<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999
REGISTRATION STATEMENT NO. 333-75301
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
STRIDE & ASSOCIATES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7361 13-3789932
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
222 BERKELEY STREET, SUITE 1620
BOSTON, MASSACHUSETTS 02116
(617) 536-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
MICHAEL C. ROBICHAUD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STRIDE & ASSOCIATES, INC.
222 BERKELEY STREET, SUITE 1620
BOSTON, MASSACHUSETTS 02116
(617) 536-3800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN J. EGAN III, P.C. PHILIP P. ROSSETTI, ESQ.
KATHLEEN R. BROWNE, ESQ. JOSEPH E. MULLANEY III, ESQ.
GOODWIN, PROCTER & HOAR LLP HALE AND DORR LLP
EXCHANGE PLACE 60 STATE STREET
BOSTON, MASSACHUSETTS 02109-2881 BOSTON, MASSACHUSETTS 02109
(617) 570-1000 (617) 526-6000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 7, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
UNDERWRITERS MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
<PAGE>
PROSPECTUS
4,350,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by Stride & Associates,
Inc. All of the shares of common stock are being sold by Stride. The estimated
initial public offering price will be between $11.00 and $13.00 per share.
Substantially all of the net proceeds from this offering will be used to redeem
preferred stock and to prepay subordinated debt held by our principal
stockholders and will not be available to fund working capital or capital
expenditures.
--------------
We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the symbol STDA.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ----------
<S> <C> <C>
Initial public offering price......................................... $ $
Underwriting discounts and commissions................................ $ $
Proceeds to Stride, before expenses................................... $ $
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to 652,500 additional shares of common stock.
--------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 10.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
HAMBRECHT & QUIST BANCBOSTON ROBERTSON STEPHENS
, 1999
<PAGE>
[Graphic titled "Serving the Rapidly Growing Need for Permanent IT
Professionals," which is a map of the United States with markings to show the
location of each of Stride's offices and the number and specialty of practice
groups in each office. Includes wording below map: "Transaction - Based Business
Model; Team - Based Placement Process; Group Driven Growth; Focus on Mid-Level
IT Market."]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary................................................................... 4
Risk Factors......................................................................... 10
Forward Looking Statements........................................................... 16
Use of Proceeds...................................................................... 17
Dividend Policy...................................................................... 17
Capitalization....................................................................... 18
Dilution............................................................................. 19
Unaudited Pro Forma Condensed Financial Data......................................... 20
Selected Financial Data.............................................................. 26
Management's Discussion and Analysis of Financial Condition and Results of 28
Operations.........................................................................
Business............................................................................. 39
Management........................................................................... 47
Certain Transactions with Related Parties............................................ 54
Principal Stockholders............................................................... 57
Description of Indebtedness.......................................................... 59
Description of Capital Stock......................................................... 61
Shares Eligible for Future Sale...................................................... 65
Underwriting......................................................................... 67
Legal Matters........................................................................ 68
Experts.............................................................................. 68
Where You Can Find More Information.................................................. 69
Index to Financial Statements........................................................ F-1
</TABLE>
--------------
The information on our Web sites is not a part of this prospectus.
STRIDE & ASSOCIATES, ATLANTIS PARTNERS, THE BOYLSTON GROUP, MACARTHUR &
ASSOCIATES and REMINGTON INTERNATIONAL are trade names of Stride. The ATLANTIS,
BOYLSTON, MACARTHUR, REMINGTON and STRIDE logos are trademarks of Stride. All
other trade names and trademarks used in this prospectus are the property of
their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
THIS IS ONLY A SUMMARY AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND OUR FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
STRIDE & ASSOCIATES, INC.
