being subject to possible adjustment in accordance
with the terms of the Company's charter), or the shares of Common Stock held by
the Investors at the relevant time if conversion of the Preferred Stock has then
occurred, (ii) with respect to the Stockholders or any Permitted Transferee (as
defined in Section 2.1(b) below) thereof, all shares of Common Stock then held
2
<PAGE> 5
by the Stockholders and any Permitted Transferees thereof, and (iii) any other
equity securities now or hereafter issued by the Company, together with any
options thereon and any other shares of stock issued or issuable with respect
thereto (whether by way of a stock dividend, stock split or in exchange for or
upon conversion of such shares or otherwise in connection with a combination of
shares, recapitalization, merger, consolidation or other corporate
reorganization).
"TRANSFER" means any direct or indirect transfer, donation, sale,
assignment, pledge, hypothecation, grant of a security interest in or other
disposal or attempted disposal of all or any portion of a security or of any
rights. "Transferred" means the accomplishment of a Transfer, and "Transferee"
means the recipient of a Transfer.
"TWO THIRDS INTEREST" means the Investors holding not less than
two-thirds of the outstanding Shares held by all the Investors.
ARTICLE II RESTRICTIONS ON TRANSFER AND CO-SALE PROVISIONS
Notwithstanding anything herein to the contrary, the following
provisions of this Section 2 shall terminate immediately prior to the closing of
a Qualified Public Offering and shall not apply with respect to any Qualified
Public Offering.
SECTION 2.1 GENERAL RESTRICTION.
(a) Each Stockholder agrees that neither he nor his
Permitted Transferees as contemplated by Section 2.1(b) below will directly or
indirectly Transfer all or any portion of the Shares now owned or hereafter
acquired by any of them, except in bona fide sales to third parties for value
following compliance with Section 2.2 or to Permitted Transferees as permitted
by Section 2.1(b) (hereinafter "Permitted Transfers").
(b) Permitted Transfers by a Stockholder shall
include only Transfers (i) to a spouse or children (including adopted children)
or to a trust of which he is the settlor or a trustee for the benefit of a
spouse or children (including adopted children) and (ii) Transfers upon death to
such Stockholder's heirs, executors or administrators or to a trust under his
will or to his or her guardian or conservator (any permitted transferee
described in the preceding clause (i) or this clause (ii) being referred to
herein as a "Permitted Transferee"); provided that in any such case the
Transferee shall have entered into an enforceable written agreement providing
that all Shares so Transferred shall continue to be subject to all provisions of
this Agreement as if such Shares were still held by such Stockholder. Anything
to the contrary in this Agreement notwithstanding, Permitted Transferees shall
take any shares so transferred subject to all provisions of this Agreement as if
such shares were still held by such Stockholder, whether or not they so agree
with the transferor and/or the Company. Notwithstanding the foregoing, Permitted
Transferees shall not Transfer any shares other than
3
<PAGE> 6
to a Permitted Transferee of a Stockholder without compliance with Sections 2.2.
Without limitation of the foregoing, in connection with any otherwise permitted
Transfer of shares of capital stock that are restricted shares and are subject
to any stock restriction agreement, any transferee of any such shares shall
agree in writing to be bound by the terms of any such stock restriction or
similar agreement, including, without limitation, any repurchase or similar
right contained therein.
SECTION 2.2 CO-SALE PROCEDURE.
(a) In the event any Stockholder or any Permitted
Transferee under Section 2.1(b) proposes to sell any Shares, such Stockholder
may Transfer the Shares subject thereto only following compliance with this
Section 2.2. In such event, such Stockholder shall give prompt written notice of
the proposed sale to the Investors, which shall identify the proposed
Transferee, the number of Shares proposed to be sold and the terms of the
proposed transaction (the "Co-Sale Notice"). Each of the Investors thereupon
shall have the right, exercisable upon written notice to such Stockholder or any
such Permitted Transferee within 20 days after delivery to it of the Co-Sale
Notice (the "Co-Sale Notice Period"), to participate in the sale on the terms
and conditions stated in the Co-Sale Notice, except that any Investor who holds
Preferred Stock shall be permitted to sell to the relevant purchaser shares of
Preferred Stock or Common Stock acquired upon conversion thereof. Each of the
Investors shall have the right to sell all or any portion of its shares of
capital stock of the Company on the terms and conditions in the Co-Sale Notice
(subject to the foregoing), with the maximum number of shares equal to the
product obtained by multiplying the number of shares proposed to be sold by such
Stockholder or any Permitted Transferees as described in the Co-Sale Notice by a
fraction, the numerator of which is the number of Shares owned by such Investor
on the date of the Co-Sale Notice, as the case may be, and the denominator of
which is the sum of the number of Shares owned by such Stockholder or Permitted
Transferees and the number of Shares owned by all of the Investors (including
all assignees of the Investors), as of the date of the Co-Sale Notice. To the
extent one or more Investors elect not to sell the full amount of shares which
they are entitled to sell pursuant to this Section 2.2(a), the other
participating Investors' rights to sell shares of capital stock of the Company
shall be increased proportionately to their relative holdings of such shares,
such that the Investors shall have the right to sell the full number of shares
allocable to them in any transaction subject to this Section 2.2(a) even if some
Investors elect not to participate. Within five days after the expiration of the
Co-Sale Notice Period, such Stockholder or Permitted Transferee shall notify
each participating Investor of the number of shares held by such Investor that
will be included in the sale and the date on which the sale will be consummated,
which shall be no later than the later of (i) 30 days after the delivery of the
Co-Sale Notice and (ii) the satisfaction of all governmental approval
requirements, if any. Each of the Investors may effect its participation in any
sale hereunder by delivery to the purchaser, or to such Stockholder or Permitted
Transferee for Transfer to the purchaser, of one or more instruments,
certificates and/or option agreements, properly endorsed for transfer,
representing the shares it elects to sell therein, provided that no Investor
shall be required to make any representations or warranties or to
4
<PAGE> 7
provide any indemnities in connection therewith other than with respect to title
to the stock being conveyed. At the time of consummation of the sale, the
purchaser shall remit directly to each Investor that portion of the sale
proceeds to which each Investor is entitled by reason of its participation
therein. All costs and expenses in connection with any sales pursuant to this
Section 2.2 shall be paid for by the party that incurred such cost or otherwise
as they may have agreed. No Shares may be purchased by a purchaser from a
Stockholder or any Permitted Transferee unless the purchaser simultaneously
purchases from the Investors all of the shares that they have elected to sell
pursuant to this Section 2.2(a).
(b) Any Shares held by a Stockholder or any Permitted
Transferee that such Stockholder or Transferee desire to sell following
compliance with Section 2.2(a) may be sold to the purchaser only during the
90-day period after the expiration of the Co-Sale Notice Period and only on
terms no more favorable to such Stockholder or such Transferee than those
contained in the Co-Sale Notice. Promptly after such sale, such Stockholder or
Permitted Transferee shall notify the Investors of the consummation thereof and
shall furnish such evidence of the completion and time of completion of such
sale and of the terms thereof as may reasonably be requested by the Investors.
So long as the purchaser is neither a party, nor an affiliate or relative of a
party, to this Agreement, such purchaser shall take the Shares so Transferred
free and clear of any further restrictions of this Section 2. If, at the end of
such 90-day period, such Stockholder or Transferee has not completed the sale of
such Shares as aforesaid, all the restrictions on Transfer contained in this
Section 2 shall again be in effect with respect to such shares.
(c) In the event that any Investor or any of its
Affiliates proposes to Transfer (other than to an Affiliate who agrees to be
bound by the provisions of this Agreement) shares of capital stock of the
Company held by such Person such that such Investor or Affiliate shall hold, as
a result of such Transfer, less than ninety percent (90%) of the shares of
capital stock of the Company originally issued to such Investor under the
Purchase Agreement (on an as converted basis and as appropriately adjusted for
stock splits, stock dividends and the like), such Investor or Affiliate may only
Transfer such shares if it gives prompt written notice of such Transfer to the
other Investors and offers the other Investors the same "co-sale" rights with
respect to such shares as are set forth in paragraphs (a) and (b) of this
Section 2.2, upon similar terms and conditions as set forth in such paragraphs
(a) and (b) of this Section 2.2.
SECTION 2.3 DRAG-ALONG OBLIGATIONS.
(a) In the event that a Two Thirds Interest of the
Investors consent to selling or otherwise disposing of all or substantially all
of the assets of the Company or all or substantially all of the capital stock of
the Company to any non-Affiliate(s) of the Company or any of the Investors, or
to the Company merging with or into or consolidating with any non-Affiliate(s)
of the Company or any of the Investors (in each case, the "Buyer") in a bona
fide negotiated transaction (a "Sale"), each Investor shall be obligated to and
shall upon the written request of a Two Thirds Interest of the Investors (the
"Electing Investors"): (i) sell, Transfer
5
<PAGE> 8
and deliver, or cause to be sold, transferred and delivered, to the Buyer, its
shares of capital stock of the Company on the same terms and conditions
applicable to the Electing Investors, including without limitation with respect
to all forms of payments from the Buyer, the Company or any of their Affiliates;
and (ii) execute and deliver such instruments of conveyance and transfer and
take such other action, including voting such shares in favor of any Sale
proposed by the Electing Investors and executing any purchase agreements, merger
agreements, indemnity agreements, escrow agreements or related documents, as the
Electing Investors or the Buyer may reasonably require in order to carry out the
terms and provisions of this Section 2.3, all on the same terms and conditions
applicable to the Electing Investors, including without limitation with respect
to all forms of payments from the Buyer, the Company or any of their Affiliates;
provided that no Investor, other than an Electing Investor, shall be required to
be liable for any amounts in excess of its share of the transaction proceeds
from any such Sale.
(b) Not less than thirty (30) days prior to the date proposed
for the closing of any Sale, the Company shall give written notice to each
Investor, setting forth in reasonable detail the name or names of the Buyer, the
terms and conditions of the Sale, including the purchase price, and the proposed
closing date.
SECTION 2.4 ASSIGNMENT. Each Investor shall have the right to assign
its rights under this Section 2 in connection with any Transfer of shares of
capital stock of the Company, and such Transferee shall be deemed to be an
Investor for purposes hereof. Each such subsequent holder of shares of capital
stock of the Company must consent in writing to be bound by the terms and
conditions of this Agreement in order to acquire the rights granted hereunder.
ARTICLE III RIGHTS TO PURCHASE
SECTION 3.1 RIGHT TO PARTICIPATE IN CERTAIN SALES OF ADDITIONAL
SECURITIES. The Company agrees that it will not sell or issue (i) any shares of
capital stock, (ii) securities convertible into or exchangeable for capital
stock of the Company or (iii) options, warrants or rights carrying any rights to
purchase capital stock of the Company, unless the Company first submits a
written offer to each Investor and Stockholder who holds any shares of capital
stock of the Company and each of their permitted transferees holding at least
two percent (2%) of the fully-diluted capital stock of the Company
(collectively, the "Offerees") identifying the terms of the proposed sale
(including price, number or aggregate principal amount of securities and all
other material terms), and offers to each Offeree the opportunity to purchase
its Pro Rata Allotment (as hereinafter defined) of the securities (subject to
increase for over-allotment if some Offerees do not fully exercise their rights)
on terms and conditions, including price, not less favorable than those on which
the Company proposes to sell such securities to a third party or parties. Each
Offeree's "Pro Rata Allotment" of such securities shall be based on the ratio
(as determined in accordance with Section 1.3 hereof) which the Shares then
owned by it bears to all of the then issued and outstanding Shares as of the
date of such written offer. The
6
<PAGE> 9
Company's offer pursuant to this Section 3.1 shall remain open and irrevocable
for a period of 30 days, and the recipients of such offer shall elect to
purchase by giving written notice thereof to the Company within such 30-day
period, including therein the maximum number of Shares or other securities which
the Offeree would purchase if other Offerees do not elect to purchase, with the
rights of electing Offerees to purchase such additional shares to be based upon
the relative holdings of Shares of the electing Offerees in the case of
over-subscription. Any securities so offered which are not purchased pursuant to
such offer may be sold by the Company, but only on the terms and conditions set
forth in the initial offer, at any time within 120 days following the
termination of the above-referenced 30-day period but may not be sold to any
other person or on terms and conditions, including price, that are more
favorable to the purchaser than those set forth in such offer or after such
120-day period without renewed compliance with this Section 3.1.
Notwithstanding the foregoing, the right to purchase granted under this
Article III shall be inapplicable with respect to any (i) options to purchase
shares of Common Stock granted or to be granted pursuant to the Company's 1998
Stock Plan (as defined in the Purchase Agreement), (ii) securities issued as a
result of any stock split, stock dividend, reclassification or reorganization or
similar event with respect to the Common Stock or (iii) shares of Common Stock
issued upon conversion of the Preferred Stock or upon exercise of options
granted pursuant to the Company's 1998 Stock Plan or options to purchase shares
of Common Stock outstanding as of the date hereof.
SECTION 3.2 ASSIGNMENT OF RIGHTS. The rights of the Offerees set forth
in this Article III are transferable (subject to the minimum holding
requirements set forth in Section 3.1 above) to each Transferee of shares of
capital stock of the Company by the Offerees in connection with a Transfer of
such shares otherwise permitted hereunder to a Transferee of the capital stock
of the Company, and such Transferee shall be deemed to be an Offeree for
purposes hereof. Any Transferee that is a fund managed by or associated with a
Proxy Holder shall be deemed an "Investor" for purposes of this Article III and
shall not be subject to the minimum holding requirements set forth in Section
3.1 above. Each such subsequent holder of such shares of capital stock must
consent in writing to be bound by the terms and conditions of this Agreement in
order to acquire the rights granted hereunder.
ARTICLE IV ELECTION OF DIRECTORS
SECTION 4.1 BOARD COMPOSITION. Each Investor and each Stockholder
(including, for purposes of this Section 4.1, each Permitted Transferee) agrees
to vote all of its shares of the capital stock of the Company having voting
power (and any other shares over which it exercises voting control), to the
extent it holds such voting stock at the relevant time, in connection with the
election of Directors to elect and continue in the office as Directors nine (9)
individuals, subject to Section 4.2 below, and to elect and continue in office
as Directors the following:
7
<PAGE> 10
(a) for so long as each such individual owns at least
ten percent (10%) of the fully-diluted capital stock of the Company, William B.
King, Greg Thurman and Tom Black (the "Stockholder Nominees");
(b) as provided in Article IV of the Company's
Amended and Restated Certificate of Incorporation, for so long as the Investors
shall hold (i) shares of Preferred Stock or (ii) shares of Common Stock issued
upon conversion of such shares of Preferred Stock representing in the aggregate
at least ten percent (10%) of the fully-diluted capital stock of the Company,
one (1) individual nominated by TA Associates, Inc. on behalf of the Investors
identified as "TA Investors" on the signature pages hereto, one (1) individual
nominated by Summit Partners, LLC on behalf of the Investors identified as
"Summit Investors" on the signature pages hereto, and one (1) individual
nominated by a Two Thirds Interest of the Investors, who shall initially be
Bruce R. Evans, Brian J. Conway and one individual to be named later by the
Proxy Holders (as defined in Section 4.4 below), respectively (the "Investor
Nominees");
(c) one (1) individual who is a member of the
Company's management team (the "Management Nominee") nominated by holders of a
majority-in-interest of the then outstanding Common Stock and Preferred Stock
(on an as converted basis); and
(d) two (2) non-employee directors as defined in Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), who are not, and have not been in the previous three years,
either an Associate (as such term is defined in Rule 12b-2 promulgated under the
Exchange Act) of, vendor (or employed by a vendor) to or person with a direct
contractual relationship with, either Proxy Holder (as defined in Section 4.4
below) or any Stockholder or any of the Stockholders' Affiliates ("Independent
Director Nominees") nominated by holders of a majority-in-interest of the then
outstanding Common Stock and Preferred Stock (on an as converted basis).
If and to the extent that any of the Stockholder Nominees holds less
than ten percent (10%) of the fully-diluted capital stock of the Company, such
individual shall no longer be entitled to be a Director of the Company and the
holders of a majority-in-interest of the then outstanding Common Stock and
Preferred Stock shall be entitled to nominate an additional Independent Director
Nominee in accordance with subparagraph (d) above. Each of the Management
Nominees and the Independent Director Nominees shall be reasonably acceptable to
a Two Thirds Interest of the Investors.
If at any time the Investors hold Common Stock representing, in the
aggregate, less than ten percent (10%) of the fully-diluted capital stock of the
Company, the Investors shall no longer be entitled to nominate the Investor
Nominees and the holders of a majority-in-interest of the then outstanding
Common Stock and Preferred Stock shall be entitled to nominate three (3)
additional Independent Director Nominees in accordance with subparagraph (d)
above.
8
<PAGE> 11
SECTION 4.2 REMOVAL; VACANCIES. Each Investor and each Stockholder
agrees to vote all of its shares of the capital stock of the Company, having
voting power (and any other shares over which she or it exercises voting
control), to the extent it holds such voting stock at the relevant time, for the
removal of any Director upon the request of the Persons then entitled to
nominate such Director and for the election to the Board of Directors of a
substitute designated by such party in accordance with the provisions of Section
4.1 hereof. Each Investor and each Stockholder further agrees to vote all of its
shares of the capital stock of the Company having voting power (and any other
shares over which he or it exercises voting control) in such manner as shall be
necessary or appropriate to ensure that any vacancy on the Board of Directors
occurring for any reason shall be filled only in accordance with the provisions
of this Article IV.
SECTION 4.3 COMMITTEES OF THE BOARD. The Company, the Investors and the
Stockholders agree to use their best efforts to cause the Board of Directors to
establish a Compensation Committee (which shall be delegated with exclusive
authority over all compensation and employee stock and option matters) and an
Audit Committee (which shall be charged with reviewing the Company's financial
statements and accounting practices). The Compensation and Audit Committees
shall consist of three (3) Directors, one (1) of which shall be a Stockholder
Nominee (as selected by a majority-in-interest of the Stockholders), one (1) of
which shall be an Investor Nominee (as selected by a Two Thirds Interest of the
Investors) and the other of which shall be an Independent Director Nominee
selected by both a majority-in-interest of the Stockholders and a Two Thirds
Interest of the Investors.
SECTION 4.4 IRREVOCABLE PROXY. Effective as of the date hereof, Cendant
Corporation ("Cendant"), hereby appoints TA Associates, Inc. and Summit
Partners, LLC (the "Proxy Holders") as its irrevocable proxies to act for and
vote on behalf of Cendant with respect to all of the shares of capital stock of
the Company held by Cendant in connection with voting on any matter requiring a
vote of stockholders of the Company, including, without limitation, the election
of directors, regardless of (i) whether such approval is sought at an annual or
special meeting of the Company's stockholders, or by written consent in lieu of
a meeting, or otherwise, or (ii) whether such vote is to be cast in person or by
proxy, or as otherwise permitted by law; provided that the Proxy Holders shall
have no such proxy to act for and vote on behalf of Cendant in connection with
any amendments to the terms of the Preferred Stock referred to in Section A.8(a)
of Article IV of the Amended and Restated Charter of the Company if (x) such
amendment would impose any additional obligations on Cendant to pay any amounts
or assume financial liabilities or (y) Cendant would get treated any less
favorably than any of the Investors or any of their Affiliates in connection
with such amendment. Any such action or vote to be taken by the Proxy Holders
must be taken by both Proxy Holders in order to be valid and effective.
This proxy is coupled with an interest and shall be irrevocable and
remain in effect until the earlier of (x) the closing of a Qualified Public
Offering, or (y) the date on which the Proxy
9
<PAGE> 12
Holders or their Affiliates cease to hold in the aggregate a majority of the
outstanding shares of Preferred Stock.
SECTION 4.5 ASSIGNMENT. Each Investor and Stockholder agrees, as a
condition to any Transfer of its or his shares of capital stock of the Company,
to cause the Transferee to agree to the provisions of this Article IV, whereupon
such Transferee shall be subject to the provisions hereof to the same extent as
the Investors and the Stockholders, as applicable, in connection with its
ownership of the shares so Transferred for purposes of this Article IV.
ARTICLE IV.A CERTAIN TRANSACTIONS
SECTION 4A.1 RESTRICTIONS ON CERTAIN AFFILIATED TRANSACTIONS AND
ARRANGEMENTS. Notwithstanding anything to the contrary contained in this
Agreement, neither Proxy Holder nor Cendant (collectively, the "Prohibited
Parties") shall, nor will it permit any of the Persons of which it holds a
majority of the voting securities ("Controlled Persons") to, (x) enter into any
contractual or other arrangement with the Company or any of its subsidiaries, or
(y) effect any transaction (including, without limitation, any transaction
involving the payment of any amounts or the delivery of any goods or services)
with the Company or any of its subsidiaries; provided that the foregoing
restrictions shall not apply to (a) this Agreement, the Purchase Agreement or
any other agreement set forth as an exhibit to the Purchase Agreement (an
"Existing Agreement") and transactions expressly contemplated thereby, or any
other agreement (a "Future Agreement") expressly contemplated and permitted
pursuant to the provisions of any Existing Agreement (as in effect on the date
hereof), such as in connection with the exercise of any "drag-along" rights
pursuant to Section 2.3 above or in connection with the exercise of any
"registration rights" under the Registration Rights Agreement, (b) arrangements
and transactions between the Company and any such Person that are on an arm's
length basis and do not include payments that exceed $500,000 in any twelve (12)
month period, (c) any arrangement or transaction which is specifically approved
in writing in advance by each of the other Prohibited Parties or (d) any
transaction in which the other Prohibited Parties are offered the opportunity to
participate in such transaction on a pro rata basis in accordance with their
relative ownership interests in the Company (e.g., such as in connection with
any Company financing or refinancing, etc.) and otherwise on terms and
conditions which are no less favorable to the other Prohibited Parties than
those extended to such Prohibited Party or any of its respective Controlled
Persons. The Company agrees that it will not enter into any transactions with
the Prohibited Parties or their Controlled Persons that are not in compliance
with this Section 4A.1.
ARTICLE V MISCELLANEOUS PROVISIONS
SECTION 5.1 SURVIVAL OF COVENANTS. Each of the parties hereto agrees
that each covenant and agreement made by it in this Agreement or in any
certificate, instrument or other document delivered pursuant to this Agreement
is material, shall be deemed to have been relied
10
<PAGE> 13
upon by the other parties and shall remain operative and in full force and
effect after the date hereof regardless of any investigation. This Agreement
shall not be construed so as to confer any right or benefit upon any Person
other than the parties hereto and their respective successors and permitted
assigns to the extent contemplated herein.
SECTION 5.2 LEGEND ON SECURITIES. The Company, the Investors and the
Stockholders acknowledge and agree that the following legend shall be typed on
each certificate evidencing any of the securities issued hereunder held at any
time by any of the Investors, Stockholders or their Permitted Transferees:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (2) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
STOCKHOLDERS AGREEMENT DATED AS OF AUGUST __, 1998, INCLUDING THEREIN CERTAIN
RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
SECTION 5.3 AMENDMENT AND WAIVER.
(a) Any party may waive any provision hereof intended for its benefit
in writing. No failure or delay on the part of any party hereto in exercising
any right, power or remedy hereunder shall operate as a waiver thereof. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any party hereto at law or in equity or
otherwise.
(b) This Agreement may be amended with the prior written consent of (a)
the Company, (b) each Stockholder who holds at least five percent (5%) of the
Common Stock (on a fully diluted basis) of the Company (each, a "5% Holder") and
(c) a Two Thirds Interest of the Investors; provided, however, that any such
amendment shall also require the approval of Cendant unless (x) such amendment
does not impose any additional obligations on Cendant to pay any amounts or
assume financial liabilities and (y) in connection with such amendment Cendant
would not get treated any less favorably than any of the other Investors or any
of their
11
<PAGE> 14
respective Affiliates; and provided further that any amendment to Sections 2.2
(to the extent such amendments would effect the rights of Cendant set forth in
Section 2.2(c)), 2.3, 4.4, 4A.1 or 5.3 hereof shall in any event also require
the approval of Cendant. Any amendment made by the 5% Holders and the requisite
Investors as provided in the preceding sentence shall be binding on all
Stockholders and Investors, respectively, and no Stockholder or Investor shall
have any cause of action against any other Person for any action taken by such
Person in reliance upon such consent. Except as set forth herein, all actions by
the Company hereunder shall be taken by or upon the direction of a majority of
the members of the Board of Directors of the Company.
SECTION 5.4 NOTICES. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given,
delivered and received (a) if delivered personally or (b) if sent by facsimile,
registered or certified mail (return receipt requested) postage prepaid, or by
courier guaranteeing next day delivery, in each case to the party to whom it is
directed at the following addresses (or at such other address for any party as
shall be specified by notice given in accordance with the provisions hereof,
provided that notices of a change of address shall be effective only upon
receipt thereof). Notices delivered personally shall be effective on the day so
delivered, notices sent by registered or certified mail shall be effective three
days after mailing, notices sent by facsimile shall be effective when receipt is
acknowledged, and notices sent by courier guaranteeing next day delivery shall
be effective on the earlier of the second business day after timely delivery to
the courier or the day of actual delivery by the courier:
If to the Company: Private Business, Inc.
9010 Overlook Drive
Brentwood, Tennessee 37024
Attention: William B. King
Telecopy No.: (615) 221-8479
with a copy to: Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, TN 37238
Attention: Lee C. Dilworth, Esq.
Telecopy No.: (615) 251-1059
If to the Investors: TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Attention: Brian J. Conway
Telecopy No.: (617) 574-6728
and
Summit Partners
12
<PAGE> 15
600 Atlantic Avenue, Suite 200
Boston, MA 02210
Attention: Bruce R. Evans
Telecopy No.: (617) 824-1100
with a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: John R. LeClaire, P.C.
Telecopy No.: (617) 570-8150
and Cendant Corporation
6 Sylvan Way
Parsippany, NJ 07054
Attention: Samuel L. Katz
Telecopy No.: (973) 496-5113
SECTION 5.5 HEADINGS. The Article and Section headings used or
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
SECTION 5.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which together
shall be deemed to constitute one and the same agreement.
SECTION 5.7 REMEDIES; SEVERABILITY. It is specifically understood and
agreed that any breach of the provisions of this Agreement by any Person subject
hereto will result in irreparable injury to the other parties hereto, that the
remedy at law alone will be an inadequate remedy for such breach, and that, in
addition to any other legal or equitable remedies which they may have, such
other parties may enforce their respective rights by actions for specific
performance (to the extent permitted by law) and the Company may refuse to
recognize any unauthorized Transferee as one of its Stockholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement.
In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
13
<PAGE> 16
SECTION 5.8 ENTIRE AGREEMENT. This Agreement, together with the
Purchase Agreement and any other agreements specifically contemplated hereby and
thereby, is intended by the parties as a final expression of their agreement and
intended to be complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein. This Agreement and the Purchase Agreement and other
agreements specifically contemplated hereby and thereby (including the exhibits
hereto and thereto) supersede all prior agreements and understandings between
the parties with respect to such subject matter.
SECTION 5.9 ADJUSTMENTS. All references to share prices and amounts
herein shall be equitably adjusted to reflect stock splits, stock dividends,
recapitalizations and similar changes affecting the capital stock of the
Company.
SECTION 5.10 LAW GOVERNING. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of Tennessee
(without giving effect to principles of conflicts of law). Each party also
waives trial by jury in any action relating to this Agreement.
SECTION 5.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the respective successors and permitted assigns
of the parties hereto as contemplated herein, and any successor to the Company
by way of merger or otherwise shall specifically agree to be bound by the terms
hereof as a condition of such successor. Subject to the minimum holding
requirements set forth in Section 3.1 above, the rights of the Investors
hereunder shall be assignable to Transferees of the shares of capital stock of
the Company held by the Investors. This Agreement may not be assigned by the
Stockholders except as provided herein without the prior written consent of a
Two Thirds Interest of the Investors, and without such prior written consent any
attempted Transfer shall be null and void.
SECTION 5.12 DISPUTE RESOLUTION. Except as provided below, any dispute
arising out of or relating to this Agreement or the breach, termination or
validity hereof shall be finally settled by binding arbitration conducted
expeditiously in accordance with the J.A.M.S./Endispute Comprehensive
Arbitration Rules and Procedures (the "J.A.M.S. Rules"). The arbitration shall
be governed by the United States Arbitration Act, 9 U.S.C. ss. ss.1-16, and
judgment upon the award rendered by the arbitrators may be entered by any court
having jurisdiction thereof. The place of arbitration shall be Baltimore,
Maryland.
Such proceedings shall be administered by the neutral arbitrator in
accordance with the J.A.M.S. Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(a) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the
initiation of the procedure;
14
<PAGE> 17
(b) no other discovery;
(c) hearings before the neutral arbitrator which shall
consist of a summary presentation by each side of not
more than three (3) hours; such hearings to take
place on one or two days at a maximum; and
(d) decision to be rendered not more than ten (10) days
following such hearings.
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 5.12 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of any United States District Court of competent jurisdiction for
the purpose of enforcing the award or decision in any such proceeding, (b)
hereby waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution (except as protected
by applicable law), that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by
such court, and hereby waives and agrees not to seek any review by any court of
any other jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are to be
given. Each of the parties hereto agrees that its or his submission to
jurisdiction and its or his consent to service of process by mail is made for
the express benefit of the other parties hereto. Final judgment against any
party hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction.
SECTION 5.13 TERM. This Agreement shall remain in effect until the
earlier of (i) immediately prior to the closing of a Qualified Public Offering
and shall not apply with respect to such Qualified Public Offering or (ii) such
time as no Investor or its permitted assigns shall hold any shares of capital
stock of the Company.
[SIGNATURE PAGE FOLLOWS]
15
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders
Agreement to be duly executed as of the date first set forth above.
THE COMPANY:
PRIVATE BUSINESS, INC.
By:
---------------------------------------
Name: William B. King, Jr.
Title: Chairman
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 19
FOUNDING STOCKHOLDERS:
THE WILLIAM B. KING, JR. ANNUITY TRUST -
1997
By:
---------------------------------------
William B. King, Jr., Trustee
--------------------------------------------
William B. King, individually
--------------------------------------------
THE GREGORY A. THURMAN ANNUITY TRUST -
1997
By:
---------------------------------------
Gregory A. Thurman, Trustee
--------------------------------------------
Gregory A. Thurman, individually
THE CARL E. BRASSER ANNUITY TRUST - 1997
By:
---------------------------------------
Carl E. Brasser, Trustee
--------------------------------------------
Carl E. Brasser, individually
--------------------------------------------
Tom Black, individually
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 20
--------------------------------------------
Kenneth L. Keith, individually
--------------------------------------------
David F. Anderson, individually
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 21
INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII, LLC
Its: General Partner
By: TA Associates, Inc.
Its: Manager
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
ADVENT ATLANTIC AND PACIFIC III, L.P.
By: TA Associates AAP III Partners, L.P.
Its: General Partner
By: TA Associates, Inc.
Its: General Partner
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
TA INVESTORS LLC
By: TA Associates, Inc.
Its: Manager
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 22
TA EXECUTIVES LLC
By: TA Associates, Inc.
Its: Manager
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 23
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 24
SUMMIT INVESTORS III, L.P.
By:
---------------------------------------
Name: Bruce R. Evans
Title: General Partner
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 25
CENDANT CORPORATION
By:
---------------------------------------
Name: Samuel L. Katz
Title: Executive Vice President
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 26
BT INVESTMENT PARTNERS, INC.
By:
---------------------------------------
Name: Christine Barbella-Foggia
Title: Principal
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 27
THE JOHN RYAN TYRRELL TRUST
By:
---------------------------------------
Name: W. Patrick Ortale, III
Title: Trustee
--------------------------------------------
W. Patrick Ortale, III
THE JACK AND SANDRA TYRRELL JOINT
REVOCABLE TRUST
By:
---------------------------------------
Name:
Title: Trustee
LAURA FARISH CHADWICK MANAGEMENT
TRUST
By:
---------------------------------------
Name: Terry W. Ward
Title: Trustee
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 28
SUNAPEE SECURITIES, INC.
By:
---------------------------------------
Name: Gary B. Wilkinson
Title: Treasurer
SQUAM LAKE INVESTORS III, L.P.
By:
---------------------------------------
Name: Gary B. Wilkinson
Title: Treasurer
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 29
1998 GPH FUND, LLC
By:
---------------------------------------
Name: H. David Henken
Title: Managing Member
GPH PB FUND, LLC
By:
---------------------------------------
Name: John R. LeClaire
Title: Managing Member
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 30
EXHIBIT A
FORM OF JOINDER AGREEMENT
The undersigned hereby agrees, effective as of the date hereof, to
become a party to that certain Stockholders Agreement (the "Agreement") dated as
of August __, 1998 by and among Private Business, Inc. (the "Company") and the
parties named therein and for all purposes of the Agreement, the undersigned
shall be included within the term "Stockholder" (as defined in the Agreement).
The address and facsimile number to which notices may be sent to the undersigned
is as follows:
- ---------------------------------------------------------------------------
Facsimile No.____________________.
---------------------------------------
Name:
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is dated as of the 7th day of August, 1998, by and among
Private Business, Inc., a Tennessee corporation (the "Company"), the current
stockholders of the Company designated as Founding Stockholders on the signature
pages hereto (each, a "Founding Stockholder" and collectively, the "Founding
Stockholders") and the persons designated as Investors on the signature pages
hereto (each, an "Investor" and collectively, the "Investors").
WHEREAS, the parties to this Agreement are simultaneously entering into
a certain Stock Purchase Agreement, dated as of July 24, 1998 (the "Purchase
Agreement"), whereby the Investors have agreed to purchase shares of Convertible
Preferred Stock, par value $.01 per share, of the Company ("Convertible
Preferred Stock"), which are convertible into shares of Common Stock, without
par value, of the Company ("Common Stock"); and
WHEREAS, the execution of this Agreement is an inducement and a
condition precedent to the purchase by the Investors of the Series A Convertible
Preferred Stock under the Purchase Agreement.
NOW, THEREFORE, in consideration of the premises, as an inducement to
the Investors to consummate the transactions contemplated by the Purchase
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company, the Founding
Stockholders and the Investors hereby covenant and agree with each other as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
An "AFFILIATE" of any Person means a Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by or is
under common control with the first mentioned Person. A Person shall be deemed
to control another Person if such first Person possesses directly or indirectly
the power to direct, or cause the direction of, the management and policies of
the second Person, whether through the ownership of voting securities, by
contract or otherwise.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"COMMISSION" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act and the Exchange Act.
<PAGE> 2
"COMMON STOCK" shall mean Common Stock, without par value, of
the Company, and any other securities into which or for which any of the
securities described above may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
"COMPANY" shall refer to the Company and any successor or
successors thereto.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"PERMITTED TRANSFEREE" shall mean any Permitted Transferee of
Registrable Securities from the Founding Stockholders as defined in the
Stockholders Agreement of even date among the parties hereto.
"PERSON" shall mean an individual, a corporation, a
partnership, a joint venture, a trust, an unincorporated organization, a limited
liability company or partnership, a government and any agency or political
subdivision thereof.
"REGISTRABLE SECURITIES" shall mean (i) any shares of Common
Stock held by the Investors or subject to acquisition by any Investor upon
conversion of the Convertible Preferred Stock (it being understood that for
purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Securities whenever such Person has the right to then acquire or
obtain from the Company any Registrable Securities, whether or not such
acquisition has actually been effected), (ii) any shares of Common Stock held by
the Founding Stockholders and any Permitted Transferees, and (iii) any other
securities issued and issuable with respect to any such shares described in
clause (i) or (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization; provided, however, that notwithstanding anything to the
contrary contained herein, "Registrable Securities" shall not at any time
include any securities (i) registered and sold pursuant to the Securities Act,
(ii) sold to the public pursuant to Rule 144 promulgated under the Securities
Act, (iii) which could then be sold pursuant to Rule 144(k) or, with regard to
Registrable Securities held by Investors or Founding Stockholders who hold in
the aggregate less than one percent (1%) of the Company's outstanding Common
Stock, Rule 144 (or any successor provision) or (iv) that have ceased to be
outstanding.
"REGISTRATION EXPENSES" shall mean the expenses so described
in Section 6 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
2
<PAGE> 3
"TWO-THIRDS INTEREST" means the Investors holding not less
than two-thirds in interest (by number of shares) in all outstanding Registrable
Securities held by all Investors.
2. DEMAND REGISTRATIONS.
(a) At any time after the earlier of (i) the second
anniversary of the date hereof or (ii) the date that is ninety (90) days after
the initial public offering of the Common Stock pursuant to an effective
registration under the Securities Act, at least a Two-Thirds Interest may notify
the Company in writing (which request shall specify the number of Registrable
Securities intended to be disposed of by such holder and the manner of such
disposition) that they intend to offer or cause to be offered for public sale
all or any portion of their Common Stock which is Registrable Securities in the
manner specified in such request. Upon receipt of such request, the Company
shall promptly deliver notice of such request to all Persons holding Registrable
Securities who shall then have thirty (30) days to notify the Company in writing
of their desire to be included in such registration. If the request for
registration contemplates an underwritten public offering, the Company shall
state such in the written notice and in such event the right of any Person to
participate in such registration shall be conditioned upon their participation
in such underwritten public offering and the inclusion of their Registrable
Securities in the underwritten public offering to the extent provided herein.
The Company will use, subject to the limits contained in this Section 2 and in
Sections 5 and 6, its reasonable best efforts to expeditiously effect the
registration of all Registrable Securities whose holders request participation
in such registration under the Securities Act and qualify such Registrable
Securities for sale under any state blue sky law; provided, however, that the
Company shall not be required to effect registration pursuant to a request under
this Section 2(i) after the Company has caused two (2) such registrations
pursuant to this Section to become effective or (ii) within 90 days following
the effective date of any registered offering by the Company to the general
public of its securities for its own account. The Company may postpone the
filing or the effectiveness of any registration statement pursuant to this
Section 2 for a reasonable time period, provided that such postponements shall
not exceed ninety (90) days in the aggregate during any twelve (12) month
period, if (i) the Company has been advised by legal counsel that such filing or
effectiveness would require disclosure of a material financing, acquisition or
other corporate transaction, and the Board of Directors of the Company
determines in good faith that such disclosure is not in the best interests of
the Company and its stockholders or (ii) the Board of Directors of the Company
determines in good faith that there is a valid business purpose or reason for
delaying filing or effectiveness. A registration will not count as a requested
registration under this Section 2(a) until the registration statement relating
to such registration has been declared effective by the Commission; provided,
however, that if a Two Thirds Interest shall request, in writing, that the
Company either withdraw a registration statement which has been filed under this
Section 2(a) but not yet been declared effective or delay the effectiveness of
such a registration statement for up to four (4) months, a Two Thirds Interest
may thereafter request the Company to reinstate such Registration Statement, if
permitted under the Securities Act, or to file another registration statement,
in accordance with the procedures set forth herein, provided
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that the Company shall only be required to refile a registration statement once
with respect to each such registration statement filed under this Section 2(a).
(b) If a requested registration involves an underwritten
public offering and the managing underwriter of such offering determines in good
faith that the number of securities sought to be offered should be limited due
to market conditions (including interference with successful marketing of
securities of the Company), then the number of securities to be included in such
underwritten public offering shall be reduced to a number deemed satisfactory by
such managing underwriter, provided that the Company shall be entitled to
participate and the shares to be excluded shall be determined in the following
sequence: (i) first, securities held by any other Persons (other than the
Investors holding Registrable Securities) having a contractual, incidental
"piggy back" right to include such securities in the registration statement,
(ii) second, shares sought to be registered by the Company, (iii) third,
Registrable Securities of holders other than Investors who did not make the
original request for registration, and (iv) fourth, Registrable Securities of
holders who requested such registration pursuant to Section 2(a) and any other
Investors that have elected to be included in such registration, it being
understood that no shares shall be registered for the account of the Company or
any shareholder other than the Investors unless all Registrable Securities for
which Investors have requested registration have been registered. If there is a
reduction of the number of Registrable Securities pursuant to clauses (i), (iii)
or (iv), such reduction shall be made on a pro rata basis within such tranche
(based upon the aggregate number of shares of Common Stock or Registrable
Securities held by the holders in each tranche and subject to the priorities set
forth in the preceding sentence).
(c) With respect to a request for registration pursuant to
Section 2(a) which is for an underwritten public offering, the managing
underwriter shall be chosen by the Investors holding not less than Two-Thirds
Interest to be sold in such offering, subject to the Company's consent, which
such consent shall not be unreasonably withheld. The Company may not cause any
other registration of securities for sale for its own account (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Securities Act is applicable) to become
effective within one hundred eighty (180) days following the effective date of
any registration required pursuant to this Section 2.
3. FORM S-3. After the first public offering of its securities
registered under the Securities Act, the Company shall use its reasonable best
efforts to qualify and remain qualified to register securities on Form S-3 (or
any successor form) under the Securities Act. The holders of Registrable
Securities anticipated to have an aggregate sale price (net of underwriting
discounts and commissions, if any) in excess of $1.5 million shall have the
right, subject to the limits contained in Sections 3, 5 and 6, to request
registration on Form S-3 (or any successor form) for the Registrable Securities
held by such requesting holders. Such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of such shares by such holder or holders. The
Company shall give notice to all other holders of the Registrable Securities of
the receipt of a request for registration pursuant to this Section 3 and such
holders of Registrable
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Securities shall then have thirty (30) days to notify the Company in writing of
their desire to participate in the registration.
4. PIGGYBACK REGISTRATION.
(a) If the Company at any time proposes to register any of its
Common Stock under the Securities Act for sale to the public (including pursuant
to a demand under Section 2 hereof as provided therein and except with respect
to registration statements on Forms S-4, S-8 or any successor or similar forms
or another form not available for registering the Registrable Securities for
sale to the public or in connection with a tender offer, merger or other
acquisition, and other than pursuant to Section 3 herein), each such time it
will give written notice at the applicable address of record to each Person
holding Registrable Securities of its intention to do so. Upon the written
request of any of such Person holding Registrable Securities, given within
fifteen (15) days after receipt by such Person of such notice, the Company will,
subject to the limits contained in this Section 4 and Sections 5 and 6, use its
reasonable best efforts to cause all such Registrable Securities of said
requesting holders to be registered under the Securities Act and qualified for
sale under any state blue sky law, all to the extent required to permit such
sale or other disposition of said Registrable Securities; provided, however,
that if the Company is advised in good faith by any managing underwriter of the
Company's securities being offered in a public offering pursuant to such
registration statement that the amount to be sold by persons other than the
Company (collectively, "Selling Stockholders") is greater than the amount which
can be offered without adversely affecting the offering (including an adverse
effect on the marketing of the securities to be sold by the Company or an
opinion that the number of securities requested to be included in such
registration exceeds the number which can be sold in or during the time of the
offering), the Company shall include in such registration all securities
proposed by the Company to be sold for its own account and the Company may
reduce the amount offered for the accounts of Selling Stockholders (including
such holders of shares of Registrable Securities) to a number deemed
satisfactory by such managing underwriter; and provided further, that the shares
to be excluded shall be determined in the following sequence: (i) first,
securities held by any Persons not having any such contractual, incidental
registration rights, (ii) second, securities held by any Persons having
contractual, incidental registration rights pursuant to an agreement which is
not this Agreement and (iii) third, the Registrable Securities sought to be
included by the holders thereof as determined on a pro rata basis (based upon
the aggregate holdings of Registrable Shares of the holders requesting
registration).
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Company may delay the filing or effectiveness of, or may
withdraw, any registration statement referred to under this Section 4 at any
time for any reason whatsoever without thereby incurring any liability or
obligation of any kind whatsoever to any selling holder of Registrable
Securities or other shares.
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5. LIMITATIONS ON REGISTRATION RIGHTS.
(a) Notwithstanding anything to the contrary contained in this
Agreement, the Company may delay the filing or effectiveness of a registration
statement under Section 3 for such time as may reasonably be required by the
Company (i) to obtain such audited and unaudited financial statements as may be
required by law to be included in the registration statement, (ii) if the
Company's Board of Directors believes that the offering of Registrable
Securities pursuant thereto would interfere with or be detrimental to a planned
offering by the Company of any of the Company's securities, whether debt or
equity, or (iii) if the Company's Board of Directors believes that an offering
of Registrable Securities thereunder would have a material adverse effect on the
business, operations, results of operations, assets, liabilities, or condition
(financial or otherwise) of the Company. The Company may postpone the filing or
the effectiveness of any registration statement pursuant to Section 3 for a
reasonable period of time, provided that such postponements shall not exceed 180
days in the aggregate during any twelve (12) month period, if (i) the Company
has been advised by legal counsel that such filing or effectiveness would
require disclosure of a material financing, acquisition or other corporate
transaction, and the Board of Directors of the Company determines in good faith
that such disclosure is not in the best interests of the Company and its
stockholders or (ii) the Board of Directors determines in good faith that there
is a valid business purpose or reason for delaying filing or effectiveness.
(b) If during any period when a registration statement
covering Registrable Securities filed pursuant to Section 3 is effective, the
Company proposes to file a registration statement of Forms S-1 or S-4 (or any of
their respective successor forms), then the Company shall have the right to
terminate the effectiveness of the registration statement covering such
Registrable Securities for a period of not more than three hundred sixty (360)
days. During such three hundred sixty (360) day period the Company shall use
reasonable efforts to prepare and file a registration statement (the "Company
Registration Statement") covering the shares of Common Stock sought to be
registered by the Company and the Registrable Securities for which such
effective registration statement was filed. In any such event, the selling
holders of Registrable Securities shall include such Registrable Securities in
the Company Registration Statement.
6. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Agreement to use its reasonable best efforts to effect
the registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible:
(a) use its reasonable best efforts diligently to prepare and
file with the Commission a registration statement on the appropriate form under
the Securities Act with respect to such securities as reasonably selected by the
Company, which form shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the Commission to be filed therewith, and use its reasonable best
efforts to cause such registration statement to become and remain effective
until completion of the proposed offering (but not for more than one hundred
eighty (180) days); provided, however, that the Company may discontinue any
registration of its securities which
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<PAGE> 7
are not Registrable Securities at any time prior to the effective date of such
Registration Statement relating thereto.
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective (but
not for more than one hundred eighty (180) days) and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities covered by such registration statement whenever the seller or
sellers of such securities shall desire to sell or otherwise dispose of the
same, but only to the extent provided in this Agreement;
(c) furnish to each selling holder and the underwriters, if
any, such number of copies of such registration statement, any amendments
thereto, any documents incorporated by reference therein, the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such selling holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such selling holder;
(d) use its reasonable best efforts to register or qualify the
securities covered by such registration statement under such other securities or
state blue sky laws of such jurisdictions as each selling holder shall
reasonably request, and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such selling holder
to consummate the public sale or other disposition in such jurisdictions of the
securities owned by such selling holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified and (notwithstanding anything
to the contrary in this Agreement) the Company shall not be required to (i)
consent to general service of process in any such jurisdiction or submit to
liability for state or local taxes where it is then not otherwise liable for
such taxes;
(e) within a reasonable time before each filing of the
registration statement or prospectus or amendments or supplements thereto with
the Commission, furnish to one counsel for the selling stockholders as a group
(selected by a majority in interest of the holders of Registrable Securities who
participate in the registration) copies of such documents proposed to be filed,
which documents shall be subject to the reasonable approval of such counsel;
(f) promptly notify each selling holder of Registrable
Securities, such selling holders' counsel and any underwriter and (if requested
by any such Person) confirm such notice in writing, of the happening of any
event which makes any statement made in the registration statement or related
prospectus untrue or which requires the making of any changes in such
registration statement or prospectus so that they will not 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; and, as promptly as
practicable thereafter, use reasonable best efforts to prepare and file with the
Commission and furnish a supplement or amendment to
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<PAGE> 8
such prospectus so that, as thereafter deliverable to the purchasers of such
Registrable Securities, such prospectus 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;
(g) use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a registration statement, and if one
is issued use its reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement at the earliest
possible moment;
(h) if requested by the managing underwriter or underwriters
(if any), any selling holder, or selling holders' counsel, use reasonable best
efforts to promptly incorporate in a prospectus supplement or post-effective
amendment such information as such Person reasonably requests to be included
therein with respect to the selling holder or the securities being sold,
including, without limitation, with respect to the securities being sold by such
selling holder to such underwriter or underwriters, the purchase price being
paid therefor by such underwriter or underwriters and with respect to any other
terms of an underwritten offering of the securities to be sold in such offering,
and promptly make all required filings of such prospectus supplement or
post-effective amendment;
(i) make available during normal business hours (at the
reasonable expense of the Company) to each selling holder, any underwriter
participating in any disposition pursuant to a registration statement, and any
attorney, accountant or other agent or representative retained by any such
selling holder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information requested by any
such Inspector in connection with such registration statement subject, in each
case, to such confidentiality agreements as the Company shall reasonably
request;
(j) enter into any reasonable underwriting agreement required
by the proposed underwriter(s) for the selling holders, if any, and use its
reasonable best efforts to facilitate the public offering of the securities;
(k) use its reasonable best efforts to cause the securities
covered by such registration statement to be listed on the securities exchange
or quoted on the quotation system on which the Common Stock is then listed or
quoted;
(l) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission and make generally
available to its security holders, in each case as soon as practicable, but not
later than 45 days after the close of the period covered thereby, an earnings
statement of the Company which will satisfy the provisions of
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<PAGE> 9
Section 11(a) of the Securities Act and Rule 158 thereunder (or any comparable
successor provisions); and
(m) otherwise reasonably cooperate with the underwriter(s),
the Commission and other regulatory agencies and take all reasonable actions and
execute and deliver or cause to be executed and delivered all documents
reasonably necessary to effect the registration of any securities under this
Agreement.
7. INFORMATION BY HOLDERS. In connection with each registration under
this Agreement, the selling holders of Registrable Securities shall furnish to
the Company and the managing underwriter(s) such information with respect to
themselves and the proposed distribution, and fill out such questionnaires, as
the Company or the managing underwriter(s) shall deem reasonably necessary or
desirable in connection with registrations pursuant to this Agreement.
8. EXPENSES. All reasonable expenses incurred by the Company and the
Selling Stockholders in effecting the registrations provided for in Sections 2,
3 and 4, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company and one
counsel for the selling stockholders as a group (selected by a majority in
interest of the holders of Registrable Securities who participate in the
registration and not to exceed $100,000 with respect to any single registration
pursuant to Section 2 hereof and $5,000 with respect to any single registration
pursuant to Sections 3 or 4 hereof), expenses of any audits of the Company
incident to or required by any such registration and expenses of complying with
the securities or blue sky laws of any jurisdictions pursuant to Section 6(d)
hereof (all of such expenses referred to as "Registration Expenses"), but
specifically excluding transfer taxes and any fees, commissions, discounts and
disbursements of underwriters or their counsel (other than those related to blue
sky matters) in connection with any registration under Sections 2 and 3 herein,
shall be paid by the Company.
9. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless the selling
holder of Registrable Securities, each underwriter (as defined in the Securities
Act), and each other Person who participates in the offering of such securities
and each other Person, if any, who controls (within the meaning of the
Securities Act) such seller, underwriter or participating Person (individually
and collectively, the "Indemnified Person") against any losses, claims, damages
or liabilities (collectively, the "liability"), joint or several, to which such
Indemnified Person may become subject under the Securities Act or any other
statute or at common law, insofar as such liability (or action in respect
thereof) arises out of or is based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not
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misleading. Except as otherwise provided in Section 9(d), the Company shall
reimburse each such Indemnified Person in connection with investigating or
defending any such liability as expenses in connection with the same are
incurred; provided, however, that the Company shall not be liable to any
Indemnified Person in any such case to the extent that any such liability arises
out of or is based upon any untrue or misleading statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
preliminary or final prospectus, or amendment or supplement thereto in reliance
upon and in conformity with information furnished in writing to the Company by
such Person specifically for use therein; and provided further, that the Company
shall not be required to indemnify any Person against any liability arising from
any untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus or for any
liability which arises out of the failure of any Person to deliver a prospectus
as required by the Securities Act.
(b) Each selling holder of any securities included in such
registration being effected shall indemnify and hold harmless each other selling
holder of any securities, the Company, its directors and officers, each
underwriter and each other Person, if any, who controls the Company or such
underwriter and their respective directors, officers, partners, agents and
affiliates (individually and collectively also the "Indemnified Person"),
against any liability, joint or several, to which any such Indemnified Person
may become subject under the Securities Act or any other statute or at common
law, insofar as such liability (or actions in respect thereof) arises out of or
is based upon (i) any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which securities were registered under the Securities Act at the
request of such selling holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (ii) any omission
or alleged omission by such selling holder to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in the case of (i) and (ii) to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary or final
prospectus, amendment or supplement thereto in reliance upon and in conformity
with information furnished in writing to the Company by such selling holder
specifically for use therein. Such selling holder shall reimburse any
Indemnified Person for any legal fees or other costs incurred in investigating
or defending any such liability; provided, however, that such selling holder's
obligations hereunder shall be limited to an amount equal to the proceeds to
such selling holder of the securities sold in any such registration.
(c) Indemnification similar to that specified in Sections 9(a)
and (b) shall be given by the Company and each selling holder (with such
modifications as may be appropriate) with respect to any required registration
or other qualification of their securities under any federal or state law or
regulation of governmental authority other than the Securities Act.
(d) If the indemnification provided for in this Section 9 for
any reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of
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<PAGE> 11
any losses, claims, damages, expenses or liabilities referred to therein, then
each indemnifying party under this Section 9, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the selling holders and the underwriters from
the offering of the Registrable Securities or (ii) if the allocation provided by
clause (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 (i)
above but also the relative fault of the Company, the other selling holders and
the underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, expenses or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, the selling holders and the underwriters shall be deemed to be in the
same respective proportions that the net proceeds from the offering (before
deducting expenses) received by the Company and the selling holders and the
underwriting discount received by the underwriters, in each case as set forth in
the table on the cover page of the applicable prospectus, bear to the aggregate
public offering price of the Registrable Securities. The relative fault of the
Company, the selling holders and the underwriters 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 holders or the
underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the selling holders and the underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a selling
holder be required to contribute any amount under this Section 9(d) in excess of
the lesser of (i) that proportion of the total of such losses, claims, damages
or liabilities indemnified against equal to the proportion of the total
Registrable Securities sold under such registration statement which are being
sold by such selling holder or (ii) the proceeds received by such selling holder
from its sale of Registrable Securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
10. COMPLIANCE WITH RULE 144. In the event that the Company (i)
registers a class of securities under Section 12 of the Exchange Act or (ii)
shall commence to file reports under Section 13 or 15(d) of the Exchange Act,
the Company will use its reasonable best efforts thereafter to file with the
Commission such information as is required under the Exchange Act for so long as
there are holders of Registrable Securities; and in such event, the Company
shall use its reasonable best efforts to take all action as may be required as a
condition to the availability of Rule 144 under the Securities Act (or any
comparable successor rules). The Company shall furnish to any holder of
Registrable Securities upon request a written statement executed by the Company
as to the steps it has taken to comply with the current public
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information requirement of Rule 144 (or such comparable successor rules). The
holders of Registrable Securities shall have no rights under Sections 2 or 3
herein at any time during which (i) they may utilize Rule 144 to dispose of the
number of Registrable Securities which they could have requested to be
registered but for this sentence, or (ii) Rule 144(e) does not prevent such
holders from selling all such Registrable Securities within a 90 day period, in
each case only as to the securities which may then be fully sold thereunder.
After the occurrence of the first underwritten public offering of Common Stock
pursuant to an offering registered under the Securities Act on Form S-1 or Form
SB-1 (or any comparable successor forms), subject to the limitations on
transfers imposed by this Agreement, the Company shall use its reasonable best
efforts to facilitate and expedite transfers of Registrable Securities pursuant
to Rule 144 under the Securities Act, which efforts shall include timely notice
to its transfer agent to expedite such transfers of Registrable Securities.
11. AMENDMENTS. The provisions of this Agreement may be amended, and
the Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only with the written consent of the
Company, Two-Thirds Interest of the Investors and a majority in interest of the
Founding Stockholders; provided, however, that any such amendment shall also
require the approval of Cendant Corporation unless (x) such amendment does not
impose any additional obligations on Cendant to pay any amounts or assume
financial liabilities and (y) in connection with such amendment Cendant would
not get treated any less favorably than any of the other Investors or any of
their respective Affiliates.
12. MARKET STAND-OFF. Each Investor and Founding Stockholder agrees, if
requested by the Company and an underwriter of Registrable Securities of the
Company in connection with any public offering of the Company, not to sell or
otherwise transfer or dispose of any shares held by it for such period, not to
exceed (a) one hundred eighty (180) days following the effective date of the
relevant registration statement filed under the Securities Act in connection
with the Company's initial public offering of Registrable Securities, or (b)
ninety (90) days following the effective date of the relevant registration
statement in connection with any other public offering of Registrable
Securities, as such underwriter shall specify reasonably and in good faith.
13. TRANSFERABILITY OF REGISTRATION RIGHTS. The registration rights set
forth in this Agreement are transferable to each permitted transferee of
Registrable Securities, and any such transferee of an Investor shall be deemed
an "Investor" hereunder. Each subsequent holder of Registrable Securities must
consent in writing to be bound by the terms and conditions of this Agreement in
order to acquire the rights granted pursuant to this Agreement.
14. RIGHTS WHICH MAY BE GRANTED TO SUBSEQUENT INVESTORS. Other than
permitted transferees of Registrable Securities under Section 13 hereof, the
Company shall not, without the prior written consent of a Two-Thirds Interest of
the Investors, (a) allow purchasers of the Company's securities to become a
party to this Agreement or (b) grant any other registration rights to any third
parties other than subordinate piggyback registration rights.
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15. DAMAGES. The Company recognizes and agrees that each holder of
Registrable Securities will not have an adequate remedy if the Company fails to
comply with the terms and provisions of this Agreement and that damages will not
be readily ascertainable.
16. MISCELLANEOUS.
(a) All notices, requests, demands and other communications
provided for hereunder shall be in writing and mailed (by first class registered
or certified mail, postage prepaid), telegraphed, sent by express overnight
courier service or electronic facsimile transmission (with a copy by mail), or
delivered to the applicable party at the addresses indicated below:
If to the Company:
Private Business, Inc.
P.O. Box 1603
Brentwood, Tennessee 37024
Attention: William B. King
Telecopy No.: (615) 221-8479
With a copy to:
Lee C. Dilworth, Esq.
Harwell Howard Hyne
Gabbert & Manner, P.C.
1800 First American Center
Nashville, TN 37238
Fax: (615) 251-1059
If to the Investors:
TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Attention: Brian J. Conway
Telecopy No.: (617) 574-6728
and
Summit Partners
600 Atlantic Avenue, Suite 200
Boston, MA 02210
Attention: Bruce R. Evans
Telecopy No.: (617) 824-1100
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and
Cendant Corporation
6 Sylvan Way
Parsippany, NJ 07054
Attention: Samuel L. Katz
Telecopy No.: (973) 496-5113
If to any other holder of Registrable Securities:
At such Person's address for notice as set forth in the books
and records of the Company.
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to other parties complying as to delivery with
the terms of this subsection (a). All such notices, requests, demands and other
communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) two days after being deposited in the mails or (ii) one day after
being delivered to the telegraph company, deposited with the express overnight
courier service or sent by electronic facsimile transmission, respectively,
addressed as aforesaid.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, without giving effect to
conflict of laws principles thereof.
(c) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
17. DISPUTE RESOLUTION. Except as provided below, any dispute arising
out of or relating to this Agreement or the breach, termination or validity
hereof shall be finally settled by binding arbitration conducted expeditiously
in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and
Procedures (the "J.A.M.S. Rules"). The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. ss.1-16, and judgment upon the award
rendered by the arbitrators may be entered by any court having jurisdiction
thereof. The place of arbitration shall be Baltimore, Maryland.
Such proceedings shall be administered by the neutral arbitrator in
accordance with the J.A.M.S. Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
14
<PAGE> 15
(i) mandatory exchange of all relevant
documents, to be accomplished within
forty-five (45) days of the initiation of
the procedure;
(ii) no other discovery;
(iii) hearings before the neutral arbitrator which
shall consist of a summary presentation by
each side of not more than three (3) hours;
such hearings to take place on one or two
days at a maximum; and
(iv) decision to be rendered not more than ten
(10) days following such hearings.
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 15 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of any United States District Court of competent jurisdiction for
the purpose of enforcing the award or decision in any such proceeding, (b)
hereby waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution (except as protected
by applicable law), that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by
such court, and hereby waives and agrees not to seek any review by any court of
any other jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are to be
given. Each of the parties hereto agrees that its or his submission to
jurisdiction and its or his consent to service of process by mail is made for
the express benefit of the other parties hereto. Final judgment against any
party hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first set forth above.
THE COMPANY:
PRIVATE BUSINESS, INC.
By:
---------------------------------------
Name: William B. King, Jr.
Title: Chairman
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 17
FOUNDING STOCKHOLDERS:
THE WILLIAM B. KING, JR. ANNUITY TRUST -
1997
By:
---------------------------------------
William B. King, Jr., Trustee
--------------------------------------------
William B. King, individually
THE GREGORY A. THURMAN ANNUITY TRUST - 1997
By:
---------------------------------------
Gregory A. Thurman, Trustee
--------------------------------------------
Gregory A. Thurman, individually
THE CARL E. BRASSER ANNUITY TRUST - 1997
By:
---------------------------------------
Carl E. Brasser, Trustee
--------------------------------------------
Carl E. Brasser, individually
--------------------------------------------
Tom Black, individually
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 18
--------------------------------------------
Kenneth L. Keith, individually
--------------------------------------------
David F. Anderson, individually
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 19
INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII, LLC
Its: General Partner
By: TA Associates, Inc.
Its: Manager
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
ADVENT ATLANTIC AND PACIFIC III, L.P.
By: TA Associates AAP III Partners, L.P.
Its: General Partner
By: TA Associates, Inc.
Its: General Partner
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
TA INVESTORS LLC
By: TA Associates, Inc.
Its: Manager
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 20
TA EXECUTIVES LLC
By: TA Associates, Inc.
Its: Manager
By:
---------------------------------------
Name: Brian J. Conway
Title: Managing Director
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 21
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
SUMMIT V ADVISORS FUND (QP), L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
SUMMIT V ADVISORS FUND, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 22
SUMMIT INVESTORS III, L.P.
By:
---------------------------------------
Name: Bruce R. Evans
Title: General Partner
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P.
Its: General Partner
By: Summit Partners, LLC
Its: General Partner
By:
---------------------------------------
Name: Bruce R. Evans
Title: Member
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 23
CENDANT CORPORATION
By:
---------------------------------------
Name: Samuel L. Katz
Title: Executive Vice President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 24
BT INVESTMENT PARTNERS, INC.
By:
---------------------------------------
Name: Christine Barbella-Foggia
Title: Principal
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 25
THE JOHN RYAN TYRRELL TRUST
By:
---------------------------------------
Name: W. Patrick Ortale, III
Title: Trustee
--------------------------------------------
W. Patrick Ortale, III
THE JACK AND SANDRA TYRRELL JOINT
REVOCABLE TRUST
By:
---------------------------------------
Name:
Title: Trustee
LAURA FARISH CHADWICK MANAGEMENT TRUST
By:
---------------------------------------
Name: Terry W. Ward
Title: Trustee
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 26
SUNAPEE SECURITIES, INC.
By:
---------------------------------------
Name: Gary B. Wilkinson
Title: Treasurer
SQUAM LAKE INVESTORS III, L.P.
By:
---------------------------------------
Name: Gary B. Wilkinson
Title: Treasurer
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 27
1998 GPH FUND, LLC
By:
---------------------------------------
Name: H. David Henken
Title: Managing Member
GPH PB FUND, LLC
By:
---------------------------------------
Name: John R. LeClaire
Title: Managing Member
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 10.4
EXECUTION COPY
$110,000,000
CREDIT AGREEMENT
Dated as of August __, 1998
among
PRIVATE BUSINESS, INC.,
as Borrower,
THE BANKS, FINANCIAL INSTITUTIONS AND
OTHER INSTITUTIONAL LENDERS NAMED HEREIN,
as Initial Lenders,
FLEET NATIONAL BANK,
as Initial Issuing Bank,
as Swing Line Bank
and
as Administrative Agent
and
BANKBOSTON N.A.,
as Syndication Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS.........................................................................2
SECTION 1.1 Certain Defined Terms.......................................................................2
SECTION 1.2 Computation of Time Periods................................................................27
SECTION 1.3 Accounting Terms...........................................................................27
ARTICLE 2
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT...............................................................................28
SECTION 2.1 The Advances...............................................................................28
SECTION 2.2 Making the Advances........................................................................30
SECTION 2.3 Issuance of and Drawings and Reimbursement Under Letters of Credit.........................32
SECTION 2.4 Repayment of Advances......................................................................34
SECTION 2.5 Termination or Reduction of the Commitments................................................37
SECTION 2.6 Prepayments................................................................................38
SECTION 2.7 Interest...................................................................................41
SECTION 2.8 Fees.......................................................................................42
SECTION 2.9 Conversion of Advances.....................................................................43
SECTION 2.10 Increased Costs, Etc.......................................................................44
SECTION 2.11 Payments and Computations..................................................................46
SECTION 2.12 Taxes......................................................................................47
SECTION 2.13 Sharing of Payments, Etc...................................................................50
SECTION 2.14 Use of Proceeds............................................................................50
SECTION 2.15 Defaulting Lenders.........................................................................51
SECTION 2.16 Removal of Lender..........................................................................53
ARTICLE 3
CONDITIONS OF LENDING...................................................................................54
SECTION 3.1 Conditions Precedent to Initial Extension of Credit........................................54
SECTION 3.2 Conditions Precedent to Each Borrowing and Issuance........................................61
SECTION 3.3 Determinations Under Section 3.1...........................................................62
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWER..........................................................62
</TABLE>
<PAGE> 3
ii
<TABLE>
<S> <C>
SECTION 4.1 Organization................................................................................62
SECTION 4.2 Subsidiaries................................................................................63
SECTION 4.3 Corporate Power, Authorization.............................................................63
SECTION 4.4 Governmental Authorizations, Approvals......................................................63
SECTION 4.5 Due Execution, Validity, Enforceability.....................................................64
SECTION 4.6 Financial Statements........................................................................64
SECTION 4.7 Pro Forma Financial Statements..............................................................65
SECTION 4.8 Accurate Information........................................................................65
SECTION 4.9 Litigation..................................................................................65
SECTION 4.10 Regulation U...............................................................................65
SECTION 4.11 ERISA.....................................................................................65
SECTION 4.12 Casualty..................................................................................66
SECTION 4.13 Environmental Matters......................................................................66
SECTION 4.14 Burdensome Documents.......................................................................67
SECTION 4.15 Priority of Liens..........................................................................67
SECTION 4.16 Taxes......................................................................................67
SECTION 4.17 Compliance with Securities Laws...........................................................68
SECTION 4.18 Solvency...................................................................................68
SECTION 4.19 Debt.......................................................................................68
SECTION 4.20 No Defaults, Compliance with Laws..........................................................69
SECTION 4.21 Owned Real Property........................................................................69
SECTION 4.22 Leased Real Property.......................................................................69
SECTION 4.23 Material Contracts.........................................................................70
SECTION 4.24 Investments................................................................................70
SECTION 4.25 Intellectual Property......................................................................70
SECTION 4.26 Recapitalization Documents.................................................................70
SECTION 4.27 Fees.......................................................................................71
ARTICLE 5
AFFIRMATIVE COVENANTS...................................................................................71
SECTION 5.1 Compliance with Law.........................................................................71
SECTION 5.2 Payment of Taxes, Etc.......................................................................71
SECTION 5.3 Compliance with Environmental Laws..........................................................72
SECTION 5.4 Preparation of Environmental Reports........................................................72
SECTION 5.5 Maintenance of Insurance....................................................................73
SECTION 5.6 Preservation of Corporate Existence, Etc....................................................73
SECTION 5.7 Visitation Rights...........................................................................73
SECTION 5.8 Keeping of Books............................................................................73
SECTION 5.9 Maintenance of Properties, Etc..............................................................73
SECTION 5.10 Compliance with Terms of Leaseholds........................................................74
</TABLE>
<PAGE> 4
iii
<TABLE>
<S> <C>
SECTION 5.11 Performance of Material Contracts..........................................................74
SECTION 5.12 Transactions with Affiliates...............................................................74
SECTION 5.13 Agreement to Grant Additional Security.....................................................74
SECTION 5.14 Interest Rate Protection...................................................................76
SECTION 5.15 Performance of Recapitalization Documents..................................................76
SECTION 5.16 Year 2000 Compatibility....................................................................76
ARTICLE 6
NEGATIVE COVENANTS......................................................................................77
SECTION 6.1 Liens, Etc..................................................................................77
SECTION 6.2 Debt........................................................................................78
SECTION 6.3 Accounts Payable............................................................................78
SECTION 6.4 Fundamental Changes.........................................................................79
SECTION 6.5 Sales, Etc. of Assets.......................................................................79
SECTION 6.6 Investments in Other Persons................................................................80
SECTION 6.7 Dividends, Etc..............................................................................81
SECTION 6.8 Change in Nature of Business................................................................81
SECTION 6.9 Charter Amendments..........................................................................81
SECTION 6.10 Accounting Changes.........................................................................81
SECTION 6.11 Prepayments, Etc. of Debt..................................................................81
SECTION 6.12 Amendment, Etc. of Recapitalization Documents..............................................82
SECTION 6.13 Amendment, Etc. of Material Contracts......................................................82
SECTION 6.14 Negative Pledge............................................................................82
SECTION 6.15 Partnerships, New Subsidiaries.............................................................82
SECTION 6.16 Speculative Transactions...................................................................83
SECTION 6.17 Capital Expenditures.......................................................................83
SECTION 6.18 Payment of Management Fees.................................................................83
SECTION 6.19 Issuance of Stock..........................................................................83
ARTICLE 7
REPORTING REQUIREMENTS..................................................................................84
SECTION 7.1 Default Notice..............................................................................84
SECTION 7.2 Monthly Financials..........................................................................84
SECTION 7.3 Quarterly Financials........................................................................84
SECTION 7.4 Annual Financials...........................................................................85
SECTION 7.5 Annual Forecasts............................................................................86
SECTION 7.6 ERISA Events and ERISA Reports..............................................................86
SECTION 7.7 Plan Terminations...........................................................................86
SECTION 7.8 Actuarial Reports...........................................................................86
</TABLE>
<PAGE> 5
iv
<TABLE>
<S> <C>
SECTION 7.9 Plan Annual Reports.........................................................................86
SECTION 7.10 Annual Plan Summaries......................................................................86
SECTION 7.11 Multiemployer Plan Notices.................................................................87
SECTION 7.12 Litigation.................................................................................87
SECTION 7.13 Securities Reports.........................................................................87
SECTION 7.14 Reserved...................................................................................87
SECTION 7.15 Agreement Notices..........................................................................87
SECTION 7.16 Revenue Agent Reports......................................................................87
SECTION 7.17 Environmental Conditions...................................................................88
SECTION 7.18 Real Property..............................................................................88
SECTION 7.19 Insurance..................................................................................88
SECTION 7.20 Management Letters.........................................................................88
SECTION 7.21 Other Information..........................................................................88
ARTICLE 8
FINANCIAL COVENANTS.....................................................................................88
SECTION 8.1 Minimum EBITDA..............................................................................88
SECTION 8.2 Ratio of Consolidated Debt to EBITDA........................................................89
SECTION 8.3 Interest Coverage Ratio.....................................................................90
SECTION 8.4 Fixed Charge Coverage Ratio.................................................................91
ARTICLE 9
EVENTS OF DEFAULT.......................................................................................92
SECTION 9.1 Payment.....................................................................................92
SECTION 9.2 Representations and Warranties..............................................................92
SECTION 9.3 Certain Covenants...........................................................................92
SECTION 9.4 Other Covenants.............................................................................92
SECTION 9.5 Other Defaults..............................................................................92
SECTION 9.6 Bankruptcy, Etc.............................................................................93
SECTION 9.7 Judgments...................................................................................93
SECTION 9.8 Loan Documents..............................................................................93
SECTION 9.9 Liens.......................................................................................93
SECTION 9.10 Change of Control..........................................................................93
SECTION 9.11 ERISA Events...............................................................................94
ARTICLE 10
THE ADMINISTRATIVE AGENT................................................................................95
SECTION 10.1 Authorization and Action...................................................................95
</TABLE>
<PAGE> 6
v
<TABLE>
<S> <C>
SECTION 10.2 Agent's Reliance, Etc......................................................................96
SECTION 10.3 Fleet and Affiliates.......................................................................96
SECTION 10.4 Lender Party Credit Decision...............................................................97
SECTION 10.5 Indemnification............................................................................97
SECTION 10.6 Successor Administrative Agents............................................................98
SECTION 10.7 Events of Default..........................................................................99
ARTICLE 11
MISCELLANEOUS...........................................................................................99
SECTION 11.1 Amendments, Etc............................................................................99
SECTION 11.2 Notices Etc...............................................................................100
SECTION 11.3 No Waiver; Remedies.......................................................................102
SECTION 11.4 Costs and Expenses........................................................................102
SECTION 11.5 Right of Set-off..........................................................................104
SECTION 11.6 Binding Effect............................................................................104
SECTION 11.7 Assignments and Participations............................................................104
SECTION 11.8 Execution in Counterparts.................................................................107
SECTION 11.9 No Liability of the Issuing Bank..........................................................107
SECTION 11.10 Confidentiality..........................................................................108
SECTION 11.11 Further Assurances......................................................................108
SECTION 11.12 JURISDICTION, ETC........................................................................108
SECTION 11.13 GOVERNING LAW............................................................................109
SECTION 11.14 WAIVER OF JURY TRIAL.....................................................................109
</TABLE>
<PAGE> 7
vi
EXHIBITS
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Term A Note
Exhibit D - Form of Term B Note
Exhibit E - Form of Notice of Borrowing
Exhibit F - Form of Security Agreement
Exhibit G - Form of Collateral Assignment of Lease
Exhibit H - Form of Intellectual Property Security Agreement
Exhibit I - Form of Negative Pledge Agreement
Exhibit J - Form of Subsidiary Guaranty
SCHEDULES
Schedule I Commitments and Applicable Lending Offices
Schedule 3.1(a)(xi) States in which Loan Parties are Qualified to do Business
Schedule 3.1(e) Disclosed Litigation
Schedule 4.1 Organization
Schedule 4.2 Subsidiaries
Schedule 4.4 Required Authorizations and Approvals
Schedule 4.11 Welfare Plans
Schedule 4.13 Environmental Assessment Reports
Schedule 4.14 Burdensome Documents
Schedule 4.15 Priority of Liens; Pledged Foreign Subsidiaries
Schedule 4.16 Open Tax Years
Schedule 4.19(a) Existing Debt
Schedule 4.19(b) Surviving Debt
Schedule 4.20 No Defaults
Schedule 4.21 Owned Real Estate
Schedule 4.22 Leased Real Estate
Schedule 4.23 Material Contracts
Schedule 4.24 Investments
Schedule 4.25 Intellectual Property
Schedule 6.1(c) Liens
Schedule 6.6(a) Investments in Subsidiaries
Schedule 6.6(f) Existing Investments
Schedule 6.19 Existing Issuances, Etc. of Stock
<PAGE> 8
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of August __, 1998 by and among
PRIVATE BUSINESS, INC., a Tennessee corporation (the "Borrower"), the banks,
financial institutions and other institutional lenders listed on the signature
pages hereof as the Initial Lenders (the "Initial Lenders"), FLEET NATIONAL
BANK, as Initial Issuing Bank (the "Initial Issuing Bank"), FLEET NATIONAL BANK,
as the Swing Line Bank (the "Swing Line Bank"), FLEET NATIONAL BANK, as
administrative agent (together with any successor appointed pursuant to Article
10, the "Administrative Agent") for the Lender Parties (as hereinafter defined)
and BANKBOSTON N.A., as syndication agent.
PRELIMINARY STATEMENT:
(1) Pursuant to a Stock Purchase Agreement, dated as of July 24, 1998
(the "Recapitalization Agreement"), by and among the Borrower, the persons named
in Exhibit A attached thereto (collectively, the "Selling Stockholders") and the
investors names in Exhibit B thereto (collectively, the "Investors"), the
Borrower has agreed to redeem and the Selling Stockholders have agreed to sell
to the Borrower an aggregate of 4,963,751 shares of the Borrower's Common Stock,
without par value, for an aggregate purchase price of $138,340,358, and the
Borrower has agreed to sell and the Investors have agreed to purchase a total of
5,624,404 shares of the Borrower's Series A Convertible Preferred Stock, without
par value, for an aggregate purchase price of $60,000,000 (such transactions,
together with the other transactions described in Section 1 of the
Recapitalization Agreement, being hereinafter collectively called the
"Recapitalization");
(2) The Borrower has requested that the Lender Parties (as hereinafter
defined) make loans to the Borrower and issue letters of credit having an
aggregate principal and face amount at any one time outstanding of up to One
Hundred Ten Million Dollars ($110,000,000), to be used by the Borrower (i) to
finance, in part, the Recapitalization (ii) to pay fees and expenses incurred in
connection with the Recapitalization (iii) to refinance certain existing
indebtedness of the Borrower and (iv) to provide working capital for the
Borrower, and the Lender Parties have agreed to make such loans and issue such
letters of credit all on and subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
<PAGE> 9
2
ARTICLE 1
DEFINITIONS AND ACCOUNTING 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):
"Additional Collateral Documents" has the meaning specified in Section
5.13(e).
"Administrative Agent" has the meaning specified in the recital of
parties to this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent with Fleet at its
office at Fleet National Bank, One Federal Street, Boston, Massachusetts 02110,
Account No. 151035203156, Attention: Loan Administration.
"Advance" means a Term A Advance, a Term B Advance, a Revolving Credit
Advance, a Swing Line Advance or a Letter of Credit Advance.
"Affected Lender" has the meaning specified in Section 2.16.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling," "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power to vote 50% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.
"After-Acquired Mortgaged Property" means any parcel (or adjoining
parcels) of real property (including any leaseholds) acquired by any Loan Party
after the Closing Date subject to a Mortgage granted to the Administrative Agent
for the benefit of the Secured Parties pursuant to Section 5.13.
"Applicable Lending Office" means, with respect to each Lender Party,
such Lender Party's Domestic Lending Office in the case of a Prime Rate Advance
and such Lender Party's Eurodollar Lending Office in the case of a Eurodollar
Rate Advance.
<PAGE> 10
3
"Applicable Margin" means at any time and from time to time a
percentage per annum determined pursuant to the last paragraph of this
definition by reference to the Ratio of Consolidated Debt to EBITDA at such
time, as set forth below:
<TABLE>
<CAPTION>
Applicable Margin for Eurodollar Rate Advances
Ratio of Consolidated Revolving Credit Advances,
Debt to EBITDA Term A Advances Term B Advances
- -------------- --------------- ---------------
<S> <C> <C>
Greater than 4.50 2.50% 2.75%
Greater than 3.50
less than or equal to 4.50 2.25% 2.50%
Greater than 3.00
less than or equal to 3.50 2.00% 2.50%
Greater than 2.50
less than or equal to 3.00 1.75% 2.25%
Less than or equal to 2.50 1.50% 2.25%
<CAPTION>
Applicable Margin for Prime Rate Advances
Ratio of Consolidated Revolving Credit Advances,
Debt to EBITDA Term A Advances Term B Advances
- -------------- --------------- ---------------
<S> <C> <C>
Greater than 4.50 1.25% 1.50%
Greater than 3.50
less than or equal to 4.50 1.00% 1.25%
Greater than 3.00
less than or equal to 3.50 0.75% 1.25%
Greater than 2.50
less than or equal to 3.00 0.50% 1.00%
Less than or equal to 2.50 0.25% 1.00%
</TABLE>
<PAGE> 11
4
Notwithstanding the above rates, prior to the date on which the
Administrative Agent receives the September 30, 1998 financial statements of the
Borrower, the Applicable Margin for (i) a Revolving Credit Advance and a Term A
Advance shall be 2.5% for a Eurodollar Rate Advance and 1.25% for a Prime Rate
Advance, and (ii) for a Term B Advance shall be 2.75% for a Eurodollar Rate
Advance and 1.5% for a Prime Rate Advance.
The Applicable Margin for each Prime Rate Advance and each Eurodollar
Rate Advance shall be determined by reference to the Ratio of Consolidated Debt
to EBITDA which shall be determined three Business Days after the date on which
the Administrative Agent receives financial statements pursuant to Section 7.3
or 7.4 and a certificate of the Chief Financial Officer of the Borrower
demonstrating the Ratio of Consolidated Debt to EBITDA. If the Borrower has not
submitted to the Administrative Agent the information described above as and
when required under Section 7.3 or 7.4, as the case may be, the Applicable
Margin shall be as determined by the Administrative Agent in its reasonable
discretion for so long as such information has not been received by the
Administrative Agent. The Applicable Margin shall be adjusted, if applicable, as
of the first day of the month following the date of determination described in
the two preceding sentences. In the event that the financial statements received
pursuant to Section 7.4 indicate that the Applicable Margin determined on the
basis of financial statements theretofore received pursuant to Section 7.3 is
different from the Applicable Margin that would have been determined on the
basis of the Section 7.4 financial statements, the Applicable Margin shall be
adjusted retroactively for the relevant period; provided, that such Section 7.4
financial statements restate the applicable quarterly information set forth in
the applicable Section 7.3 financial statements.
"Asset Disposition" shall mean the disposition of any or all of the
fixed assets of the Borrower or any of its Subsidiaries whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise; provided,
however, that for purposes of Section 2.6(b), the term "Asset Disposition" shall
not include any sale, lease, transfer or other disposition of Inventory in the
ordinary course of business; provided, further, that an Asset Disposition shall
not include cash receipts received from proceeds of insurance, condemnation
awards (and payments in lieu thereof) or indemnity payments to the extent that
such proceeds, awards or payments in respect of loss or damage to Equipment,
fixed assets or real property are applied (or in respect of which expenditures
were previously incurred) to replace or repair the Equipment, fixed assets or
real property in respect of which such proceeds, awards or payments were
received in accordance with the terms of the Loan Documents, so long as (a) such
application is made within one hundred twenty (120) days after such Person's
receipt of such proceeds, awards or payments and (b) such proceeds, awards or
payments are received by such Person within fifteen (15) months after the
occurrence of such damage or loss.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender Party and an Eligible Assignee, and accepted by the
Administrative Agent and, so long as no Event of Default shall have occurred and
be continuing, by the Borrower, in accordance with Section 11.7 and in
substantially the form of Exhibit A hereto.
<PAGE> 12
5
"Available Amount" of any Letter of Credit means, at any time, the
maximum amount available to be drawn under such Letter of Credit at such time
(assuming compliance at such time with all conditions to drawing).
"Bank Hedge Agreement" means any interest rate Hedge Agreement required
or permitted under Section 5.14 that is entered into by and between the Borrower
and any Hedge Bank.
"Borrower" has the meaning specified in the recital of parties to this
Agreement.
"Borrower's Account" means the account of the Borrower maintained by
the Borrower with Fleet National Bank at its office at One Federal Street,
Boston, Massachusetts 02110, Account No. 9415848223.
"Borrowing" means a Term A Borrowing, a Term B Borrowing, a Revolving
Credit Borrowing or a Swing Line Borrowing.
"Business Day" means a day of the year on which banks are not required
or authorized by law to close in Boston, Massachusetts and New York, New York
and, if the applicable Business Day relates to any Eurodollar Rate Advances, on
which dealings are carried on in the London interbank market.
"Capital Expenditures" means, for any Person for any period, the sum of
all expenditures made, directly or indirectly, by such Person or any of its
Subsidiaries during such period for Equipment, fixed assets, real property or
improvements, or for replacements or substitutions therefor or additions
thereto, that have been or should be, in accordance with GAAP, reflected as
additions to property, plant or Equipment on a Consolidated balance sheet of
such Person; provided, that Capital Expenditures shall not include capital
expenditures to the extent that such expenditures constitute a reinvestment of
Net Cash Proceeds from any Asset Disposition or proceeds of insurance,
condemnation awards (and payments in lieu thereof) or indemnity payments in each
case permitted under this Agreement in similar fixed assets, which investment is
made before or within one hundred eighty (180) days after receipt of such Net
Cash Proceeds.
"Capitalized Leases" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"Cash Equivalents" means any of the following, to the extent owned by
the Borrower or any of its Subsidiaries, free and clear of all Liens other than
Liens created under the Collateral Documents: (a) readily marketable direct
obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by the full
faith and credit of the Government of the United States having a maturity of not
greater than 360 days from the date of issuance thereof, (b) insured
certificates of deposit of or time deposits having a maturity
<PAGE> 13
6
of not greater than 360 days from the date of issuance thereof with any
commercial bank that is a Lender Party or a member of the Federal Reserve System
that issues (or the parent of which issues) commercial paper rated as described
in clause (c) and is organized under the laws of the United States or any State
thereof and has combined capital and surplus of at least $1 billion or (c)
commercial paper having a maturity of not greater than 180 days from the date of
issuance thereof in an aggregate amount of no more than $2,500,000 per issuer
outstanding at any time, issued by any corporation organized under the laws of
any State of the United States and rated at least "Prime-1" (or the then
equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then
equivalent grade) by Standard & Poor's Ratings Group.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., as amended from time to
time.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System maintained by the U.S. Environmental Protection
Agency.
"Change of Control" means the Equity Participants and their respective
Affiliates shall at any time cease to own at least 50% in the aggregate of the
capital stock of the Borrower owned by such Persons in the aggregate on the date
hereof after giving effect to the Recapitalization.
"Closing Date" means the date on which all of the conditions precedent
set forth in Section 3.1 to the Initial Extension of Credit shall have been
satisfied or waived.
"Collateral" means all "Collateral" referred to in the Collateral
Documents and all other property that is or is intended to be subject to any
Lien in favor of the Administrative Agent for the benefit of the Secured
Parties.
"Collateral Assignment of Lease" has the meaning specified in Section
3.1.
"Collateral Documents" means the Security Agreement, the Intellectual
Property Security Agreement, each Collateral Assignment of Lease, the Mortgages
and any other agreement that creates or purports to create a Lien in favor of
the Administrative Agent for the benefit of the Secured Parties, including the
Additional Collateral Documents delivered pursuant to Section 5.13.
"Commitment" means a Term A Commitment, a Term B Commitment, a
Revolving Credit Commitment or a Letter of Credit Commitment.
"Confidential Information" means information that the Borrower
furnishes to the Administrative Agent or any Lender Party, but does not include
any such information that is or becomes generally available to the public other
than as a result of a breach by the Administrative Agent or any Lender Party of
its obligations hereunder or that is or becomes available to the
<PAGE> 14
7
Administrative Agent or such Lender Party from a source other than the Borrower
that is not, to the best of the Administrative Agent's or such Lender Party's
knowledge, acting in violation of a confidentiality agreement with the Borrower.
"Consolidated" refers to the consolidation of accounts, in accordance
with GAAP, of any Person and all of its Subsidiaries, and if not specified, the
Borrower and all of its Subsidiaries.
"Conversion", "Convert" and "Converted" each refer to a conversion of
Advances of one Type into Advances of the other Type pursuant to Section 2.9 or
2.10.
"Current Assets" of any Person means all assets of such Person that
would, in accordance with GAAP, be classified as current assets of a company
conducting a business the same as or similar to that of such Person, after
deducting adequate reserves in each case in which a reserve is proper in
accordance with GAAP.
"Current Liabilities" of any Person means (a) Debt of such Person,
except Funded Debt, that by its terms is payable on demand or matures within one
year after the date of determination (excluding any Debt renewable or
extendible, at the option of such Person, to a date more than one year from such
date or arising under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year from
such date), (b) all amounts of Funded Debt of such Person required to be paid or
prepaid within one year after such date and (c) all other items (including taxes
accrued as estimated) that in accordance with GAAP would be classified as
current liabilities of such Person.
"Debt" of any Person means, without duplication, (a) all indebtedness
of such Person for borrowed money, (b) all Obligations of such Person for the
deferred purchase price of property or services, (c) all Obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (d)
all Obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Obligations of such Person as lessee under Capitalized
Leases, (f) all Obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all Obligations of such
Person to purchase, redeem, retire, defease or otherwise make any payment in
respect of any capital stock of or other ownership or profit interest in such
Person or any other Person or any warrants, rights or options to acquire such
capital stock, (h) all Obligations of such Person in respect of Hedge
Agreements, (i) all Debt of others referred to in clauses (a) through (h) above,
and the Debt of others referred to in clause (j) below equal to the greater of
(x) the amount of Debt guaranteed as described in this clause (i) and (y) the
value of the property subject to Liens as described in clause (j) below,
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to pay
or purchase such Debt or to advance or supply funds for the payment or
<PAGE> 15
8
purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of such Debt
against loss, (iii) to supply funds to or in any other manner invest in the
debtor (including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (iv)
otherwise to assure a creditor against loss, and (j) all Debt referred to in
clauses (a) through (i) above of another Person secured by (or for which the
holder of such Debt has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including, without limitation, accounts,
contract rights or inventory) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Debt, which Debt under this
clause (j) shall be limited to the value of the property subject to any such
Lien.
"Debt Issuance" means any issuance or sale or other incurrence by the
Borrower or any of its Subsidiaries of any Debt; provided, however, that for
purposes of determination of Net Cash Proceeds under Section 2.6(b)(iii), the
term "Debt Issuance" shall not include the incurrence of Debt permitted under
Section 6.2.
"Default" means any Event of Default or any event that would constitute
an Event of Default but for the requirement that notice be given or time elapse
or both.
"Defaulted Advance" means, with respect to any Lender Party at any
time, the portion of any Advance required to be made by such Lender Party to the
Borrower pursuant to Section 2.1 or 2.2 at or prior to such time which has not
been made by such Lender Party or by the Administrative Agent for the account of
such Lender Party pursuant to Section 2.2(e) as of such time. In the event that
a portion of a Defaulted Advance shall be deemed made pursuant to Section
2.15(a), the remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made pursuant to Section 2.1 on the
same date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Lender Party at any time,
any amount required to be paid by such Lender Party to the Administrative Agent
or any other Lender Party hereunder or under any other Loan Document at or prior
to such time which has not been so paid as of such time, including, without
limitation, any amount required to be paid by such Lender Party to (a) the Swing
Line Bank pursuant to Section 2.2(b) to purchase a portion of a Swing Line
Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant to Section
2.3(c) to purchase a portion of a Letter of Credit Advance made by the Issuing
Bank, (c) the Administrative Agent pursuant to Section 2.2(e) to reimburse the
Administrative Agent for the amount of any Advance made by the Administrative
Agent for the account of such Lender Party, (d) any other Lender Party pursuant
to Section 2.13 to purchase any participation in Advances owing to such other
Lender Party and (e) the Administrative Agent or the Issuing Bank pursuant to
Section 10.5 to reimburse the Administrative Agent or the Issuing Bank for such
Lender Party's ratable share of any amount required to be paid by the Lender
Parties to the Administrative Agent or the Issuing Bank as provided therein. In
the
<PAGE> 16
9
event that a portion of a Defaulted Amount shall be deemed paid pursuant to
Section 2.15(b), the remaining portion of such Defaulted Amount shall be
considered a Defaulted Amount originally required to be paid hereunder or under
any other Loan Document on the same date as the Defaulted Amount so deemed paid
in part.
"Defaulting Lender" means, at any time, any Lender Party that, at such
time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any
action or be the subject of any action or proceeding of a type described in
Section 9.6.
"Disclosed Litigation" has the meaning specified in Section 3.1(e).
"Disposal" means the discharge, deposit, injection, dumping, spilling,
leaking or placing of any solid waste or hazardous waste, as those terms are
defined by any federal, state, local or foreign law, into or on any land or
water so that such solid waste or hazardous waste or any constituents thereof
may enter the environment or be emitted into the air or discharged into any
waters, including ground waters.
"Domestic Lending Office" means, with respect to any Lender Party, the
office of such Lender Party specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender Party, as the case may be, or such other office of such
Lender Party as such Lender Party may from time to time specify to the Borrower
and the Administrative Agent.
"Domestic Subsidiary" means any Subsidiary organized under the laws of
the United States of America or any State thereof.
"EBITDA" means, for any period, the sum, determined on a Consolidated
basis, of (i) net income (or net loss), (ii) Interest Expense, (iii) income tax
expense, (iv) depreciation expense, (v) extraordinary and nonrecurring losses
and (vi) amortization expense, minus extraordinary and nonrecurring gains (in
each case determined in accordance with GAAP).
"Eligible Assignee" means with respect to any Facility (other than the
Letter of Credit Facility), (a) a Lender; (b) an Affiliate of a Lender; and (c)
subject to the prior approval of the Administrative Agent and, so long as no
Event of Default shall have occurred and be continuing, the Borrower, such
approval by the Borrower not to be unreasonably withheld or delayed, (i) a
commercial bank organized under the laws of the United States, or any State
thereof, and having total assets in excess of $500,000,000; (ii) a savings and
loan association or savings bank organized under the laws of the United States,
or any State thereof, and having total assets in excess of $500,000,000; (iii) a
commercial bank organized under the laws of any other country that is a member
of the OECD or has concluded special lending arrangements with the International
Monetary Fund associated with its General Arrangements to Borrow or of the
Cayman Islands, or
<PAGE> 17
10
a political subdivision of any such country, and having total assets in excess
of $500,000,000, so long as such bank is acting through a branch or agency
located in the United States; (iv) the central bank of any country that is a
member of the OECD; and (v) a finance company, insurance company or other
financial institution or fund (whether a corporation, partnership, trust or
other entity) that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having total assets
in excess of $500,000,000; and, with respect to the Letter of Credit Facility, a
Person that is an Eligible Assignee under subclause (i) or (iii) of clause (C)
of this definition and is approved by the Administrative Agent and the Borrower,
such approval by the Borrower not to be unreasonably withheld or delayed;
provided, however, that no Loan Party or Affiliate of a Loan Party shall qualify
as an Eligible Assignee under this definition.
"Environmental Action" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or potential
liability, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law, any Environmental Permit or
Hazardous Material or arising from alleged injury or threat to public health and
safety or the environment, including, without limitation, (a) by any
governmental or regulatory authority or third party for enforcement, cleanup,
Removal, Response, Remedial or other actions or damages and (b) by any
governmental or regulatory authority or third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign statute,
law, ordinance, rule, regulation, code, order, writ, judgment, injunction,
decree or judicial or agency interpretation, policy or guidance relating to
pollution or protection of the environment or natural resources, including,
without limitation, those relating to the use, handling, transportation,
treatment, storage, disposal, threatened release, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval, license or other
authorization required under any Environmental Law.
"Equipment" has the meaning specified in Section 1(a) of the Security
Agreement.
"Equity Issuance" means any sale or issuance for cash by the Borrower
or any of its Subsidiaries of any capital stock or other ownership of profit
interest, any securities convertible or exchangeable for capital stock or other
ownership or profit interest or any warrants, rights or options to acquire
capital stock or other ownership or profit interest; provided, however, that for
purposes of determination of Net Cash Proceeds under Section 2.6(b)(iii), the
term "Equity Issuance" shall not include any issuance or sale of (a) capital
stock of the Borrower issued on or before the Closing Date in connection with
the Recapitalization; (b) common stock of the Borrower issued to any director of
the Borrower required by applicable law in connection with such person acting in
such capacity; and (c) common stock of the Borrower pursuant to a stock option
and/or restricted stock option plan or a similar employee benefit plan permitted
hereunder or the exercise of options issued
<PAGE> 18
11
pursuant thereto or the exercise of Outstanding Options (as defined in the
Recapitalization Agreement).
"Equity Participants" means TA Associates, Inc. and Summit Partners,
LLC and their respective Affiliates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the controlled group of any Loan Party, or under common
control with any Loan Party, within the meaning of Section 414 of the Internal
Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan unless the
30-day notice requirement with respect to such event has been waived by the
PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA
(without regard to subsection (2) of such Section) are met with respect to a
contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and
an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c)
of ERISA is reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver with respect
to a Plan; (c) the provision by the administrator of any Plan of a notice of
intent to terminate such Plan under ERISA Section 4041(c), pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan amendment
referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a
facility of any Loan Party or any ERISA Affiliate in the circumstances described
in Section 4062(e) of ERISA; (e) the withdrawal by any Loan Party or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the
conditions for imposition of a lien under Section 302(f) of ERISA shall have
been met with respect to any Plan; (g) the adoption of an amendment to a Plan
requiring the provision of security to such Plan pursuant to Section 307 of
ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that constitutes grounds for the termination
of, or the appointment of a trustee to administer, such Plan.
"Eurocurrency Liabilities" has the meaning specified in Regulation D of
the Board of Governors of the Federal Reserve System, as in effect from time to
time.
"Eurodollar Lending Office" means, with respect to any Lender Party,
the office of such Lender Party specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and Acceptance
pursuant to which it became a Lender Party (or, if no such office is specified,
its Domestic Lending Office), or such other office of such Lender Party as such
Lender Party may from time to time specify to the Borrower and the
Administrative Agent.
<PAGE> 19
12
"Eurodollar Rate" means, for any Interest Period for all Eurodollar
Rate Advances comprising part of the same Borrowing, an interest rate per annum
(rounded upward, if necessary, to the nearest 1/32 of one percent) as determined
on the basis of the offered rates for deposits in U.S. dollars, for a period of
time comparable to such Interest Period which appears on the Telerate Page 3750
as of 11:00 a.m. (New York time) two Business Days before the first day of such
Interest Period; provided, however, that if the rate described above does not
appear on the Telerate System on any applicable interest determination date, the
Eurodollar Rate shall be the rate (rounded upward as described above, if
necessary) for deposits in U.S. dollars for a period substantially equal to the
interest period on the Reuters Page "LIBO" (or such other page as may replace
the LIBO page on that service for the purpose of displaying such rates), as of
11:00 a.m. (London time) two Business Days before the first day of such Interest
Period.
If both the Telerate and Reuters system are unavailable, then the rate
for that date will be determined on the basis of the offered rates for deposits
in U.S. dollars for a period of time comparable to such Interest Period which
are offered by four major banks in the London interbank market at approximately
11:00 a.m. (New York time) two Business Days before the first day of such
Interest Period as selected by the Administrative Agent. The principal London
office of each of the four major London banks will be requested to provide a
quotation of its U.S. dollar deposit offered rate. If at least two such
quotations are provided, the rate for that date will be the arithmetic mean of
the quotations. If fewer than two quotations are provided as requested, the rate
for that date will be determined on the basis of the rates quoted for loans in
U.S. dollars to leading European banks for a period of time comparable to such
Interest Period offered by major banks in New York City at approximately 11:00
a.m. (New York time) two Business Days before the first day of such Interest
Period. In the event that the Administrative Agent is unable to obtain any such
quotation as provided above, it will be deemed that the Eurodollar Rate for such
Interest Rate cannot be determined.
In the event that the Board of Governors of the Federal Reserve System
shall impose a Eurodollar Rate Reserve Percentage with respect to Eurocurrency
Liabilities, the Eurodollar Rate for an Interest Period shall be equal to the
amount determined above for such Interest Period divided by a percentage equal
to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period.
"Eurodollar Rate Advance" means an Advance that bears interest as
provided in Section 2.7(a)(ii).
"Eurodollar Rate Reserve Percentage" means, for any Interest Period for
all Eurodollar Rate Advances comprising part of the same Borrowing, the reserve
percentage applicable two Business Days before the first day of such Interest
Period under regulations issued from time to time by the Board of Governors of
the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency, supplemental
or other marginal reserve requirement) for a member bank of the Federal Reserve
System in New York City with
<PAGE> 20
13
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Rate Advances is
determined) having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Article 9.
"Excess Cash Flow" means for any period the sum of (a) EBITDA of the
Borrower and its Subsidiaries for such period plus (b) the aggregate amount of
all non-cash charges deducted from Consolidated net income for such period, but
not added back in arriving at EBITDA plus (c) if there was a net increase in
Consolidated Current Liabilities of the Borrower and its Subsidiaries during
such period, the amount of such net increase other than arising out of Debt
permitted pursuant to Section 6.2 plus (d) if there was a net decrease in
Consolidated Current Assets (excluding cash and Cash Equivalents) of the
Borrower and its Subsidiaries during such period the amount of such net decrease
less (e) the aggregate amount of mandatory and optional prepayments (other than
optional prepayments of the Swing Line Advances, Letter of Credit Advances or
Revolving Credit Advances made pursuant to clause (i) of the second sentence of
Section 2.6(a)) or repayments of principal made by the Borrower and its
Subsidiaries on any Funded Debt of the Borrower and its Subsidiaries during such
period less (f) cash Capital Expenditures of the Borrower and its Subsidiaries
during such period less (g) the aggregate amount of all federal, state, local
and foreign taxes accrued or paid for such period less (h) the aggregate amount
of interest paid on any Debt of the Borrower and its Subsidiaries during such
period less (i) the aggregate amount of all non-cash credits included in
arriving at such EBITDA less (j) if there was a net decrease in Consolidated
Current Liabilities of the Borrower and its Subsidiaries during such period, the
amount of such net decrease less (k) if there was a net increase in Consolidated
Current Assets (excluding cash and Cash Equivalents) of the Borrower and its
Subsidiaries during such period the amount of such increase less (l) dividends
paid by the Borrower to the holders of its common stock during such period to
the extent that the Borrower is expressly permitted to pay such dividends under
this Agreement.
"Existing Debt" means Debt of the Borrower and its Subsidiaries
outstanding immediately before giving effect to the Transaction and described in
Schedule 4.19(a).
"Extraordinary Receipt" means any cash received by or paid to or for
the account of any Person not in the ordinary course of business, including,
without limitation, tax refunds, pension plan reversions, proceeds of insurance
(other than proceeds of business interruption insurance to the extent such
proceeds constitute compensation for lost earnings), condemnation awards (and
payments in lieu thereof) and indemnity payments; provided, however, that an
Extraordinary Receipt shall not include cash receipts received from proceeds of
insurance, condemnation awards (and payments in lieu thereof) or indemnity
payments to the extent that such proceeds, awards or payments (a) in respect of
loss or damage to Equipment, fixed assets or real property are applied (or in
respect of which expenditures were previously incurred) to replace or repair the
Equipment, fixed assets or real property in respect of which such proceeds,
awards or payments were received in
<PAGE> 21
14
accordance with the terms of the Loan Documents, so long as (i) such application
is made within ninety (90) days after such Person's receipt of such proceeds,
awards or payments and (ii) such proceeds, awards or payments are received by
such Person within fifteen (15) months after the occurrence of such damage or
loss; or (b) are received by any Person in respect of any third party claim
against such Person and applied to pay (or to reimburse such Person for its
prior payment of) such claim and the costs and expenses of such Person with
respect thereto.
"Facility" means the Term A Facility, the Term B Facility, the
Revolving Credit Facility, the Letter of Credit Facility or the Swing Line
Facility.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Fiscal Year" means a fiscal year of the Borrower and its Consolidated
Subsidiaries ending on December 31 in any calendar year.
"Fleet" means Fleet National Bank in its capacity as a Lender or
Issuing Bank.
"Foreign Subsidiary" means any Subsidiary organized under the laws of
any jurisdiction other than the United States of America or any State thereof.
"Funded Debt" means, with respect to the Borrower, the Advances, and
with respect to the Borrower and the other Loan Parties and any other Person,
all other Debt of such Person that by its terms matures more than one year after
the date of determination or matures within one year from such date but is
renewable or extendible, at the option of such Person, to a date more than one
year after such date or arises under a revolving credit or similar agreement
that obligates the lender or lenders to extend credit during a period of more
than one year after such date, including the current portion of all such Debt.
"GAAP" has the meaning specified in Section 1.3.
"Guaranteed Obligations" has the meaning specified in the Guaranties.
"Guarantors" means each Person which shall have executed and delivered
or become a party to a Subsidiary Guaranty hereunder.
<PAGE> 22
15
"Hazardous Materials" means (a) petroleum or petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other chemicals,
materials or substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements, currency
future or option contracts and other similar agreements.
"Hedge Bank" means any Lender Party in its capacity as a party to a
Bank Hedge Agreement.
"Indemnified Party" has the meaning specified in Section 11.4(b).
"Information Memorandum" means the information memorandum, dated July
1998, delivered by the Administrative Agent to the Lenders.
"Initial Extension of Credit" means the earlier to occur of the initial
Borrowing and the initial issuance of a Letter of Credit.
"Initial Issuing Bank" has the meaning specified in the recital of
parties to this Agreement.
"Initial Lenders" has the meaning specified in the recital of parties
to this Agreement.
"Insufficiency" means, with respect to any Plan, the amount, if any, of
its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Intellectual Property Security Agreement" has the meaning specified in
Section 3.1(a).
"Interest Expense" means, with respect to any Person for any period,
interest expense on all Debt of such Person for such period net of interest
income for such period, whether paid or accrued, determined on a Consolidated
basis for such Person and its Subsidiaries and in accordance with GAAP, and
including, without limitation, (a) in the case of the Borrower, interest expense
in respect of Debt resulting from Advances, (b) the interest component of all
obligations under Capitalized Leases, (c) commissions, discounts and other fees
and charges payable in connection with letters of credit (including, without
limitation, Letters of Credit), (d) the net payment, if any, payable in
connection with Hedge Agreements less the net credit, if any, received in
connection with Hedge Agreements and (e) all fees paid by the Borrower pursuant
to Section 2.8(a).
"Interest Period" means, for each Eurodollar Rate Advance comprising
part of the same Borrowing, the period commencing on the date of such Eurodollar
Rate Advance or the date of the Conversion of any Prime Rate Advance into such
Eurodollar Rate Advance, and ending on the last
<PAGE> 23
16
day of the period selected by the Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period selected by
the Borrower pursuant to the provisions below. The duration of each such
Interest Period shall be one, two, three or six months, as the Borrower may,
upon notice received by the Administrative Agent not later than 11:00 A.M. (New
York time) on the third Business Day prior to the first day of such Interest
Period, select; provided, however, that:
(a) The Borrower may not select any Interest Period with
respect to any Eurodollar Rate Advance under a Facility that ends after
any principal repayment installment date for such Facility unless,
after giving effect to such selection, the aggregate principal amount
of Prime Rate Advances and of Eurodollar Rate Advances having Interest
Periods that end on or prior to such principal repayment installment
date for such Facility shall be at least equal to the aggregate
principal amount of Advances under such Facility due and payable on or
prior to such date;
(b) Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that, if such extension would cause
the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on the
next preceding Business Day;
(c) Whenever the first day of any Interest Period occurs on a
day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months in
such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month; and
(d) Until the earlier of (i) 90 days after the Closing Date,
or (ii) the date on which the Administrative Agent notifies the
Borrower that the syndication of the Facilities has been completed,
only Interest Periods with a duration of seven days, if available to
all the Lenders, shall be available to the Borrower for Eurodollar Rate
Advances, or if such Interest Periods are not available to all the
Lenders, Interest Periods of such duration as may be selected by the
Administrative Agent and are acceptable to the other Lenders.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"Inventory" of any person means all of such Person's now owned and
hereafter acquired inventory, goods, merchandise and other personal property,
wherever located, to be furnished under any contract of service or held for sale
or lease, all returned goods, raw materials, other materials and supplies of any
kind, nature or description which are or might be consumed in such Person's
business
<PAGE> 24
17
or used in connection with the packing, shipping, advertising, selling or
finishing of such goods, merchandise and such other personal property, and all
documents of title or other documents representing them.
"Investment" in any Person means any loan or advance to such Person,
any purchase or other acquisition of any capital stock or other ownership or
profit interest, warrants, rights, options, obligations or other securities of
such Person, any capital contribution to such Person or any other investment in
such Person, including, without limitation, any arrangement pursuant to which
the investor incurs Debt of the types referred to in clause (i) or (j) of the
definition of "Debt" in respect of such Person.
"Issuing Bank" means the Initial Issuing Bank and each Eligible
Assignee to which Letter of Credit Commitment hereunder has been assigned
pursuant to Section 11.7.
"L/C Cash Collateral Account" has the meaning specified in the Security
Agreement.
"L/C Related Documents" has the meaning specified in Section
2.4(f)(ii)(A).
"Lender Party" means any Lender, the Issuing Bank or the Swing Line
Bank.
"Lenders" means the Initial Lenders and each Person that shall become a
Lender hereunder pursuant to Section 11.7.
"Letter of Credit" means any Letter of Credit issued hereunder (as
specified in Section 2.3(a)).
"Letter of Credit Advance" means an advance made by the Issuing Bank or
any Revolving Credit Lender pursuant to Section 2.3(c).
"Letter of Credit Agreement" has the meaning specified in Section
2.3(a).
"Letter of Credit Commitment" means, with respect to the Issuing Bank,
the amount set forth opposite the Issuing Bank's name on Schedule I hereto under
the caption "Letter of Credit Commitment" or, if the Issuing Bank has entered
into one or more Assignments and Acceptances, set forth for the Issuing Bank in
the Register maintained by the Administrative Agent pursuant to Section 11.7(d)
as the Issuing Bank's "Letter of Credit Commitment", as such amount may be
reduced at or prior to such time pursuant to Section 2.5.
"Letter of Credit Facility" means, at any time, an amount equal to the
amount of the Issuing Bank's Letter of Credit Commitment at such time, as such
amount may be reduced pursuant to Section 2.5.
<PAGE> 25
18
"Lien" means any lien, security interest or other charge or encumbrance
of any kind, or any other type of preferential arrangement, including, without
limitation, the lien or retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.
"Loan Documents" means (a) this Agreement, (b) the Notes, (c) each
Subsidiary Guaranty, (d) the Collateral Documents, (e) each Letter of Credit
Agreement, (f) each Bank Hedge Agreement, (g) the Negative Pledge Agreement, (h)
each Additional Collateral Document, and all other agreements, instruments and
documents executed in connection therewith, in each case as the same may at any
time be amended, supplemented, restated or otherwise modified and in effect.
"Loan Parties" means the Borrower, each Guarantor, and each other
Person (other than the Equity Participants and other Persons party to the
Negative Pledge Agreement) who shall, at any time, have executed and delivered a
Loan Document to the Administrative Agent.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Change" means any material adverse change in (a) the
business, condition (financial or otherwise), results of operations or
properties of any Loan Party and its Subsidiaries (taken as a whole), (b) the
ability of any Loan Party to perform its obligations under the Loan Documents to
which it is a party or (c) any material aspect of the Transaction.
"Material Adverse Effect" has the meaning specified in Section 3.1(e).
"Material Contract" means, with respect to any Person, each contract
listed on Schedule 4.23, each contract which is a replacement or a substitute
for any contract listed on such Schedule and each other contract to which such
Person is a party which is material to the business, condition (financial or
otherwise), operations, performance or properties of such Person.
"Mortgage" means each mortgage, deed of trust or other similar document
to be executed and delivered by the appropriate Loan Party, in form and
substance reasonably acceptable to the Administrative Agent and the Lenders in
order (a) to provide that such Loan Party is the mortgagor or grantor, (b) to
comply with and/or provide for specific laws of the jurisdictions in which the
property to be encumbered is located, and (c) to assure that the Administrative
Agent for the benefit of the Secured Parties has a perfected Lien on the
Mortgaged Property.
"Mortgage Policies" has the meaning assigned to that term in Section
3.1(a)(iii)(B).
"Mortgaged Property" shall have the meaning assigned to such term in
Section 4.21, and shall also include any parcel (or adjoining parcels) of real
property (including any leaseholds)
<PAGE> 26
19
acquired by any Loan Party after the Closing Date subject to a Mortgage granted
to the Administrative Agent for the benefit of the Secured Parties pursuant to
Section 5.13.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or
accruing an obligation to make contributions, or has within any of the preceding
five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan
Party or any ERISA Affiliate and at least one Person other than the Loan Parties
and the ERISA Affiliates or (b) was so maintained and in respect of which any
Loan Party or any ERISA Affiliate could have liability under Section 4064 or
4069 of ERISA in the event such plan has been or were to be terminated.
"Negative Pledge Agreement" has the meaning specified in Section
3.1(a).
"Net Cash Proceeds" means, with respect to any sale, lease, transfer or
other disposition of any asset or any Debt Issuance or Equity Issuance by any
Person, or any Extraordinary Receipt received by or paid to or for the account
of any Person, the aggregate amount of cash received from time to time (whether
as initial consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only (without duplication) (a) reasonable
and customary brokerage commissions, underwriting fees and discounts, legal
fees, finder's fees and other similar out-of-pocket costs, (b) the amount of
taxes payable in connection with or as a result of such transaction and (c) the
amount of any Debt secured by a Lien on such asset that, by the terms of such
transaction, is required to be repaid upon such disposition, in each case to the
extent, but only to the extent, that the amounts so deducted are, at the time of
receipt of such cash, actually paid to a Person that is not an Affiliate of such
Person or any Loan Party or any Affiliate of any Loan Party and are properly
attributable to such transaction or to the asset that is the subject thereof.
"Note" means a Term A Note, a Term B Note or a Revolving Credit Note.
"Notice of Borrowing" has the meaning specified in Section 2.2(a).
"Notice of Issuance" has the meaning specified in Section 2.3(a).
"Notice of Renewal" has the meaning specified in Section 2.1(f).
"Notice of Swing Line Borrowing" has the meaning specified in Section
2.2(b).
"Notice of Termination" has the meaning specified in Section 2.1(f).
<PAGE> 27
20
"NPL" means the National Priorities List under CERCLA.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including, without
limitation, any liability of such Person on any claim, whether or not the right
of any creditor to payment in respect of such claim is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such claim is
discharged, stayed or otherwise affected by any proceeding referred to in
Section 9.4. Without limiting the generality of the foregoing, the Obligations
of the Loan Parties under the Loan Documents include (a) the obligation to pay
principal, interest, Letter of Credit commissions, charges, expenses, fees,
attorneys' fees and disbursements, indemnities and other amounts payable by any
Loan Party under any Loan Document, (b) the obligation of any Loan Party to
reimburse any amount in respect of any of the foregoing that any Lender Party
may, after the occurrence and during the continuance of an Event of Default,
elect to pay or advance on behalf of such Loan Party, and (c) any other
obligations arising out of or under, based upon or relating to the Loan
Documents.
"OECD" means the Organization for Economic Cooperation and Development.
"Open Year" has the meaning specified in Section 4.16.
"Other Taxes" has the meaning specified in Section 2.12(b).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) Liens for taxes, assessments and governmental charges or
levies not yet due and payable or which are being contested in good faith by
appropriate proceedings provided adequate reserves have been established in
accordance with GAAP; provided that provisions for the payment of such Liens has
been made on the books of such Person; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business securing obligations
that are not overdue for a period of more than 60 days; provided that provisions
for the payment of such Liens has been made on the books of such Person; (c)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; provided that
provisions for the payment of such Liens has been made on the books of such
Person; and (d) Permitted Real Property Encumbrances.
"Permitted Real Property Encumbrances" means, with respect to any
particular Mortgaged Property, (i) those liens, encumbrances and other matters
affecting title to any Mortgaged Property listed in the Mortgage Policies in
respect thereof and as of the date of delivery of such Mortgage Policies to
Administrative Agent in accordance with the terms hereof, reasonably acceptable
to the
<PAGE> 28
21
Lenders, (ii) such easements, encroachments, covenants, rights of way, minor
defects, irregularities or encumbrances on title which do not arise out of the
incurrence of any Debt and which do not impair the use of such Mortgaged
Property for the purpose for which it is held by the mortgagor thereof, or the
Lien granted to the Administrative Agent for the benefit of the Secured Parties,
and (iii) municipal and zoning ordinances; provided that no violation exists
thereunder that could impair the use of the existing improvements and the
present use made by the mortgagor thereof of the Premises (as defined in the
respective Mortgage).
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pre-Commitment Information" has the meaning specified in Section
3.1(g).
"Prepayment Account" means an account established by the Borrower with
the Administrative Agent and over which the Administrative Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal for
application in accordance with Section 2.6(b)(v), which account shall be
interest bearing, if permitted by law, at rates then currently paid by Fleet for
deposits of similar amount and duration. The Borrower hereby grants to the
Administrative Agent for the benefit of the Secured Parties, a security interest
in the Prepayment Account to secure the Obligations of the Loan Parties under
the Loan Documents.
"Prime Rate" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the higher of:
(a) the rate of interest announced publicly by Fleet in
Boston, Massachusetts, from time to time, as Fleet's prime rate, which
is not necessarily the lowest rate made available by Fleet; or
(b) 1/2 of one percent per annum above the Federal Funds Rate.
"Prime Rate Advance" means an Advance that bears interest as provided
in Section 2.7(a)(i).
"Pro Rata Share" of any amount means, with respect to any Revolving
Credit Lender at any time, the product of such amount times a fraction the
numerator of which is the amount of such Lender's Revolving Credit Commitment at
such time and the denominator of which is the Revolving Credit Facility at such
time.
<PAGE> 29
22
"Qualified Offering" shall mean the closing of the Borrower's first
underwritten offering to the public pursuant to an effective registration
statement (other than a registration statement on Form S-8) under the Securities
Act of 1933, as amended, provided that such registration statement covers the
offer and sale of common stock of the Borrower of which the aggregate gross
proceeds attributable to sales for the account of the Borrower exceed
$40,000,000.
"Ratio of Consolidated Debt to EBITDA" means, for any fiscal quarter of
the Borrower, a ratio of (a) Debt of the Borrower and its Subsidiaries as at the
end of such fiscal quarter to (b) EBITDA for the most recently completed four
fiscal quarters of the Borrower and its Subsidiaries.
"Recapitalization" has the meaning specified in the Preliminary
Statements.
"Recapitalization Agreement" has the meaning specified in the
Preliminary Statements.
"Recapitalization Date" means the date on which the Recapitalization
shall have been consummated in accordance with the Recapitalization Documents.
"Recapitalization Documents" means the Recapitalization Agreement and
the Stockholders Agreement, the Registration Rights Agreement, General Release
Agreements, Non-Competition Agreements, Escrow Agreement, Cendant Termination
and Non-Competition Agreement, Director Indemnification Agreements, Redemption
Notes, Final Excess Cash Notes (as each such term is defined in the
Recapitalization Agreement), the Transfer Restriction Agreement between the
Borrower and the Investors, and all schedules and exhibits related to each such
agreement.
"Receivables" means all Receivables referred to in Section 1(c) of the
Security Agreement.
"Reduction Amount" has the meaning specified in Section 2.6(b)(vi).
"Register" has the meaning specified in Section 11.7(d).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Release" means any release, spill, emission, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the environment (including the abandonment or discarding of
barrels, containers and other closed receptacles containing any Hazardous
Materials) or into or from any property, including, without limitation, the
movement of any Hazardous Materials through the air, soil, surface waters or
ground water.
"Remedial" shall have the meaning as set forth in CERCLA at 42 U.S.C.
ss. 9601(24) and/or any other applicable Environmental Laws.
<PAGE> 30
23
"Removal" shall have the meaning as set forth in CERCLA at 42 U.S.C.
ss. 9601(23) and/or any other applicable Environmental Laws.
"Required Lenders" means at any time Lenders owed or holding greater
than 50% of the sum of (a) the aggregate principal amount of the Advances
outstanding at such time and (b) the aggregate Available Amount of all Letters
of Credit outstanding at such time, or, if no such principal amount and no
Letters of Credit are outstanding at such time, Lenders holding greater than 50%
of the aggregate of the Term A Commitments, Term B Commitments, Revolving Credit
Commitments; provided, however, that if any Lender shall be a Defaulting Lender
at such time, there shall be excluded from the determination of Required Lenders
at such time (i) the aggregate principal amount of the Advances owing to such
Lender (in its capacity as a Lender) and outstanding at such time, and (ii) the
aggregate Term A Commitment, Term B Commitment and Revolving Credit Commitment
of such Lender at such time. For purposes of this definition, the aggregate
principal amount of Swing Line Advances owing to the Swing Line Bank, Letter of
Credit Advances owing to the Issuing Bank and the Available Amount of each
Letter of Credit shall be considered to be owed to the Revolving Credit Lenders
ratably in accordance with their respective Revolving Credit Commitments.
"Response" shall have the meaning as set forth in CERCLA at 42 U.S.C.
ss. 9601(25) and/or any other applicable Environmental Laws.
"Responsible Officer" means, with respect to any Loan Party, the Chief
Executive Officer, the President, the Chief Financial Officer, any Vice
President, the Controller or the Treasurer of such Loan Party.
"Revolving Credit Advance" has the meaning specified in Section 2.1(c).
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by the Revolving
Credit Lenders.
"Revolving Credit Commitment" means, with respect to any Revolving
Credit Lender at any time, the amount set forth opposite such Lender's name on
Schedule I hereto under the caption "Revolving Credit Commitment" or, if such
Lender has entered into one or more Assignments and Acceptances, set forth for
such Lender in the Register maintained by the Administrative Agent pursuant to
Section 11.7(d) as such Lender's "Revolving Credit Commitment," as such amount
may be reduced at or prior to such time pursuant to Section 2.5.
"Revolving Credit Facility" means, at any time, the aggregate amount of
the Revolving Credit Lenders' Revolving Credit Commitments at such time.
"Revolving Credit Lender" means any Lender that has a Revolving Credit
Commitment.
<PAGE> 31
24
"Revolving Credit Note" means a promissory note of the Borrower payable
to the order of any Revolving Credit Lender, in substantially the form of
Exhibit B hereto, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from the Revolving Credit Advances made by such Lender.
"Revolving Credit Termination Date" means the earlier of (a) the sixth
anniversary of the Closing Date, and (b) the Termination Date.
"Secured Obligations" has the meaning specified in the Security
Agreement.
"Secured Parties" means the Administrative Agent, the Lender Parties,
and the Hedge Banks and the other Persons the Obligations owing to which are or
are purported to be secured by the Collateral under the terms of the Collateral
Documents.
"Security Agreement" has the meaning specified in Section 3.1(a).
"Selling Stockholders" has the meaning specified in the Preliminary
Statements.
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan
Party or any ERISA Affiliate and no Person other than the Loan Parties and the
ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party
or any ERISA Affiliate could have liability under Section 4069 of ERISA in the
event such plan has been or were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
saleable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person's
ability to pay such debts and liabilities as they mature and (d) such Person is
not engaged in business or a transaction, and is not about to engage in business
or a transaction, for which such Person's property would constitute an
unreasonably small capital. The amount of contingent liabilities at any time
shall be computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Standby Letter of Credit" means any Letter of Credit other than a
Trade Letter of Credit.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding
<PAGE> 32
25
capital stock having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time capital stock
of any other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in the capital
or profits of such partnership, joint venture or limited liability company or
(c) the beneficial interest in such trust or estate, is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person's other Subsidiaries.
Unless otherwise specified herein, the term Subsidiary shall mean a Subsidiary
of the Borrower.
"Subsidiary Guaranty" has the meaning specified Section 3.1(a)
"Surviving Debt" shall have the meaning specified in Section 3.1(c).
"Swing Line Advance" means an advance made by (a) the Swing Line Bank
pursuant to Section 2.1(e) or (b) any Revolving Credit Lender pursuant to
Section 2.2(b).
"Swing Line Bank" has the meaning specified in the recital of parties
to this Agreement.
"Swing Line Borrowing" means a borrowing consisting of a Swing Line
Advance made by the Swing Line Bank.
"Swing Line Facility" has the meaning specified in Section 2.1(e).
"Taxes" has the meaning specified in Section 2.12(a).
"Term A Advance" has the meaning specified in Section 2.1(a).
"Term A Borrowing" means a borrowing consisting of simultaneous Term A
Advances of the same Type made by the Term A Lenders.
"Term A Commitment" means, with respect to any Term A Lender at any
time, the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Term A Commitment" or, if such Lender has entered into one or
more Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 11.7(d) as such
Lender's "Term A Commitment," as such amount may be reduced at or prior to such
time pursuant to Section 2.5.
"Term A Facility" means, at any time, the aggregate amount of the Term
A Lenders' Term A Commitments at such time.
"Term A Lender" means any Lender that has a Term A Commitment.
<PAGE> 33
26
"Term A Note" means a promissory note of the Borrower payable to the
order of any Term A Lender, in substantially the form of Exhibit C hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from the
Term A Advance made by such Lender.
"Term B Advance" has the meaning specified in Section 2.1(b).
"Term B Borrowing" means a borrowing consisting of simultaneous Term B
Advances of the same Type made by the Term B Lenders.
"Term B Commitment" means, with respect to any Term B Lender at any
time, the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Term B Commitment" or, if such Lender has entered into one or
more Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 11.7 as such Lender's
"Term B Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.5.
"Term B Facility" means, at any time, the aggregate amount of the Term
B Lenders' Term B Commitments at such time.
"Term B Lender" means any Lender that has a Term B Commitment.
"Term B Note" means a promissory note of the Borrower payable to the
order of any Term B Lender, in substantially the form of Exhibit D hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from the
Term B Advance made by such Lender.
"Term Facilities" means the Term A Facility and the Term B Facility.
"Termination Date" means the date of termination in whole of the
Commitments pursuant to Section 2.5 or Article 9.
"Trade Letter of Credit" means any Letter of Credit that is issued for
the benefit of a supplier of Inventory to the Borrower or any of its
Subsidiaries to effect payment for such Inventory, the conditions to drawing
under which include the presentation to the Issuing Bank of negotiable bills of
lading, invoices and related documents sufficient, in the judgment of the
Issuing Bank, to create a valid and perfected lien on or security interest in
such Inventory, bills of lading, invoices and related documents in favor of the
Issuing Bank.
"Transaction" means the transactions contemplated by the
Recapitalization Documents and the Loan Documents.
<PAGE> 34
27
"Type" refers to the distinction between Advances bearing interest at
the Prime Rate and Advances bearing interest at the Eurodollar Rate.
"Unused Revolving Credit Commitment" means, with respect to any
Revolving Credit Lender, at any time, (a) such Lender's Revolving Credit
Commitment at such time minus (b) the sum of (i) the aggregate principal amount
of all Revolving Credit Advances and Letter of Credit Advances made by such
Lender (in its capacity as a Lender) and outstanding at such time, plus (ii)
such Lender's Pro Rata Share of (A) the aggregate Available Amount of all
Letters of Credit outstanding at such time and (B) the aggregate principal
amount of all Letter of Credit Advances made by the Issuing Bank pursuant to
Section 2.3(c) and outstanding at such time.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
ERISA, that is maintained for employees of any Loan Party or in respect of which
any Loan Party could have liability.
"Withdrawal Liabilities" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.2 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding."
SECTION 1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.6 ("GAAP").
<PAGE> 35
28
ARTICLE 2
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.1 The Advances.
(a) The Term A Advances. Each Term A Lender severally agrees, on the
terms and conditions hereinafter set forth, to make a single advance (a "Term A
Advance") to the Borrower on the Closing Date in an amount not to exceed such
Lender's Term A Commitment at such time. The Term A Borrowing shall consist of
Term A Advances made simultaneously by the Term A Lenders ratably according to
their Term A Commitments. Amounts borrowed under this Section 2.1(a) and repaid
or prepaid may not be reborrowed.
(b) The Term B Advances. Each Term B Lender severally agrees, on the
terms and conditions hereinafter set forth, to make a single advance (a "Term B
Advance") to the Borrower on the Closing Date in an amount not to exceed such
Lender's Term B Commitment at such time. The Term B Borrowing shall consist of
Term B Advances made simultaneously by the Term B Lenders ratably according to
their Term B Commitments. Amounts borrowed under this Section 2.1(b) and repaid
or prepaid may not be reborrowed.
(c) The Revolving Credit Advances. Each Revolving Credit Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each a "Revolving Credit Advance") to the Borrower from time to time
on any Business Day during the period from the date hereof until the Revolving
Credit Termination Date in an amount for each such Advance not to exceed such
Lender's Unused Revolving Credit Commitment at such time; provided, however,
that no Revolving Credit Lender shall have any obligation to make a Revolving
Credit Advance under this Section 2.1(c) to the extent such Revolving Credit
Advance would cause the aggregate amount of Revolving Credit Advances
outstanding (after giving effect to any immediate application of the proceeds
thereof) plus (ii) Swing Line Advances outstanding, plus (iii) Letter of Credit
Advances outstanding, plus (iv) the Aggregate Available Amount of all Letters of
Credit then outstanding to exceed the Revolving Credit Facility. Each Revolving
Credit Borrowing shall be in an aggregate amount of $400,000 or an integral
multiple of $100,000 (other than, in each case, a Borrowing the proceeds of
which shall be used solely to repay or prepay in full outstanding Swing Line
Advances or outstanding Letter of Credit Advances) and shall consist of
Revolving Credit Advances made simultaneously by the Revolving Credit Lenders
ratably according to their Revolving Credit Commitments. Within the limits of
each Revolving Credit Lender's Unused Revolving Credit Commitment in effect from
time to time, the Borrower may borrow, repay and reborrow Revolving Credit
Advances.
<PAGE> 36
29
(d) The Swing Line Advances. The Borrower may request the Swing Line
Bank to make, and the Swing Line Bank shall make, on the terms and conditions
hereinafter set forth, Swing Line Advances to the Borrower from time to time on
any Business Day during the period from the date hereof until the Revolving
Credit Termination Date (i) in an aggregate amount not to exceed at any time
outstanding $3,000,000 (the "Swing Line Facility") and (ii) in an amount for
each such Swing Line Borrowing not to exceed the aggregate of the Unused
Revolving Credit Commitments of the Revolving Credit Lenders at such time. No
Swing Line Advance shall be used for the purpose of funding the payment of
principal of any other Swing Line Advance. Each Swing Line Borrowing shall be
made as a Prime Rate Advance. Within the limits of the Swing Line Facility and
within the limits referred to in clause (ii) above, so long as the Swing Line
Bank makes Swing Line Advances, the Borrower may borrow and reborrow under this
Section 2.1(d) and may repay or prepay the Swing Line Advances at such times
prior to the Termination Date, and in such integral multiples, as the Borrower
may elect.
(e) Letters of Credit. The Issuing Bank agrees, on the terms and
conditions hereinafter set forth, to issue letters of credit for the account of
the Borrower from time to time on any Business Day during the period from the
Closing Date until sixty (60) days before the Revolving Credit Termination Date
(i) in an aggregate Available Amount for all Letters of Credit not to exceed at
any time the Issuing Bank's Letter of Credit Commitment at such time and (ii) in
an Available Amount for each such Letter of Credit not to exceed an amount equal
to the Unused Revolving Credit Commitments of the Revolving Credit Lenders at
such time. No Letter of Credit shall have an expiration date (including all
rights of the Borrower or the beneficiary to require renewal) later than (A) the
earlier of sixty (60) days before the Revolving Credit Termination Date, (B) in
the case of a Standby Letter of Credit, 365 days after the date of issuance
thereof and (C) in the case of a Trade Letter of Credit, 180 days after the date
of issuance thereof. The foregoing notwithstanding, any Standby Letter of Credit
may, by its terms, be renewable annually upon notice (a "Notice of Renewal")
given to the Issuing Bank and the Administrative Agent on or prior to any date
for notice of renewal set forth in such Letter of Credit (but in any event at
least five (5) Business Days prior to the date of the proposed renewal of such
Standby Letter of Credit) and upon fulfillment of the applicable conditions set
forth in Article 3 unless such Issuing Bank shall have notified the Borrower
(with a copy to the Administrative Agent) on or prior to the date for notice of
termination set forth in such Letter of Credit (but in any event at least thirty
(30) Business Days prior to the date of automatic renewal) of its election not
to renew such Standby Letter of Credit (a "Notice of Termination"); provided
that the terms of each Standby Letter of Credit that is automatically renewable
annually shall not permit the expiration date (after giving effect to any
renewal) of such Standby Letter of Credit in any event to be extended to a date
later than sixty (60) days before the Revolving Credit Termination Date. If
either a Notice of Renewal is not given by the Borrower or a Notice of
Termination is given by the Issuing Bank pursuant to the immediately preceding
sentence, such Standby Letter of Credit shall expire on the date on which it
otherwise would have been automatically renewed; provided, however, that even in
the absence of receipt of a Notice of Renewal, the Issuing Bank may, in its
discretion unless instructed to the contrary by the
<PAGE> 37
30
Administrative Agent or the Borrower, deem that a Notice of Renewal had been
timely delivered and, in such case, a Notice of Renewal shall be deemed to have
been so delivered for all purposes under this Agreement. Within the limits of
the Letter of Credit Facility, and subject to the limits referred to above, the
Borrower may request the issuance of Letters of Credit under this Section
2.1(e), repay any Letter of Credit Advances resulting from drawings under
Letters of Credit pursuant to Section 2.3(c) and request the issuance of
additional Letters of Credit under this Section 2.1(e).
SECTION 2.2 Making the Advances. (a) Except as otherwise provided in
Section 2.3 or, with respect to Swing Line Advances, in Section 2.2(b), each
Borrowing shall be made on notice, given not later than 11:00 A.M. (New York
time) on the third Business Day prior to the date of the proposed Borrowing in
the case of Eurodollar Rate Advances and on the first Business Day prior to the
date of the proposed Borrowing in the case of Prime Rate Advances by the
Borrower to the Administrative Agent, which shall give to each appropriate
Lender prompt notice thereof by telex or telecopier. Each such notice of a
Borrowing (a "Notice of Borrowing") may be by telephone, confirmed immediately
in writing, or telex or telecopier in substantially the form of Exhibit E
hereto, specifying therein the requested (i) date of such Borrowing, (ii)
Facility under which such Borrowing is to be made, (iii) Type of Advances
comprising such Borrowing, (iv) aggregate amount of such Borrowing and (v) in
the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest
Period for each such Advance. Each appropriate Lender shall, before 11:00 A.M.
(New York time) on the date of such Borrowing, make available for the account of
its Applicable Lending Office to the Administrative Agent at the Administrative
Agent's Account, in same day funds, such Lender's ratable portion of such
Borrowing in accordance with the respective Commitments under the applicable
Facility of such Lender and the other appropriate Lenders. After the
Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article 3, the Administrative Agent will make
such funds available to the Borrower by crediting the Borrower's Account;
provided, however, that in the case of any Revolving Credit Borrowing, the
Administrative Agent shall first make a portion of such funds equal to the
aggregate principal amount of any Swing Line Advances and Letter of Credit
Advances made by the Swing Line Bank, the Issuing Bank and by any other
Revolving Credit Lender and outstanding on the date of such Revolving Credit
Borrowing, plus interest accrued and unpaid thereon to and as of such date,
available to the Swing Line Bank, the Issuing Bank and such other Revolving
Credit Lenders for repayment of such Swing Line Advances and Letter of Credit
Advances.