We are a provider of placement services for full-time, professional
employees in the information technology field. We currently operate 41 practice
groups, each generally comprised of four or five individual placement
counselors, in 15 offices located in seven major metropolitan markets throughout
the United States. To optimize our focus on the rapidly growing market for
information technology professionals, each practice group generally will
concentrate on placements in one of the following three areas: networking and
communications, software development and implementation, and management
information systems. Our practice groups are highly disciplined and are operated
to instill in our placement counselors an entrepreneurial approach to our
placement operations. We believe our use of practice groups facilitates the
placement of qualified candidates into appropriate job openings, and we believe
that it is a key factor in our ability to hire, develop and retain highly
productive placement counselors. This trained resource base will provide the
professional staff necessary to implement our strategy of rapid growth through
the opening of new offices and the establishment of additional practice groups
within existing offices. We target the rapidly growing market for mid-level
professionals earning between $35,000 and $90,000 per year. We place candidates
on a non-exclusive, contingency basis, receiving fees from employers based upon
a negotiated percentage of a placed candidate's first year salary. Our total
number of placement transactions increased to 2,181 in 1998 from 601 in 1995,
and to 590 for the three months ended March 31, 1999 from 462 for the three
months ended March 31, 1998. Our operating margin, before payment of management
fees and other non-recurring charges, was 37.0% for the year ended December 31,
1998 and 34.0% for the three months ended March 31, 1999. See "Selected
Financial Data."
Businesses increasingly rely on information technology solutions to manage
their operations and information and to enhance their competitiveness. This
increasing reliance has created a strong demand for qualified mid-level
professionals who can maintain and deploy information technology systems.
However, businesses often lack the expertise, resources and contacts necessary
to efficiently identify and attract the professionals they require. Placement
agencies, on the other hand, are uniquely qualified to fill the growing demand
for the limited number of these professionals. Contingency placement firms are
particularly well suited to address the fast-paced immediate demands typical of
this market. Currently, many of the contingency firms that focus on the
permanent placement of mid-level employees in the information technology field
are small, owner-operated businesses with annual revenues of less than $1.0
million, according to a leading industry source.
We have developed a working environment and compensation structure designed
to motivate our practice groups to quickly and efficiently process a high number
of placement transactions. Our placement process provides value for both
employers and candidates by rapidly presenting each with a number of qualified
and timely opportunities. The employers served by Stride typically have included
a broad spectrum of business enterprises ranging from start-ups to Fortune 500
companies. We believe that we can continue to expand our business across
multiple metropolitan markets using our practice group approach, which generates
a high volume of placements.
In recent years, we have rapidly expanded our business, primarily by
establishing new practice groups. Between late 1994 and April 30, 1999, we
established 32 new practice groups in both existing and new offices. We intend
to continue expanding our operations in both existing and new geographic
markets. Our practice group approach is designed to develop experienced
placement counselors who can effectively transition from existing to newly
established practice groups as we expand our
4
<PAGE>
operations. This expansion in the past has been accomplished through relatively
modest investments, particularly in connection with the establishment of new
practice groups in existing offices. Our newly opened offices historically have
been able to achieve operating profitability in less than one year after
opening.
Our business objective is to become the leading provider of permanent
placement services in the United States for mid-level professionals in the
information technology field. The key elements of our strategy to achieve this
objective are as follows:
- continue to grow by expanding existing offices and opening new offices;
- continue to focus on the rapidly growing market for mid-level
professionals in the information technology field through the use of
targeted practice groups;
- continue to utilize practice groups to ensure the rapid and effective
matching of candidates to appropriate job opportunities;
- foster a working environment designed to identify quickly both job
openings and available candidates; and
- motivate our placement counselors by providing strong incentive
compensation arrangements and a performance-driven career advancement path
based on individual and practice group productivity.
In June 1998, we effected a leveraged recapitalization of Stride with
investment funds associated with Summit Partners, LLC. As part of the
recapitalization:
- the Summit investors invested $40.0 million to purchase shares of
preferred stock, shares of common stock, warrants to purchase common stock
and subordinated debentures;
- we borrowed $26.0 million in senior bank debt under a senior credit
facility; and
- substantially all of the net proceeds from the recapitalization were used
to redeem shares of common stock held by our founding stockholders for an
aggregate redemption payment of $63.8 million. See "Certain Transactions
with Related Parties--Recapitalization."