(b) Each Swing Line Borrowing shall be made either (x) on notice, given
not later than 11:00 A.M. (New York time) on the date of the proposed Swing Line
Borrowing, by the Borrower to the Swing Line Bank and the Administrative Agent
or (y) pursuant to other arrangements, including, by way of example and not of
limitation, arrangements for daily repayments and borrowings on each Business
Day, which are satisfactory in form and substance to the Swing Line Bank, the
Administrative Agent and the Borrower. Each notice of a Swing Line Borrowing
pursuant to clause (x) in the immediately preceding sentence (a "Notice of Swing
Line Borrowing") shall be
<PAGE> 38
31
by telephone, confirmed immediately in writing, or telex or telecopier,
specifying therein the requested (i) date of such Borrowing, (ii) amount of such
Borrowing and (iii) maturity of such Borrowing (which maturity shall be no later
than the seventh day after the requested date of such Borrowing). If, in its
discretion, it elects to make a requested Swing Line Advance, the Swing Line
Bank will make the amount thereof available to the Administrative Agent at the
Administrative Agent's Account, in same day funds. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article 3, the Administrative Agent will make such funds available
to the Borrower by crediting the Borrower's Account. Upon written demand by the
Swing Line Bank, with a copy of such demand to the Administrative Agent, each
other Revolving Credit Lender shall purchase from the Swing Line Bank, and the
Swing Line Bank shall sell and assign to each such other Revolving Credit
Lender, such other Lender's Pro Rata Share of all outstanding Swing Line
Advances as of the date of such demand, by deposit to the Administrative Agent's
Account, in same day funds, an amount equal to the portion of the outstanding
principal amount of Swing Line Advances to be purchased by such Lender. The
Borrower hereby agrees to each such sale and assignment. Each Revolving Credit
Lender agrees to purchase its Pro Rata Share of outstanding Swing Line Advances
on (i) the Business Day on which demand therefor is made by the Swing Line Bank;
provided that notice of such demand is given not later than 3:00 P.M. (New York
time) on such Business Day, or (ii) the first Business Day next succeeding such
demand if notice of such demand is given after such time. Upon any such
assignment by the Swing Line Bank to any other Revolving Credit Lender of a
portion of a Swing Line Advance, the Swing Line Bank represents and warrants to
such other Lender that the Swing Line Bank is the legal and beneficial owner of
such interest being assigned by it, but makes no other representation or
warranty and assumes no responsibility with respect to such Swing Line Advance,
the Loan Documents or any Loan Party. If and to the extent that any Revolving
Credit Lender shall not have so made the amount of such Swing Line Advance
available to the Administrative Agent, such Revolving Credit Lender agrees to
pay to the Administrative Agent, for the account of the Swing Line Bank,
forthwith on demand such amount together with interest thereon, for each day
from the date of demand by the Swing Line Bank until the date such amount is
paid to the Administrative Agent, at the Federal Funds Rate. If such Lender
shall pay to the Administrative Agent such amount for the account of the Swing
Line Bank on any Business Day, such amount so paid in respect of principal shall
constitute a Swing Line Advance made by such Lender on such Business Day for
purposes of this Agreement, and the outstanding principal amount of the Swing
Line Advance made by the Swing Line Bank shall be reduced by such amount on such
Business Day.
(c) Anything in subsection (a) above to the contrary notwithstanding,
(i) the Borrower may not select Eurodollar Rate Advances if the obligation of
the appropriate Lenders to make Eurodollar Rate Advances shall then be suspended
pursuant to Section 2.9 or Section 2.10, and (ii) the Eurodollar Rate Advances
made on any date may not be outstanding as part of more than ten (10) separate
Borrowings.
<PAGE> 39
32
(d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall
be irrevocable and binding on the Borrower. In the case of any Borrowing that
the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate
Advances, the Borrower shall indemnify each appropriate Lender against any loss,
cost or expense incurred by such Lender as a result of any failure to fulfill on
or before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article 3, including, without limitation, any
loss (including loss of anticipated profits as reasonably determined by such
Lender), cost or expense incurred by reason of the liquidation or redeployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Borrowing when such Advance, as a result of
such failure, is not made on such date.
(e) Unless the Administrative Agent shall have received notice from an
appropriate Lender prior to the date of any Borrowing under a Facility under
which such Lender has a Commitment that such Lender will not make available to
the Administrative Agent such Lender's ratable portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) or (b) of this Section 2.2 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such ratable portion available to the Administrative Agent, such Lender and
the Borrower severally agree to repay or pay to the Administrative Agent
forthwith on demand such corresponding amount and to pay interest thereon, for
each day from the date such amount is made available to the Borrower until the
date such amount is repaid or paid to the Administrative Agent, at (i) in the
case of the Borrower, the interest rate applicable at such time under Section
2.7 to Advances comprising such Borrowing and (ii) in the case of such Lender,
the Federal Funds Rate. If such Lender shall pay to the Administrative Agent
such corresponding amount, such amount so paid shall constitute such Lender's
Advance as part of such Borrowing for all purposes.
(f) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
SECTION 2.3 Issuance of and Drawings and Reimbursement Under Letters of
Credit.
(a) Request for Issuance. Each Letter of Credit shall be issued upon
notice, given not later than 11:00 A.M. (New York time) on the fifth Business
Day prior to the date of the proposed issuance of such Letter of Credit, by the
Borrower to the Issuing Bank, which shall give to the Administrative Agent and
each Revolving Credit Lender prompt notice thereof by telex or telecopier. Each
such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be
by telephone, confirmed immediately in writing, or telex or telecopier,
specifying therein the requested
<PAGE> 40
33
(i) date of such issuance (which shall be a Business Day), (ii) Available Amount
of such Letter of Credit, (iii) expiration date of such Letter of Credit, (iv)
name and address of the beneficiary of such Letter of Credit and (v) form of
such Letter of Credit, and shall be accompanied by such application and
agreement for letter of credit as the Issuing Bank may specify to the Borrower
for use in connection with such requested Letter of Credit (a "Letter of Credit
Agreement"). If the requested form of such Letter of Credit is acceptable to the
Issuing Bank, in its sole discretion, the Issuing Bank will, upon fulfillment of
the applicable conditions set forth in Article 3, make such Letter of Credit
available to the Borrower at its office referred to in Section 11.2 or as
otherwise agreed with the Borrower in connection with such issuance. In the
event and to the extent that the provisions of any such Letter of Credit
Agreement shall conflict with this Agreement, the provisions of this Agreement
shall govern.
(b) Letter of Credit Reports. The Issuing Bank shall furnish (i) to the
Administrative Agent on the first Business Day of each week a written report
summarizing issuance and expiration dates of Letters of Credit issued during the
previous week and drawings during such week under all Letters of Credit, (ii) to
the Administrative Agent, the Borrower and each Revolving Credit Lender on the
first Business Day of each month a written report summarizing issuance and
expiration dates of Letters of Credit issued during the preceding month and
drawings during such month under all Letters of Credit and (iii) to the
Administrative Agent, the Borrower and each Revolving Credit Lender on the first
Business Day of each calendar quarter a written report setting forth the average
daily aggregate Available Amount during the preceding calendar quarter of all
Letters of Credit.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Letter of Credit Advance which
shall be a Prime Rate Advance in the amount of such draft. Each of the Borrower,
the Administrative Agent and each Revolving Credit Lender hereby acknowledges
and agrees that Letter of Credit Advances may be made, or deemed made, by the
Issuing Bank in respect of any Letter of Credit and to participate in Letter of
Credit Advances made hereunder as provided herein. The Borrower shall reimburse
the Issuing Bank each Letter of Credit Advance, using its own funds or the
proceeds of a Revolving Credit Borrowing or Swing Line Borrowing on the same
Business Day on which the Letter of Credit is drawn. To the extent the Borrower
does not reimburse the Issuing Bank, upon written demand by the Issuing Bank,
with a copy of such demand to the Administrative Agent, each Revolving Credit
Lender shall purchase from the Issuing Bank, and the Issuing Bank shall sell and
assign to each such Revolving Credit Lender, such Lender's Pro Rata Share of
such outstanding Letter of Credit Advance as of the date of such purchase, by
making available (for the account of its Applicable Lending Office) to the
Administrative Agent (for the account of the Issuing Bank), by deposit to the
Administrative Agent's Account, in same day funds, an amount equal to the
portion of the outstanding principal amount of such Letter of Credit Advance to
be purchased by such Lender. Promptly after receipt thereof, the Administrative
Agent shall transfer such funds to the Issuing Bank. The Borrower hereby agrees
to each such sale and assignment. Each Revolving Credit Lender agrees to
purchase its Pro Rata
<PAGE> 41
34
Share of an outstanding Letter of Credit Advance on (i) the Business Day on
which demand therefor is made by the Issuing Bank; provided that notice of such
demand is given not later than 11:00 A.M. (New York time) on such Business Day
or (ii) the first Business Day next succeeding such demand if notice of such
demand is given after such time. Upon any such assignment by the Issuing Bank to
any other Revolving Credit Lender of a portion of a Letter of Credit Advance,
the Issuing Bank represents and warrants to such other Lender that the Issuing
Bank is the legal and beneficial owner of such interest being assigned by it,
free and clear of any liens, but makes no other representation or warranty and
assumes no responsibility with respect to such Letter of Credit Advance, the
Loan Documents or any Loan Party. If and to the extent that any Revolving Credit
Lender shall not have so made the amount of such Letter of Credit Advance
available to the Administrative Agent, such Revolving Credit Lender agrees to
pay to the Administrative Agent forthwith on demand such amount together with
interest thereon, for each day from the date of demand by the Issuing Bank until
the date such amount is paid to the Administrative Agent, at the Federal Funds
Rate for its account or the account of the Issuing Bank, as applicable. If such
Lender shall pay to the Administrative Agent such amount for the account of the
Issuing Bank on any Business Day, such amount so paid in respect of principal
shall constitute a Letter of Credit Advance made by such Lender on such Business
Day for purposes of this Agreement, and the outstanding principal amount of the
Letter of Credit Advance made by the Issuing Bank shall be reduced by such
amount on such Business Day.
(d) Failure to Make Letter of Credit Advances. The failure of any
Lender to make any Letter of Credit Advance to be made by it on the date
specified in Section 2.3(c) shall not relieve any other Lender of its obligation
hereunder to make its Letter of Credit Advance on such date, but no Lender shall
be responsible for the failure of any other Lender to make the Letter of Credit
Advance to be made by such other Lender on such date.
SECTION 2.4 Repayment of Advances.
(a) Term A Advances. The Borrower shall repay to the Administrative
Agent for the ratable account of the Term A Lenders the aggregate outstanding
principal amount of the Term A Advances on the following dates in the amounts
indicated (which amounts shall be reduced as a result of the application of
prepayments in accordance with the order of priority set forth in Section 2.6):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
December 31, 1998 $ 750,000
March 31, 1999 $ 750,000
June 30, 1999 $ 750,000
September 30, 1999 $ 750,000
December 31, 1999 $1,000,000
</TABLE>
<PAGE> 42
35
<TABLE>
<S> <C>
March 31, 2000 $1,000,000
June 30, 2000 $1,000,000
September 30, 2000 $1,000,000
December 31, 2000 $1,500,000
March 31, 2001 $1,500,000
June 30, 2001 $1,500,000
September 30, 2001 $1,500,000
December 31, 2001 $2,000,000
March 31, 2002 $2,000,000
June 30, 2002 $2,000,000
September 30, 2002 $2,000,000
December 31, 2002 $2,250,000
March 31, 2003 $2,250,000
June 30, 2003 $2,250,000
September 30, 2003 $2,250,000
December 31, 2003 $2,500,000
March 31, 2004 $2,500,000
June 30, 2004 $2,500,000
Sixth Anniversary of
the Closing Date $2,500,000
</TABLE>
provided, however, that the final principal installment shall be in an amount
equal to the aggregate principal amount of the Term A Advances outstanding on
such date.
(b) Term B Advances. The Borrower shall repay to the Administrative
Agent for the ratable account of the Term B Lenders the aggregate outstanding
principal amount of the Term B Advances on the following dates in the amounts
indicated (which amounts shall be reduced as a result of the application of
prepayments in accordance with the order of priority set forth in Section 2.6):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
December 31, 1998 $125,000
March 31, 1999 $125,000
June 30, 1999 $125,000
September 30, 1999 $125,000
December 31, 1999 $125,000
March 31, 2000 $125,000
June 30, 2000 $125,000
September 30, 2000 $125,000
December 31, 2000 $125,000
</TABLE>
<PAGE> 43
36
<TABLE>
<S> <C>
March 31, 2001 $ 125,000
June 30, 2001 $ 125,000
September 30, 2001 $ 125,000
December 31, 2001 $ 125,000
March 31, 2002 $ 125,000
June 30, 2002 $ 125,000
September 30, 2002 $ 125,000
December 31, 2002 $ 125,000
March 31, 2003 $ 125,000
June 30, 2003 $ 125,000
September 30, 2003 $ 125,000
December 31, 2003 $ 125,000
March 31, 2004 $ 125,000
June 30, 2004 $ 125,000
September 30, 2004 $ 125,000
December 31, 2004 $5,625,000
March 31, 2005 $5,625,000
June 30, 2005 $5,625,000
September 30, 2005 $5,625,000
December 31, 2005 $7,375,000
March 31, 2006 $7,375,000
June 30, 2006 $7,375,000
Eighth Anniversary of
the Closing Date $7,375,000
</TABLE>
provided, however, that the final principal installment shall be equal to the
aggregate principal amount of the Term B Advances outstanding on such date.
(c) Revolving Credit Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Revolving Credit Lenders on
the Revolving Credit Termination Date the aggregate principal amount of the
Revolving Credit Advances then outstanding.
(d) Swing Line Advances. The Borrower shall repay to the Administrative
Agent for the account of the Swing Line Bank and each other Revolving Credit
Lender that has made a Swing Line Advance the outstanding principal amount of
each Swing Line Advance made by each of them on the earlier of the maturity date
for such Swing Line Advance (which maturity date shall be no later than the
seventh day after the requested date of such Swing Line Advance) and the
Revolving Credit Termination Date.
(e) Letter of Credit Advances. (i) The Borrower shall repay to the
Administrative Agent for the account of the Issuing Bank and each other
Revolving Credit Lender that has made a Letter
<PAGE> 44
37
of Credit Advance on the earlier of demand and the Revolving Credit Termination
Date the outstanding principal amount of each Letter of Credit Advance made by
each of them.
(ii) The Obligations of the Borrower under this Agreement, any
Letter of Credit Agreement and any other agreement or instrument relating to any
Letter of Credit shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, such Letter of Credit
Agreement and such other agreement or instrument under all circumstances,
including, without limitation, the following circumstances:
(A) any lack of validity or enforceability of any
Loan Document, any Letter of Credit Agreement, any Letter of Credit or
any other agreement or instrument relating to any of the foregoing (all
of the foregoing being, collectively, the "L/C Related Documents");
(B) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Obligations of
the Borrower in respect of any L/C Related Document or any other
amendment or waiver of or any consent to departure from all or any of
the L/C Related Documents;
(C) the existence of any claim, set-off, defense or
other right that the Borrower may have at any time against any
beneficiary or any transferee of a Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be acting), the
Issuing Bank, or any other Person, whether in connection with the
transactions contemplated by the L/C Related Documents or any unrelated
transaction;
(D) any statement or any other document presented
under a Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or
(E) any exchange, release or non-perfection of any
Collateral or other collateral, or any release or amendment or waiver
of or consent to departure from any Guaranty or any other guarantee,
for all or any of the Obligations of the Borrower in respect of the L/C
Related Documents.
SECTION 2.5 Termination or Reduction of the Commitments.
(a) Optional. The Borrower may, upon at least three Business Days'
notice to the Administrative Agent, terminate in whole or reduce in part the
unused portions of the Unused Revolving Credit Commitments; provided, however,
that each partial reduction of a Facility (i) shall be in an aggregate amount of
$1,000,000 or an integral multiple of $250,000 in excess thereof, and
<PAGE> 45
38
(ii) shall be made ratably among the appropriate Lenders in accordance with
their Commitments with respect to such Facility.
(b) Mandatory. (i) On the date of the Term A Borrowing, after giving
effect to such Term A Borrowing, and from time to time thereafter upon each
repayment or prepayment of the Term A Advances, the aggregate Term A Commitments
of the Term A Lenders shall be automatically and permanently reduced, on a pro
rata basis, by an amount equal to the amount by which the aggregate Term A
Commitments immediately prior to such reduction exceed the aggregate unpaid
principal amount of the Term A Advances then outstanding; provided, however,
that the Term A Commitments shall terminate, and all Advances made thereunder
shall be repaid in full, no later than the sixth anniversary of the Closing
Date.
(ii) On the date of the Term B Borrowing, after giving effect
to such Term B Borrowing, and from time to time thereafter upon each repayment
or prepayment of the Term B Advances, the aggregate Term B Commitments of the
Term B Lenders shall be automatically and permanently reduced, on a pro rata
basis, by an amount equal to the amount by which the aggregate Term B
Commitments immediately prior to such reduction exceed the aggregate unpaid
principal amount of the Term B Advances then outstanding; provided, however,
that the Term B Commitments shall terminate, and all Advances made thereunder
shall be repaid in full, no later than the eighth anniversary of the Closing
Date.
(iii) On and after the date that all Term A Advances and Term
B Advances shall have been repaid in full, the Revolving Credit Facility shall
be automatically and permanently reduced on each date on which prepayment
thereof is required to be made pursuant to Section 2.6(b)(i), (ii), (iii) or
(iv) in an amount equal to the applicable Reduction Amount, provided that each
such reduction of the Revolving Credit Facility shall be made ratably among the
Revolving Credit Lenders in accordance with their Revolving Credit Commitments.
(iv) The Letter of Credit Facility shall be permanently
reduced from time to time on the date of each reduction in the Revolving Credit
Facility by the amount, if any, by which the amount of the Letter of Credit
Facility exceeds the Revolving Credit Facility after giving effect to such
reduction of the Revolving Credit Facility.
(v) In the event the Closing Date shall not have occurred by
September 30, 1998, then all of the Commitments shall be automatically
terminated and this Agreement shall be of no further force or effect.
SECTION 2.6 Prepayments.
(a) Optional. The Borrower may, without premium or penalty, upon at
least One (1) Business Day's notice in the case of Prime Rate Advances and three
(3) Business Days' notice in the
<PAGE> 46
39
case of Eurodollar Rate Advances, in each case to the Administrative Agent
stating the proposed date and aggregate principal amount of the prepayment, and
if such notice is given, the Borrower shall, prepay the outstanding aggregate
principal amount of the Advances, in whole or ratably in part, together with
accrued interest to the date of such prepayment on the aggregate principal
amount prepaid; provided, however, that (i) each partial prepayment shall be in
an aggregate principal amount of $500,000 or an integral multiple of $250,000 in
excess thereof and (ii) no such prepayment of a Eurodollar Rate Advance shall be
made other than on the last day of an Interest Period therefor without payment
by the Borrower of the amounts provided for in Section 11.4(c). Each prepayment
made pursuant to this Section 2.6(a) shall, at the Borrower's option, be applied
either to (i) repay the Facilities in the following manner: first, to prepay
Swing Line Advances then outstanding until such Advances are paid in full;
second, to prepay Letter of Credit Advances then outstanding until such Advances
are paid in full; and third, to prepay Revolving Credit Advances then
outstanding until such Advances are paid in full; or (ii) repay the Facilities
in the following manner: first, ratably to the Term A Facility and the Term B
Facility, and ratably to each unpaid installment of principal of each of the
Term Facilities until such installments are paid in full; second, to prepay
Swing Line Advances then outstanding until such Advances are paid in full;
third, to prepay Letter of Credit Advances then outstanding until such Advances
are paid in full; fourth, to prepay Revolving Credit Advances then outstanding
(whereupon the Revolving Credit Facility shall be permanently reduced as set
forth in Section 2.5(b)(iii)) until such Revolving Credit Advances are paid in
full; and fifth, deposited in the L/C Cash Collateral Account to cash
collateralize 100% of the Available Amount of the Letters of Credit then
outstanding. Upon the drawing of any Letter of Credit for which funds are on
deposit in the L/C Cash Collateral Account, such funds shall be applied to
reimburse the Issuing Bank or the Revolving Credit Lenders, as applicable.
(b) Mandatory. (i) Within ninety (90) days following the end of each
Fiscal Year in which the Ratio of Consolidated Debt to EBITDA at the end of such
Fiscal Year exceeds 4.25:1, the Borrower shall execute and deliver to the
Administrative Agent a certificate of the Borrower's Chief Executive Officer or
Chief Financial Officer demonstrating its calculation of Excess Cash Flow for
such Fiscal Year along with a prepayment of the then outstanding Advances equal
to seventy-five percent (75%) of the annual Excess Cash Flow; provided, however,
that (i) if the Ratio of Consolidated Debt to EBITDA, measured at the end of
such Fiscal Year of the Borrower, for such Fiscal Year of the Borrower, is less
than or equal to 4.25:1 but greater than 3.00:1, then the required prepayment of
the then outstanding Advances shall be in the amount of fifty percent (50%) of
the annual Excess Cash Flow for such Fiscal Year and (ii) if the Ratio of the
Consolidated Debt to EBITDA, measured at the end of such Fiscal Year of the
Borrower, for such Fiscal Year of the Borrower, is equal to or less than 3.00:1,
then there shall be no required prepayment out of annual Excess Cash Flow for
such Fiscal Year.
(ii) Within fifteen (15) days after receipt by any Loan Party
or any of its Subsidiaries of Net Cash Proceeds from Asset Dispositions, the
Borrower shall prepay the then outstanding
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Advances in an amount equal to one-hundred percent (100%) of such Net Cash
Proceeds in excess of $500,000 in any Fiscal Year.
(iii) Within fifteen (15) days after receipt by any Loan Party
or any of its Subsidiaries of Net Cash Proceeds from any Debt Issuance or Equity
Issuance, the Borrower shall prepay the then outstanding Advances in an amount
equal to, with respect to any (x) Debt Issuance, one hundred percent (100%) and
(y) Equity Issuance, fifty percent (50%), of such Net Cash Proceeds.
(iv) Within fifteen (15) days after receipt of Net Cash
Proceeds by any Loan Party or any of its Subsidiaries from any Extraordinary
Receipt received by or paid to or for the account of any Loan Party or any of
its Subsidiaries and not otherwise included in clause (i), (ii) or (iii) above,
the Borrower shall prepay the then outstanding Advances in an amount equal to
one hundred percent (100%) of such Net Cash Proceeds in excess of $500,000 in
the aggregate.
(v) Each prepayment made pursuant to clause (i), (ii), (iii)
or (iv) shall be applied to prepay the Facilities in the following manner:
first, ratably to the Term A Facility and the Term B Facility, and ratably to
each unpaid installment of principal of each of the Term Facilities until such
installments are paid in full; second, to prepay Swing Line Advances then
outstanding until such Advances are paid in full; third, to prepay Letter of
Credit Advances then outstanding until such Advances are paid in full; fourth,
to prepay Revolving Credit Advances then outstanding (whereupon the Revolving
Credit Facility shall be permanently reduced as set forth in Section
2.5(b)(iii)) until such Revolving Credit Advances are paid in full; and fifth,
deposited in the L/C Cash Collateral Account to cash collateralize 100% of the
Available Amount of the Letters of Credit then outstanding. The portion of each
such application allocable to Eurodollar Rate Advances may, at the option of the
Borrower (A) be applied to prepay such Advances immediately, even if such
application shall occur on other than the last day of an applicable Interest
Period (in which case the Borrower shall pay the amounts provided for in Section
11.4(c)) or (B) be deposited in the Prepayment Account and applied on the last
day of the applicable Interest Periods to prepay the Eurodollar Rate Advances
that would otherwise have been prepaid by the amounts deposited in the
Prepayment Account. Upon the drawing of any Letter of Credit for which funds are
on deposit in the L/C Cash Collateral Account, such funds shall be applied to
reimburse the Issuing Bank or the Revolving Credit Lenders, as applicable. The
amount remaining (if any) after the required prepayment of the Advances then
outstanding and the 100% cash collateralization of the aggregate Available
Amount of Letters of Credit then outstanding (the sum of such prepayment
amounts, cash collateralization amounts and remaining amount being referred to
herein as the "Reduction Amount") may be retained by the Borrower. Upon the
drawing of any Letter of Credit for which funds are on deposit in the L/C Cash
Collateral Account, such funds shall be applied to reimburse the Issuing Bank or
the Revolving Credit Lenders, as applicable. Upon the termination of all of the
Commitments and the indefeasible payment in full of all Obligations, including,
without limitation, termination or expiration of all Letters of Credit and the
indefeasible payment in full of all
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Obligations in respect of all Letters of Credit, then all amounts remaining on
deposit in the L/C Cash Collateral Account shall be returned to the Borrower.
(vi) The Borrower shall, within fifteen (15) days following
the end of each month in each Fiscal Year, pay to the Administrative Agent for
deposit in the L/C Cash Collateral Account an amount sufficient to cause the
aggregate amount on deposit in such Account to equal the amount by which the
aggregate Available Amount of all Letters of Credit then outstanding exceeds the
Letter of Credit Facility on such Business Day.
(vii) At any time that the aggregate amount of Revolving
Credit Advances plus Swing Line Advances, plus Letter of Credit Advances, plus
the aggregate Available Amount of all Letters of Credit then outstanding exceeds
the Revolving Credit Facility, the Borrower shall immediately repay Revolving
Credit Advances to the extent necessary to reduce the principal balance of
Revolving Credit Borrowings to an amount equal to or less than the Revolving
Credit Availability.
(viii) The foregoing notwithstanding, the provisions of this
Section 2.6(b) shall not be construed to permit any Equity Issuance, Debt
Issuance or Asset Disposition otherwise prohibited under the terms of this
Agreement.
(c) Application of Prepayments to the Term A Facility and the Term B
Facility. Upon receipt of any amounts to be applied to the prepayment in respect
of the Term A Facility and the Term B Facility pursuant to this Section 2.6, the
Administrative Agent shall apply such amounts to the prepayment of the Term A
Advances and Term B Advances ratably; provided, however, that if within five (5)
Business Days of receiving notice from the Administrative Agent of a prepayment
any Term B Lender notifies the Administrative Agent that it elects to refuse to
accept the prepayment of its Term B Advances, and the Borrower upon five (5)
Business Days' notice consents to such refusal, the Administrative Agent shall
apply the portion of such prepayment that would have been allocated to the
repayment of such Lender's Term B Advances, to the prepayment of the Advances of
the Lenders under the Term A Facility and of the Advances of the Term B Lenders
which have not so refused ratably to each unpaid installment of principal of
each such Facility (and, if all Lenders under the Term B Facility elect to
refuse their ratable share of such prepayment, only to the Advances of the
Lenders under the Term A Facility). If any Term B Lender shall not give notice
to the Administrative Agent within such five (5) Business Day period, the
Administrative Agent shall assume that such Lender shall have accepted such
prepayment.
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SECTION 2.7 Interest.
(a) Scheduled Interest. The Borrower shall pay to the Administrative
Agent, for the benefit of the Lenders, interest on the unpaid principal amount
of each Advance owing to each Lender from the date of such Advance until such
principal amount shall be paid in full, at the following rates per annum:
(i) Prime Rate Advances. During such periods as such Advance
is a Prime Rate Advance, a rate per annum equal at all times to the sum of (x)
the Prime Rate in effect from time to time plus (y) the Applicable Margin for
such Advance in effect from time to time, payable in arrears monthly on the last
day of each month during such periods and on the date such Prime Rate Advance
shall be Converted or paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during
each Interest Period for such Advance to the sum of (x) the Eurodollar Rate for
such Interest Period for such Advance plus (y) the Applicable Margin for such
Advance in effect on the first day of such Interest Period, payable in arrears
on the last day of such Interest Period and, if such Interest Period has a
duration of more than three months, on each day that occurs during such Interest
Period every three months from the first day of such Interest Period and on the
date such Eurodollar Rate Advance shall be Converted or paid in full.
(b) Default Interest. (i) With respect to any principal amount of any
Advance not paid when due by the Borrower (whether at the stated maturity, by
acceleration or otherwise), the Borrower shall pay interest on such unpaid
principal amount, in arrears on the dates referred to in clause (a)(i) or
(a)(ii) above and on demand, at a rate per annum equal at all times to 2% per
annum above the rate per annum required to be paid on such Advance pursuant to
clause (a)(i) or (a)(ii) above and (ii) with respect to the amount of any
interest, fee or other amount payable hereunder not paid when due (whether at
the stated maturity, by acceleration or otherwise) the Borrower shall pay
interest on such amount to the fullest extent permitted by law from the date
such amount shall be due until such amount shall be paid in full, in arrears on
the date such amount shall be paid in full and on demand, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid,
in the case of interest, on the Type of Advance on which such interest has
accrued pursuant to clause (a)(i) or (a)(ii) above, and, in all other cases, on
Prime Rate Advances pursuant to clause (a)(i) above.
(c) Notice of Interest Rate. Promptly after receipt of a Notice of
Borrowing pursuant to Section 2.2(a), the Administrative Agent shall give notice
to the Borrower and each appropriate Lender of the applicable interest rate
determined by the Administrative Agent for purposes of clause (a)(i) or (ii).
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SECTION 2.8 Fees.
(a) Commitment Fees. The Borrower shall pay to the Administrative
Agent, for the account of the Lenders, commitment fees, from the Closing Date in
the case of each Initial Lender and from the effective date specified in the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender, until the Revolving Credit Termination Date payable in
arrears quarterly on the last Business Day of each March, June, September and
December, commencing on September 30, 1998, and on the Revolving Credit
Termination Date at a rate per annum equal to 0.50% per annum on the average
daily Unused Revolving Credit Commitment of such Lender for any periods when the
Ratio of Consolidated Debt to EBITDA is greater than 3.50:1; provided, however,
the commitment fee set forth above shall be decreased (i) to 0.40% for any
periods when the Ratio of Consolidated Debt to EBITDA is greater than 3.00:1 but
equal to or less than 3.50:1, (ii) to 0.35% for any periods when the Ratio of
Consolidated Debt to EBITDA is greater than 2.50:1 but equal to or less than
3.00:1 and (iii) to 0.30% for any periods when the Ratio of Consolidated Debt to
EBITDA is equal to or less than 2.50:1. Notwithstanding the above, the
Commitment Fee shall be 0.50% per annum on the average daily Unused Revolving
Credit Commitment of such Lender during the first six months following the
Closing Date. For purposes of this clause (a), Swing Line Advances shall not
constitute utilization of the Revolving Credit Commitments of the Revolving
Credit Lenders.
(b) Letter of Credit Fees. (i) The Borrower shall pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commission, payable in arrears quarterly on the last Business Day of each March,
June, September and December, commencing on September 30, 1998 and on the
earliest to occur of the full drawing, expiration, termination or cancellation
of any such Letter of Credit and on the Revolving Credit Termination Date, on
such Lender's Pro Rata Share of the average daily aggregate Available Amount
during such quarter of all Letters of Credit outstanding from time to time at
the rate per annum equal to the Applicable Margin then in effect for Eurodollar
Advances under the Revolving Credit Facility.
(ii) In addition to the foregoing fees described in (i) above,
the Borrower shall pay to the Issuing Bank, for its own account, (x) on the
Available Amount of each Letter of Credit, a fronting fee, for the period from
the date of issuance of such Letter of Credit to and including the termination
thereof, computed at the rate of one quarter of one percent (1/4%) per annum,
payable in arrears quarterly on the last Business Day of each March, June,
September and December of each year and on the date of termination thereof and
(y) transfer fees and other customary fees and charges in connection with the
issuance or administration of each Letter of Credit as the Borrower and the
Issuing Bank shall agree.
(c) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account such fees as may from time to time be
agreed upon between the Borrower and the Administrative Agent.
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SECTION 2.9 Conversion of Advances.
(a) Optional. The Borrower may on any Business Day, upon notice given
to the Administrative Agent not later than 11:00 A.M. (New York time) on the
third Business Day prior to the date of the proposed Conversion and subject to
the provisions of Sections 2.7 and 2.10, Convert all or any portion of the
Advances of one Type comprising the same Borrowing into Advances of the other
Type; provided, however, that any Conversion of Eurodollar Rate Advances into
Prime Rate Advances shall be made only on the last day of an Interest Period for
such Eurodollar Rate Advances unless the Borrower pays the amounts, if any,
provided for in Section 11.4(c), any Conversion of Prime Rate Advances into
Eurodollar Rate Advances shall be in an amount not less than the minimum amount
specified in Section 2.1(c), no Conversion of any Advances shall result in more
separate Borrowings than permitted under Section 2.2(c) and each Conversion of
Advances comprising part of the same Borrowing under any Facility shall be made
ratably among the appropriate Lenders in accordance with their Commitments under
such Facility. Each such notice of Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Advances to
be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for such Advances. Each notice of
Conversion shall be irrevocable and binding on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid principal
amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $250,000, such Advances shall
automatically Convert into Prime Rate Advances.
(ii) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.1, the
Administrative Agent will forthwith so notify the Borrower and the appropriate
Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Prime
Rate Advance.
(iii) Upon the occurrence and during the continuance of any
Event of Default and the acceleration of the Notes, interest thereon and other
amounts payable by the Borrower under this Agreement and the other Loan
Documents pursuant to Article 9, (x) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Prime Rate Advance and (y) the obligation of the Lenders to make,
or to Convert Advances into, Eurodollar Rate Advances shall be suspended.
SECTION 2.10 Increased Costs, Etc.
(a) If, due to either (i) the introduction of or any change in reserve
requirements included in the Eurodollar Rate Reserve Percentage, or in the
interpretation of any law or regulation, or
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(ii) the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender Party of agreeing to make or of making,
funding or maintaining Eurodollar Rate or Prime Rate Advances or of agreeing to
issue or of issuing or maintaining Letters of Credit or of agreeing to make or
of making or maintaining Letter of Credit Advances (excluding for purposes of
this Section 2.10 any such increased costs resulting from (x) Taxes or Other
Taxes (as to which Section 2.12 shall govern) and (y) changes in the basis of
taxation of overall net income or overall gross income by the United States or
by the foreign jurisdiction or state under the laws of which such Lender Party
is organized or has its Applicable Lending Office or any political subdivision
thereof), then the Borrower shall from time to time, upon demand by such Lender
Party (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender Party additional amounts
sufficient to compensate such Lender Party for such increased cost; provided,
however, that a Lender Party claiming additional amounts under this Section
2.10(a) agrees to use reasonable efforts (consistent with its internal policy
and legal and regulatory restrictions) to designate a different Applicable
Lending Office if the making of such a designation would avoid the need for, or
reduce the amount of, such increased cost that may thereafter accrue and would
not, in the reasonable judgment of such Lender Party, be otherwise
disadvantageous to such Lender Party. A certificate in reasonable detail as to
the amount of such increased cost, submitted to the Borrower by such Lender
Party, shall be conclusive and binding for all purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
amount of capital required or reasonably expected to be maintained by any Lender
Party or any corporation controlling such Lender Party as a result of or based
upon the existence of such Lender Party's commitment to lend or to issue Letters
of Credit hereunder and other commitments of such type or the issuance or
maintenance of the Letters of Credit (or similar contingent obligations), then,
upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender Party, from time to time as specified by such Lender
Party, additional amounts sufficient to compensate such Lender Party in the
light of such circumstances, to the extent that such Lender Party reasonably
determines such increase in capital to be allocable to the existence of such
Lender Party's commitment to lend or to issue Letters of Credit hereunder or to
the issuance or maintenance of any Letters of Credit. A certificate in
reasonable detail as to such amounts submitted to the Borrower by such Lender
Party shall be conclusive and binding for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances under any
Facility, Lenders owed greater than 50% of the then aggregate unpaid principal
amount thereof notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Lenders of making, funding or maintaining their Eurodollar Rate Advances for
such Interest Period, the Administrative Agent shall forthwith so notify the
Borrower and the appropriate
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Lenders, whereupon (i) each such Eurodollar Rate Advance under any Facility will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Prime Rate Advance and (ii) the obligation of the appropriate
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Administrative Agent shall notify the Borrower that such
Lenders have determined that the circumstances causing such suspension no longer
exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower
through the Administrative Agent, (i) each Eurodollar Rate Advance under each
Facility under which such Lender has a Commitment will automatically, upon such
demand, Convert into a Prime Rate Advance and (ii) the obligation of the
appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower that such Lender has determined that the circumstances causing such
suspension no longer exist; provided, however, that before making any such
demand, such Lender agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Eurodollar Lending Office if the making of such a designation would allow such
Lender or its Eurodollar Lending Office to continue to perform its obligations
to make Eurodollar Rate Advances or to continue to find or maintain Eurodollar
Rate Advances and would not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender.
SECTION 2.11 Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the Notes,
irrespective of any right of counterclaim or set-off (except as otherwise
provided in Section 2.15), not later than 11:00 A.M. (New York time) on the day
when due in U.S. dollars to the Administrative Agent at the Administrative
Agent's Account in same day funds. The Administrative Agent will promptly
thereafter cause like funds to be distributed (i) if such payment by the
Borrower is in respect of principal, interest, commitment fees or any other
Obligation then payable hereunder and under the Notes to more than one Lender
Party, to such Lender Parties for the account of their respective Applicable
Lending Offices ratably in accordance with the amounts of such respective
Obligations then payable to such Lender Parties and (ii) if such payment by the
Borrower is in respect of any Obligation then payable hereunder to one Lender
Party, to such Lender Party for the account of its Applicable Lending Office, in
each case to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 11.7(d), from and after
the effective date of such Assignment and Acceptance, the Administrative Agent
shall make all payments hereunder and under the Notes in respect of the interest
assigned thereby to the Lender Party assignee thereunder,
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and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.
(b) If the Administrative Agent receives funds for application to the
Obligations under the Loan Documents under circumstances for which the Loan
Documents do not specify the Advances or the Facility to which, or the manner in
which, such funds are to be applied, the Administrative Agent shall distribute
such funds to each Lender Party ratably in accordance with such Lender Party's
proportionate share of the principal amount of all outstanding Advances and the
Available Amount of all Letters of Credit then outstanding in repayment or
prepayment of such of the outstanding Advances or other Obligations owed to such
Lender Party, and for application to such principal installments, as the
Administrative Agent shall direct.
(c) The Borrower hereby authorizes each Lender Party, if and to the
extent payment owed to such Lender Party is not made when due hereunder or, in
the case of a Lender, under the Note held by such Lender, to charge from time to
time against any or all of the Borrower's accounts with such Lender Party any
amount so due.
(d) All computations of interest, fees and Letter of Credit commissions
shall be made by the Administrative Agent on the basis of a year of 360 days in
the case of computations with respect to the Eurodollar Rate, and 365 days in
the case of computations with respect to the Prime Rate, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest, fees or commissions are
payable. Each determination by the Administrative Agent of an interest rate, fee
or commission hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(e) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall 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 interest or commitment fee, as the
case may be; provided, however, that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(f) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to any Lender Party
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each such Lender Party
on such due date an amount equal to the amount then due such Lender Party. If
and to the extent the Borrower shall not have so made such payment in full to
the Administrative Agent, each such Lender Party shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender
Party together with interest thereon, for each day from the date such amount is
distributed to such
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Lender Party until the date such Lender Party repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.12 Taxes.
(a) Any and all payments by the Borrower hereunder or under the Notes
shall be made, in accordance with Section 2.11, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of each Lender Party and the Administrative Agent, net income taxes
that are imposed by the United States and net income taxes (or franchise taxes
imposed in lieu thereof) that are imposed on such Lender Party or the
Administrative Agent by the state or foreign jurisdiction under the laws of
which such Lender Party or the Administrative Agent (as the case may be) is
organized or any political subdivision thereof and, in the case of each Lender
Party, net income taxes (or franchise taxes imposed in lieu thereof) that are
imposed on such Lender Party by the state or foreign jurisdiction of such Lender
Party's Applicable Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities in respect of payments hereunder or under the Notes 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 hereunder or under any
Note to any Lender Party or the Administrative Agent, (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.12) such Lender Party or the Administrative Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement or the Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender Party and the
Administrative Agent for the full amount of Taxes and Other Taxes, and for the
full amount of taxes imposed by any jurisdiction on amounts payable under this
Section 2.12, imposed on or paid by such Lender Party or the Administrative
Agent (as the case may be) and any liability (including penalties, additions to
tax, interest and expenses) arising therefrom or with respect thereto, except
with respect to any Lender Party or the Administrative Agent, as the case may
be, for such a liability arising from such Lender Party's or the Administrative
Agent's, as the case may be, willful misconduct or gross negligence. This
indemnification shall be made within thirty (30) days from the date such Lender
Party or the Administrative Agent, as the case may be, makes written demand
specifying in reasonable detail the basis therefor.
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(d) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 11.2, the original receipt of payment thereof or a certified copy of
such receipt. In the case of any payment hereunder or under the Notes by or on
behalf of the Borrower through an account or branch outside the United States or
by or on behalf of the Borrower by a payor that is not a United States person,
if the Borrower determines that no Taxes are payable in respect thereof, the
Borrower shall furnish, or shall cause such payor to furnish, to the
Administrative Agent, at such address, an opinion of counsel acceptable to the
Administrative Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) Each Lender Party organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution and
delivery of this Agreement in the case of each Initial Lender or Initial Issuing
Bank, as the case may be, and on the date of the Assignment and Acceptance
pursuant to which it became a Lender Party in the case of each other Lender
Party, and from time to time thereafter as requested in writing by the Borrower
or the Administrative Agent (but only so long thereafter as such Lender Party
remains lawfully able to do so), provide each of the Administrative Agent and
the Borrower with two (2) original Internal Revenue Service forms 1001 or 4224,
as appropriate, or any successor or other form prescribed by the Internal
Revenue Service, certifying that such Lender is exempt from or entitled to a
reduced rate of United States withholding tax on payments pursuant to this
Agreement or the Notes. If the forms provided by a Lender Party at the time such
Lender Party first becomes a party to this Agreement indicates a United States
interest withholding tax rate in excess of zero, withholding tax at such rate
shall be considered excluded from Taxes unless and until such Lender Party
provides the appropriate form certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes
for periods governed by such form; provided, however, that, if at the date of
the Assignment and Acceptance pursuant to which a Lender Party becomes a party
to this Agreement, the Lender Party assignor was entitled to payments under
subsection (a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the Lender Party assignee on such date. If any form
or document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001 or
4224, that the Lender Party reasonably considers to be confidential, the Lender
Party shall give written notice thereof to the Borrower and shall not be
obligated to include in such form or document such confidential information.
(f) For any period with respect to which a Lender Party has failed to
provide the Borrower with the appropriate form described in subsection (e)
(other than if such failure is due to a change in law occurring after the date
on which a form originally was required to be provided or
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50
if such form otherwise is not required under subsection (e)), such Lender Party
shall not be entitled to indemnification under subsection (a) or (c) with
respect to Taxes imposed by the United States by reason of such failure;
provided, however, that should a Lender Party become subject to Taxes because of
its failure to deliver a form required hereunder, the Borrower shall take such
steps as such Lender Party shall reasonably request to assist such Lender Party
to recover such Taxes.
(g) Any Lender Party claiming any additional amounts payable pursuant
to this Section 2.12 agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Eurodollar Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable judgment of such
Lender Party, be otherwise disadvantageous to such Lender Party.
SECTION 2.13 Sharing of Payments, Etc. If any Lender Party shall obtain
at any time any payment (whether voluntary, involuntary, through the exercise of
any right of set-off, or otherwise) (i) on account of Obligations due and
payable to such Lender Party hereunder or under the Notes at such time in excess
of its ratable share (according to the proportion of (x) the amount of such
Obligations due and payable to such Lender Party at such time to (y) the
aggregate amount of the Obligations due and payable to all Lender Parties
hereunder and under the Notes at such time) of payments on account of the
Obligations due and payable to all Lender Parties hereunder or under the Notes
at such time obtained by all the Lender Parties at such time or (ii) on account
of Obligations owing (but not due and payable) to such Lender Party hereunder
and under the Notes at such time in excess of its ratable share (according to
the proportion of (x) the amount of such Obligations owing to such Lender Party
at such time to (y) the aggregate amount of the Obligations owing (but not due
and payable) to all Lender Parties hereunder and under the Notes at such time)
of payments on account of the Obligations owing (but not due and payable) to all
Lender Parties hereunder and under the Notes at such time obtained by all of the
Lender Parties at such time, such Lender Party shall forthwith purchase from the
other Lender Parties such participations in the Obligations due and payable or
owing to them, as the case may be, as shall be necessary to cause such
purchasing Lender Party to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender Party, such purchase from each
other Lender Party shall be rescinded and each such other Lender Party shall
repay to the purchasing Lender Party the purchase price to the extent of such
Lender Party's ratable share (according to the proportion of (x) the purchase
price paid to such Lender Party to (y) the aggregate purchase price paid to all
Lender Parties) of such recovery together with an amount equal to such Lender
Party's ratable share (according to the proportion of (x) the amount of such
other Lender Party's required repayment to (y) the total amount of such required
repayments to the purchasing Lender Party) of any interest or other amount paid
or payable by the purchasing Lender Party in respect of the total amount so
recovered.
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51
The Borrower agrees that any Lender Party so purchasing a participation from
another Lender Party pursuant to this Section 2.13 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender Party
were the direct creditor of the Borrower in the amount of such participation.
SECTION 2.14 Use of Proceeds. The proceeds of the Advances and
issuances of Letters of Credit shall be available, and the Borrower shall use
such proceeds and Letters of Credit solely (a) to finance in part the
Recapitalization, (b) to pay fees and expenses incurred in connection with the
Recapitalization, (c) to refinance certain existing indebtedness of the Borrower
and (d) to provide working capital for the Borrower.
SECTION 2.15 Defaulting Lenders. (a) In the event that, at any one
time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting
Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower
shall be required to make any payment hereunder or under any other Loan Document
to or for the account of such Defaulting Lender, then the Borrower may, so long
as no Default shall occur or be continuing at such time and to the fullest
extent permitted by applicable law, set off and otherwise apply the obligation
of the Borrower to make such payment to or for the account of such Defaulting
Lender against the obligation of such Defaulting Lender to make such Defaulted
Advance. In the event that, on any date, the Borrower shall so set off and
otherwise apply its obligation to make any such payment against the obligation
of such Defaulting Lender to make any such Defaulted Advance on or prior to such
date, the amount so set off and otherwise applied by the Borrower shall
constitute for all purposes of this Agreement and the other Loan Documents an
Advance by such Defaulting Lender made on the date under the Facility pursuant
to which such Defaulted Advance was originally required to have been made
pursuant to Section 2.1. Such Advance shall be a Prime Rate Advance and shall be
considered, for all purposes of this Agreement, to comprise part of the
Borrowing in connection with which such Defaulted Advance was originally
required to have been made pursuant to Section 2.1, even if the other Advances
comprising such Borrowing shall be Eurodollar Rate Advances on the date such
Advance is deemed to be made pursuant to this subsection (a). The Borrower shall
notify the Administrative Agent at any time the Borrower exercises its right of
set-off pursuant to this subsection (a) and shall set forth in such notice (i)
the name of the Defaulting Lender and the Defaulted Advance required to be made
by such Defaulting Lender and (ii) the amount set off and otherwise applied in
respect of such Defaulted Advance pursuant to this subsection (a). Any portion
of such payment otherwise required to be made by the Borrower to or for the
account of such Defaulting Lender which is paid by the Borrower, after giving
effect to the amount set off and otherwise applied by the Borrower pursuant to
this subsection (a), shall be applied by the Administrative Agent as specified
in subsection (b) or (c) of this Section 2.15.
(b) In the event that, at any one time, (i) any Lender Party shall be a
Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to
the Administrative Agent or any of the other Lender Parties and (iii) the
Borrower shall make any payment hereunder or under any other
<PAGE> 59
52
Loan Document to the Administrative Agent for the account of such Defaulting
Lender, then the Administrative Agent may, on its behalf or on behalf of such
other Lender Parties and to the fullest extent permitted by applicable law,
apply at such time the amount so paid by the Borrower to or for the account of
such Defaulting Lender to the payment of each such Defaulted Amount to the
extent required to pay such Defaulted Amount. In the event that the
Administrative Agent shall so apply any such amount to the payment of any such
Defaulted Amount on any date, the amount so applied by the Administrative Agent
shall constitute for all purposes of this Agreement and the other Loan
Documents, payment, to such extent, of such Defaulted Amount on such date. Any
such amount so applied by the Administrative Agent shall be retained by the
Administrative Agent or distributed by the Administrative Agent to such other
Lender Parties, ratably in accordance with the respective portions of such
Defaulted Amounts payable at such time to the Administrative Agent and such
other Lender Parties and, if the amount of such payment made by the Borrower
shall at such time be insufficient to pay all Defaulted Amounts owing at such
time to the Administrative Agent and the other Lender Parties, in the following
order of priority:
(i) first, to the Administrative Agent for any Defaulted
Amount then owing to the Administrative Agent; and
(ii) second, to the Lender Parties for any Defaulted Amounts
then owing to such Lender Parties, ratably in accordance with such respective
Defaulted Amounts then owing to such Lender Parties.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.15.
(c) In the event that, at any one time, (i) any Lender Party shall be a
Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance
or a Defaulted Amount and (iii) the Borrower, the Administrative Agent or any
other Lender Party shall be required to pay or distribute any amount hereunder
or under any other Loan Document to or for the account of such Defaulting
Lender, then the Borrower or such other Lender Party shall pay such amount to
the Administrative Agent to be held by the Administrative Agent, to the fullest
extent permitted by applicable law, in escrow or the Administrative Agent shall,
to the fullest extent permitted by applicable law, hold in escrow such amount
otherwise held by it. Any funds held by the Administrative Agent in escrow under
this subsection (c) shall be deposited by the Administrative Agent in an account
with Fleet, in the name and under the control of the Administrative Agent, but
subject to the provisions of this subsection (c). The terms applicable to such
account, including the rate of interest payable with respect to the credit
balance of such account from time to time, shall be Fleet's standard terms
applicable to escrow accounts maintained with it. Any interest credited to such
account from time to time shall be held by the Administrative Agent in escrow
under, and applied by the Administrative
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53
Agent from time to time in accordance with the provisions of, this subsection
(c). The Administrative Agent shall, to the fullest extent permitted by
applicable law, apply all funds so held in escrow from time to time to the
extent necessary to make any Advances required to be made by such Defaulting
Lender and to pay any amount payable by such Defaulting Lender hereunder and
under the other Loan Documents to the Administrative Agent or any other Lender
Party, as and when such Advances or amounts are required to be made or paid and,
if the amount so held in escrow shall at any time be insufficient to make and
pay all such Advances and amounts required to be made or paid at such time, in
the following order of priority:
(i) first, to the Administrative Agent for any amount then due
and payable by such Defaulting Lender to the Administrative Agent hereunder;
(ii) second, to the Lender Parties for any amount then due and
payable by such Defaulting Lender to such Lender Parties hereunder, ratably in
accordance with such respective amounts then due and payable to such Lender
Parties; and
(iii) third, to the Borrower for any Advance then required to
be made by such Defaulting Lender pursuant to a Commitment of such Defaulting
Lender.
In the event that any Lender Party that is a Defaulting Lender shall, at any
time, cease to be a Defaulting Lender, any funds held by the Administrative
Agent in escrow at such time with respect to such Lender Party shall be
distributed by the Administrative Agent to such Lender Party and applied by such
Lender Party to the Obligations owing to such Lender Party at such time under
this Agreement and the other Loan Documents in such manner as the Administrative
Agent shall reasonably direct.
(d) The rights and remedies against a Defaulting Lender under this
Section 2.15 are in addition to other rights and remedies that the Borrower may
have against such Defaulting Lender with respect to any Defaulted Advance and
that the Administrative Agent or any Lender Party may have against such
Defaulting Lender with respect to any Defaulted Amount.
SECTION 2.16 Removal of Lender. In the event that any Lender Party (an
"Affected Lender") (a) demands payment of costs or additional amounts pursuant
to Section 2.10 or Section 2.12 or (b) asserts, pursuant to Section 2.10(d) that
it is unlawful for such Affected Lender to make Eurodollar Rate Advances, then
(subject to such Affected Lender's right to rescind such demand or assertion
within 10 days after the notice from the Borrower referred to below and so long
as no Event of Default exists) the Borrower may, upon 20 days' prior written
notice to such Affected Lender and the Administrative Agent, with the reasonable
assistance of the Administrative Agent, elect to cause such Affected Lender to
assign all of its rights and obligations under the Agreement (including, without
limitation, all of its Commitment or Commitments, the Advances owing to it and
the Note or Notes held by it) to an Eligible Assignee selected by the Borrower
which is reasonably
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54
satisfactory to the Administrative Agent, so long as such Affected Lender
receives payment in full in cash of the outstanding principal amount of all
Advances made by it and all accrued and unpaid interest thereon and all other
amounts due and payable to such Affected Lender as of the effective date of such
assignment (including, without limitation, amounts owing to such Affected Lender
pursuant to Section 2.3, 2.4, 2.7, 2.8, 2.10 or 2.12) and in such case such
Affected Lender agrees to make such assignment, and such assignee shall agree to
accept such assignment and assume all the obligations of such Affected Lender
hereunder, in accordance with Section 11.7. Until the consummation of an
assignment in accordance with the foregoing provisions of this Section 2.16, the
Borrower shall continue to pay to the Affected Lender any Obligations as they
become due and payable.
ARTICLE 3
CONDITIONS OF LENDING
SECTION 3.1 Conditions Precedent to Initial Extension of Credit. The
obligation of each Lender to make an Advance or of the Issuing Bank to issue a
Letter of Credit on the occasion of the Initial Extension of Credit hereunder is
subject to the satisfaction of each of the following conditions precedent before
or concurrently with the Initial Extension of Credit:
(a) The Administrative Agent shall have received on or before the day
of the Initial Extension of Credit the following (except that with respect to
the deliveries and conditions specified in clause (iv) below, the Administrative
Agent shall have received such deliveries and such conditions shall be satisfied
as soon as possible, but in any event not later than 90 days following the date
of the Initial Extension of Credit), each dated such day (unless otherwise
specified), in form and substance satisfactory to the Administrative Agent, and
in sufficient copies (except for the Notes), for each Lender Party:
(i) The Notes payable to the order of the Lenders duly
executed by the Borrower.
(ii) A security agreement in substantially the form of Exhibit
F granting to the Administrative Agent, for the ratable benefit of the Lenders,
a first and only priority security interest in all of the personal property and
assets of the Borrower and each Guarantor (together with each other security
agreement delivered pursuant to Section 5.13, in each case as amended,
supplemented or otherwise modified from time to time in accordance with its
terms, each a "Security Agreement"), duly executed by the Borrower and each
Guarantor, together with:
(A) proper, duly executed financing statements under
the Uniform Commercial Code of all jurisdictions that the
Administrative Agent may deem necessary or
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55
desirable in order to perfect and protect the first and only priority
Liens and security interests created under the Security Agreement,
covering the Collateral described in the Security Agreement;
(B) completed requests for information, dated on or
before the date of the Initial Extension of Credit, listing all
effective financing statements filed that name the Borrower or any
other Loan Party as debtor, together with copies of such financing
statements;
(C) evidence of the completion of all other
recordings and filings of or with respect to the Security Agreement
that the Administrative Agent may deem necessary or desirable in order
to perfect and protect the Liens created thereby;
(D) evidence of the insurance required by the terms
of the Security Agreement;
(E) copies of the Assigned Agreements, if any,
referred to in the Security Agreement, together with a consent to such
assignments, if any, in substantially the form of Exhibit C to the
Security Agreement, duly executed by each party to such Assigned
Agreements other than the Borrower;
(F) certificates representing the Pledged Shares
referred to in the Security Agreement, accompanied by undated stock
powers executed in blank and irrevocable proxies; and
(G) evidence that all other action that the
Administrative Agent may deem reasonably necessary or desirable in
order to perfect and protect the first and only priority liens and
security interests created under the Security Agreement has been taken.
(iii) A collateral assignment of lease in substantially the
form of Exhibit G assigning to the Administrative Agent, for the ratable benefit
of the Lenders, the Borrower's interest in the lease of its facilities located
in Brentwood, Tennessee and Franklin, Tennessee (each a "Collateral Assignment
of Lease"), each duly executed by the Borrower, together with a recognition
agreement duly executed by the applicable property owner pursuant to which such
property owner shall (A) consent to such collateral assignment, (B) acknowledge
the interest of the Administrative Agent, for the ratable benefit of the Secured
Parties and (C) permit the Administrative Agent or its assignee to become the
successor in interest to the Borrower under such lease.
(iv) (A) Fully executed counterparts of Mortgages duly
executed by the applicable Loan Party, together with evidence that counterparts
of the Mortgages have been delivered to a title insurance company (reasonably
acceptable to the Administrative Agent) insuring
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56
the Lien of the Mortgages for recording in all places to the extent necessary or
desirable, in the reasonable judgment of the Administrative Agent, to create a
valid and enforceable first priority lien on each Mortgaged Property listed on
Schedule 4.21 (subject only to Permitted Real Property Encumbrances) in favor of
Administrative Agent (or a trustee acting on behalf of Administrative Agent
required or desired under local law) for the benefit of the Secured Parties;
(B) Mortgagee title insurance policies (or binding
commitments to issue such title insurance policies) which shall (1) be
issued to Administrative Agent for the benefit of the Secured Parties
by title insurance companies reasonably satisfactory to the
Administrative Agent (the "Mortgage Policies") in amounts reasonably
satisfactory to the Administrative Agent insuring that the Mortgages
are valid and enforceable first priority mortgage liens on the
respective Mortgaged Properties, free and clear of all defects,
encumbrances and other Liens except Permitted Real Property
Encumbrances, (2) be in form and substance reasonably satisfactory to
the Administrative Agent (3) include, as appropriate, an endorsement
for future advances under this Agreement, the Notes and the Mortgages
and such other endorsements that the Administrative Agent in its
discretion may reasonably request, (4) not include an exception for
mechanics' liens, and (5) provide for affirmative insurance and such
reinsurance (including direct access agreements) as the Administrative
Agent in its discretion may reasonably request; and
(C) Surveys, in form and substance satisfactory to
the Administrative Agent, of each Mortgaged Property listed on Schedule
4.21, dated a recent date reasonably acceptable to the Administrative
Agent, certified by a licensed professional surveyor in a manner
satisfactory to the Administrative Agent for the benefit of the
Lenders.
(v) An intellectual property security agreement in
substantially the form of Exhibit H hereto granting to the Administrative Agent
for the ratable benefit of the Lenders a first and only priority security
interest in all of the Borrower's and each Guarantor's intellectual property
(together with each other intellectual property security agreement delivered
pursuant to Section 5.13, in each case as amended, supplemented or otherwise
modified from time to time in accordance with its terms, each an "Intellectual
Property Security Agreement"), duly executed by the Borrower and each Guarantor,
together with evidence that all action that the Administrative Agent may deem
reasonably necessary or desirable in order to perfect and protect the first and
only priority Liens and security interests created under the Intellectual
Property Security Agreement has been taken.
(vi) A negative pledge agreement in substantially the form of
Exhibit I hereto (as hereafter amended, supplemented or otherwise modified from
time to time in accordance with its terms, the "Negative Pledge Agreement")
pursuant to which each Selling Stockholder, each Equity Participant and Cendant
Corporation shall grant to the Administrative Agent, for the ratable benefit of
the Lenders, a negative pledge with respect to the shares of capital stock of
the Borrower owned by such Person.
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(vii) A guaranty in substantially the form of Exhibit J hereto
(as hereafter amended, supplemented or otherwise modified from time to time in
accordance with its terms, the "Subsidiary Guaranty"), duly executed by each
Subsidiary of the Borrower.
(viii) Certified copies of resolutions of the Board of
Directors of each Loan Party approving the Recapitalization, this Agreement, the
Notes, and each other Loan Document and Recapitalization Document to which it is
or is to be a party, and of all documents evidencing other necessary corporate
action and governmental and other third party approvals and consents, if any,
with respect to the Recapitalization, this Agreement, the Notes, and each other
Loan Document and Recapitalization Document.
(ix) A copy of the charter of each Loan Party and each
amendment thereto, certified (as of a date reasonably near the date of the
Initial Extension of Credit) by the Secretary of State of the jurisdiction of
its incorporation as being a true and correct copy thereof.
(x) A copy of a certificate of the Secretary of State (or
other appropriate state agency) of the jurisdiction of its incorporation, dated
within ten (10) Business Days of the date of the Initial Extension of Credit,
listing the charter of each Loan Party and each amendment thereto on file in its
office and certifying that (A) such amendments are the only amendments to such
Loan Party's charter on file in its office, (B) such Loan Party has paid all
franchise taxes to the date of such certificate and (C) such Loan Party is duly
incorporated and in good standing under the laws of the State of the
jurisdiction of its incorporation.
(xi) A copy of a certificate of the Secretary of State of each
State listed on Schedule 3.01(a)(xi), dated reasonably near the date of the
Initial Extension of Credit, stating that each Loan Party is duly qualified and
in good standing as a foreign corporation in such State and has filed all annual
reports required to be filed to the date of such certificate.
(xii) A certificate of each Loan Party signed on behalf of
such Loan Party by a Responsible Officer and the Secretary or an Assistant
Secretary of such Loan Party, dated the date of the Initial Extension of Credit
(the statements made in such certificate shall be true on and as of the date of
the Initial Extension of Credit), certifying as to (A) the absence of any
amendments to the charter of such Loan Party since the date of the Secretary of
State's certificate referred to in Section 3.1(a)(xi), (B) a true and correct
copy of the bylaws of such Loan Party as in effect on the date of the Initial
Extension of Credit, (C) the due incorporation and good standing of such Loan
Party as a corporation organized under the laws of the jurisdiction of its
incorporation, and the absence of any proceeding for the dissolution or
liquidation of such Loan Party, (D) the truth in all material respects of the
representations and warranties contained in the Information Memorandum, any
Pre-Commitment Information, the Loan Documents and the Recapitalization
Documents as though made on and as of the date of the Initial Extension of
Credit, (E) the absence of any event occurring and continuing, or resulting from
the Initial Extension of Credit, that constitutes a Default
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and (F) the names and true signatures of the officers of such Loan Party
authorized to sign this Agreement, the Notes, each other Loan Document to which
they are or are to be parties and the other documents to be delivered hereunder
and thereunder.
(xiii) Such financial, business and other information
regarding each Loan Party and each such Person's Subsidiaries as the
Administrative Agent shall have reasonably requested, including, without
limitation, information as to possible contingent liabilities, tax matters,
Environmental Actions, Environmental Permits, obligations under Plans,
Multiemployer Plans and Welfare Plans, collective bargaining agreements and
other arrangements with employees, audited annual financial statements dated
December 31, 1997, interim financial statements dated the end of the most recent
fiscal month for which financial statements are available for the fiscal year to
the end of such month, pro forma financial statements as to each of the Loan
Parties and forecasts prepared by management of the Borrower, all in form and
substance reasonably satisfactory to the Administrative Agent.
(xiv) A Notice of Borrowing with respect to each Facility
pursuant to which the Borrower shall request an Initial Extension of Credit in
an aggregate amount of not more than $99,100,000.
(b) The Administrative Agent shall be satisfied with the corporate and
legal structure and capitalization of each Loan Party and each of their
Subsidiaries after the Recapitalization, including, without limitation, the
terms and conditions of the charter, by-laws and each class of capital stock of
each Loan Party and each such Subsidiary and of each agreement or instrument
relating to such structure or capitalization.
(c) The Administrative Agent shall be satisfied that all Existing Debt,
other than the Debt identified on Schedule 4.19(b) (the "Surviving Debt"), has
been (or, upon consummation of the Recapitalization will be) prepaid, redeemed
or defeased in full or otherwise satisfied and extinguished and that all
Surviving Debt shall be on terms and conditions satisfactory to the Initial
Lenders.
(d) There shall have occurred no Material Adverse Change in the
business, condition (financial or otherwise), results of operations or
properties of the Borrower and its Subsidiaries, taken as a whole, since
December 31, 1997.
(e) Other than the litigation described in Schedule 3.1(e) (the
"Disclosed Litigation"), 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 is reasonably
likely to (i) have a material adverse effect on the business, condition
(financial or otherwise), results of operations or properties of the Borrower
and its Subsidiaries, taken as a whole, (ii) adversely affect the ability of the
Borrower or any Guarantor to perform its obligations under the Loan Documents or
(iii) materially and adversely affect the rights and remedies of the
Administrative
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Agent and the Lender Parties under the Loan Documents (collectively, a "Material
Adverse Effect"); and there shall have been no Material Adverse Change in the
status, or financial effect on the Borrower or any of its Subsidiaries, of the
Disclosed Litigation from that described on Schedule 3.1(e).
(f) All governmental and third party consents and approvals necessary
in connection with each aspect of the Recapitalization and the Facilities shall
have been obtained (without the imposition of any conditions that are not
acceptable to the Initial Lenders) and shall remain in effect; all applicable
waiting periods shall have expired without any adverse action being taken by any
competent authority; and no law or regulation shall be applicable in the
reasonable judgment of the Initial Lenders that restrains, prevents or imposes
materially adverse conditions upon any aspect of the Recapitalization or the
Facilities.
(g) The Borrower and each of the Guarantors shall have given the
Administrative Agent such access to their respective books and records as the
Administrative Agent may have requested upon reasonable notice in order to carry
out its investigations, appraisals and analyses, and the Administrative Agent
shall have received all additional financial, business and other information
regarding the Borrower and its properties as they shall have reasonably
requested. All of the information (other than projections), taken as a whole,
provided by or on behalf of the Borrower to the Administrative Agent and the
Initial Lenders prior to their commitment in respect of the Facilities (the
"Pre-Commitment Information") shall be true and correct in all material
respects, and no development or change shall have occurred, and no additional
information shall have come to the attention of the Administrative Agent or the
Initial Lenders, that (i) has resulted in or could reasonably be expected to
result in a material change in, or material deviation from, the Pre-Commitment
Information, taken as a whole, or (ii) has had or is reasonably likely to have a
Material Adverse Effect.
(h) The Borrower and each Guarantor shall have delivered a certificate,
in form and substance reasonably satisfactory to the Administrative Agent,
attesting to the Solvency of the Borrower or Guarantor, as applicable,
immediately before and immediately after giving effect to the Transaction, from
its respective Chief Financial Officer.
(i) The Borrower shall have demonstrated to the Administrative Agent's
reasonable satisfaction that: (i) the operations of the Borrower and its
Subsidiaries comply in all material respects with applicable Environmental Laws
and health and safety statutes and regulations, including, without limitation,
regulations promulgated under the Federal Resource Conservation and Recovery
Act; (ii) such operations are not the subject of any federal, state or local
investigation evaluating the need for remedial action involving an expenditure
to respond to such Environmental Actions; (iii) neither the Borrower nor any
Guarantor has or could it reasonably be expected to have any material contingent
liability in connection with any Environmental Action; (iv) the Borrower has
completed such environmental audits and investigations (including "Phase I"
environmental
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audits), as the Administrative Agent may reasonably request with respect to the
operations of the Borrower and its Subsidiaries and such audits and
investigations have not uncovered any condition or conditions not disclosed in
the Pre-Commitment Information which is reasonably likely to have a Material
Adverse Effect on the Borrower and its Subsidiaries.
(j) The Administrative Agent shall be satisfied that (i) the Borrower
and its Subsidiaries will be able to meet in all material respects their
respective obligations under all employee and retiree welfare plans, (ii) the
employee benefit plans of the Borrower and its Subsidiaries are, in all material
respects, funded in accordance with the minimum statutory requirements, (iii) no
material "reportable event" (as defined in ERISA, but excluding events for which
reporting has been waived) has occurred as to any such employee benefit plan and
(iv) no termination of, or withdrawal from, any such employee benefit plan has
occurred or is contemplated that could reasonably be expected to result in a
material liability. The Borrower shall have delivered to the Administrative
Agent certified copies of each employment agreement and other compensation
arrangement with each executive officer of each Loan Party.
(k) The Administrative Agent shall be reasonably satisfied with the
amount, types and terms and conditions of all insurance maintained by the
Borrower and its Subsidiaries in accordance with Section 5.5 and the
Administrative Agent shall have received endorsements naming the Administrative
Agent, on behalf of the Lenders, as loss payee or an additional insured, as
applicable, under all insurance policies to be maintained with respect to the
properties of the Borrower and its Subsidiaries forming any part of the Lenders'
Collateral under the Security Agreement and the other Loan Documents and
Collateral Documents.
(l) The Administrative Agent shall have received satisfactory opinions
of counsel for the Borrower and the Guarantors and local and special counsel to
the extent reasonably requested by the Administrative Agent, as to the
Transaction.
(m) There shall exist no Default or Event of Default under any of the
Loan Documents, and all legal matters incident to the Initial Extension of
Credit shall be satisfactory to counsel for the Administrative Agent.
(n) All accrued reasonable fees and expenses of the Administrative
Agent (including the fees and expenses of counsel for the Administrative Agent
and local counsel for the Administrative Agent) shall have been paid.
(o) The Recapitalization shall have been consummated (prior to the
Initial Extension of Credit) pursuant to the terms and conditions of the
Recapitalization Agreement (and none of the material terms or conditions of the
Recapitalization Agreement shall have been waived or modified except with the
consent of the Administrative Agent) and in compliance with all applicable laws
and with all necessary consents and approvals. The final terms and conditions of
the Recapitalization
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Documents and the resulting corporate structure of the Borrower and its
Subsidiaries following the Recapitalization shall be satisfactory in all
respects to the Administrative Agent, and the Administrative Agent shall have
received certified copies of each of the Recapitalization Documents, each of
which shall be satisfactory to the Administrative Agent and in full force and
effect.
(p) The Administrative Agent shall have been satisfied with
management's response to the management letters provided by the accounting firm
of Arthur Andersen LLP and with Arthur Andersen LLP's response to such
management letters.
(q) The Equity Participants, their respective Affiliates and the
Investor Assignees (as defined in the Recapitalization Agreement) shall have
invested cash of at least $50,000,000 in equity in the Borrower, Cendant
Corporation shall have invested cash of at least $10,000,000 in equity in the
Borrower and the existing stockholders of the Borrower shall have retained a
portion of their existing equity in the Borrower equal to at least 47% of the
outstanding capital stock of the Borrower, each on terms acceptable to the
Lenders. In addition, at Closing, the Borrower shall not have drawn more than
$99,100,000 under the Facilities.
(r) All Advances made under this Agreement shall be in full compliance
with all applicable requirements of law, including, without limitation, Federal
Reserve Regulations T, U, and X.
(s) The Administrative Agent shall have received a duly executed and
delivered counterparts of landlord waivers from all landlords and leasehold
mortgage holders and bailee letters from all warehousemen and bailees with
respect to any Inventory located at a location that is not owned by the
Borrower, as deemed necessary or desirable in the Administrative Agent's sole
discretion, to preserve or otherwise in respect of the Administrative Agent's
rights in Collateral. The Administrative Agent shall also have received such
bank consent agreements, third party consents, intercreditor agreements or other
agreements, as deemed necessary or desirable in the Administrative Agent's sole
discretion, to preserve or otherwise in respect of the Administrative Agent's
rights in the Collateral.
SECTION 3.2 Conditions Precedent to Each Borrowing and Issuance. The
obligation of each appropriate Lender to make an Advance (other than a Letter of
Credit Advance made by the Issuing Bank or a Revolving Credit Lender pursuant to
Section 2.3(c) and a Swing Line Advance made by a Revolving Credit Lender
pursuant to Section 2.2(b)), and the obligation of the Issuing Bank to issue a
Letter of Credit (including the initial issuance thereof) or renew a Letter of
Credit and the right of the Borrower to request the issuance or renewal of a
Letter of Credit, shall each be subject to the further conditions precedent that
on the date of each such Borrowing or issuance or renewal:
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(a) Each of the conditions precedent listed in Section 3.1 shall have
been satisfied or waived in accordance with this Agreement.
(b) The following statements shall be true and the Administrative Agent
shall have received a certificate signed by a duly authorized Responsible
Officer of the Borrower, dated the date of such Borrowing or issuance or
renewal, stating that (and each of the giving of the applicable Notice of
Borrowing, Notice of Swing Line Borrowing, or Notice of Issuance or Notice of
Renewal and the acceptance by the Borrower of the proceeds of a Borrowing or of
a Letter of Credit or the renewal of a Letter of Credit shall constitute a
representation and warranty by the Borrower that both on the date of such notice
and on the date of such Borrowing or issuance or renewal such statements are
true):
(i) the representations and warranties contained in each Loan
Document are correct on and as of such date in all material respects, before and
after giving effect to such Borrowing or issuance or renewal and to the
application of the proceeds therefrom, as though made on and as of such date;
and
(ii) no event has occurred and is continuing, or would result
from such Borrowing or issuance or renewal or from the application of the
proceeds therefrom, that constitutes a Default.
SECTION 3.3 Determinations Under Section 3.1. For purposes of
determining compliance with the conditions specified in Section 3.1, each
Initial Lender shall be deemed to have consented to, approved or accepted or to
be satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to the Initial Lenders
unless an officer of the Administrative Agent responsible for the transactions
contemplated by the Loan Documents shall have received written notice from such
Initial Lender prior to the Initial Extension of Credit specifying its objection
thereto and, if the Initial Extension of Credit consists of a Borrowing, such
Initial Lender shall not have made available to the Administrative Agent such
Initial Lender's ratable portion of such Borrowing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower represents and warrants as follows:
SECTION 4.1 Organization. Each Loan Party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) except as set forth on Schedule 4.1
hereto, is duly qualified and in good standing as a foreign corporation in each
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other jurisdiction in which it owns or leases property or in which the conduct
of its business requires it to so qualify or be licensed except where the
failure to so qualify or be licensed is not reasonably likely to have a Material
Adverse Effect and (c) has all requisite corporate power and authority
(including, without limitation, all governmental licenses, permits and other
approvals) to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted.
SECTION 4.2 Subsidiaries. Set forth on Schedule 4.2 hereto is a
complete and accurate list of all Subsidiaries of each Loan Party, showing as of
the date hereof (as to each such Subsidiary) the jurisdiction of its
incorporation, the number of shares of each class of capital stock authorized,
and the number outstanding, on the date hereof and the percentage of the
outstanding shares of each such class owned (directly or indirectly) by such
Loan Party and the number of shares covered by all outstanding options,
warrants, rights of conversion or purchase and similar rights at the date
hereof. All of the outstanding capital stock of all of such Subsidiaries has
been validly issued, is fully paid and non-assessable and is owned by such Loan
Party or one or more of its Subsidiaries free and clear of all Liens, except
those created under the Collateral Documents. Each such Subsidiary (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, (b) except as set forth on Schedule
4.2 hereto, is duly qualified and in good standing as a foreign corporation in
each other jurisdiction in which it owns or leases property or in which the
conduct of its business requires it to so qualify or be licensed, except where
the failure to so qualify or be licensed is not reasonably likely to have a
Material Adverse Effect, and (c) has all requisite corporate power and authority
(including, without limitation, all governmental licenses, permits and other
approvals) to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted.
SECTION 4.3 Corporate Power, Authorization. The execution, delivery and
performance by each Loan Party of this Agreement, the Notes, each other Loan
Document and each Recapitalization Document to which it is or is to be a party,
and the consummation of the Transaction, are within such Loan Party's corporate
powers, have been duly authorized by all necessary corporate action, and do not
(a) contravene such Loan Party's charter or bylaws, (b) violate any law
(including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and the Racketeer Influenced and
Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation T, U or X of the Board of
Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award, (c) conflict with or result in the breach of, or
constitute a default under, any material contract, loan agreement, indenture,
mortgage, deed of trust, lease or other material instrument or agreement binding
on or affecting any Loan Party, any of its Subsidiaries or any of their
respective properties or (d) except for the Liens created under the Collateral
Documents, result in or require the creation or imposition of any Lien upon or
with respect to any of the properties of any Loan Party or any of its
Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any
such law, rule, regulation, order, writ, judgment, injunction,
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decree, determination or award or in breach of any such contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument or
agreement, the violation or breach of which is reasonably likely to have a
Material Adverse Effect.
SECTION 4.4 Governmental Authorizations, Approvals. No authorization or
approval or other action by, and no notice to or filing (other than to perfect
Liens under the Loan Documents) with, any governmental authority or regulatory
body or any other third party is or was required for (a) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes, any other Loan Document or any Recapitalization Document
to which it is or is to be a party, or for the consummation of the Transaction,
(b) the grant by any Loan Party of the Liens granted by it pursuant to the
Collateral Documents, (c) the perfection or maintenance of the Liens created by
the Collateral Documents (including the first and only priority nature thereof
except Permitted Liens and Permitted Real Property Encumbrances) or (d) the
exercise by the Administrative Agent or any Lender Party of its rights under the
Loan Documents or the remedies in respect of the Collateral pursuant to the
Collateral Documents, except for the authorizations, approvals, actions, notices
and filings listed on Schedule 4.4, all of which have been duly obtained, taken,
given or made and are in full force and effect. All applicable waiting periods
in connection with the Transaction have expired without any action having been
taken by any competent authority restraining, preventing or imposing materially
adverse conditions upon the Transaction or the rights of the Loan Parties or
their Subsidiaries freely to transfer or otherwise dispose of, or to create any
Lien on, any properties now owned or hereafter acquired by any of them.
SECTION 4.5 Due Execution, Validity, Enforceability. This Agreement and
each Recapitalization Document has been, and each of the Notes and each other
Loan Document has been or when delivered hereunder will have been, duly executed
and delivered by each Loan Party party thereto. This Agreement and each
Recapitalization Document is, and each of the Notes and each other Loan Document
has been or when delivered hereunder will be, the legal, valid and binding
obligation of each Loan Party party thereto, enforceable against such Loan Party
in accordance with its terms, subject to the effect of bankruptcy, fraudulent
conveyance or transfer, insolvency, reorganization, arrangement, liquidation,
conservatorship, and moratorium laws and subject to limitations imposed by other
laws and judicial decisions relating to or affecting the rights of creditors or
secured creditors generally.
SECTION 4.6 Financial Statements. The consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as at December 31, 1997 and
the related consolidated and consolidating statements of income and consolidated
and consolidating statements of cash flows of the Borrower and its Subsidiaries
for the Fiscal Year then ended, accompanied by (in the case of such Consolidated
financial statements) an opinion of Arthur Andersen, independent public
accountants, and the Consolidated balance sheet of the Borrower and its
Subsidiaries as at May 31, 1998 and the related Consolidated statement of income
and Consolidated statement of cash flows of the Borrower and its Subsidiaries
for the five (5) months then ended, duly certified by the Chief
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Financial Officer of the Borrower, copies of which have been furnished to each
Lender Party, fairly present, subject, in the case of said balance sheet as at
May 31, 1998 and said statements of income and cash flows for the five (5)
months then ended, to normal year-end audit adjustments, the Consolidated (and,
with respect to the balance sheets dated December 31, 1997, consolidating)
financial condition of the Borrower and its Subsidiaries as at such dates and
the Consolidated (and, with respect to the statements of income dated December
31, 1997, consolidating) results of the operations of the Borrower and its
Subsidiaries for the period ended on such date, all in accordance with GAAP
applied on a consistent basis, and, since December 31, 1997, there has been no
Material Adverse Change.
SECTION 4.7 Pro Forma Financial Statements. The Consolidated pro forma
balance sheet of the Borrower and its Subsidiaries as at June 30, 1998,
certified by the Chief Financial Officer of the Borrower, copies of which have
been furnished to each Initial Lender, fairly present the Consolidated pro forma
financial condition of the Borrower and its Subsidiaries as at such date and the
Consolidated pro forma results of operations of the Borrower and its
Subsidiaries for the period ended on such date, in each case after giving effect
to the Transaction, all in accordance with GAAP.
SECTION 4.8 Accurate Information. None of the Information Memorandum,
any Pre-Commitment Information or any information, exhibit or report furnished
by any Loan Party to the Administrative Agent or any Lender Party in connection
with the Loan Documents or pursuant to the terms of the Loan Documents, in each
case excluding projections and other similar forward looking information,
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements made therein not misleading. The Lender
Parties have been advised by the Borrower, the Selling Stockholders and the
Investors that the Borrower and certain of the Investors have received a report
(the "D&T Report"), or portions thereof, of Deloitte & Touche LLP ("D&T") that
analyzes the Borrower's operations and financial statements and includes
possible revenue down-side scenarios and certain other matters. The terms of
such Investors' engagement letters with D&T prohibit disclosure to the Lender
Parties of the D&T Report or its contents, including in connection with any
litigation.
SECTION 4.9 Litigation. Other than the Disclosed Litigation, there is
no action, suit, investigation, litigation or proceeding affecting the Borrower,
any other Loan Party or any of their respective Subsidiaries, including, without
limitation, any Environmental Action, pending or to its knowledge threatened
before any court, governmental agency or arbitrator that is reasonably likely to
have a Material Adverse Effect, and there has been no Material Adverse Change in
the status, or financial effect on any Loan Party or any of its Subsidiaries, of
the Disclosed Litigation from that described on Schedule 3.1(e).
SECTION 4.10 Regulation U. Neither the Borrower nor any other Loan
Party nor any of their respective Subsidiaries is engaged in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
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SECTION 4.11 ERISA.
(a) Except as set forth on Schedule 4.11 hereto, neither the Borrower
nor any of its ERISA Affiliates maintains or has maintained any Plans or
Multiemployer Plans. Set forth on Schedule 4.11 is a complete and accurate list
of all Welfare Plans and all defined contribution plans in respect of which any
Loan Party could have liability.
(b) Except as set forth in the financial statements referred to in this
Section 4.6 and in Article 7, neither the Borrower, any of the other Loan
Parties nor any of their respective Subsidiaries has any material liability with
respect to "expected post retirement benefit obligations" within the meaning of
Statement of Financial Accounting Standards No. 106.
SECTION 4.12 Casualty. Neither the business nor the properties of any
Loan Party or any of its Subsidiaries are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is reasonably likely to have a
Material Adverse Effect.
SECTION 4.13 Environmental Matters.
(a) The operations and properties of each Loan Party and each of its
Subsidiaries comply in all known material respects with all applicable
Environmental Laws and Environmental Permits, all known past non-compliance with
such Environmental Laws and Environmental Permits has been resolved without
ongoing material obligations or costs, and no circumstances exist that could
reasonably be expected to (i) form the basis of an Environmental Action against
any Loan Party or any of its Subsidiaries or any of their properties that is
reasonably likely to have a Material Adverse Effect or (ii) cause any such
property to be subject to any material restrictions on ownership, occupancy, use
or transferability under any Environmental Law.
(b) Except as disclosed in the environmental assessment reports listed
on Schedule 4.13 hereto, (i) none of the properties currently or formerly owned
or operated by any Loan Party or any of its Subsidiaries is listed or proposed
for listing on the NPL or on the CERCLIS or any analogous foreign, state or
local list or is adjacent to any such property; (ii) there are no and, to the
best of its knowledge, never have been any underground or aboveground storage
tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which
Hazardous Materials are being or, to the best of its knowledge, have been
treated, stored or disposed on any property currently owned or operated by any
Loan Party or any of its Subsidiaries or on any property formerly owned or
operated by any Loan Party or any of its Subsidiaries; (iii) there is no
asbestos or asbestos-containing material on any property currently owned or
operated by any Loan Party or any of its Subsidiaries other than in compliance
with applicable Environmental Laws; and (iv) to the best of its knowledge,
Hazardous Materials have not been released, discharged or disposed of on any
property currently owned or
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operated by any Loan Party or any of its Subsidiaries, or any property formerly
owned or operated by any Loan Party or any of its Subsidiaries.
(c) Except as disclosed in the environmental assessment reports listed
on Schedule 4.13, no Loan Party nor any of its Subsidiaries is undertaking or
has not completed, either individually or together with other potentially
responsible parties, any investigation or assessment or Remedial, Response or
Removal action relating to any actual or threatened release, discharge or
disposal of Hazardous Materials at any site, location or operation, either
voluntarily or pursuant to the order of any governmental or regulatory authority
or the requirements of any Environmental Law; and to the best of its knowledge,
all Hazardous Materials generated, used, treated, handled or stored at, or
transported to or from, any property currently owned or operated by any Loan
Party or any of its Subsidiaries or any property formerly owned or operated by
any Loan Party or any of its Subsidiaries have been disposed of in a manner not
reasonably expected to result in material liability to any Loan Party or any of
its Subsidiaries.
SECTION 4.14 Burdensome Documents. Except as set forth on Schedule 4.14
or under the Recapitalization Documents, no Loan Party nor any of its
Subsidiaries is a party to any indenture, loan or credit agreement or any lease
or other agreement or instrument or subject to any charter or corporate
restriction that is reasonably likely to have a Material Adverse Effect.
SECTION 4.15 Priority of Liens. Except as set forth on Schedule 4.15
hereto, the Collateral Documents create in favor of the Administrative Agent,
for the ratable benefit of the Lenders, a valid and perfected first priority
security interest in the Collateral subject to Permitted Liens and Permitted
Real Property Encumbrances (which Collateral includes all of the assets and real
and personal property, whether now owned or hereafter acquired and all of the
products and proceeds of any of the foregoing, of the Borrower, and all of the
outstanding capital stock of the Borrower's Domestic Subsidiaries and 65% of the
capital stock of such of the Borrower's Foreign Subsidiaries as are listed on
Schedule 4.15), securing the payment of the Obligations, and all filings and
other actions necessary or reasonably desirable to perfect and protect such
security interest have been duly taken. The Loan Parties are the legal and
beneficial owners of the Collateral free and clear of any Lien, except for the
liens and security interests created or expressly permitted under the Loan
Documents.
SECTION 4.16 Taxes.
(a) Except as set forth on Schedule 4.16, each Loan Party and each of
its Subsidiaries has filed, has caused to be filed or has been included in all
tax returns (Federal, state, local and foreign) required to be filed and has
paid all taxes shown thereon to be due, together with applicable interest and
penalties.
(b) Set forth on Schedule 4.16 is a complete and accurate list of each
taxable year of each Loan Party and each of its Subsidiaries for which Federal
income tax returns have been filed and for
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which the expiration of the applicable statute of limitations for assessment or
collection has not occurred by reason of extension or otherwise (an "Open
Year").
(c) There is no unpaid amount of adjustments to the Federal income tax
liability of any Loan Party or any of its Subsidiaries proposed by the Internal
Revenue Service with respect to Open Years except where such adjustments are
being contested in good faith by appropriate proceedings provided adequate
reserves have been established in accordance with GAAP. No issues have been
raised by the Internal Revenue Service in respect of Open Years that, in the
aggregate, is reasonably likely to have a Material Adverse Effect.
(d) Except as set forth on Schedule 4.16, there is no unpaid amount of
adjustments to the state, local and foreign tax liability of each Loan Party and
each of its Subsidiaries proposed by any state, local or foreign taxing
authorities (other than amounts arising from adjustments to Federal income tax
returns) except where such adjustments are being contested in good faith by
appropriate proceedings provided adequate reserves have been established in
accordance with GAAP. No issues have been raised by such taxing authorities
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect.
(e) No "ownership change" as defined in Section 382(g) of the Internal
Revenue Code, and no event that would result in the application of the "separate
return limitation year" or "consolidated return change of ownership" limitations
under the Federal income tax consolidated return regulations, has occurred with
respect to any Loan Party.
SECTION 4.17 Compliance with Securities Laws. No Loan Party and none
any Loan Party's Subsidiaries is an "investment company," or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of 1940, as
amended. Neither the making of any Advances, nor the issuance of any Letters of
Credit, nor the application of the proceeds or repayment thereof by the
Borrower, nor the consummation of the Transaction, will violate any provision of
such Act or any rule, regulation or order of the Securities and Exchange
Commission thereunder or any takeover, disclosure or other federal, state or
foreign securities law or Regulations T, U or X of the Federal Reserve Board.
The Borrower is not subject to regulation under any federal, state or foreign
statute or regulation which limits its ability to incur Debt.
SECTION 4.18 Solvency. Each Loan Party is, individually and together
with its Subsidiaries, Solvent.
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SECTION 4.19 Debt.
(a) Set forth on Schedule 4.19(a) is a complete and accurate list of
all Existing Debt the principal amount of which is greater than $250,000,
showing as of the date hereof the principal amount outstanding thereunder, the
maturity date thereof and the amortization schedule therefor.
(b) Set forth on Schedule 4.19(b) is a complete and accurate list of
all Surviving Debt the principal amount of which is greater than $100,000,
showing as of the date hereof the principal amount outstanding thereunder, the
maturity date thereof and the amortization schedule therefor.
SECTION 4.20 No Defaults, Compliance with Laws.
(a) Except as set forth on Schedule 4.20 hereto, no Loan Party is in
default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party or by which it is bound, or
any other agreement or other instrument by which any of the properties or assets
owned by it or used in the conduct of its business is affected, which default is
reasonably likely to have a Material Adverse Effect.
(b) Each Loan Party and each professional officer, director, employee
or contractor of any of the foregoing (in so far as related to services provided
in respect of the Borrower or any Subsidiary by any such officer, director,
employee or contractor) has complied and is in compliance in all respects with
all applicable laws, ordinances and regulations, resolutions, ordinances,
decrees and other similar documents and instruments of all courts and
governmental authorities, bureaus and agencies, domestic and foreign and all
applicable Environmental Laws and Regulations, non-compliance with which is
reasonably likely to have a Material Adverse Effect.
SECTION 4.21 Owned Real Property. Set forth on Schedule 4.21 is a
complete and accurate list of all real property owned by any Loan Party or any
of its Subsidiaries or in which any Loan Party has an interest (each a
"Mortgaged Property" and, collectively, the "Mortgaged Properties"), showing as
of the date hereof the street address, county or other relevant jurisdiction,
state and record owner thereof. Such Loan Party or such Subsidiary has good,
marketable and insurable fee simple title to such Mortgaged Property, free and
clear of all Liens, other than Permitted Real Property Encumbrances. The
Mortgages create, as security for the obligations purported to be secured
thereby, a valid and enforceable perfected security interest in and Lien on all
of the Mortgaged Property (and will create a valid and enforceable perfected
security interest in and Lien on all fixtures and improvements related to such
Mortgaged Property and affixed or added thereto on or after the Closing Date) in
favor of the Administrative Agent (or such other trustees that may be named
therein) for the benefit of the Secured Parties, superior to and prior to the
rights of all third Persons (except that the security interest created in the
Mortgaged Property may be subject to the Permitted Real Property Encumbrances
related thereto) and subject to no other Liens (other than Permitted Real
Property Encumbrances).
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SECTION 4.22 Leased Real Property. Set forth on Schedule 4.22 is a
complete and accurate list of all leases of real property under which any Loan
Party or any of its Subsidiaries is the lessee, showing as of the date hereof
the street address, county or other relevant jurisdiction, state, lessor,
lessee, expiration date and annual rental cost thereof. To the best knowledge of
each Loan Party, each such lease is the legal, valid and binding obligation of
the lessor thereof, enforceable in accordance with its terms.
SECTION 4.23 Material Contracts. Set forth on Schedule 4.23 is a
complete and accurate list of all Material Contracts of each Loan Party and its
Subsidiaries, showing as of the date hereof the parties, subject matter and term
thereof. Except as is not reasonably likely to have a Material Adverse Effect,
each such Material Contract has been duly authorized, executed and delivered by
each Loan Party party thereto and to the best knowledge of each Loan Party, all
other parties thereto, has not been amended or otherwise modified, is in full
force and effect and is binding upon and enforceable against each Loan Party
party thereto and to the best knowledge of each Loan Party, all other parties
thereto in accordance with its terms. There exists no material default under any
Material Contract by the Borrower or any of its Subsidiaries party thereto and,
to the best knowledge of each Loan Party, there exists no default under any
Material Contract by any other party thereto.