Substantially all of the net proceeds of this offering will be used to
redeem the shares of preferred stock and to repay the subordinated debentures
held by the Summit investors and to repay a portion of the senior bank debt. The
Summit investors also will exercise their warrants to purchase common stock in
connection with this offering for an aggregate exercise price of approximately
$3.5 million. Following the completion of this offering, the Summit investors
will own an aggregate of 3,000,010 shares of common stock, or approximately
31.0% of the total outstanding shares of common stock, and our founding
stockholders will own an aggregate of 2,232,560 shares of common stock, or
approximately 22.5% of the total outstanding shares of common stock, each on a
fully diluted basis. We do not anticipate paying cash dividends for the
forseeable future. See "Use of Proceeds," "Dividend Policy" and
"Capitalization."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Stride.................. 4,350,000 shares
Common stock to be outstanding after this
offering...................................... 9,652,348 shares
Use of proceeds................................. We expect to use substantially all of
the net proceeds to repay the
outstanding subordinated debentures and
a portion of the senior bank debt and
to redeem the outstanding preferred
stock. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... STDA
</TABLE>
--------------
The number of shares of common stock that will be outstanding after this
offering is an estimate based on the number of shares outstanding as of April
30, 1999. It excludes:
- 339,490 shares of common stock issuable upon exercise of stock options
outstanding as of April 30, 1999, with a weighted average exercise price
of $18.24 per share, of which options to purchase 232,560 shares were then
exercisable, and
- 172,122 shares available for future grant under our stock option plan as
of April 30, 1999.
See "Management--Executive Compensation" and "--1998 Stock Option and Grant
Plan."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(UNAUDITED)
Listed below is our statement of operations data for the five years ended
December 31, 1998 and the three months ended March 31, 1998 and 1999 and our
balance sheet data as of March 31, 1999. Prior to 1995, our founding
stockholders conducted operations through several loosely affiliated predecessor
entities. On January 1, 1995, we reorganized into one corporation by purchasing
these predecessor entities. The data for the year ended December 31, 1994
reflects the combined operations of our predecessor entities. Net income per
common share and weighted average common shares outstanding for the year ended
December 31, 1994 have not been presented because such information is not
meaningful. The results for the interim periods are not necessarily indicative
of the results for the full fiscal year or any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview." To calculate the "Pro Forma as Adjusted Statement of
Operations Data," we have assumed the following occurred as of January 1, 1998:
- our June 4, 1998 leveraged recapitalization;
- our conversion of tax status from a subchapter "S" corporation to a
subchapter "C" corporation;
- the conversion of our series A convertible preferred stock into an equal
number of shares of series B redeemable preferred stock and 1,000,000
shares of common stock; and
- the sale of 4,350,000 shares of common stock in the offering at an assumed
initial public offering price of $12.00 per share, after deducting the
underwriting discounts and estimated offering expenses, and the
application of the net proceeds of the offering to (1) redeem all shares
of our Series B redeemable preferred stock; (2) repay all of our
subordinated debentures; and (3) repay a portion of our senior bank debt.
To calculate the pro forma as adjusted balance sheet data, we have assumed
that each of the above listed events occurred on March 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
Net revenues...................... $ 3,791 $ 6,592 $ 10,614 $ 19,187 $ 28,804 $ 5,879 $ 8,427
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................... 2,193 3,641 6,872 12,761 18,955 3,798 5,558
Operating expenses................ 993 1,925 2,460 4,655 8,305 1,749 2,692
Management fees(1)................ 435 32 3,719 7,620 2,869 1,533 --
Non-recurring recapitalization
costs(2)........................ -- -- -- -- 2,239 -- 102
--------- --------- --------- --------- --------- --------- ---------
Income from operations............ 765 1,684 693 486 5,542 516 2,764
--------- --------- --------- --------- --------- --------- ---------
Net income........................ 760 1,666 732 451 1,859 534 1,129
Preferred stock dividends......... -- -- -- -- 1,553 -- 666
--------- --------- --------- --------- --------- --------- ---------
Net income available to common
stockholders.................... $ 760 $ 1,666 $ 732 $ 451 $ 306 $ 534 $ 463
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per common share:
basic......................... $ 0.33 $ 0.15 $ 0.09 $ 0.07 $ 0.11 $ 0.13
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
diluted....................... $ 0.33 $ 0.15 $ 0.09 $ 0.06 $ 0.11 $ 0.09
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ----------------
(1) Represents management fees paid through the June 4, 1998 leveraged
recapitalization to several entities affiliated with our founding
stockholders in connection with the management of our business. We do not
expect to incur similar management fees in the future. See "Certain
Transactions with Related Parties-- Management Fees," and note 2 to
"Unaudited Pro Forma Condensed Financial Data."