SECTION 4.24 Investments. Set forth on Schedule 4.24 is a complete and
accurate list of all Investments in excess of $250,000 held by any Loan Party or
any of its Subsidiaries, showing as of the date hereof the amount, obligor or
issuer and maturity, if any, thereof.
SECTION 4.25 Intellectual Property. Set forth on Schedule 4.25 is a
complete and accurate list of all registered patents, trademarks, trade names,
service marks and copyrights, and all applications therefor and licenses
thereof, of each Loan Party or any of its Subsidiaries, showing as of the date
hereof the jurisdiction in which registered, the registration number, the date
of registration and the expiration date. Each Loan Party and each of their
respective Subsidiaries owns or has rights to use all patents, trademarks, trade
names, service marks, copyrights and other intellectual property necessary to
conduct its business as now or heretofore conducted by it or proposed to be
conducted by it except, in any case, where the failure to so own or have rights,
either individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect. Each Loan Party and each of their respective
Subsidiaries conducts its business and affairs without infringement of or
interference with any patent, trademark, trade name, service mark, copyright or
other intellectual property of any other Person that is reasonably likely to
have a Material Adverse Effect or as otherwise disclosed on Schedule 4.25. The
Intellectual Property Security Agreement creates, as security for the
obligations purported to be secured thereby, a valid and enforceable perfected
security interest in and Lien on all of the Collateral purported to be covered
thereby in favor of the Administrative Agent for the benefit of the Secured
Parties, superior to and prior to the rights of all third Persons other than
Permitted Liens.
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SECTION 4.26 Recapitalization Documents. Each Recapitalization Document
to which any Loan Party or any of its respective Subsidiaries is a party has
been duly executed and delivered by such Loan Party or such Subsidiary, as the
case may be, and, to the best knowledge of the Borrower, each Recapitalization
Document has been duly executed and delivered by the parties thereto other than
the Borrower and its Subsidiaries, and is in full force and effect. The
representations and warranties of any Loan Party and each of its respective
Subsidiaries contained in each Recapitalization Document to which such Loan
Party or such Subsidiary, as the case may be, is a party are true and correct in
all material respects on the date hereof and will be true and correct in all
material respects on the Closing Date and the Recapitalization Date, as if made
on each of such dates, and the Administrative Agent and each Lender Party shall
be entitled to rely upon such representations and warranties with the same force
and effect as if they were incorporated in this Agreement and made to the
Administrative Agent and each Lender Party directly as of the date hereof, the
Closing Date, and the Recapitalization Date.
SECTION 4.27 Fees. No broker's or finder's fees or commissions or any
similar fees or commissions will be payable by any Loan Party or any of its
Subsidiaries with respect to the incurrence and maintenance of the Obligations,
any other transaction contemplated by the Loan Documents or any services
rendered in connection with any such transactions. The Borrower hereby covenants
and agrees to indemnify the Administrative Agent and each Lender Party against
and hold the Administrative Agent and each Lender Party harmless from any claim,
demand or liability for broker's or finder's fees or similar fees or
commissions.
The Borrower may, at any time and from time to time, amend any one or
more of the Schedules referred to in this Agreement (other than Schedule I) and
any representation or warranty contained herein which refers to any such
Schedule shall from and after the date of any such amendment refer to such
Schedule as so amended; provided, however, that in no event may the Borrower
amend any such Schedule if such amendment would reflect or evidence or disclose
any act, item or omission that would create a Default or Event of Default.
ARTICLE 5
AFFIRMATIVE COVENANTS
So long as any Advance shall remain unpaid, any Letter of Credit shall
be outstanding or any Lender Party shall have any Commitment hereunder, the
Borrower will:
SECTION 5.1 Compliance with Law. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA.
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SECTION 5.2 Payment of Taxes, Etc. Timely pay and discharge, and cause
each of its Subsidiaries to timely pay and discharge, (a) all taxes, assessments
and governmental charges or levies imposed upon it or upon its property and (b)
all lawful claims that, if unpaid, might by law become a Lien upon its property;
provided, however, that the Borrower and its Subsidiaries shall not be required
to pay or discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which appropriate
reserves are being maintained.
SECTION 5.3 Compliance with Environmental Laws. Comply, and cause each
of its Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew and cause each of
its Subsidiaries to obtain and renew all Environmental Permits reasonably
necessary for its operations and properties; and conduct, and cause each of its
Subsidiaries to conduct, any investigation, study, sampling and testing, and
undertake any Removal, Remedial or other Response action necessary and required
under applicable Environmental Laws to remove and clean up all Hazardous
Materials above applicable standards from any of its properties, in accordance
with the requirements of all Environmental Laws; provided, however, that the
Borrower and its Subsidiaries shall not be required to undertake any such
cleanup, Removal, Remedial or Response action to the extent that its obligation
to do so is being contested in good faith and by proper proceedings and adequate
reserves as determined by the Administrative Agent are being maintained with
respect to such circumstances.
SECTION 5.4 Preparation of Environmental Reports. The Borrower agrees
that the Administrative Agent may, upon reasonable prior notice, from time to
time in its reasonable discretion, retain, at the Borrower's expense, an
independent professional consultant to prepare environmental site assessment
reports for the Borrower or any of its Subsidiaries and/or to review any report
relating to Hazardous Materials prepared by or for the Borrower and, upon a
reasonable belief that the Borrower or any of its Subsidiaries has breached any
covenant or representation with respect to environmental matters or that there
has been a material violation of Environmental Laws by the Borrower or one of
its Subsidiaries, the Administrative Agent may conduct its own reasonable
investigation of such matter at any facility or property currently owned,
leased, operated or used by the Borrower or one of its Subsidiaries and the
Borrower agrees to use its best efforts to obtain permission for the
Administrative Agent's professional consultant to conduct its own reasonable
investigation of any such matter at any facility or property previously owned,
leased, operated or used by the Borrower or one of its Subsidiaries. The
Borrower and its Subsidiaries hereby grant to the Administrative Agent, its
employees, consultants and contractors, the right to enter into or onto the
facilities or properties currently owned, leased, operated or used by the
Borrower or its Subsidiaries upon reasonable notice to the Borrower to perform
such assessments on such property as are necessary to conduct such a review
and/or investigation. Any such investigation of any such facility or property
shall be conducted, unless otherwise agreed to by the Borrower and the
Administrative Agent, during normal business hours and, to the extent reasonably
practicable, shall be conducted so as not to interfere with the ongoing
operations at any facility or property or to cause
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any damage or loss to any facility or property. The Borrower and the
Administrative Agent hereby acknowledge and agree that any report of any
investigation conducted at the request of the Administrative Agent will be
obtained and shall be used by the Administrative Agent and Lender Parties for
the purpose of internal credit decisions to monitor the Advances and/or protect
the Administrative Agent's and Lender Parties' security interests in the
Collateral. The Administrative Agent agrees to deliver a copy of any such report
to the Borrower in a timely manner with the understanding that the Borrower
acknowledges and agrees that (i) the Borrower will indemnify and hold harmless
the Administrative Agent and each Lender Party from any costs, losses or
liabilities relating to the Borrower's use of or reliance on such report and
(ii) neither the Administrative Agent nor any Lender Party makes any
representation or warranty with respect to such report.
SECTION 5.5 Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Borrower or such Subsidiary operates.
SECTION 5.6 Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain its (i)
existence, legal structure, legal name and rights (charter and statutory) and
(ii) permits, licenses, approvals, privileges and franchises except where the
failure to preserve or maintain any such permit, license, approval, privilege or
franchise is not reasonably likely to have a Material Adverse Effect.
SECTION 5.7 Visitation Rights.
(a) At any reasonable time and from time to time during normal business
hours, upon reasonable notice, permit the Administrative Agent, or, after the
occurrence of a Default, the Lender Parties, or any agents or representatives
thereof, to examine and make copies of and abstracts from the records and books
of account of and visit the properties of the Borrower and its Subsidiaries, and
to discuss the affairs, finances and accounts of the Borrower and any such
Subsidiaries with any of their officers or directors; provided, however, that so
long as no Default has occurred and is continuing, the Administrative Agent may
not conduct in excess of three (3) such examinations and visits per annum.
(b) Permit the Administrative Agent and the Lender Parties to conduct
such commercial finance examinations and/or Collateral audits of the Borrower
and its Subsidiaries during each calendar year as the Administrative Agent may
reasonably request; provided, however, that so long as no Default has occurred
and is continuing, the Administrative Agent may not conduct in excess of three
(3) such examinations and audits per annum.
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SECTION 5.8 Keeping of Books. Keep, and cause each of its Subsidiaries
to keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Borrower and each Subsidiary in accordance with GAAP.
SECTION 5.9 Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its properties
that are reasonably necessary in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
SECTION 5.10 Compliance with Terms of Leaseholds. Make all payments and
otherwise perform all obligations in respect of all leases of real property to
which the Borrower or any of its Subsidiaries is a party, keep such leases in
full force and effect and not allow such leases to lapse or be terminated or any
rights to renew such leases to be forfeited or canceled, notify the
Administrative Agent of any default by any party with respect to such leases and
cooperate with the Administrative Agent in all respects to cure any such
default, and cause each of its Subsidiaries to do so except, in any case, where
the failure to do so, either individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect.
SECTION 5.11 Performance of Material Contracts. Perform and observe,
and cause each of its Subsidiaries to perform and observe, all of the terms and
provisions of each Material Contract to be performed or observed by it,
maintain, and cause each of its Subsidiaries to maintain, each such Material
Contract in full force and effect, and enforce, and cause each of its
Subsidiaries to enforce, each such Material Contract in accordance with its
terms.
SECTION 5.12 Transactions with Affiliates. Conduct, and cause each of
its Subsidiaries to conduct, all transactions otherwise permitted under the Loan
Documents with any of their Affiliates on terms that are fair and reasonable and
no less favorable to the Borrower or such Subsidiary than it would obtain in a
comparable arms-length transaction with a Person not an Affiliate.
SECTION 5.13 Agreement to Grant Additional Security.
(a) Promptly, and in any event within thirty (30) days after the
acquisition of assets of the type that would have constituted Collateral at the
date hereof and investments of the type that would have constituted Collateral
on the date hereof (other than assets with a fair market value of less than
$50,000), including the capital stock of any direct or indirect Subsidiary of
the Borrower, notify the Administrative Agent of the acquisition of such assets
or investments to the extent not already Collateral in which the Administrative
Agent has a perfected security interest pursuant to the Collateral Documents,
such assets and investments will become additional Collateral hereunder to the
extent the Administrative Agent deems the pledge of such assets practicable (the
"Additional Collateral"), and the Borrower will, and will cause each of its
direct and indirect Subsidiaries to, take all reasonably necessary action,
including the filing of appropriate financing statements under the provisions of
the UCC, applicable foreign, domestic or local laws, rules or regulations in
each of the
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offices where such filing is necessary or appropriate to grant Administrative
Agent a perfected Lien in such Collateral (or comparable interest under foreign
law in the case of foreign Collateral) pursuant to and to the full extent
required by the Collateral Documents and this Agreement.
(b) Promptly, and in any event no later than thirty (30) days after a
request with respect thereto, cause each of the Borrower's direct and indirect
Subsidiaries as the Administrative Agent shall request to become party to, or
to execute and deliver, a Subsidiary Guaranty, guarantying to the Administrative
Agent and the Lenders the prompt payment, when and as due, of all Obligations of
the Loan Parties under the Loan Documents, including all obligations under any
Hedge Agreements or other hedging agreements.
(c) Promptly, and in any event no later than thirty (30) days after a
request with respect thereto, cause each Guarantor created or established after
the date hereof to grant to the Administrative Agent, for the ratable benefit of
the Lenders, a first priority Lien on all property (tangible and intangible) of
such Guarantor, including, without limitation, all of the capital stock of any
of its Domestic Subsidiaries and 65% of the stock of any of its Foreign
Subsidiaries, upon terms substantially similar to those set forth in the
Collateral Documents and otherwise satisfactory in form and substance to
Administrative Agent. The Borrower shall cause each Guarantor, at its own
expense, to become a party to a Security Agreement, an Intellectual Property
Security Agreement, a Mortgage and any other Collateral Document and to execute,
acknowledge and deliver, or cause the execution, acknowledgment and delivery of,
and thereafter register, file or record in any appropriate governmental office,
any document or instrument reasonably deemed by Administrative Agent to be
necessary or desirable for the creation and perfection of the foregoing Liens
(including legal opinion, title insurance, consents, corporate documents and any
additional or substitute security agreements or mortgages or deeds of trust).
The Borrower will cause each such Guarantor to take all actions requested by
Administrative Agent (including, without limitation, the filing of UCC-1's) in
connection with the granting of such security interests.
(d) Promptly, and in any event not later than thirty (30) days after a
request with respect thereto, (i) deliver to the Administrative Agent the
original of all instruments, documents and chattel paper, and all other
Collateral of which the Administrative Agent reasonably determines it should
have physical possession in order to perfect and protect its security interest
therein, duly pledged, endorsed or assigned to the Administrative Agent without
restriction; (ii) use reasonable efforts to obtain landlord waivers, in form and
substance satisfactory to the Administrative Agent, with respect to any
Inventory or other Collateral located at a location that is not owned by the
Borrower or a Subsidiary; (iii) use reasonable efforts to deliver to the
Administrative Agent warehouse receipts covering any portion of the Inventory or
other Collateral located in warehouses and for which warehouse receipts are
issued; (iv) when an Event of Default exists and is continuing, transfer
Inventory to locations designated by the Administrative Agent; (v) if any
Collateral is at any time in the possession or control of any warehousemen,
bailee or the Borrower's agents or processors, notify the Administrative Agent
thereof and notify such person of the Administrative Agent's
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security interest in such Collateral and use reasonable efforts to obtain a
landlord waiver or bailee letter, in form and substance reasonably satisfactory
to the Administrative Agent, from such person and instruct such person to hold
all such Collateral for the Administrative Agent's account subject to the
Administrative Agent's instructions; (vi) if at any time any Inventory or other
Collateral is located on any real property of the Borrower which is subject to a
mortgage or other Lien, use reasonable efforts to obtain a mortgagee waiver, in
form and substance reasonably satisfactory to the Administrative Agent, from the
holder of each mortgage or other Lien on such real property; and (vii) take all
such other actions and obtain all such other agreements as the Administrative
Agent may reasonably deem necessary or desirable to perfect its Lien of any
Collateral.
(e) The security interests required to be granted pursuant to this
Section shall be granted pursuant to the Collateral Documents or, in the
Administrative Agent's discretion, such other security documentation (which
shall be substantially similar to the Collateral Documents already executed and
delivered by the Borrower and the Guarantors) as is reasonably satisfactory in
form and substance to Administrative Agent (the "Additional Collateral
Documents") and shall constitute valid and enforceable perfected security
interests prior to the rights of all third Persons and subject to no other Liens
except Liens permitted under Section 6.1. The Additional Collateral Documents
and other instruments related thereto shall be duly recorded or filed in such
manner and in such places and at such times as are required by law to establish,
perfect, preserve and protect the Liens, in favor of Administrative Agent, for
the benefit of the Lender Parties, granted pursuant to the Additional Collateral
Documents and, all taxes, fees and other charges payable in connection therewith
shall be paid in full by the Borrower. At the time of the execution and delivery
of Additional Collateral Documents, the Borrower shall cause to be delivered to
Administrative Agent such agreements, opinions of counsel, and other related
documents as may be reasonably requested by the Administrative Agent or the
Required Lenders to assure themselves that this Section has been complied with.
SECTION 5.14 Interest Rate Protection. On or prior to the expiration of
60 days following the Closing Date, the Borrower shall obtain and thereafter
keep in effect one or more interest rate Bank Hedge Agreements (the terms and
other provisions of all such Bank Hedge Agreements to be subject to the prior
written consent of the Administrative Agent) covering at least 50% of the Term A
and Term B Advances outstanding on the Closing Date for an aggregate period of
not less than three (3) years commencing on the Closing Date.
SECTION 5.15 Performance of Recapitalization Documents. Perform and
observe, or cause the relevant Subsidiary to perform and observe, all of the
terms and provisions of each Recapitalization Document to be performed or
observed by it or such Subsidiary, maintain each such Recapitalization Document
in full force and effect and enforce each such Recapitalization Document in
accordance with its terms.
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SECTION 5.16 Year 2000 Compatibility. Take all action necessary to
assure that its computer based systems, hardware and software (other than (i)
version 4.4 of the Business Manager(R) software which is no longer in
distribution and (ii) "off-the-shelf" software which is generally commercially
available and which does not need to be year 2000 compatible for any Loan Party
to operate its business) used in each Loan Party's business and operations are
able to operate and effectively receive, transmit, process, store, retrieve or
retransmit data including dates on and after January 1, 2000, and, at the
request of the Administrative Agent, the Loan Parties shall provide evidence to
the reasonable satisfaction of the Administrative Agent of such year 2000
compatibility.
ARTICLE 6
NEGATIVE COVENANTS
So long as any Advance shall remain unpaid, any Letter of Credit shall
be outstanding or any Lender Party shall have any Commitment hereunder, the
Borrower will not, at any time, without the prior consent of the Required
Lenders:
SECTION 6.1 Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties of any character (including,
without limitation, Accounts, Inventory and other Collateral) whether now owned
or hereafter acquired, or sign or file or suffer to exist, or permit any of its
Subsidiaries to sign or file or suffer to exist, under the Uniform Commercial
Code or any other statute of any jurisdiction, a financing statement that names
the Borrower or any of its Subsidiaries as debtor, or sign or suffer to exist,
or permit any of its Subsidiaries to sign or suffer to exist, any security
agreement authorizing any secured party thereunder to file any such financing
statement, or assign, or permit any of its Subsidiaries to assign, any accounts
or other right to receive income, excluding, however, from the operation of the
foregoing restrictions the following:
(a) Liens created under the Loan Documents;
(b) Permitted Liens;
(c) Liens existing on the date hereof and described on Schedule
6.1(c);
(d) Purchase money Liens securing Debt permitted under Section
6.2(c)(i) upon real property or Equipment acquired or held by the Borrower or
any of its Subsidiaries in the ordinary course of business to secure the
purchase price of such real property or Equipment or to secure Debt incurred
solely for the purpose of financing the acquisition, construction or improvement
of any such real property
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or Equipment to be subject to such Liens, or Liens existing on any such real
property or Equipment at the time of acquisition (other than any such Liens
created in contemplation of such acquisition that do not secure the purchase
price), or extensions, renewals or replacements of any of the foregoing for the
same or a lesser amount; provided, however, that no such Lien shall extend to or
cover any property other than the real property or Equipment being acquired,
constructed or improved, and no such extension, renewal or replacement shall
extend to or cover any property not theretofore subject to the Lien being
extended, renewed or replaced;
(e) Liens arising in connection with Capitalized Leases permitted under
Section 6.2(c)(ii); provided, that no such Lien shall extend to or cover any
Collateral or any assets other than the assets subject to such Capitalized
Leases;
(f) The replacement, extension or renewal of any Lien permitted by
clauses (c) through (e) above upon or in the same property theretofore subject
thereto in connection with the replacement, extension or renewal (without
increase in the amount or any change in any direct or contingent obligor) of the
Debt secured thereby.
SECTION 6.2 Debt. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt
other than:
(a) In the case of the Borrower, Debt incurred pursuant to the Loan
Documents and the Recapitalization Agreement;
(b) In the case of any of the Subsidiaries of the Borrower, Debt owed
to the Borrower or to a wholly-owned Subsidiary of the Borrower; provided, that
such Debt shall be evidenced by a promissory note, such promissory note shall be
pledged to the Administrative Agent pursuant to the terms of the Security
Agreement and there shall be no restrictions whatsoever on the ability of such
Subsidiary to repay such Debt;
(c) In the case of the Borrower and any of its Subsidiaries:
(i) Debt (A) secured by Liens permitted by Section 6.1(d) and
(B) Capitalized Leases, collectively not to exceed in the aggregate
$2,000,000 at any time outstanding;
(ii) endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(iii) Unsecured Debt not to exceed $1,000,000 at any time
outstanding; and
(iv) the Surviving Debt.
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SECTION 6.3 Accounts Payable. No accounts payable of the Borrower or
any of its Subsidiaries arising from the purchase of property or services,
including, without limitation, Inventory acquired for resale shall be
outstanding for longer than 120 days from the date of incurrence, except (a)
accounts payable which by their terms become payable after 120 days from
incurrence or (b) all accounts payable owing to any Person where all or any
portion of such accounts payable are subject to good faith dispute by the
Borrower.
SECTION 6.4 Fundamental Changes.
(a) Merge into or consolidate with any Person or permit any Person to
merge into it, or permit any of its Subsidiaries to do so, except that so long
as no Default or Event of Default shall have occurred and be continuing and so
long as no Default or Event of Default would result therefrom, any Subsidiary of
the Borrower may merge into or consolidate with any other Subsidiary of the
Borrower or the Borrower, as the case may be, provided that in the case of any
such merger or consolidation, the Person resulting from such merger or
consolidation shall be the Borrower or a wholly-owned Subsidiary of the
Borrower, as the case may be;
(b) Liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), convey, sell, assign, lease, transfer or otherwise dispose of (or
agree to do any of the foregoing at any future time) all or substantially all of
its property, business or assets, or permit any of its Subsidiaries to do any of
the foregoing; or
(c) Acquire or permit any Subsidiary to acquire all or substantially
all of the assets of any other Person (including capital stock), except that the
Borrower may consummate such acquisitions so long as (i) no Default of Event of
Default then exists and is continuing and (ii) the aggregate consideration for
all such acquisitions during the term of this Agreement does not exceed
$5,000,000; provided, that the Borrower shall not consummate any such
acquisition until such time as the Borrower shall have made any mandatory
prepayments required by Section 2.6(b)(i) applicable for the most recently ended
Fiscal Year.
SECTION 6.5 Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any assets or grant any option or other right to purchase,
lease or otherwise acquire any assets, except:
(a) Sales of Inventory in the ordinary course of business;
(b) Sales of obsolete Equipment in the ordinary course of business;
(c) The sale of any asset by the Borrower or any Guarantor to the
Borrower or any other Guarantor; provided that if such asset consists of
Equipment or Inventory (as such terms are defined
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in the Security Agreement), the Person selling such asset shall provide the
Administrative Agent with the notices as and when required by Section 10(a) of
the Security Agreement; or
(d) The sale of any asset by the Borrower or any of its Subsidiaries
(other than an asset included in Section 6.5(a), (b) or (c)) so long as (i) the
purchase price paid to the Borrower or such Subsidiary for such asset shall be
no less than the fair market value of such asset at the time of such sale, (ii)
the purchase price for such asset shall be paid to the Borrower or such
Subsidiary solely in cash and (iii) the aggregate purchase price paid to the
Borrower and all of its Subsidiaries for such asset and all other assets sold by
the Borrower and its Subsidiaries (other than an asset included in Section
6.5(a), (b) or (c)) (1) since the Closing Date pursuant to this clause (d) shall
not exceed $2,500,000 and (2) in any Fiscal Year pursuant to this clause (d)
shall not exceed $500,000;
provided that in the case of sales of assets pursuant to Section 6.5(d), the
Borrower shall, on the date of receipt thereof, apply the entire Net Cash
Proceeds from such sale in accordance with Section 2.6(b)(ii).
SECTION 6.6 Investments in Other Persons. Make or hold, or permit any
of its Subsidiaries to make or hold, any Investment in any Person other than:
(a) Investments by the Borrower and its Subsidiaries in their
Subsidiaries outstanding on the date hereof and described on Schedule 6.6(a),
and additional investments in Subsidiaries of the Borrower; provided, however,
that no more than an aggregate amount equal to $250,000 shall be invested from
the date hereof in Foreign Subsidiaries; and, provided, further, that with
respect to Investments in any newly acquired or created wholly-owned Subsidiary,
any such Subsidiary shall become a Guarantor pursuant to the terms of the
Subsidiary Guaranty and an additional grantor pursuant to the terms of the
Security Agreement and Intellectual Property Security Agreement;
(b) Loans and advances to officers and other employees in the ordinary
course of the business (including, without limitation, to permit such officers
and employees to purchase restricted stock of the Borrower) of the Borrower and
its Subsidiaries in an aggregate principal amount not to exceed $500,000 at any
time outstanding;
(c) Investments by the Borrower and its Subsidiaries in Cash
Equivalents;
(d) Investments by the Borrower and its Subsidiaries in Bank Hedge
Agreements permitted under Section 5.14;
(e) Investments consisting of intercompany Debt permitted under Section
6.2(b);
(f) Investments existing on the date hereof and described on Schedule
6.6(f) hereto;
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(g) Investments by the Borrower and its Subsidiaries in deposit
accounts opened in the ordinary course of business;
(h) Investments by the Borrower and its Subsidiaries in joint ventures
in an aggregate amount not to exceed $500,000;
(i) Investments consisting of accounts receivable in the ordinary
course of business;
(j) Investments in connection with the Recapitalization in the form of
certain bonus payments made in accordance with the terms of the Recapitalization
Agreement; and
(k) Investments in the form of acquisitions to the extent expressly
permitted by Section 6.4(c).
SECTION 6.7 Dividends, Etc. Declare or pay any dividends, purchase,
redeem, retire, defease or otherwise acquire for value any of its capital stock
or any warrants, rights or options to acquire such capital stock, now or
hereafter outstanding, return any capital to its stockholders as such, make any
distribution of assets, capital stock, warrants, rights, options, obligations or
securities to its stockholders as such or issue or sell any capital stock or any
warrants, rights or options to acquire such capital stock, or permit any of its
Subsidiaries to do any of the foregoing or permit any of its Subsidiaries to
purchase, redeem, retire, defease or otherwise acquire for value any capital
stock of the Borrower or any warrants, rights or options to acquire such capital
stock or to issue or sell any such capital stock or any warrants, rights or
options to acquire such capital stock, except:
(a) The Borrower may declare and pay dividends and distributions
payable solely in common stock of the Borrower;
(b) A Subsidiary of the Borrower may declare and pay dividends and
distributions to the Borrower;
(c) The Borrower may consummate the Recapitalization; and
(d) For issuances of stock expressly permitted by Section 6.19.
SECTION 6.8 Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof.
SECTION 6.9 Charter Amendments. Amend, or permit any of its
Subsidiaries to amend, its certificate or articles of incorporation or bylaws if
such amendment could impair the interests or rights of the Administrative Agent
or any Lender Party.
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SECTION 6.10 Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any (a) material change in accounting policies
or reporting practices, except as mandated by GAAP, or (b) change in its Fiscal
Year.
SECTION 6.11 Prepayments, Etc. of Debt. Prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof (a) in any
manner, or make any payment in violation of any subordination terms of, any
Debt, other than (i) the prepayment the Advances in accordance with the terms of
this Agreement, (ii) regularly scheduled or required repayments or redemptions
of Surviving Debt and (iii) so long as no Default or Event of Default then
exists and is continuing or would result therefrom, the prepayment of Debt
permitted under Section 6.2 (other than under the Excess Cash Flow Notes (as
defined in the Recapitalization Agreement)), (b) amend, modify or change in any
manner any term or condition of any Existing Debt or Surviving Debt, or (c)
permit any of its Subsidiaries to do any of the foregoing other than to repay
any Debt payable to the Borrower.
SECTION 6.12 Amendment, Etc. of Recapitalization Documents. Cancel or
terminate any Recapitalization Document or consent to or accept any cancellation
or termination thereof, amend, modify or change in any manner any material term
or condition of any Recapitalization Document or give any consent, waiver or
approval thereunder, waive any default under or any breach of any material term
or condition of any Recapitalization Document or take any other action in
connection with any Recapitalization Document that would, in any such case,
impair the value of the interests or rights of the Borrower thereunder, or would
impair the interests or rights of the Administrative Agent or any Lender Party,
or permit any of its Subsidiaries to do any of the foregoing.
SECTION 6.13 Amendment, Etc. of Material Contracts. Cancel or terminate
any Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any consent,
waiver or approval thereunder, waive any default under or breach of any Material
Contract or take any other action in connection with any Material Contract that
would materially impair the value of the interests or rights of the Borrower
thereunder or that could impair the interests or rights of the Administrative
Agent or any Lender Party, or permit any of their Subsidiaries to do any of the
foregoing.
SECTION 6.14 Negative Pledge. Enter into or suffer to exist, or permit
any of the Subsidiaries of the Borrower to enter into or suffer to exist, any
agreement prohibiting or conditioning the creation or assumption of any Lien
upon any of its properties or assets, other than as provided in the Loan
Documents.
<PAGE> 90
83
SECTION 6.15 Partnerships, New Subsidiaries.
(a) Become a general partner in any general or limited partnership or
joint venture (other than as expressly permitted pursuant to Section 6.6(a) or
(h)), or permit any of its Subsidiaries to do so, or
(b) Create any new Subsidiary, unless such newly created Subsidiary
shall become a Guarantor pursuant to the terms of the Subsidiary Guaranty and an
additional grantor pursuant to the terms of the Security Agreement and
Intellectual Property Security Agreement and all shares of the capital stock of
such Subsidiary are pledged to the Administrative Agent pursuant to the Security
Agreement.
SECTION 6.16 Speculative Transactions. Engage, or permit any of its
Subsidiaries to engage, in any transaction involving commodity options or
futures contracts or derivatives or any similar speculative transactions, except
for Bank Hedge Agreements expressly permitted under Section 5.14.
SECTION 6.17 Capital Expenditures. Make, or permit any of its
Subsidiaries to make, any Capital Expenditures that would cause the aggregate of
all such Capital Expenditures made by the Borrower and its Subsidiaries in any
period set forth below to exceed the amount set forth below for such period.
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Closing Date through December 31, 1998 $3,000,000
Fiscal Year 1999 $3,500,000
Fiscal Year 2000 $4,000,000
Fiscal Year 2001 $4,000,000
Fiscal Year 2002 $4,000,000
Fiscal Year 2003 $4,000,000
Fiscal Year 2004 $4,000,000
Fiscal Year 2005 $4,000,000
Fiscal Year 2006 $4,000,000
</TABLE>
; provided, however, that amounts permitted to be expended in a Fiscal Year that
are not expended in such fiscal year, but not in excess of fifty (50%) percent
of such prior year's unused amount (not including any amount permitted to be
carried forward from a prior year) shall be permitted to be expended in (but
only in) the subsequent fiscal year.
SECTION 6.18 Payment of Management Fees. Pay, or permit any of its
Subsidiaries to pay, any management fees or other compensation to any Equity
Participant or Affiliate thereof.
<PAGE> 91
84
SECTION 6.19 Issuance of Stock. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, issue, sell, assign,
pledge or otherwise encumber or dispose of any shares of capital stock of the
Borrower or any Subsidiary of the Borrower, except (a) to the Borrower, (b) to
qualify directors if required by applicable law, (c) as set forth in Schedule
6.19, (d) pursuant to the Recapitalization in accordance with the
Recapitalization Documents, (e) common stock of the Borrower issued to holders
of Outstanding Options (as defined in the Recapitalization Agreement), (f)
common stock of the Borrower issued pursuant to a stock option and/or restricted
stock option plan or a similar employee benefit plan, in each case the terms of
which are reasonably satisfactory to the Administrative Agent, or the exercise
of options issued pursuant thereto, (g) pursuant to the Loan Documents, or (h)
the Borrower may consummate a Qualified Offering.
ARTICLE 7
REPORTING REQUIREMENTS
So long as any Advance shall remain unpaid, any Letter of Credit shall
be outstanding or any Lender Party shall have any Commitment hereunder, the
Borrower will furnish to the Administrative Agent and Lender Parties:
SECTION 7.1 Default Notice. As soon as possible and in any event within
two (2) Business Days after a Responsible Officer of the Borrower obtains
knowledge of the occurrence of any Default or any event, development or
occurrence reasonably likely to have a Material Adverse Effect, a statement of
the Chief Financial Officer of the Borrower setting forth details of such
Default or event, development or occurrence and the action that the Borrower has
taken and proposes to take with respect thereto.
SECTION 7.2 Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month which is not a fiscal
quarter end, a Consolidated balance sheet of the Borrower and its Subsidiaries,
as of the end of such month and a Consolidated statement of income and a
Consolidated statement of cash flows of the Borrower and its Subsidiaries, and
consolidating statements of income of the Borrower and its Subsidiaries, for the
period commencing at the end of the previous month and ending with the end of
such month and Consolidated statement of income and a Consolidated statement of
cash flows of the Borrower and its Subsidiaries, and consolidating statements of
income of the Borrower and its Subsidiaries, for the period commencing at the
end of the previous Fiscal Year and ending with the end of such month, setting
forth in each case in comparative form the corresponding figures for the
corresponding period of the prior Fiscal Year, all in reasonable detail and duly
certified by the chief financial officer of the Borrower.
<PAGE> 92
85
SECTION 7.3 Quarterly Financials. As soon as available and in any event
within forty-five (45) days (except that with respect to the fiscal quarter
ending December 31, 1998, within thirty (30) days) after the end of each fiscal
quarter of each Fiscal Year, a Consolidated balance sheet of the Borrower and
its Subsidiaries, and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of such quarter and a Consolidated statement of
income and a Consolidated statement of cash flows of the Borrower and its
Subsidiaries, and consolidating statements of income and consolidating
statements of cash flows of the Borrower and its Subsidiaries, for the period
commencing at the end of the previous fiscal quarter and ending with the end of
such fiscal quarter and a Consolidated statement of income and a Consolidated
statement of cash flows of the Borrower and its Subsidiaries and consolidating
statements of income and consolidating statements of cash flows of the Borrower
and its Subsidiaries for the period commencing at the end of the previous Fiscal
Year and ending with the end of such fiscal quarter, setting forth in each case
in comparative form the corresponding figures for the corresponding period of
the preceding Fiscal Year and the corresponding figures from the budgets for
such period and for the Fiscal Year which includes such period, all in
reasonable detail and duly certified by the Chief Financial Officer of the
Borrower as having been prepared in accordance with GAAP (subject to normal
year-end audit adjustments), together with (i) management's discussion and
analysis of financial condition and results of operations, (ii) a certificate of
said officer stating that no Default has occurred and is continuing or, if a
Default has occurred and is continuing, a statement as to the nature thereof and
the action that the Borrower has taken and proposes to take with respect thereto
and (iii) a schedule in form satisfactory to the Administrative Agent of the
computations used by the Borrower in determining compliance with the financial
covenants contained in Article 8, provided, that in the event of any change in
GAAP used in the preparation of such financial statements, the Borrower shall
also provide, if necessary for the determination of compliance with Article 8, a
statement of reconciliation conforming such financial statements to GAAP.
SECTION 7.4 Annual Financials. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, a copy of the annual
audit report for such year for the Borrower and its Subsidiaries, including
therein a Consolidated balance sheet of the Borrower and its Subsidiaries, and
consolidating balance sheets of Borrower and its Subsidiaries, as of the end of
such Fiscal Year and a Consolidated statement of income and a Consolidated
statement of cash flows of the Borrower and its Subsidiaries, and consolidating
statements of income and consolidating statements of cash flows of the Borrower
and its Subsidiaries, for such Fiscal Year, in each case setting forth in
comparative form the corresponding figures for the prior Fiscal Year and the
corresponding figures from the budget for such Fiscal Year and in each case
accompanied (in the case of such Consolidated financial statements) by an
opinion acceptable to the Administrative Agent of Arthur Andersen or other
independent certified public accountants of recognized national standing
acceptable to the Administrative Agent, with the consent of the Required Lenders
(not to be unreasonably withheld), together with (a) management's discussion and
analysis of financial condition and results of operations, (b) a letter of such
accounting firm to the Administrative Agent and Lender Parties stating that in
the course of the regular audit of the business of the Borrower and
<PAGE> 93
86
its Subsidiaries, which audit was conducted by such accounting firm in
accordance with generally accepted auditing standards, such accounting firm has
obtained no knowledge that a Default has occurred and is continuing, or if, in
the opinion of such accounting firm, a Default has occurred and is continuing,
a statement as to the nature thereof, (c) a schedule in form satisfactory to the
Administrative Agent of the computations used by such accountants in
determining, as of the end of such Fiscal Year, compliance with the covenants
contained in Article 8, provided, that in the event of any change in GAAP used
in the preparation of such financial statements, the Borrower shall also
provide, if necessary for the determination of compliance with Article 8, a
statement of reconciliation conforming such financial statements to GAAP and (d)
a certificate of the Chief Financial Officer of the Borrower stating that no
Default has occurred and is continuing or, if a Default has occurred and is
continuing, a statement as to the nature thereof and the action that the
Borrower has taken and proposes to take with respect thereto.
SECTION 7.5 Annual Forecasts. As soon as available and in any event no
later than sixty (60) days after the end of each Fiscal Year, (i) forecasts
prepared by management of the Borrower, including balance sheets, income
statements and cash flow statements on a quarterly basis, and (ii) a business
plan, in each case for the Fiscal Year following such Fiscal Year then ended and
in form reasonably satisfactory to the Administrative Agent.
SECTION 7.6 ERISA Events and ERISA Reports. (i) Promptly and in any
event within twenty (20) days after any Loan Party or any ERISA Affiliate knows
or has reason to know that any ERISA Event has occurred, a statement of the
Chief Financial Officer of the Borrower describing such ERISA Event and the
action, if any, that such Loan Party or such ERISA Affiliate has taken and
proposes to take with respect thereto and (ii) on the date any records,
documents or other information must be furnished to the PBGC with respect to any
Plan pursuant to Section 4010 of ERISA, a copy of such records, documents and
information.
SECTION 7.7 Plan Terminations. Promptly and in any event within five
(5) Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention to
terminate any Plan or to have a trustee appointed to administer any Plan or
correspondence from the PBGC indicating it is considering termination of any
Plan.
SECTION 7.8 Actuarial Reports. Promptly upon receipt thereof by any
Loan Party or any ERISA Affiliate, a copy of the annual actuarial valuation
report for each Plan the funded current liability percentage (as defined in
Section 302(d)(8)(B) of ERISA) of which is less than 90% or the unfunded current
liability (as defined in Section 302(d)(8)(A) of ERISA) of which exceeds
$500,000 or the present value of benefit liabilities as of the latest actuarial
valuation date for such Plan (but not prior to 12 months prior to the date
hereof), determined on the basis of a shut down of the company in accordance
with actuarial assumptions used by the PBGC in single-employer plan
terminations, exceeds the market value of assets exclusive of any contributions
due to the Plan by $500,000.
<PAGE> 94
87
SECTION 7.9 Plan Annual Reports. Upon the request, from time to time,
of the Administrative Agent, promptly and in any event within thirty (30) days
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with
respect to each Plan.
SECTION 7.10 Annual Plan Summaries. As soon as available and in any
event within ninety (90) days after the end of each Fiscal Year, an annual
summary of actuarial valuation and other information with respect to each Plan
in form, substance and detail satisfactory to the Administrative Agent.
SECTION 7.11 Multiemployer Plan Notices. Promptly and in any event
within five (5) Business Days after receipt thereof by any Loan Party or any
ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice
concerning, or other correspondence with respect to, (i) the imposition of
Withdrawal Liability by any such Multiemployer Plan, (ii) the reorganization or
termination, within the meaning of Title IV of ERISA, of any such Multiemployer
Plan or (iii) the amount of liability incurred, or that may be incurred, by such
Loan Party or any ERISA Affiliate in connection with any event described in
clause (i) or (ii).
SECTION 7.12 Litigation. Promptly after the commencement thereof,
notice of all material actions, suits, investigations, litigation and
proceedings before any court or governmental department, commission, board,
bureau, agency or instrumentality, Federal, state, local or foreign, affecting
any Loan Party or any of its Subsidiaries and, promptly after the occurrence
thereof, notice of any Material Adverse Change in the financial effect on any
Loan Party or any of its Subsidiaries of the Disclosed Litigation from that
described on Schedule 3.1(e).
SECTION 7.13 Securities Reports. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements and reports that
any Loan Party or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special reports, and all registration statements,
that any Loan Party or any of its Subsidiaries files with the Securities and
Exchange Commission or any other governmental authority or with any national
securities exchange.
SECTION 7.14 reserved.
SECTION 7.15 Agreement Notices. Promptly upon receipt thereof, copies
of all notices, requests and other documents received by any Loan Party or any
of its Subsidiaries under or pursuant to any Material Contract or indenture,
loan or credit agreement or similar agreement or instrument regarding or related
to any breach or default by any party thereto or any event that could materially
impair the value of the interests or the rights of any Loan Party or any of its
Subsidiaries or otherwise have a Material Adverse Effect and copies of any
amendment, modification or waiver of any provision of any Contract or indenture,
loan or credit agreement or similar agreement or
<PAGE> 95
88
indenture and, from time to time upon request by the Administrative Agent, such
information and reports regarding the foregoing as the Administrative Agent may
reasonably request.
SECTION 7.16 Revenue Agent Reports. Within ten (10) days after receipt,
copies of all Revenue Agent Reports (Internal Revenue Service Form 886), or
other written proposals of the Internal Revenue Service, that propose, determine
or otherwise set forth any adjustments to the Federal income tax liability of
the affiliated group (within the meaning of Section 1504(a)(1) of the Internal
Revenue Code) of which the Borrower is a member aggregating $250,000 or more.
SECTION 7.17 Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or of any
noncompliance by any Loan Party or any of its Subsidiaries with any
Environmental Law or Environmental Permit that is reasonably likely to have a
Material Adverse Effect.
SECTION 7.18 Real Property. Upon the request, from time to time, of the
Administrative Agent, promptly and in any event within thirty (30) days after
any such request, a report supplementing Schedules 4.21 and 4.22 hereto,
including an identification of all real and leased property disposed of by the
Borrower or any of its Subsidiaries during such Fiscal Year, a list and
description (including the street address, county or other relevant
jurisdiction, state, record owner and, in the case of leases of property,
lessor, lessee, expiration date and annual rental cost thereof) of all real
property acquired or leased during such Fiscal Year and a description of such
other changes in the information included in such Schedules as may be necessary
for such Schedules to remain accurate and complete in all respects.
SECTION 7.19 Insurance. Upon the request, from time to time, of the
Administrative Agent, promptly and in any event within thirty (30) days after
any such request, a report summarizing the insurance coverage (specifying type,
amount and carrier) in effect for each Loan Party and its Subsidiaries and
containing such additional information as the Administrative Agent may
reasonably request.
SECTION 7.20 Management Letters. As soon as available and in any event
within five (5) Business Days after the receipt thereof, copies of any
"management letter" or similar letter received by the Borrower or its Board of
Directors (or any Committee thereof) from its independent public accountants.
SECTION 7.21 Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance or
properties of any Loan Party or any of its Subsidiaries or the Collateral as the
Administrative Agent or any Lender Party (through the Administrative Agent) may
from time to time reasonably request.