(2) Represents costs associated with the June 4, 1998 leveraged
recapitalization, primarily one-time special compensation bonuses paid to
senior management.
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------
STATEMENT OF OPERATIONS DATA (CONTINUED): 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED
OPERATING DATA)
Weighted average common shares outstanding:
basic.................................... 5,000 5,000 5,000 4,158 5,000 3,540
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
diluted.................................. 5,000 5,000 5,000 4,734 5,000 5,009
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma provision for income taxes(3).... $ 745 $ 355 $ 270 $ 1,669 $ 235 $ 900
Pro forma net income....................... $ 947 $ 400 $ 243 $ 2,125 $ 299 $ 1,129
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma net income available to common
stockholders............................. $ 947 $ 400 $ 243 $ 572 $ 299 $ 463
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
PRO FORMA AS ADJUSTED STATEMENT OF
OPERATIONS DATA:
Net revenues............................... $ 28,804 $ 5,879 $ 8,427
Income from operations..................... 10,585 1,984 2,866
Net income................................. 5,156 903 1,440
Net income per common share:
basic.................................... $ 0.53 $ 0.09 $ 0.15
--------- --------- ---------
--------- --------- ---------
diluted.................................. $ 0.53 $ 0.09 $ 0.15
--------- --------- ---------
--------- --------- ---------
Weighted average common shares
outstanding(4):
basic and diluted........................ 9,652 9,652 9,652
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------ --------------------
1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of practice groups at end of period......... 11 18 20 33 27 39
Number of placement transactions................... 601 934 1,582 2,181 462 590
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
<S> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Net working capital...................................................................... $ 168 $ 880
Total assets............................................................................. 9,568 8,856
Total debt (including current debt)...................................................... 34,500 21,913
Series A convertible preferred stock..................................................... 25,965 --
Common stockholders' equity (deficiency)................................................. $ (54,860) $ (16,308)
</TABLE>
- --------------
(3) Before June 4, 1998, we were a subchapter "S" corporation and, accordingly,
federal and state income taxes were paid at the stockholder level only. Upon
consummation of the June 4, 1998 leveraged recapitalization, we terminated
our subchapter "S" corporation status and, accordingly, became subject to
federal and state income taxes. The pro forma income statement information
reflects adjustments to historical net income as if we had not elected
subchapter "S" corporation status for federal and state income tax purposes.
8
<PAGE>
(4) Pro forma weighted average common shares outstanding assumes that the
following occurred at the beginning of the period indicated:
- the issuance of 1,237,505 shares of common stock and the repurchase of
3,000,000 shares of common stock in connection with the June 4, 1998
leveraged recapitalization;
- the issuance of 1,000,000 shares of common stock upon the conversion of
the series A convertible preferred stock;
- the issuance of 762,505 shares of common stock upon the exercise of
outstanding warrants; and
- the issuance of 4,350,000 shares of common stock issuable in this
offering.
We were incorporated in Delaware in 1994. Our principal executive offices
are located at 222 Berkeley Street, Suite 1620, Boston, Massachusetts 02116. Our
telephone number is (617) 536-3800.