<PAGE> 96
89
ARTICLE 8
FINANCIAL COVENANTS
So long as any Advance shall remain unpaid, any Letter of Credit shall
be outstanding or any Lender Party shall have any Commitment hereunder, the
Borrower will:
SECTION 8.1 Minimum EBITDA. Maintain for each period set forth below
EBITDA at not less than the respective amounts set forth below:
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Minimum EBITDA
---------------------------------------- --------------
<S> <C>
December 31, 1998 $20,000,000
March 31, 1999 $20,000,000
June 30, 1999 $20,000,000
September 30, 1999 $21,000,000
December 31, 1999 $22,500,000
March 31, 2000 $22,500,000
June 30, 2000 $22,500,000
September 30, 2000 $23,000,000
December 31, 2000 $24,000,000
March 31, 2001 $24,000,000
June 30, 2001 $24,000,000
September 30, 2001 $25,000,000
December 31, 2001 $26,000,000
March 31, 2002 $26,000,000
June 30, 2002 $26,000,000
September 30, 2002 $26,000,000
December 31, 2002 $27,500,000
March 31, 2003 $27,500,000
June 30, 2003 $28,000,000
September 30, 2003 $29,000,000
December 31, 2003 and thereafter $30,000,000
</TABLE>
SECTION 8.2 Ratio of Consolidated Debt to EBITDA. Maintain as of the
end of each fiscal quarter of the Borrower a Ratio of Consolidated Debt to
EBITDA for the most recently completed four fiscal quarters of the Borrower of
not more than the ratio set forth below:
<PAGE> 97
90
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Ratio
---------------------------------------- -----
<S> <C>
December 31, 1998 4.85:1
March 31, 1999 4.75:1
June 30, 1999 4.75:1
September 30, 1999 4.50:1
December 31, 1999 4.25:1
March 31, 2000 4.25:1
June 30, 2000 4.00:1
September 30, 2000 4.00:1
December 31, 2000 3.75:1
March 31, 2001 3.75:1
June 30, 2001 3.75:1
September 30, 2001 3.50:1
December 31, 2001 3.25:1
March 31, 2002 3.25:1
June 30, 2002 3.25:1
September 30, 2002 3.25:1
December 31, 2002 3.00:1
March 31, 2003 3.00:1
June 30, 2003 3.00:1
September 30, 2003 3.00:1
December 31, 2003 and thereafter 2.75:1
</TABLE>
SECTION 8.3 Interest Coverage Ratio. Maintain as of each date set forth
below, a ratio of (i) EBITDA for the most recently completed four fiscal
quarters of the Borrower to (ii) Consolidated cash Interest Expense for such
period (except that in respect of the first three testing periods referred to
below, actual amounts expended for cash Interest Expense, in each case since the
Closing Date shall be computed on an annualized basis) of not less than the
ratio set forth below for such period:
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Ratio
---------------------------------------- -----
<S> <C>
December 31, 1998 2.25:1
March 31, 1999 2.25:1
June 30, 1999 2.25:1
September 30, 1999 2.50:1
December 31, 1999 2.75:1
March 31, 2000 2.75:1
June 30, 2000 2.75:1
September 30, 2000 2.75:1
December 31, 2000 and thereafter 3.00:1
</TABLE>
<PAGE> 98
91
SECTION 8.4 Fixed Charge Coverage Ratio. Maintain as of the end of each
fiscal quarter of the Borrower a ratio of (i) EBITDA for the most recently
completed four fiscal quarters of the Borrower, less Capital Expenditures made
by the Borrower and its Subsidiaries during such period (except that in respect
of the first three testing periods referred to below, the amount of Capital
Expenditures shall be deemed to be equal to the lesser of (x) actual amounts
expended for Capital Expenditures, in each case since the Closing Date, computed
on an annualized basis and (y) $3,500,000), less the aggregate amount of
federal, state, local and foreign taxes paid by the Borrower and its
Subsidiaries in cash during such period, less cash dividends paid by the
Borrower to the holders of its common stock during such period, to the (ii) sum
of (x) cash interest payable by the Borrower and its Subsidiaries on all Debt
during such period (except that in respect of the first three testing periods
referred to below, actual amounts expended for cash Interest Expense, in each
case since the Closing Date shall be computed on an annualized basis), plus (y)
principal amounts of all Debt payable by the Borrower and its Subsidiaries
during such period (except that in respect of the first three testing periods
referred to below, such principal amounts payable in each case since the Closing
Date, computed on an annualized basis, shall be deemed to be equal to
$3,000,000), of not less than the ratio set forth below for such period:
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Ratio
---------------------------------------- -----
<S> <C>
December 31, 1998 1.10:1
March 31, 1999 1.10:1
June 30, 1999 1.10:1
September 30, 1999 1.10:1
December 31, 1999 1.10:1
March 31, 2000 1.10:1
June 30, 2000 1.10:1
September 30, 2000 1.10:1
December 31, 2000 1.15:1
March 31, 2001 1.15:1
June 30, 2001 1.15:1
September 30, 2001 1.15:1
December 31, 2001 and thereafter 1.20:1
</TABLE>
<PAGE> 99
92
ARTICLE 9
EVENTS OF DEFAULT
If any of the following ("Events of Default") shall occur and be
continuing:
SECTION 9.1 Payment. (a) The Borrower shall fail to pay any principal
of any Advance when the same shall become due and payable or (b) the Borrower
shall fail to pay any interest on any Advance, or any Loan Party shall fail to
make any other payment under any Loan Document, in each case under this clause
(b) within two (2) Business Days after the same becomes due and payable; or
SECTION 9.2 Representations and Warranties. Any representation or
warranty made by any Loan Party (or any of its officers) under or in connection
with any Loan Document shall prove to have been incorrect in any material
respect when made or confirmed; or
SECTION 9.3 Certain Covenants. The Borrower shall fail to perform or
observe any term, covenant or agreement contained in Section 2.14, 5.6, 5.7,
5.13, 5.14 or 5.15, Article 6 or Article 8; or
SECTION 9.4 Other Covenants. Any Loan Party shall fail to perform any
other term, covenant or agreement contained in any Loan Document on its part to
be performed or observed if such failure shall remain unremedied for thirty (30)
days after the earlier of the date on which (a) a Responsible Officer of any
Loan Party becomes aware of such failure or (b) written notice thereof shall
have been given to the Borrower by the Administrative Agent or any Lender Party;
or
SECTION 9.5 Other Defaults. Any Loan Party or any of its Subsidiaries
shall fail to pay any principal of, premium or interest on or any other amount
payable in respect of any Debt that is outstanding in a principal or notional
amount of at least $1,000,000 either individually or in the aggregate (but
excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as
the case may be), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise); or any other
event shall occur or condition shall exist under any agreement or instrument
relating to any such Debt, in each case if the effect of such event or condition
is to accelerate, or to permit the acceleration of, the maturity of such Debt or
otherwise to cause, or to permit the holder thereof to cause, such Debt to
mature; or any such Debt shall be declared to be due and payable or required to
be prepaid or redeemed (other than by a regularly scheduled required prepayment
or redemption), purchased or defeased, or an offer to prepay, redeem, purchase
or defease such Debt shall be required to be made, in each case prior to the
stated maturity thereof; or
<PAGE> 100
93
SECTION 9.6 Bankruptcy, Etc. Any Loan Party or any of its Subsidiaries
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be instituted
by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted against it
(but not instituted by it) that is being diligently contested by it in good
faith, either such proceeding shall remain undismissed or unstayed for a period
of sixty (60) days or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar official for, it or any
substantial part of its property) shall occur, or any Loan Party or any of its
Subsidiaries shall take any corporate action to authorize any of the actions set
forth above in this subsection (f); or
SECTION 9.7 Judgments.
(a) Any judgment or order for the payment of money in excess of
$500,000 (other than such a judgment or order which is fully covered by
insurance for which the appropriate insurer has acknowledged responsibility in
writing) shall be rendered against any Loan Party or any of its Subsidiaries and
either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be a period of seven (7)
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
(b) Any non-monetary judgment or order shall be rendered against any
Loan Party or any of its Subsidiaries that is reasonably likely to have a
Material Adverse Effect; or
SECTION 9.8 Loan Documents. Any material provision of any Loan Document
after delivery thereof shall for any reason cease to be valid and binding on or
enforceable against any Loan Party which is party to it, or any such Loan Party
shall so state in writing; or
SECTION 9.9 Liens. Any Collateral Document after delivery thereof shall
for any reason cease to or otherwise not create a valid and perfected first and
only priority lien (subject to Permitted Liens and Permitted Real Property
Encumbrances) on and security interest in the Collateral purported to be covered
thereby; or
SECTION 9.10 Change of Control. Any Change of Control shall occur;
provided, however, that if (i) as of the date of consummation of a proposed
Change of Control, the Ratio of Consolidated Debt to EBITDA is less than 3.00:1
and (ii) the Borrower consummates such Change of Control on
<PAGE> 101
94
such date, then a Change of Control shall not at any time thereafter constitute
an Event of Default; provided, further, that if at any time the Borrower
consummates a Qualified Offering, a Change of Control shall not at any time
thereafter constitute an Event of Default; or
SECTION 9.11 ERISA Events.
(a) Any ERISA Event shall have occurred with respect to a Plan and the
sum (determined as of the date of occurrence of the last such ERISA Event) of
the Insufficiency of such Plan and the Insufficiency of any and all other Plans
with respect to which an ERISA Event shall have occurred and then exist (or the
liability of the Loan Parties and the ERISA Affiliates related to such ERISA
Events) exceeds $500,000; or
(b) Any Loan Party or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to
such Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Loan Parties and the
ERISA Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $500,000 or requires payments exceeding $200,000 per
annum; or
(c) Any Loan Party or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
and as a result of such reorganization or termination the aggregate annual
contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years of such Multiemployer Plans immediately preceding the plan year in which
such reorganization or termination occurs by an amount exceeding $200,000;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the Commitments of each appropriate Lender (other than the Commitment in
respect of Letter of Credit Advances by the Issuing Bank or a Revolving Credit
Lender pursuant to Section 2.3(c) and Swing Line Advances by a Revolving Credit
Lender pursuant to Section 2.2(b)) and of the Issuing Bank to issue Letters of
Credit to be terminated, whereupon the same shall forthwith terminate, and (ii)
shall at the request, or may with the consent, of the Required Lenders, (A) by
notice to the Borrower, declare the Notes, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents to be
forthwith due and payable, whereupon the Notes, all such interest and all such
other amounts 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 and (B) by notice to each party required
under the terms of any agreement in support of which a Standby Letter of Credit
is issued, request that all Obligations under such agreement be declared to be
due and payable; provided, however, that in the event of an actual or deemed
entry of an order for relief with
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respect to any Loan Party or any of its Subsidiaries under the Federal
Bankruptcy Code, (x) the obligation of each Lender to make Advances (other than
Letter of Credit Advances by the Issuing Bank or a Revolving Credit Lender
pursuant to Section 2.3(c) and Swing Line Advances by a Revolving Credit Lender
pursuant to Section 2.2(b)) and of the Issuing Bank to issue Letters of Credit
shall automatically be terminated and (y) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
If any Event of Default shall have occurred and be continuing, the
Administrative Agent may, or shall at the request of the Required Lenders,
irrespective of whether it is taking any of the actions described in Article 9
or otherwise, make demand upon the Borrower to, and forthwith upon such demand
the Borrower will, pay to the Administrative Agent on behalf of the Lender
Parties in same day funds at the Administrative Agent's office designated in
such demand, for deposit in the L/C Cash Collateral Account, an amount equal to
the aggregate Available Amount of all Letters of Credit then outstanding. If at
any time the Administrative Agent determines that any funds held in the L/C Cash
Collateral Account are subject to any right or claim of any Person other than
the Administrative Agent and the Lender Parties or that the total amount of such
funds is less than the aggregate Available Amount of all Letters of Credit, the
Borrower will, forthwith upon demand by the Administrative Agent, pay to the
Administrative Agent, as additional funds to be deposited and held in the L/C
Cash Collateral Account, an amount equal to the excess of (a) such aggregate
Available Amount over (b) the total amount of funds, if any, then held in the
L/C Cash Collateral Account that the Administrative Agent determines to be free
and clear of any such right and claim.
ARTICLE 10
THE ADMINISTRATIVE AGENT
SECTION 10.1 Authorization and Action. Each Lender Party (in its
capacities as a Lender, the Issuing Bank, the Swing Line Bank and any Hedge
Bank) hereby appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
this Agreement and the other Loan Documents as are delegated to the
Administrative Agent by the terms hereof and thereof, together with such powers
and discretion as are reasonably incidental thereto. As to any matters not
expressly provided for by the Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lender Parties and all holders of Notes;
provided, however, that the Administrative Agent shall not be required to take
any action that exposes the Administrative Agent to personal liability
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or that is contrary to this Agreement, any other Loan Document or applicable
law. The Administrative Agent agrees to give to each Lender Party prompt notice
of each notice given to it by the Borrower pursuant to the terms of this
Agreement. The Administrative Agent shall not be a trustee or fiduciary for any
Lender.
SECTION 10.2 Agent's Reliance, Etc. Neither the Administrative Agent
nor any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
the Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent: (a) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender that is the payee of such Note, as assignor, and an
Eligible Assignee, as assignee, as provided in Section 11.7; (b) may consult
with legal counsel (including counsel for any Loan Party), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender Party and shall not be responsible to any Lender
Party for any statements, warranties or representations (whether written or
oral) made in or in connection with the Loan Documents; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of any Loan Document on the part of any Loan
Party or to inspect the property (including the books and records) of any Loan
Party; (e) shall not be responsible to any Lender Party for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, any Loan Document or any other
instrument or document furnished pursuant thereto; and (f) shall incur no
liability under or in respect of any Loan Document by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telegram,
telecopy or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
SECTION 10.3 Fleet and Affiliates. With respect to its Commitments, the
Advances made by it and the Notes issued to it, Fleet shall have the same rights
and powers under the Loan Documents as any other Lender Party and may exercise
the same as though it were not the Administrative Agent; and the term "Lender
Party" or "Lender Parties" shall, unless otherwise expressly indicated, include
Fleet in its individual capacity. Fleet and its affiliates may accept deposits
from, lend money to, act as trustee under indentures of, accept investment
banking engagements from and generally engage in any kind of business with, any
Loan Party, any of its Subsidiaries and any Person who may do business with or
own securities of any Loan Party or any such Subsidiary, all as if Fleet were
not the Administrative Agent and without any duty to account therefor to the
Lender Parties.
SECTION 10.4 Lender Party Credit Decision. Each Lender Party
acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender Party and
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based on the financial statements referred to in Section 4.6 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender Party also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender Party and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 10.5 Indemnification.
(a) Each Lender Party severally agrees to indemnify the Administrative
Agent (to the extent not promptly reimbursed by the Borrower) from and against
such Lender Party's ratable share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of any of the Loan Documents or any action taken or
omitted by the Administrative Agent under any of the Loan Documents; provided,
however, that no Lender Party shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender Party agrees to reimburse the Administrative Agent promptly upon demand
for its ratable share of any costs and expenses (including, without limitation,
fees and expenses of counsel) payable by the Borrower under Section 11.4, to the
extent that the Administrative Agent is not promptly reimbursed for such costs
and expenses by the Borrower.
(b) Each Lender Party severally agrees to indemnify the Issuing Bank
(to the extent not promptly reimbursed by the Borrower) from and against such
Lender Party's ratable share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Issuing Bank in any way
relating to or arising out of any of the Loan Documents or any action taken or
omitted by the Issuing Bank under any of the Loan Documents; provided, however,
that no Lender Party shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Issuing Bank's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender Party
agrees to reimburse the Issuing Bank promptly upon demand for its ratable share
of any costs and expenses (including, without limitation, fees and expenses of
counsel) payable by the Borrower under Section 11.4, to the extent that the
Issuing Bank is not promptly reimbursed for such costs and expenses by the
Borrower.
(c) For purposes of Sections 10.5(a) and 10.5(b), the Lender Parties'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (i) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lender
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Parties, (ii) their respective Pro Rata Shares of the aggregate Available Amount
of all Letters of Credit outstanding at such time, (iii) the aggregate unused
portions of their respective Term A Commitments and Term B Commitments at such
time and (iv) their respective Unused Revolving Credit Commitments at such time;
provided, that the aggregate principal amount of Swing Line Advances owing to
the Swing Line Bank and Letter of Credit Advances owing to the Issuing Bank
shall be considered to be owed to the Revolving Credit Lenders ratably in
accordance with their respective Revolving Credit Commitments. In the event that
any Defaulted Advance shall be owing by any Defaulting Lender at any time, such
Lender Party's Commitment with respect to the Facility under which such
Defaulted Advance was required to have been made shall be considered to be
unused for purposes of this Section 10.5 to the extent of the amount of such
Defaulted Advance. The failure of any Lender Party to reimburse the
Administrative Agent or the Issuing Bank, as the case may be, promptly upon
demand for its ratable share of any amount required to be paid by the Lender
Parties to the Administrative Agent or the Issuing Bank, as the case may be, as
provided herein shall not relieve any other Lender Party of its obligation
hereunder to reimburse the Administrative Agent or the Issuing Bank, as the case
may be, for its ratable share of such amount, but no Lender Party shall be
responsible for the failure of any other Lender Party to reimburse the
Administrative Agent or the Issuing Bank, as the case may be, for such other
Lender Party's ratable share of such amount. Without prejudice to the survival
of any other agreements of any Lender Party hereunder, the agreement and
obligations of each Lender Party contained in this Section 10.5 shall survive
the payment in full of principal, interest and all other amounts payable
hereunder and under the other Loan Documents.
SECTION 10.6 Successor Administrative Agents. The Administrative Agent
may resign as to any or all of the Facilities at any time by giving written
notice thereof to the Lender Parties and the Borrower and may be removed as to
all of the Facilities at any time with or without cause by the Required Lenders.
Upon any such resignation or removal, the Required Lenders shall have the right
to appoint a successor Administrative Agent as to such of the Facilities as to
which the Administrative Agent has resigned or been removed subject to the
Borrower's consent which shall not be unreasonably withheld. If no successor
Administrative Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within thirty (30) days after the retiring
Administrative Agent's giving of notice of resignation or the Required Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lender Parties, appoint a successor Administrative
Agent subject to the Borrower's consent which shall not be unreasonably
withheld, which shall be a Lender which is a commercial bank organized under the
laws of the United States or of any State thereof and having a combined capital
and surplus of at least $250,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent as to all of
the Facilities and upon the execution and filing or recording of such financing
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as the Required Lenders may request, in order to
continue the perfection of the Liens granted or purported to be granted by the
Collateral Documents, such successor Administrative Agent shall succeed to and
become vested with all the rights, powers,
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discretion, privileges and duties of the retiring Administrative Agent, and the
retiring Administrative Agent shall be discharged from all of its duties and
obligations under this Agreement and the other Loan Documents. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent as to less than all of the Facilities and upon the
execution and filing or recording of such financing statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Required Lenders may request, in order to continue the
perfection of the Liens granted or purported to be granted by the Collateral
Documents, such successor Administrative Agent shall succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent as to such Facilities, other than with respect to
funds transfers and other similar aspects of the administration of Borrowings
under such Facilities, issuances of Letters of Credit (notwithstanding any
resignation as Administrative Agent with respect to the Letter of Credit
Facility) and payments by the Borrower in respect of such Facilities, and the
retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement as to such Facilities, other than as aforesaid.
After any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent as to all of the Facilities, the provisions of this Article
10 shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Administrative Agent as to any Facilities under this Agreement.
SECTION 10.7 Events of Default. The Administrative Agent shall not be
deemed to have knowledge of the occurrence of a Default (other than the
non-payment of principal of or interest on Loans) unless the Administrative
Agent has received notice from a Lender or the Borrower specifying such Default
and stating that such notice is a "Notice of Default". In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give notice thereof to the Lenders (and shall give
each Lender notice of each such non-payment). The Administrative Agent shall
(subject to Section 10.1(b) hereof) take such action with respect to such
Default as shall be directed by the Required Lenders.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 Amendments, Etc. No amendment or waiver of any provision
of this Agreement or the Notes or any other Loan Document, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing and signed (or, in the case of the Collateral
Documents, consented to) by the Required Lenders and Revolving Credit Lenders
holding greater than 50% of the aggregate Revolving Credit
Commitments, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that (a) no amendment, waiver or consent shall, unless in writing and
signed by all of the Lenders (other than any Lender Party that is, at such time,
a Defaulting
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Lender), do any of the following at any time: (i) change the percentage of (A)
the Commitments, (B) the aggregate unpaid principal amount of the Advances or
(C) the aggregate Available Amount of outstanding Letters of Credit that, in
each case, shall be required for the Lenders or any of them to take any action
hereunder; (ii) release all or substantially all of the Collateral in any
transaction or series of related transactions or permit the creation,
incurrence, assumption or existence of any Lien on any material portion of the
Collateral in any transaction or series of related transactions to secure any
liabilities or obligations other than Obligations owing to the Secured Parties
under the Loan Documents; (iii) release any of the Guarantors from their
Guaranty, except to the extent any Guarantor merges with and into the Borrower
in accordance with this Agreement; (iv) amend this Section 11.1; or (v) limit
the liability of any Loan Party under any of the Loan Documents and (b) no
amendment, waiver or consent shall, unless in writing and signed by the Required
Lenders and each Lender that has a Commitment under the Term A Facility, Term B
Facility or Revolving Credit Facility if affected by such amendment, waiver or
consent, (i) increase the Commitments of such Lender or subject such Lender to
any additional obligations, (ii) reduce the principal of, or interest on, the
Notes held by such Lender or any fees or other amounts payable hereunder to such
Lender, (iii) change any date fixed for any payment of principal of, or interest
on, the Notes held by such Lender or any fees or other amounts payable hereunder
to such Lender or (iv) change the order of application of any prepayment set
forth in Section 2.6 in any manner that materially affects such Lender;
provided, further, that no amendment, waiver or consent shall, unless in writing
and signed by the Swing Line Bank or the Issuing Bank, as the case may be, in
addition to the Lenders required above to take such action, affect the rights or
obligations of the Swing Line Bank or the Issuing Bank, as the case may be,
under this Agreement or any other Loan Document; and provided, further, that no
amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent under this
Agreement or any other Loan Document.
SECTION 11.2 Notices Etc. All notices and other communications provided
for hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered,
(a) if to the Borrower:
Private Business, Inc.
9010 Overlook Boulevard
Brentwood, Tennessee 37027
Attention: Fred Read
Telephone No.: (615) 221-8351
Facsimile No.: (615) 221-8447
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with a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238
Attention: Lee C. Dilworth, Esq.
Telephone No.: (615) 251-1076
Facsimile No.: (615) 251-1059
(b) if to the Administrative Agent:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02110
Attention: Steve Curran
Telephone No.: (617) 346-0709
Facsimile No.: (617) 346-5093
with a copy to:
Winston & Strawn
200 Park Avenue
New York, New York 10166
Attention: Richard B. Teiman, Esq.
Telephone No.: (212) 294-6730
Facsimile No.: (212) 294-4700
(c) if to any Initial Lender or the Initial Issuing Bank, at
its Domestic Lending Office specified opposite its name on Schedule I
attached hereto.
(d) if to any other Lender Party, at its Domestic Lending
Office specified in the Assignment and Acceptance pursuant to which it
became a Lender Party;
or, as to the Borrower or the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties and,
as to each other party, at such other address as shall be designated by such
party in a written notice to the Borrower and the Administrative Agent. All such
notices and communications shall, when mailed by certified mail, return receipt
requested, telegraphed, telecopied or telexed, be effective 3 days after
mailing, upon delivery to the telegraph company, upon transmission by telecopier
or upon confirmation by telex answerback, respectively, except that notices and
communications to the Administrative Agent pursuant to Article 2, 3 or 10 shall
not be effective until received by the Administrative Agent. Delivery by
telecopier
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of an executed counterpart of this Agreement, the Notes or any other Loan
Document or of any Exhibit hereto or thereto or of any amendment or waiver of
any provision thereof shall be as effective as delivery of a manually executed
counterpart thereof.
SECTION 11.3 No Waiver; Remedies. No failure on the part of any Lender
Party or the Administrative Agent to exercise, and no delay in exercising, any
right hereunder or under any Note or under any other Loan Document shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law or in equity.
SECTION 11.4 Costs and Expenses.
(a) The Borrower agrees to pay on demand (i) all reasonable costs and
expenses of the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification and amendment of the Loan
Documents (including, without limitation, (A) all reasonable due diligence,
collateral review, syndication (including printing, distribution and bank
meetings), transportation, computer, duplication, appraisal, audit, insurance,
consultant, search, filing and recording fees and expenses, and (B) the
reasonable fees and expenses of counsel for the Administrative Agent with
respect thereto, with respect to advising the Administrative Agent as to its
rights and responsibilities, or the perfection, protection or preservation of
rights or interests under the Loan Documents, with respect to negotiations with
any Loan Party or with other creditors of any Loan Party or any of its
Subsidiaries arising out of any Default or any events or circumstances that may
give rise to a Default and with respect to presenting claims in or otherwise
participating in or monitoring any bankruptcy, insolvency or other similar
proceeding involving creditors' rights generally and any proceeding ancillary
thereto) and (ii) all reasonable costs and expenses of the Administrative Agent
and the Lender Parties in connection with the enforcement of the Loan Documents,
whether in any action, suit or litigation or any bankruptcy, insolvency or other
similar proceeding affecting creditors' rights generally or otherwise
(including, without limitation, the reasonable fees and expenses of counsel for
the Administrative Agent and each Lender Party with respect thereto).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, each Lender Party and each of their respective Affiliates
and their respective officers, directors, employees, agents and advisors (each,
an "Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that are incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with (i) the Transaction, (ii) any acquisition or proposed
acquisition or similar business combination or proposed business combination by
the Borrower or any of its Subsidiaries or other Affiliates of all
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or any portion of the shares of capital stock or substantially all of the
property and assets of any other Person, (iii) the Facilities, the actual or
proposed use of the proceeds of the Advances or the Letters of Credit by the
Borrower or any of its Subsidiaries or other Affiliates and any of the other
transactions contemplated by the Loan Documents, or (iv) the actual or alleged
presence of Hazardous Materials on any property of any Loan Party or any of its
Subsidiaries or any Environmental Action relating in any way to any Loan Party
or any of its Subsidiaries, in each case whether or not such investigation,
litigation or proceeding is brought by any Loan Party, its directors, officers,
employees, stockholders or creditors or an Indemnified Party or any Indemnified
Party is otherwise a party thereto and whether or not the Transaction is
consummated, except to the extent such claim, damage, loss, liability or expense
resulted from such Indemnified Party's gross negligence or willful misconduct.
The Borrower also agrees not to assert any claim against the Administrative
Agent, any Lender Party or any of their respective Affiliates, or any of their
respective officers, directors, employees, attorneys and agents, on any theory
of liability, for special, indirect, consequential or punitive damages arising
out of or otherwise relating to the Facilities, the actual or proposed use of
the proceeds of the Advances or the Letters of Credit, the Loan Documents or any
of the Transaction, other than claims for direct, as opposed to consequential,
damages.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender Party
other than on the last day of the Interest Period for such Advance, as a result
of a payment or Conversion pursuant to Section 2.9(b)(i) or 2.10(d) or a
prepayment pursuant to Section 2.6(a) or (b), acceleration of the maturity of
the Notes pursuant to Article 9 or for any other reason, the Borrower shall,
upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender Party any amounts required to compensate such Lender Party for any
additional losses, costs or expenses that it may reasonably incur as a result of
such payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
re-employment of deposits or other funds required by any Lender Party to fund or
maintain such Advance.
(d) If any Loan Party fails to pay when due (subject to any notice and
cure periods) any costs, expenses or other amounts payable by it under any Loan
Document, including, without limitation, fees and expenses of counsel and
indemnities, such amount may be paid on behalf of such Loan Party by the
Administrative Agent, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of any
Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section
11.4 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
SECTION 11.5 Right of Set-off. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Article
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9 to authorize the Administrative Agent to declare the Notes due and payable
pursuant to the provisions of Article 9, each Lender Party and each of its
respective Affiliates is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final other than
payroll accounts) at any time held and other indebtedness at any time owing by
such Lender Party or such Affiliate to or for the credit or the account of the
Borrower or any of its Subsidiaries against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement and the Note or
Notes (if any) held by such Lender Party, irrespective of whether such Lender
Party shall have made any demand under this Agreement or such Note or Notes and
although such obligations may be unmatured. Each Lender Party agrees promptly to
notify the Borrower and the Administrative Agent after any such set-off and
application; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Lender
Party and its respective Affiliates under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that such Lender Party and its respective Affiliates may have at law, in equity
or otherwise.
SECTION 11.6 Binding Effect This Agreement shall become effective when
it shall have been executed by the Borrower and the Administrative Agent and
when the Administrative Agent shall have been notified by each Initial Lender
and the Initial Issuing Bank that each such Initial Lender and the Initial
Issuing Bank has executed it and thereafter shall be binding upon and inure to
the benefit of the Borrower, the Administrative Agent and each Lender Party and
their respective successors and assigns, except that the Borrower shall not have
the right to assign any of its rights hereunder or any interest herein without
the prior written consent of the Lender Parties.
SECTION 11.7 Assignments and Participations.
(a) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment or Commitments, the Advances
owing to it and the Note or Notes held by it); provided, however, that (i)
except in the case of an assignment to a Person that, immediately prior to such
assignment, was a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of the Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment) shall in
no event be less than $5,000,000, (ii) no such assignments shall be permitted
without the prior consent of the Administrative Agent (which may be withheld for
any reason) until the Administrative Agent shall have notified the Lender
Parties that syndication of the Commitments hereunder has been completed, but in
any event not later than 90 days following the Closing Date, (iii) no such
assignment shall be permitted if, immediately after giving effect thereto, the
Borrower would be required to make payments to or on behalf of the assignee
Lender Party pursuant to Section 2.10(a) or (b) and the assignor Lender Party
was not, at the time of such assignment, entitled to receive any payment
pursuant to Section 2.10(a) or (b), and (iv) the parties to each such
<PAGE> 112
105
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a processing and
recordation fee of $3,000. Assignments pursuant to this Section 11.7(a) may be
non pro rata.
(b) Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender or Issuing Bank, as the
case may be, hereunder and (y) the Lender or Issuing Bank assignor thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's or Issuing Bank's rights and obligations under this Agreement, such
Lender or Issuing Bank shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance, the
Lender Party assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, this Agreement or any other Loan Document or any
other instrument or document furnished pursuant hereto or thereto; (ii) such
assigning Lender Party makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
other Loan Party or the performance or observance by any Loan Party of any of
its obligations under any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
referred to in Section 4.6 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Administrative Agent, such assigning Lender Party or
any other Lender Party and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement and the other Loan Documents as
are delegated to the Administrative Agent by the terms hereof and thereof,
together with such powers and discretion as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in
<PAGE> 113
106
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender or Issuing Bank, as the
case may be.
(d) The Administrative Agent shall maintain at its address referred to
in Section 11.2 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lender Parties and the Commitment under each Facility of, and principal
amount of the Advances owing under each Facility to, each Lender Party from time
to time (the "Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lender Parties may treat each Person whose name is
recorded in the Register as a Lender Party hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender Party at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender Party and an assignee, together with any Note or Notes subject
to such assignment and the appropriate processing and reconciliation fee, the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit A hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower. In the case of any
assignment by a Lender, within five (5) Business Days after its receipt of such
notice, the Borrower, at its own expense, shall execute and deliver to the
Administrative Agent in exchange for the surrendered Note or Notes a new Note to
the order of such Eligible Assignee in an amount equal to the Commitment assumed
by it under a Facility pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Commitment hereunder under such Facility, a new
Note to the order of the assigning Lender in an amount equal to the Commitment
retained by it hereunder. Such new Note or Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note or Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit B, C or D
hereto, as the case may be.
(f) The Issuing Bank may assign to an Eligible Assignee all of its
rights and obligations under the undrawn portion of its Letter of Credit
Commitment at any time; provided, however, that (i) each such assignment shall
be to an Eligible Assignee and (ii) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with a
processing and recordation fee of $3,000.
(g) Each Lender Party may sell participations to one or more Persons
(other than any Loan Party or any of its Affiliates) in or to all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Advances
owing to it and the Note or Notes, if any, held by it); provided, however, that
(i) such Lender Party's obligations under this Agreement (including, without
limitation, its Commitments) shall remain unchanged, (ii) such Lender Party
shall remain solely responsible to the other parties hereto for the
<PAGE> 114
107
performance of such obligations, (iii) such Lender Party shall remain the holder
of any such Note for all purposes of this Agreement, (iv) the Borrower, the
Administrative Agent and the other Lender Parties shall continue to deal solely
and directly with such Lender Party in connection with such Lender Party's
rights and obligations under this Agreement and (v) no participant under any
such participation shall have any right to approve any amendment, waiver or
other modification of any provision of this Agreement or any other Loan
Document, or any consent to any departure by any Loan Party therefrom, except to
the extent that such amendment, waiver, modification or consent would reduce the
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation, postpone
any date fixed for any payment of principal of, or interest on, the Notes or any
fees or other amounts payable hereunder, in each case to the extent subject to
such participation, or release all or substantially all of the Collateral.
(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
11.7, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided, however, that, prior to any
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
received by it from such Lender Party.
(i) Notwithstanding any other provision set forth in this Agreement,
any Lender Party may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System.
SECTION 11.8 Execution in Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be as effective as delivery of a manually executed counterpart
of this Agreement.
SECTION 11.9 No Liability of the Issuing Bank. The Borrower assumes all
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any of its officers, directors, employees or agents shall be liable or
responsible for: (a) the use that may be made of any Letter of Credit or any
acts or omissions of any beneficiary or transferee in connection therewith; (b)
the validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d)
<PAGE> 115
108
any other circumstances whatsoever in making or failing to make payment under
any Letter of Credit, except that the Borrower shall have a claim against the
Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the
extent of any direct, but not consequential, damages suffered by the Borrower
that the Borrower proves were caused by (i) the Issuing Bank's willful
misconduct or gross negligence in determining whether documents presented under
any Letter of Credit comply with the terms of the Letter of Credit or (ii) the
Issuing Bank's willful failure to make lawful payment under a Letter of Credit
after the presentation to it of a draft and certificates strictly complying with
the terms and conditions of the Letter of Credit. In furtherance and not in
limitation of the foregoing, the Issuing Bank may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
SECTION 11.10 Confidentiality. Neither the Administrative Agent nor any
Lender Party shall disclose any Confidential Information to any Person without
the consent of the Borrower, other than (a) to the Administrative Agent's or
such Lender Party's Affiliates and their officers, directors, employees, agents
and advisors and to actual or prospective Eligible Assignees and participants,
and then only on a confidential basis, (b) as required by any law, rule or
regulation or judicial process and (c) as requested or required by any state,
federal or foreign authority or examiner regulating banks or banking.
SECTION 11.11 Further Assurances. At any time and from time to time,
upon the request of the Administrative Agent, the Borrower shall execute,
deliver and acknowledge or cause to be executed, delivered and acknowledged,
such further documents and instruments and do such other acts and things as the
Administrative Agent may reasonably request in order to fully effect the
purposes of this Agreement, the other Loan Document and any other agreements,
instruments and documents delivered pursuant hereto or in connection with the
Facilities.
SECTION 11.12 JURISDICTION, ETC.
(a) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY
NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN
NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY
LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER
<PAGE> 116
109
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT ANY LENDER PARTY MAY
OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS IN THE COURTS OF ANY JURISDICTION.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH OF
THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.
SECTION 11.13 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS (OTHER THAN THE MORTGAGES WHICH SHALL BE GOVERNED BY THE LAW OF
THE JURISDICTION WHERE THE PROPERTY COVERED THEREBY IS LOCATED) SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO ITS RULES PERTAINING TO CONFLICTS OF LAWS
OTHER THAN GENERAL OBLIGATIONS LAW SECTION 5-1401.
SECTION 11.14 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE LOAN
PARTIES, THE ADMINISTRATIVE AGENT AND THE LENDER PARTIES IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, THE ADVANCES OR THE ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY LENDER PARTY IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.
[SIGNATURE PAGES FOLLOW]
<PAGE> 117
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PRIVATE BUSINESS, INC.
By
-----------------------------------------
Title:
-------------------------------------
FLEET NATIONAL BANK,
AS ADMINISTRATIVE AGENT,
AS INITIAL ISSUING BANK AND
AS SWING LINE BANK
By
-----------------------------------------
Title:
-------------------------------------
BANKBOSTON N.A.
AS SYNDICATION AGENT
By
-----------------------------------------
Title:
-------------------------------------
<PAGE> 118
INITIAL LENDERS
FLEET NATIONAL BANK
By
-----------------------------------------
Title:
-------------------------------------
BANKBOSTON N.A.
By
-----------------------------------------
Title:
-------------------------------------
PILGRIM AMERICA PRIME RATE TRUST
By: Pilgrim America Investments, Inc.,
as its Investment Manager
By
-----------------------------------------
Title:
-------------------------------------
STATE STREET BANK AND TRUST COMPANY
By
-----------------------------------------
Title:
-------------------------------------
<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") dated as of
______________________________ is by and between Private Business, Inc., a
Tennessee corporation (the "Company"), and ____________________ ("Indemnitee").
WHEREAS, it is essential to the Company that it be able to retain and
attract as officers the most capable persons available;
WHEREAS, increased corporate litigation has subjected officers to
litigation risks and expenses and the limitations on the availability of
officers' liability insurance have made it increasingly difficult for the
Company to attract and retain such persons;
WHEREAS, its By-laws permit the Company to enter into indemnification
arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of the Company's By-laws or any change in the ownership of the
Company or the composition of its Board of Directors), which indemnification is
intended to be greater than that which is afforded by the Company's Charter and
By-laws and, to the extent insurance is available, the coverage of Indemnitee
under the Company's directors and officers liability insurance policies; and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in accepting Indemnitee's position as a officer of the Company.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
(a) "Corporate Status" describes the status of a person who is serving
or has served (i) as an officer of the Company, (ii) in any capacity
with respect to any employee benefit plan of the Company.
(b) "Entity" shall mean any corporation, partnership, limited liability
company, joint venture, trust, foundation, association, organization or
other legal entity and any group or division of the Company or any of
its subsidiaries.
(c) "Expenses" shall mean all reasonable fees, costs and expenses
incurred in connection with any Proceeding (as defined below),
including, without limitation, attorneys' fees, disbursements and
retainers (including, without limitation, any such fees, disbursements
and
<PAGE> 2
retainers incurred by Indemnitee pursuant to Section 10 of this
Agreement), fees and disbursements of expert witnesses, private
investigators and professional advisors (including, without limitation,
accountants and investment bankers), court costs, transcript costs,
fees of experts, travel expenses, duplicating, printing and binding
costs, telephone and fax transmission charges, postage, delivery
services, secretarial services, and other disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those terms
in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities, losses,
penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed claim,
action, suit, arbitration, alternate dispute resolution process,
investigation, administrative hearing, appeal, or any other proceeding,
whether civil, criminal, administrative or investigative, whether
formal or informal, including a proceeding initiated by Indemnitee
pursuant to Section 10 of this Agreement to enforce Indemnitee's rights
hereunder.
2. Services of Indemnitee. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to
serve as a officer of the Company. However, this Agreement shall not
impose any obligation on Indemnitee or the Company to continue
Indemnitee's service to the Company beyond any period otherwise
required by law or by other agreements or commitments of the parties,
if any.
3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee
as follows:
(a) Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by
reason of Indemnitee's Corporate Status, Indemnitee shall be
indemnified by the Company against all Expenses and Liabilities
incurred or paid by Indemnitee in connection with such Proceeding
(referred to herein as "Indemnifiable Expenses" and "Indemnifiable
Liabilities," respectively, and collectively as "Indemnifiable
Amounts").
(b) Subject to the exceptions contained in Section 4(10) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding by or in the right of the Company to procure a judgment in
its favor by reason of Indemnitee's Corporate Status, Indemnitee shall
be indemnified by the Company against all Indemnifiable Expenses.
4. Exceptions to Indemnification. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances
other than the following:
2
<PAGE> 3
(a) If indemnification is requested under Section 3(a) and it has been
adjudicated finally by a court of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim
for indemnification has arisen, (i) with respect to conduct in the
Indemnitee's "official capacity" (as such term is defined in T.C.A.
ss.48-18-501) with the Company, Indemnitee failed to act in good faith
and in a manner Indemnitee reasonably believed to be in the best
interests of the Company, (ii) with respect to conduct not in the
individual's "official capacity" with the Company, Indemnitee failed to
act in good faith and in a manner Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, or, (iii) with
respect to any criminal action or proceeding, Indemnitee had reasonable
cause to believe that Indemnitee's conduct was unlawful, Indemnitee
shall not be entitled to payment of Indemnifiable Amounts hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a court of competent
jurisdiction that, in connection with the subject of the
Proceeding out of which the claim for indemnification has arisen,
Indemnitee failed to act in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests
of the Company, Indemnitee shall not be entitled to payment of
Indemnifiable Expenses hereunder; or
(ii) it has been adjudicated finally by a court of competent
jurisdiction that Indemnitee is liable to the Company with respect
to any claim, issue or matter involved in the Proceeding out of
which the claim for indemnification has arisen, including, without
limitation, a claim that Indemnitee received an improper personal
benefit or improperly took advantage of a corporate opportunity,
Indemnitee shall not be entitled to payment of Indemnifiable
Expenses hereunder with respect to such claim, issue or matter
unless the court in which such Proceeding was brought shall
determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for
such Indemnifiable Expenses which such court shall deem proper.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable
Amounts for which Indemnitee seeks payment under Section 3 of this
Agreement and the basis for the claim. The Company shall pay such
Indemnifiable Amounts to Indemnitee within twenty (20) calendar days
of receipt of the request, provided that Indemnitee shall furnish such
documentation and information as are reasonably available to
Indemnitee and necessary to establish that Indemnitee is entitled to
indemnification hereunder and provided further that the Company has
authorized the payment of such Indemnifiable Amounts after a
determination has been made in accordance with T.C.A.ss.48-18-506 that
such payment is not precluded.
3
<PAGE> 4
6. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this
Agreement, and without limiting any such provision, to the extent that
Indemnitee is, by reason of Indemnitee's Corporate Status, a party to
and is successful, on the merits or otherwise, in any Proceeding,
Indemnitee shall be indemnified against all Expenses reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the
Company shall indemnify Indemnitee against all Expenses reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection with
each successfully resolved claim, issue or matter. For purposes of
this Agreement, the termination of any claim, issue or matter in such
a Proceeding by dismissal, with or without prejudice, shall be deemed
to be a successful result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or
termination of any Proceeding nor the failure of the Company to award
indemnification or to determine that indemnification is payable shall
create an adverse presumption that Indemnitee is not entitled to
indemnification hereunder. In addition, the termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's action
was unlawful.
8. Agreement to Advance Interim Expenses: Conditions. The Company
shall pay to Indemnitee all Indemnifiable Expenses incurred by
Indemnitee in connection with any Proceeding, including a Proceeding
by or in the right of the Company, in advance of the final disposition
of such Proceeding if pursuant to T.C.A.ss.48-18-504, (i) the
Indemnitee furnishes the Company a written affirmation of the
Indemnitee's good faith belief that the Indemnitee has met the
standard of conduct described in T.C.A.ss.48-18-502, (ii) the
Indemnitee furnishes the Company with a written undertaking to repay
the amount of such Indemnifiable Expenses advanced to Indemnitee if it
is finally determined by a court of competent jurisdiction that
Indemnitee is not entitled under this Agreement to indemnification
with respect to such Indemnifiable Expenses and (iii) the Company has
authorized the payment of such Indemnifiable Expenses after a
determination has been made in accordance with T.C.A.ss.4818-506 and
such payment is not precluded. Such undertaking shall be an unlimited
general obligation of Indenmitee, shall be accepted by the Company
without regard to the financial ability of Indemnitee to make
repayment, and in no event shall be required to be secured.
9. Procedure for Payment of Interim Expenses. Indemnitee shall
submit to the Company a written request Specifying the Indemnifiable
Expenses for which Indemnitee seeks an advancement under Section 8 of
this Agreement, together with documentation evidencing that Indemnitee
has incurred such Indemnifiable Expenses. Payment of
4
<PAGE> 5
Indemnifiable Expenses under Section 8 shall be made no later than
twenty (20) calendar days after the Company's receipt of such request
and the undertaking required by Section 8.
10. Remedies of Indemnitee.
(a) Right to Petition Court. In the event that Indemnitee makes a
request for payment of Indenmifiable Amounts under Sections 3 and 5
above or a request for an advancement of Indemnifiable Expenses under
Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this Agreement,
Indemnitee may petition the appropriate judicial authority to enforce
the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under Section
10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.
(c) Expenses. The Company agrees to reimburse Indemnitee in full for
any Expenses incurred by Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any action brought by
Indemnitee under Section 10(a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith.
(d) Validity of Agreement. The Company shall be precluded from
asserting in any Proceeding, including, without limitation, an action
under Section 10(a) above, that the provisions of this Agreement are
not valid, binding and enforceable or that there is insufficient
consideration for this Agreement and shall stipulate in court that the
Company is bound by all the provisions of this Agreement.
(e) Failure to Act Not a Defense. The failure of the Company (including
its Board of Directors or any committee thereof, independent legal
counsel, or stockholders) to make a determination concerning the
permissibility of the payment of Indemnifiable Amounts or the
advancement of Indemnifiable Expenses under this Agreement shall not be
a defense in any action brought under Section 10(a) above, and shall
not create a presumption that such payment or advancement is not
permissible.
11. Representations and Warranties of the Company. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has al! necessary corporate power and
authority to enter into, and be bound by the terms of, this Agreement,
and the execution, delivery and performance of the undertakings
contemplated by this Agreement have been duly authorized by the
Company.
5
<PAGE> 6
(b) Enforceability. This Agreement, when executed and delivered by the
Company in accordance with the provisions hereof, shall be a legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors'
rights generally.
12. Contract Rights Not Exclusive. The rights to payment of
Indemnifiable Amounts and advancement of Indemnifiable Expenses
provided by this Agreement shall be in addition to, but not exclusive
of, any other rights which Indemnitee may have at any time under
applicable law, the Company's By-laws or Charter, or any other
agreement, vote of stockholders or directors, or otherwise, both as to
action in Indemnitee's official capacity and as to action in any other
capacity as a result of Indemnitee's serving as a officer of the
Company.
13. Successors. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a
substantial portion of the business, stock and/or assets of the
Company are any direct or indirect successor by merger or consolidation
or otherwise by operation of law) and (b) binding on and shall inure
to the benefit of the heirs, personal representatives, executors and
administrators of Indemnitee. This Agreement shall continue for the
benefit of Indemnitee and such heirs, personal representatives,
executors and administrators after Indemnitee has ceased to have
Corporate Status.
14. Subrogation. In the event of any payment of Indemaifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of contribution or recovery of
Indemnitee against other persons, and Indemnitee shall take, at the
request of the Company, all reasonable action necessary to secure such
rights, including the execution of such documents as are necessary to
enable the Company to bring suit to enforce such rights.
15. Change in Law. To the extent that a change in applicable law
(whether by statute or judicial decision) shall permit broader
indemnification than is provided under the terms of the By-laws of the
Company and this Agreement, Indemnitee shall be entitled to such
broader indemnification and this Agreement shall be deemed to be
amended to such extent.
16. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement, or any
clause thereof, shall be determined by a court of competent
jurisdiction to be illegal, invalid or unenforceable, in whole or in
part, such provision or clause shall be limited or modified in its
application to the minimum extent necessary to make such provision or
clause valid, legal and enforceable, and the remaining provisions and
clauses of this Agreement shall remain fully enforceable and binding
on the parties.