UNLESS OTHERWISE STATED IN THIS PROSPECTUS, ALL INFORMATION CONTAINED IN
THIS PROSPECTUS ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION TO PURCHASE UP
TO 652,500 SHARES OF COMMON STOCK GRANTED TO THE UNDERWRITERS.
9
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS AND ALL OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW REPRESENT THE MATERIAL RISKS WE BELIEVE WE FACE. IF ANY OF THE
EVENTS DESCRIBED IN THE RISK FACTORS BELOW ACTUALLY OCCUR, OUR BUSINESS COULD BE
ADVERSELY AFFECTED. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU COULD LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON
STOCK.
OUR FAILURE TO IDENTIFY AND PLACE QUALIFIED INFORMATION TECHNOLOGY PROFESSIONALS
WOULD ADVERSELY AFFECT OUR BUSINESS.
Because of the specialized nature of the placement market for information
technology professionals, we are highly dependent upon our ability to identify
and successfully place professionals possessing the technical skills and
experience required by employers. If we fail to do so, our business will be
adversely affected. We may have difficulty accessing a sufficient number of
qualified professionals with the skills and experience necessary to meet
evolving market demands because, among other things, these professionals are in
high demand worldwide and are likely to remain a limited resource for the
foreseeable future. This difficulty may become more pronounced as we seek to
expand and may be further complicated by the nature of the information
technology services market, which is characterized by rapid technological
change, evolving industry standards, changing customer preferences and new
product and service introductions.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY INTENSE COMPETITION FOR BOTH
EMPLOYERS AND INFORMATION TECHNOLOGY PROFESSIONALS.
The permanent placement industry, particularly firms focused on the
placement of information technology professionals, is extremely competitive, and
there are few, if any, barriers to entry. We compete with national, regional and
local placement firms for access to both hiring employers and candidates. As we
attempt to expand into new geographic markets, we expect to compete with
additional firms. Many of these national and regional firms have greater
financial, technical and marketing resources than we have. Smaller firms are
typically owner-operated, and each market in which we operate generally has one
or more significant established competitors that are unique to each market and
enjoy greater name recognition and reputation than we do. We expect increased
competition from placement, staffing and consulting firms which are adopting the
Internet to both solicit hiring employers and candidates, as well as post job
openings and candidate profiles. Currently, hundreds of Web sites offer these
services and more can be expected. Although we have begun to post job openings
and solicit resumes on our Web sites, we currently do not conduct any material
amount of business on the Internet.
COMPETITION FROM NON-PERMANENT STAFFING SERVICES, CONSULTING FIRMS AND EMPLOYERS
COULD REDUCE THE MARKET FOR OUR SERVICES.
In addition to other providers of placement services, we also compete with
providers of non-permanent staffing services and consulting firms. These
competitors offer employers qualified professionals on a contract basis, often
at a fixed price, without the long term commitment of hiring permanent
employees. In addition, we compete directly with employers for placement
candidates who continue to rely on their internal human resource departments to
recruit some, if not all, of the information technology professionals they
require. This is often the case with employers who hire professionals on an
ongoing basis and can justify an investment in developing a recruiting staff
in-house and avoid the direct cost of multiple placement fees which, at $8,000
to $20,000 per candidate, can be substantial. Increased competition from the
staffing solutions described above could reduce the market for our services and
adversely effect our business.
10
<PAGE>
THE FACT THAT WE OPERATE UNDER MULTIPLE NAMES COULD PUT US AT A COMPETITIVE
DISADVANTAGE.
Although we have offices in major cities across the United States, we use
multiple operating names. As a result, we do not expect to develop national
brand awareness. This may put us at a competitive disadvantage to regional or
national firms with established identities which are recognizable to employers
and candidates alike.
WE ARE SUBJECT TO MANY FACTORS SPECIFIC TO OUR INDUSTRY AND BUSINESS MODEL THAT
MAY CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE AND ANY SUCH FLUCTUATIONS COULD
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO FALL.