6
<PAGE> 7
17. Indemnitee as Plaintiff. Except as provided in Section 10(c) of
this Agreement and in the next sentence, Indemnitee shall not be
entitled to payment of Indemnifiable Amounts or advancement of
Indemnifiable Expenses with respect to any Proceeding brought by
Indemnitee against the Company, any Entity which it controls, any
director or officer thereof, or any third party, unless the Company
has consented to the initiation of such Proceeding.
18. Modifications and Waiver. Except as provided in Section 16
above with respect to changes in applicable law which broaden the
right of Indemnitee to be indemnified by the Company, no supplement,
modification or amendment of this Agreement shall be binding unless
executed in writing by each of the parties hereto. No waiver of any of
the provision of this Agreement shall be deemed or shall constitute a
waiver of any other provisions of this Agreement (whether or not
similar), nor shall such waiver constitute a continuing waiver.
19. General Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to
have been duly given (a) when delivered by hand, (b) when transmitted
by facsimile and receipt is acknowledged, or (c) if mailed by certified
or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(i) If to Indemnitee, to:
----------------------
----------------------
----------------------
(ii) If to the Company, to:
Private Business, Inc.
9010 Overlook Boulevard
Brentwood, TN 37027
or to such other address as may have been furnished in the same manner
by any party to the others.
20. Governing Law. This Agreement shall be governed by and
construed and enforced under the laws of the State of Tennessee
without giving effect to the provisions thereof relating to conflicts
of law.
21. Agreement Governs. This Agreement is to be deemed consistent
wherever possible with relevant provisions of the Company's By-laws
and Charter; however, in the event of a conflict between this
Agreement and such provisions, the provisions of this Agreement shall
control.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the day and year first above written.
PRIVATE BUSINESS, INC.
By:
---------------------------------------
Name: Jerry Cover
Title: President
INDEMNITEE
-------------------------------------------
8
<PAGE> 1
EXHIBIT 10.6
PRIVATE BUSINESS, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into by and between
Private Business, Inc., a Tennessee corporation (the "CORPORATION"), and
_____________ _____________________________ (the "OPTIONEE"), effective
_________________ (the "DATE OF GRANT").
1. Recitals. In consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, have
entered into this Agreement.
2. Grant of Option. The Corporation hereby grants to Optionee the
option (the "OPTION"), exercisable in whole or in part, to
purchase _________________ _________________________ (_____)
shares of the Corporation's Common Stock (the "STOCK") for an
exercise price of ___________________ _____________ ($_____) per
share, subject to the provisions of this Agreement.
3. Non-qualified Option Plan. This Option is granted as a
non-qualified stock option, and is not intended to qualify as an
incentive stock option, as that term is used in Section 422 of
the Internal Revenue Code of 1986, as amended.
4. Timing of Exercise. The Optionee may exercise this Option with
respect to the shares above at any time after _______________,
subject to termination provisions of this Agreement.
5. Termination of Option. This Option shall immediately cease on the
sooner of (i) the expiration of ten (10) years from the Date of
Grant with respect to any then unexercised portion hereof, or
(ii) the termination of the Optionee's employment by the
Corporation for any reason, provided that the Option shall be
exercisable after such termination of employment only to the
extent provided in Paragraph 8 below. If the Optionee is not an
employee of the Corporation, but is an employee of a subsidiary
or affiliate of the Corporation, references in this Agreement to
employment with the Corporation shall be deemed to refer to
employment with such subsidiary or affiliate of the Corporation.
Transfers of employment among the Corporation and its
subsidiaries and affiliates shall not be deemed to be termination
of employment.
<PAGE> 2
6. Manner of Exercise. This Option shall be exercised by the
Optionee (or other party entitled to exercise the Option under
Paragraph 8 of this Agreement) by delivering written notice to
the Corporation stating the number of shares of Stock to be
purchased, the person or persons in whose name the shares are to
be registered and each such person's address and social security
number. Such notice shall not be effective unless the following
conditions are satisfied.
(a) Payment in Full. The notice must be accompanied by the full
purchase price for all shares so purchased. The purchase
price shall be payable (i) in cash (payment in currency or
by certified check, cashier's check or postal money order
shall be considered payment in cash); or (ii) in the form of
shares of Stock already owned by Optionee; or (iii) in the
form of unexercised portions of vested Options which shall
be valued at the difference between the current value of the
Stock as determined by the Corporation's Board of Directors,
and the Option price.
(b) Tax Withholding Requirements. The Corporation shall have the
right to require the Optionee to remit to the Corporation an
amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any
such shares.
(c) Execution of a Stock Redemption Agreement. The Corporation
may require the Optionee to become a party to a Stock
Redemption Agreement substantially in the form of the Stock
Redemption Agreement attached hereto as Exhibit 1, or to
other shareholder or buy-sell agreements (any such agreement
being referred to herein as a "SHAREHOLDERS AGREEMENT") upon
and as a condition to exercise of the Option.
(d) Execution of Investment Letter. The Corporation may, as a
condition to exercise of this Option, require the Optionee
to execute an agreement in form and substance satisfactory
to the Corporation in which the Optionee or such other
recipient of the shares represents that he or she is
purchasing the shares for investment purposes, and not with
a view to resale or distribution.
7. Nontransferability. Except as otherwise expressly provided
herein, this Option shall not be transferable by the Optionee
otherwise than by will or by the laws of descent and
distribution, and this Option is exercisable during Optionee's
lifetime only by the Optionee. The terms of the Option shall be
<PAGE> 3
binding on the executors, administrators, heirs and successors of
the Optionee.
8. Termination of Employment.
(a) Termination by Death. If the Optionee's employment by the
Corporation terminates by reason of death, then
notwithstanding the provisions of Paragraph 4 hereof, this
Option shall immediately become one hundred percent (100%)
vested and may thereafter be exercised by the legal
representative of the estate or by the legatee of the
Optionee under the will of the Optionee, for a period of one
year from the date of such death or until the expiration of
the stated term of the Option, whichever period is the
shorter.
(b) Termination by Reason of Disability. If the Optionee's
employment by the Corporation terminates by reason of
Disability (as determined by the Corporation's Board of
Directors), then notwithstanding the provisions of Paragraph
4 hereof, this Option shall immediately become one hundred
percent (100%) vested and may thereafter be exercised by the
Optionee for a period of one year from the date of such
termination of employment or until the expiration of the
stated term of the Option, whichever period is the shorter;
provided, however, that, if the Optionee dies within such
one-year period, the Option shall thereafter be exercisable
for a period of twelve months from the date of such death or
until the expiration of the stated term of the Option,
whichever period is shorter.
(c) Termination by Reason of Early or Normal Retirement. If the
Optionee's employment by the Corporation terminates by
reason of Normal or Early Retirement (defined below), this
Option may thereafter be exercised to the extent the Option
was exercisable at the time of such Retirement, for a period
of one year from the date of such termination of employment
or until the expiration of the stated term of the Option,
whichever period is shorter; provided, however, that if the
Optionee dies within such one-year period, the Option shall
thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve
months from the date of such death or until the expiration
of the stated term of the Option, whichever period is
shorter. "EARLY RETIREMENT" means retirement, with the
express consent of the Corporation at or before the time of
such retirement, from active employment with the Corporation
or any subsidiary or affiliate prior to age 65, in
accordance with any applicable early retirement policy of
the Corporation then in effect.
<PAGE> 4
"NORMAL RETIREMENT" means retirement from active employment
with the Corporation or any subsidiary or affiliate on or
after age 65.
(d) Other Termination; Violation of NonCompete. If the
Optionee's employment by the Corporation is terminated for
any reason other than death, Disability or Normal or Early
Retirement, this Option shall thereupon terminate, except
that this Option may be exercised by the Optionee, to the
extent otherwise then exercisable, for a period of three
months from the date of such termination of employment or
the expiration of the Option's terms (whichever period is
the shorter) if such termination is other than for cause as
determined by the Board of Directors of the Corporation. The
violation of any applicable noncompetition or
confidentiality agreements with the Corporation or any of
its subsidiaries or affiliates shall be deemed to result in
termination for cause for purposes of this Agreement and
shall result in the immediate cancellation of any
outstanding portion of this Option, whether or not the
Optionee is employed by the Corporation at the time of such
violation.
9. Restrictive Agreement; Legend. The Optionee understands and
acknowledges that the shares of Stock that may be purchased under
this Option have not been registered under the Securities Act of
1933, as amended (the "ACT"), or any state securities law and may
not be transferred except pursuant to an effective registration
statement under the Act and any such state securities law or
pursuant to an applicable exemption therefrom. Any stock
certificate or certificates representing shares may bear a legend
approved by the Board of Directors of the Corporation reflecting
such restrictions on transfer and any other applicable
restrictions on transfer, including any restrictions contained in
any applicable Shareholders Agreement.
10. Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, extraordinary cash dividend,
stock dividend, stock split or other change in corporate
structure affecting the Stock, the number of shares of Stock of
the Corporation subject to this Option and the exercise price per
share of such shares shall be appropriately adjusted by the
Corporation as may be determined by the Board of Directors in its
sole discretion.
11. No Rights Until Exercise. The Optionee shall have no rights
hereunder as a shareholder with respect to any shares subject to
this Option until the date of the issuance of a stock certificate
to the Optionee for such shares upon due exercise of this Option.
<PAGE> 5
12. Amendment. The Board of Directors of the Corporation may amend
the terms of this Option, but no such amendment shall impair the
rights of the Optionee hereunder without the Optionee's consent.
13. Binding Effect; Successors. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their
respective heirs, successors, personal representatives and
assigns; provided that nothing herein shall be construed as an
authorization or right for any party to assign his rights or
obligations hereunder.
14. Entire Agreement. The entire understanding among the parties is
set forth in this Agreement and this Agreement supersedes all
prior agreements, whether oral or written, among the parties
hereto.
15. Governing Law. This is a Tennessee contract and its terms and
provisions shall be governed by and construed in accordance with
the laws of the State of Tennessee.
16. Severability. If any term, covenant, condition or provision of
this Agreement or the application hereto to any person or
circumstance shall be determined to be invalid or unenforceable,
the remainder of this Agreement, or the application of such term,
covenant, condition or provision to persons or circumstances
other than those to which it is held invalid or unenforceable,
shall not be affected thereby; and each term, covenant, condition
and provision of this Agreement shall be valid and be enforced to
the fullest extent permitted by law.
17. Notices. Any notices required to be given hereunder shall be in
writing and shall be either delivered personally or mailed by
U.S. certified mail, return receipt requested, to the parties at
their respective last known addresses. Notices delivered
personally shall be deemed to be given upon delivery and notices
delivered by mail shall be deemed to be given three (3) days
after the mailing thereof.
18. Headings. The marginal notes used as headings for the various
paragraphs of this Agreement are used only as a matter of
convenience for reference, and are not to be construed as part of
this Agreement or to be used in determining the intent of the
parties hereto.
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Stock Option Agreement
to be duly executed on the dates indicated below, effective as of the Date of
Grant.
PRIVATE BUSINESS, INC.
By:
----------------------------------
Title:
-------------------------------
Date: ________________, 1996
OPTIONEE:
-------------------------------------
Date: ________________, 1996
<PAGE> 7
EXHIBIT 1
STOCK REDEMPTION AGREEMENT
THIS STOCK REDEMPTION AGREEMENT (the "Agreement") is made and entered
into on this _____ day of _____________, 199__, by and between _______________
______________________ ("Shareholder") and Private Business, Inc., a Tennessee
corporation (the "Corporation").
1. Recitals. The Shareholder is the owner of a portion of the issued
and outstanding stock of the Corporation, and it is anticipated
that the Shareholder may acquire additional shares of the
Corporation's stock in the future. The Shareholder and the
Corporation feel that it is in their best interests to impose
certain restrictions upon the transfer of the Corporation's stock
by the Shareholder (including the stock now owned by the
Shareholder and all additional stock acquired by the Shareholder
in the future) and to provide for the orderly disposition of the
Corporation's stock upon certain contingencies, and they have
therefore entered into this Agreement in consideration of the
mutual covenants contained herein.
2. General Restrictions on the Transfer of Stock. Except as
otherwise permitted by the terms of paragraphs 3 and 4 of this
Agreement, the Shareholder may not sell, offer to sell, pledge,
hypothecate, or otherwise transfer or encumber any shares of
stock of the Corporation now or hereafter owned by such
Shareholder without the prior written consent of the Corporation.
3. Restrictions on Transfers During Life. The Shareholder may not
transfer or encumber by any method whatsoever any or all of the
Shareholder's stock in the Corporation without first offering the
same in writing to the Corporation at a price computed in
accordance with paragraph 5 of this Agreement, which price shall
be determined as if the Shareholder's employment with the
Corporation had terminated on the date of the Shareholder's
written offer. If the Corporation accepts such an offer to
purchase stock, payment for such stock shall be made in
accordance with the provisions of paragraph 6 of this Agreement.
If this offer is not accepted by the Corporation within sixty
(60) days after the receipt of the written offer, the Shareholder
may transfer the Shareholder's stock to whomever the Shareholder
wishes, provided that such transfer must be at a price and on
terms which are not more favorable to the transferee than the
price and terms upon which the stock was offered to the
Corporation. If the Shareholder does not dispose of the offered
shares within ninety (90) days after the expiration of the
Shareholder's offer to the
<PAGE> 8
Corporation, then the Shareholder shall not thereafter transfer
or encumber such shares unless the Shareholder first recomplies
with the terms of this paragraph.
4. Option to Redeem Stock Upon Shareholder's Termination of
Employment. At such time as the Shareholder ceases to be an
employee of the Corporation, the Corporation shall have a period
of thirteen months following the termination of employment of the
Shareholder in which to elect to purchase all or any portion of
the stock of the Corporation owned by the Shareholder. Should the
Corporation elect to exercise said option, the closing of the
transaction shall take place as soon after the Shareholder's
termination of employment as is reasonably possible, and the
purchase will be at the same price and upon the same terms as are
provided for in paragraphs 5 and 6 of this Agreement.
5. Purchase Price. The purchase price per share of any shares of
stock of the Corporation purchased under the terms of this
Agreement shall be determined as follows:
a. Termination of Employment for Reasons Other Than Cause. If
the Shareholder's employment with the Corporation terminates
for reasons other than cause (as hereinafter defined), then
the purchase price per share of the stock purchased shall be
the greater of (i) the Shareholder's cost of such shares, or
(ii) the following applicable percentage of the per share
value of the Corporation's stock as valued from time to time
by the Corporation's Board of Directors:
<TABLE>
<CAPTION>
Shareholder's Years
of Employment Applicable Percentage
------------- ---------------------
<S> <C>
Less than 10 70%
More than 10, less than 11 75%
More than 11, less than 12 80%
More than 12, less than 13 85%
More than 13, less than 14 90%
More than 14, less than 15 95%
More than 15 100%
</TABLE>
b. Termination of Employment for Cause. If the Shareholder's
employment with the Corporation terminates for cause (as
hereinafter defined), then the purchase price of the stock
purchased shall be _____________ percent (_____%) of the
amount that would otherwise be payable under subparagraph
5(a) above.
<PAGE> 9
c. Definition of Cause. For the purposes of this Agreement
"cause" shall mean conduct determined by the Board of
Directors of the Corporation to be detrimental to the best
interests of the Corporation. The violation of any
applicable noncompetition or confidentiality agreements with
the Corporation or any of its subsidiaries or affiliates
shall be deemed to result in termination for cause for
purposes of this Agreement, whether or not the Shareholder
is employed by the Corporation at the time of such
violation.
6. Matter of Payment. When the Corporation purchases stock in
accordance with the terms of this Agreement, payment for such
stock shall be made as follows:
a. Downpayment. ________________ percent (_____%) of the
purchase price of the shares being purchased shall be paid
in cash at the closing.
b. Payment of Remaining Balance. The remaining balance of the
purchase price shall be payable in sixty equal, consecutive
monthly installments of principal and interest, with the
first payment being due on the first day of the month
following the month in which the closing occurs, and
subsequent payments being due on the same day of each
succeeding month thereafter until the note is paid in full.
The payments shall be equal in amount and shall contain both
principal and interest computed on the unpaid balance at the
annual rate in effect under section 7520 of the Internal
Revenue Code of 1986, as amended, during the month in which
the closing occurs; provided, however, that in no event
shall such rate exceed the maximum contract rate of interest
permitted under applicable law. The obligation to make such
deferred payments shall be evidenced by an unsecured
promissory note executed by the Corporation's duly
authorized officer substantially in the form of the note
attached hereto as Exhibit A. The Corporation shall have the
right to prepay such note in whole or in part at any time
without penalty.
7. Method of Transfer. At the time of the closing of any sale
pursuant to the terms of this Agreement, the Shareholder (or the
Shareholder's estate) shall surrender to the Corporation for
cancellation certificates representing the Shareholder's shares,
duly endorsed in blank, or accompanied by a duly executed stock
power, in each case in proper form for transfer. The Shareholder
(or the Shareholder's estate) shall also deliver a representation
dated as of the date of the sale to the effect that the delivery
of such shares
<PAGE> 10
of common stock will transfer good title to such shares, free and
clear of all liens, charges, security interests, pledges or other
encumbrances.
8. Endorsement of Stock Certificates. Upon the execution of this
Agreement, all certificates of stock owned by the Shareholder
shall be surrendered to the Corporation and endorsed as follows:
"THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH
THE PROVISIONS OF A CERTAIN AGREEMENT DATED THE ______ DAY
OF ______________________, 199__, BETWEEN THE CORPORATION
AND __________________, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE CORPORATION."
9. Effect of Noncompliance. Any attempt to transfer or encumber
shares of stock in the Corporation without complying with the
terms of this Agreement shall be void and of no force or effect
whatsoever. In the event that any party to this Agreement
defaults in the performance of their obligations hereunder, then
in any such event the non-defaulting party shall have the right
to enforce this Agreement through a suit for specific performance
or otherwise (including the right to obtain an injunction against
the defaulting party). Nothing herein contained, however, shall
be construed as prohibiting the non-defaulting party from
pursuing any other remedies available at law or in equity for
such breach or threatened breach. In the event it becomes
necessary for any party to employ an attorney to enforce the
provisions of this Agreement, the defaulting party shall be
liable for reasonable attorneys' fees, court costs and expenses
so incurred by the non-defaulting party.
10. Covenants by Shareholder Regarding Corporation's Status as S
Corporation. The Shareholder agrees that so long as the
Corporation has not voluntarily revoked its election to be an S
corporation for federal income tax purposes, the Shareholder will
not take any actions that would cause a termination of the
Corporation's election to be an S corporation. Any actions by the
Shareholder in violation of this covenant shall be null and void.
11. Binding Effect; Successors. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their
respective heirs, successors, personal representatives and
assigns; provided that nothing herein shall be construed as an
authorization or right for any party to assign his rights or
obligations hereunder.
<PAGE> 11
12. Entire Agreement. The entire understanding among the parties is
set forth in this Agreement and this Agreement supersedes all
prior agreements, whether oral or written, among the parties
hereto.
13. Governing Law. This is a Tennessee contract and its terms and
provisions shall be governed by and construed in accordance with
the laws of the State of Tennessee.
14. Severability. If any term, covenant, condition or provision of
this Agreement or the application thereto to any person or
circumstance shall be determined to be invalid or unenforceable,
the remainder of this Agreement, or the application of such term,
covenant, condition or provision to persons or circumstances
other than those to which it is held invalid or unenforceable,
shall not be affected thereby; and each term, covenant, condition
and provision of this Agreement shall be valid and be enforced to
the fullest extent permitted by law.
15. Notices. Any notices required to be given hereunder shall be in
writing and shall be either delivered personally or mailed by
U.S. certified mail, return receipt requested, to the parties at
their respective last known addresses. Notices delivered
personally shall be deemed to be given upon delivery and notices
delivered by mail shall be deemed to be given three (3) days
after the mailing thereof.
16. Amendments. This Agreement may be amended at any time only by the
written consent of all of the parties who are then bound by the
terms hereof.
17. Headings. The marginal notes used as headings for the various
paragraphs of this Agreement are used only as a matter of
convenience for reference, and are not to be construed as part of
this Agreement or to be used in determining the intent of the
parties hereto.
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
PRIVATE BUSINESS, INC.
By:
--------------------------------
Its:
-------------------------------
SHAREHOLDER
-----------------------------------
<PAGE> 13
STATE OF TENNESSEE )
)
COUNTY OF _______________)
Personally appeared before me, ________________________, a Notary
Public, _______________________, with whom I am personally acquainted, and who
acknowledged that __he executed the within instrument for the purposes therein
contained.
WITNESS my hand, at office, this _____ day of ______________, 199__.
----------------------------------
Notary Public
My Commission Expires:
- -----------------------
STATE OF TENNESSEE )
)
COUNTY OF ______________ )
Personally appeared before me, ________________________, a Notary
Public, _______________________, with whom I am personally acquainted, and who
acknowledged that __he executed the within instrument for the purposes therein
contained, and who further acknowledged that __he is the _______________________
of Private Business, Inc., a Tennessee corporation, and is authorized by the
corporation to execute this instrument on behalf of the corporation.
WITNESS my hand, at office, this _____ day of ______________, 199__.
---------------------------------
Notary Public
My Commission Expires:
- -----------------------
<PAGE> 14
EXHIBIT A
PROMISSORY NOTE
$ ______________________ Nashville, Tennessee _____________, _____
FOR VALUE RECEIVED, Private Business, Inc., a Tennessee corporation
("Maker"), promises to pay to the order of ______________________________
("Payee") the principal sum of ________________________________________________
($____________), together with interest on the unpaid balance at the rate of
_______ percent (_____%) per annum. Interest and principal shall be payable in
sixty (60) equal, successive monthly installments of ___________________
_______________________ ($____________), with the first such installment being
due on ____________________, and subsequent installments being due on the same
day of each succeeding month thereafter until the indebtedness evidenced by this
note is paid in full.
It is agreed that if any installment is not paid when due, this note
may be declared due and payable in full unless payment of such installment is
made within ten (10) days after notice of such failure to pay has been given to
the Maker by the Payee. The Payee may waive any default before or after the same
has been declared and may restore this note to full force and effect without
impairing the right to declare this note due for a subsequent default, this
right being a continuing one.
This note may be prepaid in whole or in part at any time without
penalty, and if prepaid in part, then the remaining installments shall be
reduced appropriately so that the remaining unpaid balance will be paid in equal
quarterly payments containing both principal and interest.
Demand, notice, presentment and protest are waived.
In the event this note is placed in the hands of an attorney for
collection, the Maker and any endorsers hereof agree to pay a reasonable
attorney's fee and all court and other costs.
PRIVATE BUSINESS, INC.
By:
-------------------------------------
Its:
------------------------------------
<PAGE> 1
EXHIBIT 10.7
PRIVATE BUSINESS, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into by and between
Private Business, Inc., a Tennessee corporation (the "CORPORATION"), and
______________ ___________________ (the "OPTIONEE"), effective ______________
(the "DATE OF GRANT").
1. Recitals. In consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, have
entered into this Agreement.
2. Grant of Option. The Corporation hereby grants to Optionee the
option (the "OPTION"), exercisable in whole or in part, to
purchase _________ shares of the Corporation's Common Stock (the
"STOCK") for an exercise price of ________________________
($______) per share, subject to the provisions of this Agreement.
3. Non-qualified Option Plan. This Option is granted as a
non-qualified stock option, and is not intended to qualify as an
incentive stock option, as that term is used in Section 422 of
the Internal Revenue Code of 1986, as amended.
4. Timing of Exercise. The Optionee may exercise this Option with
respect to the shares above at any time after _________________,
subject to termination provisions of this Agreement and the
change of control provisions in Section 11 below.
5. Termination of Option. This Option shall immediately cease on the
sooner of (i) the expiration of ten (10) years from the Date of
Grant with respect to any then unexercised portion hereof, or
(ii) the termination of the Optionee's employment by the
Corporation for any reason, provided that the Option shall be
exercisable after such termination of employment only to the
extent provided in Paragraph 8 below. If the Optionee is not an
employee of the Corporation, but is an employee of a subsidiary
or affiliate of the Corporation, references in this Agreement to
employment with the Corporation shall be deemed to refer to
employment with such subsidiary or affiliate of the Corporation.
Transfers of employment among the Corporation and its
subsidiaries and affiliates shall not be deemed to be termination
of employment.
<PAGE> 2
6. Manner of Exercise. This Option shall be exercised by the Optionee
(or other party entitled to exercise the Option under Paragraph 8
of this Agreement) by delivering written notice to the
Corporation stating the number of shares of Stock to be
purchased, the person or persons in whose name the shares are to
be registered and each such person's address and social security
number. Such notice shall not be effective unless the following
conditions are satisfied.
(a) Payment in Full. The notice must be accompanied by the full
purchase price for all shares so purchased. The purchase
price shall be payable (i) in cash (payment in currency or
by certified check, cashier's check or postal money order
shall be considered payment in cash); or (ii) in the form
of shares of Stock already owned by Optionee; or (iii) in
the form of unexercised portions of vested Options which
shall be valued at the difference between the current value
of the Stock as determined by the Corporation's Board of
Directors, and the Option price.
(b) Tax Withholding Requirements. The Corporation shall have
the right to require the Optionee to remit to the
Corporation an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to the
delivery of any such shares.
(c) Execution of a Stock Redemption Agreement. The Corporation
may require the Optionee to become a party to a Stock
Redemption Agreement substantially in the form of the Stock
Redemption Agreement attached hereto as Exhibit 1, and/or
to other shareholder or buy-sell agreements (any such
agreement being referred to herein as a "SHAREHOLDERS
AGREEMENT") upon and as a condition to exercise of the
Option.
(d) Execution of Investment Letter. The Corporation may, as a
condition to exercise of this Option, require the Optionee
to execute an agreement in form and substance satisfactory
to the Corporation in which the Optionee or such other
recipient of the shares represents that he or she is
purchasing the shares for investment purposes, and not with
a view to resale or distribution.
7. Nontransferability. Except as otherwise expressly provided herein,
this Option shall not be transferable by the Optionee otherwise
than by will or by the laws of descent and distribution, and this
Option is exercisable during Optionee's lifetime only by the
Optionee. The terms of the Option shall be
<PAGE> 3
binding on the executors, administrators, heirs and successors of
the Optionee.
8. Termination of Employment.
(a) Termination by Death. If the Optionee's employment by the
Corporation terminates by reason of death, then
notwithstanding the provisions of Paragraph 4 hereof, this
Option shall immediately become one hundred percent (100%)
vested and may thereafter be exercised by the legal
representative of the estate or by the legatee of the
Optionee under the will of the Optionee, for a period of
one year from the date of such death or until the
expiration of the stated term of the Option, whichever
period is the shorter.
(b) Termination by Reason of Disability. If the Optionee's
employment by the Corporation terminates by reason of
Disability (as determined by the Corporation's Board of
Directors), then notwithstanding the provisions of
Paragraph 4 hereof, this Option shall immediately become
one hundred percent (100%) vested and may thereafter be
exercised by the Optionee for a period of one year from the
date of such termination of employment or until the
expiration of the stated term of the Option, whichever
period is the shorter; provided, however, that, if the
Optionee dies within such one-year period, the Option shall
thereafter be exercisable for a period of twelve months
from the date of such death or until the expiration of the
stated term of the Option, whichever period is shorter.
(c) Termination by Reason of Early or Normal Retirement. If the
Optionee's employment by the Corporation terminates by
reason of Normal or Early Retirement (defined below), this
Option may thereafter be exercised to the extent the Option
was exercisable at the time of such Retirement, for a
period of one year from the date of such termination of
employment or until the expiration of the stated term of
the Option, whichever period is shorter; provided, however,
that if the Optionee dies within such one-year period, the
Option shall thereafter be exercisable to the extent to
which it was exercisable at the time of death for a period
of twelve months from the date of such death or until the
expiration of the stated term of the Option, whichever
period is shorter. "EARLY RETIREMENT" means retirement,
with the express consent of the Corporation at or before
the time of such retirement, from active employment with
the Corporation or any subsidiary or affiliate prior to age
65, in accordance with any applicable early retirement
policy of the Corporation then in effect.
<PAGE> 4
"NORMAL RETIREMENT" means retirement from active employment
with the Corporation or any subsidiary or affiliate on or
after age 65.
(d) Other Termination; Violation of NonCompete. If the
Optionee's employment by the Corporation is terminated for
any reason other than death, Disability or Normal or Early
Retirement, this Option shall thereupon terminate, except
that this Option may be exercised by the Optionee, to the
extent otherwise then exercisable, for a period of three
months from the date of such termination of employment or
the expiration of the Option's terms (whichever period is
the shorter) if such termination is other than for cause as
determined by the Board of Directors of the Corporation.
The violation of any applicable noncompetition or
confidentiality agreements with the Corporation or any of
its subsidiaries or affiliates shall be deemed to result in
termination for cause for purposes of this Agreement and
shall result in the immediate cancellation of any
outstanding portion of this Option, whether or not the
Optionee is employed by the Corporation at the time of such
violation.
9. Restrictive Agreement; Legend. The Optionee understands and
acknowledges that the shares of Stock that may be purchased under
this Option have not been registered under the Securities Act of
1933, as amended (the "ACT"), or any state securities law and may
not be transferred except pursuant to an effective registration
statement under the Act and any such state securities law or
pursuant to an applicable exemption therefrom. Any stock
certificate or certificates representing shares may bear a legend
approved by the Board of Directors of the Corporation reflecting
such restrictions on transfer and any other applicable
restrictions on transfer, including any restrictions contained in
any applicable Shareholders Agreement.
10. Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, extraordinary cash dividend,
stock dividend, stock split or other change in corporate
structure affecting the Stock, the number of shares of Stock of
the Corporation subject to this Option and the exercise price per
share of such shares shall be appropriately adjusted by the
Corporation as may be determined by the Board of Directors in its
sole discretion.
11. Change of Control. Notwithstanding Section 4 above, this Option
will be fully vested immediately prior to a Change of Control of
the Company. A "Change in Control" shall be deemed to have
occurred if (i) the Company shall enter into an agreement to be
merged or consolidated with another corporation and as a result
of such merger or consolidation less than 75% of the
<PAGE> 5
outstanding voting securities of the surviving or resulting
corporation would be owned in the aggregate by the former
shareholders of the Company, as the same shall have existed
immediately prior to such merger or consolidation, (ii) the
Company shall enter into an agreement to sell all or
substantially all of its assets to another corporation which is
not a wholly-owned subsidiary, or (iii) a person, within the
meaning of Section 3(a)(9) or of Section 13(d)(3) (as in effect
on the date hereof) of the Securities and Exchange Act of 1934
("EXCHANGE ACT")), shall acquire more than 60% of the outstanding
voting securities of the Company (whether directly, indirectly,
beneficially or of record). For purposes hereof, ownership of
voting securities shall take into account and shall include
ownership as determined by applying the provisions of Rule
13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the
Exchange Act.
12. No Rights Until Exercise. The Optionee shall have no rights
hereunder as a shareholder with respect to any shares subject to
this Option until the date of the issuance of a stock certificate
to the Optionee for such shares upon due exercise of this Option.
13. Amendment. The Board of Directors of the Corporation may amend
the terms of this Option, but no such amendment shall impair the
rights of the Optionee hereunder without the Optionee's consent.
14. Binding Effect; Successors. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their
respective heirs, successors, personal representatives and
assigns; provided that nothing herein shall be construed as an
authorization or right for any party to assign his rights or
obligations hereunder.
15. Entire Agreement. The entire understanding among the parties is
set forth in this Agreement and this Agreement supersedes all
prior agreements, whether oral or written, among the parties
hereto.
16. Governing Law. This is a Tennessee contract and its terms and
provisions shall be governed by and construed in accordance with
the laws of the State of Tennessee.
17. Severability. If any term, covenant, condition or provision of
this Agreement or the application hereto to any person or
circumstance shall be determined to be invalid or unenforceable,
the remainder of this Agreement, or the application of such term,
covenant, condition or provision to persons or circumstances
other than those to which it is held invalid or unenforceable,
shall not be affected thereby; and each term, covenant, condition
and
<PAGE> 6
provision of this Agreement shall be valid and be enforced to
the fullest extent permitted by law.
18. Notices. Any notices required to be given hereunder shall be in
writing and shall be either delivered personally or mailed by
U.S. certified mail, return receipt requested, to the parties at
their respective last known addresses. Notices delivered
personally shall be deemed to be given upon delivery and notices
delivered by mail shall be deemed to be given three (3) days
after the mailing thereof.
19. Headings. The marginal notes used as headings for the various
paragraphs of this Agreement are used only as a matter of
convenience for reference, and are not to be construed as part of
this Agreement or to be used in determining the intent of the
parties hereto.
IN WITNESS WHEREOF, the parties have caused this Stock Option Agreement
to be duly executed on the dates indicated below, effective as of the Date of
Grant.
PRIVATE BUSINESS, INC.
By:
-------------------------------
Title:
---------------------------
OPTIONEE:
----------------------------------
<PAGE> 7
EXHIBIT 1
STOCK REDEMPTION AGREEMENT
THIS STOCK REDEMPTION AGREEMENT (the "Agreement") is made and entered
into on this _____ day of _____________, 199__, by and between _______________
______________________ ("Shareholder") and Private Business, Inc., a Tennessee
corporation (the "Corporation").
1. Recitals. The Shareholder is the owner of a portion of the
issued and outstanding stock of the Corporation, and it is
anticipated that the Shareholder may acquire additional shares of
the Corporation's stock in the future. The Shareholder and the
Corporation feel that it is in their best interests to impose
certain restrictions upon the transfer of the Corporation's stock
by the Shareholder (including the stock now owned by the
Shareholder and all additional stock acquired by the Shareholder
in the future) and to provide for the orderly disposition of the
Corporation's stock upon certain contingencies, and they have
therefore entered into this Agreement in consideration of the
mutual covenants contained herein.
2. General Restrictions on the Transfer of Stock. Except as
otherwise permitted by the terms of paragraphs 3 and 4 of this
Agreement, the Shareholder may not sell, offer to sell, pledge,
hypothecate, or otherwise transfer or encumber any shares of
stock of the Corporation now or hereafter owned by such
Shareholder without the prior written consent of the Corporation.
3. Restrictions on Transfers During Life. The Shareholder may not
transfer or encumber by any method whatsoever any or all of the
Shareholder's stock in the Corporation without first offering the
same in writing to the Corporation at a price computed in
accordance with paragraph 5 of this Agreement, which price shall
be determined as if the Shareholder's employment with the
Corporation had terminated on the date of the Shareholder's
written offer. If the Corporation accepts such an offer to
purchase stock, payment for such stock shall be made in
accordance with the provisions of paragraph 6 of this Agreement.
If this offer is not accepted by the Corporation within sixty
(60) days after the receipt of the written offer, the Shareholder
may transfer the Shareholder's stock to whomever the Shareholder
wishes, provided that such transfer must be at a price and on
terms which are not more favorable to the transferee than the
price and terms upon which the stock was offered to the
Corporation. If the Shareholder does not dispose of the offered
shares within ninety (90) days after the expiration of the
Shareholder's offer to the
<PAGE> 8
Corporation, then the Shareholder shall not thereafter transfer
or encumber such shares unless the Shareholder first recomplies
with the terms of this paragraph.
4. Option to Redeem Stock Upon Shareholder's Termination of
Employment. At such time as the Shareholder ceases to be an
employee of the Corporation, the Corporation shall have a period
of thirteen months following the termination of employment of the
Shareholder in which to elect to purchase all or any portion of
the stock of the Corporation owned by the Shareholder. Should the
Corporation elect to exercise said option, the closing of the
transaction shall take place as soon after the Shareholder's
termination of employment as is reasonably possible, and the
purchase will be at the same price and upon the same terms as are
provided for in paragraphs 5 and 6 of this Agreement.
5. Purchase Price. The purchase price per share of any shares of
stock of the Corporation purchased under the terms of this
Agreement shall be determined as follows:
a. Termination of Employment for Reasons Other Than Cause. If
the Shareholder's employment with the Corporation terminates
for reasons other than cause (as hereinafter defined), then
the purchase price per share of the stock purchased shall be
the greater of (i) the Shareholder's cost of such shares, or
(ii) the following applicable percentage of the per share
value of the Corporation's stock as valued from time to time
by the Corporation's Board of Directors:
<TABLE>
<CAPTION>
Shareholder's Years
of Employment Applicable Percentage
------------- ---------------------
<S> <C>
Less than 10 70%
More than 10, less than 11 75%
More than 11, less than 12 80%
More than 12, less than 13 85%
More than 13, less than 14 90%
More than 14, less than 15 95%
More than 15 100%
</TABLE>
b. Termination of Employment for Cause. If the Shareholder's
employment with the Corporation terminates for cause (as
hereinafter defined), then the purchase price of the stock
purchased shall be _____________ percent (_____%) of the
amount that would otherwise be payable under subparagraph
5(a) above.
<PAGE> 9
c. Definition of Cause. For the purposes of this Agreement
"cause" shall mean conduct determined by the Board of
Directors of the Corporation to be detrimental to the best
interests of the Corporation. The violation of any
applicable noncompetition or confidentiality agreements with
the Corporation or any of its subsidiaries or affiliates
shall be deemed to result in termination for cause for
purposes of this Agreement, whether or not the Shareholder
is employed by the Corporation at the time of such
violation.
6. Matter of Payment. When the Corporation purchases stock in
accordance with the terms of this Agreement, payment for such
stock shall be made as follows:
a. Downpayment. ________________ percent (_____%) of the
purchase price of the shares being purchased shall be paid
in cash at the closing.
b. Payment of Remaining Balance. The remaining balance of the
purchase price shall be payable in sixty equal, consecutive
monthly installments of principal and interest, with the
first payment being due on the first day of the month
following the month in which the closing occurs, and
subsequent payments being due on the same day of each
succeeding month thereafter until the note is paid in full.
The payments shall be equal in amount and shall contain both
principal and interest computed on the unpaid balance at the
annual rate in effect under section 7520 of the Internal
Revenue Code of 1986, as amended, during the month in which
the closing occurs; provided, however, that in no event
shall such rate exceed the maximum contract rate of interest
permitted under applicable law. The obligation to make such
deferred payments shall be evidenced by an unsecured
promissory note executed by the Corporation's duly
authorized officer substantially in the form of the note
attached hereto as Exhibit A. The Corporation shall have the
right to prepay such note in whole or in part at any time
without penalty.
7. Method of Transfer. At the time of the closing of any sale
pursuant to the terms of this Agreement, the Shareholder (or the
Shareholder's estate) shall surrender to the Corporation for
cancellation certificates representing the Shareholder's shares,
duly endorsed in blank, or accompanied by a duly executed stock
power, in each case in proper form for transfer. The Shareholder
(or the Shareholder's estate) shall also deliver a representation
dated as of the date of the sale to the effect that the delivery
of such shares
<PAGE> 10
of common stock will transfer good title to such shares, free and
clear of all liens, charges, security interests, pledges or other
encumbrances.
8. Endorsement of Stock Certificates. Upon the execution of this
Agreement, all certificates of stock owned by the Shareholder
shall be surrendered to the Corporation and endorsed as follows:
"THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH
THE PROVISIONS OF A CERTAIN AGREEMENT DATED THE ______ DAY
OF ______________________, 199__, BETWEEN THE CORPORATION AND
__________________, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE CORPORATION."
9. Effect of Noncompliance. Any attempt to transfer or encumber
shares of stock in the Corporation without complying with the
terms of this Agreement shall be void and of no force or effect
whatsoever. In the event that any party to this Agreement
defaults in the performance of their obligations hereunder, then
in any such event the non-defaulting party shall have the right
to enforce this Agreement through a suit for specific performance
or otherwise (including the right to obtain an injunction against
the defaulting party). Nothing herein contained, however, shall
be construed as prohibiting the non-defaulting party from
pursuing any other remedies available at law or in equity for
such breach or threatened breach. In the event it becomes
necessary for any party to employ an attorney to enforce the
provisions of this Agreement, the defaulting party shall be
liable for reasonable attorneys' fees, court costs and expenses
so incurred by the non-defaulting party.
10. Covenants by Shareholder Regarding Corporation's Status as S
Corporation. The Shareholder agrees that so long as the
Corporation has not voluntarily revoked its election to be an S
corporation for federal income tax purposes, the Shareholder will
not take any actions that would cause a termination of the
Corporation's election to be an S corporation. Any actions by the
Shareholder in violation of this covenant shall be null and void.
11. Binding Effect; Successors. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their
respective heirs, successors, personal representatives and
assigns; provided that nothing herein shall be construed as an
authorization or right for any party to assign his rights or
obligations hereunder.
<PAGE> 11
12. Entire Agreement. The entire understanding among the parties is
set forth in this Agreement and this Agreement supersedes all
prior agreements, whether oral or written, among the parties
hereto.
13. Governing Law. This is a Tennessee contract and its terms and
provisions shall be governed by and construed in accordance with
the laws of the State of Tennessee.
14. Severability. If any term, covenant, condition or provision of
this Agreement or the application thereto to any person or
circumstance shall be determined to be invalid or unenforceable,
the remainder of this Agreement, or the application of such term,
covenant, condition or provision to persons or circumstances
other than those to which it is held invalid or unenforceable,
shall not be affected thereby; and each term, covenant, condition
and provision of this Agreement shall be valid and be enforced to
the fullest extent permitted by law.
15. Notices. Any notices required to be given hereunder shall be in
writing and shall be either delivered personally or mailed by
U.S. certified mail, return receipt requested, to the parties at
their respective last known addresses. Notices delivered
personally shall be deemed to be given upon delivery and notices
delivered by mail shall be deemed to be given three (3) days
after the mailing thereof.
16. Amendments. This Agreement may be amended at any time only by the
written consent of all of the parties who are then bound by the
terms hereof.
17. Headings. The marginal notes used as headings for the various
paragraphs of this Agreement are used only as a matter of
convenience for reference, and are not to be construed as part of
this Agreement or to be used in determining the intent of the
parties hereto.
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
PRIVATE BUSINESS, INC.
By:
---------------------------------
Its:
--------------------------------
SHAREHOLDER
------------------------------------
<PAGE> 13
STATE OF TENNESSEE )
COUNTY OF ______________)
Personally appeared before me, ________________________, a Notary
Public, _______________________, with whom I am personally acquainted, and who
acknowledged that __he executed the within instrument for the purposes therein
contained.
WITNESS my hand, at office, this _____ day of ______________, 199__.
----------------------------------
Notary Public
My Commission Expires:
- ------------------------
STATE OF TENNESSEE )
COUNTY OF_______________)
Personally appeared before me, ________________________, a Notary
Public, _______________________, with whom I am personally acquainted, and who
acknowledged that __he executed the within instrument for the purposes therein
contained, and who further acknowledged that __he is the
___________________________ of Private Business, Inc., a Tennessee corporation,
and is authorized by the corporation to execute this instrument on behalf of the
corporation.
WITNESS my hand, at office, this _____ day of ______________, 199__.
---------------------------------
Notary Public
My Commission Expires:
- -----------------------
<PAGE> 14
EXHIBIT A
PROMISSORY NOTE
$ ___________________ Nashville, Tennessee ________________, _____
FOR VALUE RECEIVED, Private Business, Inc., a Tennessee corporation
("Maker"), promises to pay to the order of ______________________________
("Payee") the principal sum of ____________________________________________
($____________), together with interest on the unpaid balance at the rate of
_______ percent (_____%) per annum. Interest and principal shall be payable in
sixty (60) equal, successive monthly installments of ___________________
_______________________ ($____________), with the first such installment being
due on ____________________, and subsequent installments being due on the same
day of each succeeding month thereafter until the indebtedness evidenced by this
note is paid in full.
It is agreed that if any installment is not paid when due, this note
may be declared due and payable in full unless payment of such installment is
made within ten (10) days after notice of such failure to pay has been given to
the Maker by the Payee. The Payee may waive any default before or after the same
has been declared and may restore this note to full force and effect without
impairing the right to declare this note due for a subsequent default, this
right being a continuing one.
This note may be prepaid in whole or in part at any time without
penalty, and if prepaid in part, then the remaining installments shall be
reduced appropriately so that the remaining unpaid balance will be paid in equal
quarterly payments containing both principal and interest.
Demand, notice, presentment and protest are waived.
In the event this note is placed in the hands of an attorney for
collection, the Maker and any endorsers hereof agree to pay a reasonable
attorney's fee and all court and other costs.
PRIVATE BUSINESS, INC.
By:
-------------------------------------
Its:
------------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF PRIVATE BUSINESS, INC.
Private Business, Inc. is the owner of one hundred percent (100%) of the stock
of the following entities:
Private Business Insurance, Inc., a Tennessee corporation
Private Business Processing, Inc., a Tennessee corporation
Private Business Capital, Inc., a Tennessee corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 17, 1999 included in or made a part of Private Business, Inc.
registration statement, and to all references made to our Firm.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 285,370
<SECURITIES> 0
<RECEIVABLES> 5,738,728
<ALLOWANCES> 60,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,971,203
<PP&E> 13,268,374
<DEPRECIATION> (2,812,787)
<TOTAL-ASSETS> 31,596,172
<CURRENT-LIABILITIES> 15,805,015
<BONDS> 0
60,000,000
0
<COMMON> 0
<OTHER-SE> (139,583,843)
<TOTAL-LIABILITY-AND-EQUITY> 31,596,172
<SALES> 0
<TOTAL-REVENUES> 50,804,560
<CGS> 0
<TOTAL-COSTS> 49,288,686
<OTHER-EXPENSES> 157,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,404,581
<INCOME-PRETAX> (2,046,258)
<INCOME-TAX> (2,584,909)
<INCOME-CONTINUING> 538,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 538,651
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