Our quarterly operating results have varied in the past and are likely to
vary in the future. It is possible that our revenues and operating results may
be below the expectations of securities analysts and investors in future
quarters. If we fail to meet or surpass the expectations of securities analysts
or investors, the market price of our common stock will most likely fall. This
variability depends on a number of factors including many of which are specific
to our industry and business model. Factors that effect our quarterly operating
results include, but are not limited to:
- the timing of new office openings and new practice group additions;
- the length of time required for new offices and groups to become fully
productive and profitable;
- the incurrence of considerable expenses in advance of anticipated revenues
in connection with new office openings;
- the negative impact on the productivity of existing practice groups due to
the transfer of experienced placement counselors to newly established
practice groups;
- any slowdown or other adverse change in the placement market for mid-level
information technology professionals, particularly in industries that
represent a significant portion of our employer customer base;
- any reduction in the level of demand for information technology services
among prospective employers as businesses resolve the "Year 2000"
compliance issue;
- our ability to hire, train and retain personnel;
- any reduction or other adverse change in our placement fee structure or a
decline in the average salary of placed candidates;
- changes in the level of our operating expenses; and
- seasonal fluctuations.
Given that any one or more of these or other factors could have an adverse
effect on our business, the prediction of future quarterly results is difficult
and uncertain. In addition, some of our operating expenses are relatively fixed
in advance of any particular quarter. As a result, we may not be able to reduce
our operating costs in response to unanticipated reductions in our net revenues
or the demand for our services. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
11
<PAGE>
THE PROCEEDS FROM THIS OFFERING WILL BENEFIT OUR PRINCIPAL STOCKHOLDERS AND WILL
NOT BE AVAILABLE TO FUND WORKING CAPITAL OR CAPITAL EXPENDITURES.
Substantially all of the estimated $47.7 million in net proceeds from the
offering will be used for the following purposes:
- to make an aggregate net redemption payment of approximately $32.9 million
on our outstanding preferred stock, plus accrued and unpaid dividends of
approximately $2.2 million at March 31, 1999;
- to repay $10.0 million in principal amount of our outstanding subordinated
debentures, together with accrued and unpaid interest; and
- to repay with any remaining net proceeds a portion, but not less than $2.0
million, of the $24.5 million in principal amount of our senior bank debt,
together with accrued and unpaid interest.
We do not anticipate that any net proceeds from this offering will be
available to fund our working capital or capital expenditure needs. As a result,
we may be limited in our ability to fund our working capital and capital
expenditure requirements and be unable to fully execute our business model. See
"Use of Proceeds" and "Certain Transactions with Related Parties."
WE WILL INCUR NON-RECURRING CHARGES AS A RESULT OF THIS OFFERING.
In connection with this offering, we will incur a non-recurring charge
available to common stockholders of approximately $17.8 million, consisting of:
- approximately $16.9 million related to the redemption of the preferred
stock and the related issuance of 1,000,000 shares of common stock; and
- deferred compensation charges, which equaled $882,000 as of March 31,
1999, in connection with the acceleration of vesting of our outstanding
restricted common stock.
This non-recurring charge will cause us to have a net loss attributable to
common stockholders for the fiscal quarter in which this offering closes and
could result in a net loss for the entire year ending December 31, 1999. See
"Use of Proceeds;" "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview;" and "Certain Transactions with Related
Parties."
OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED BY ECONOMIC DOWNTURNS.
Our results of operations are partially dependent upon general economic
conditions in the United States as well as other factors beyond our control,
including the hiring activity of employers, reductions in hiring budgets and
average salaries. During periods in which overall economic activity slows, our
revenues may fall as a result of a decline in the number of successful
placements or reductions in the amount of our placement fees resulting from a
decline in compensation levels of information technology professionals or the
percentage of this compensation we charge as fees. We believe that the operating
results of businesses that provide placement services, such as ours, will be
particularly affected during periods of economic downturn as employers reduce
their hiring activity and their reliance on outside providers of placement
services. Therefore, a significant economic downturn, particularly in regions,
or in industries prevalent in those regions in which our operations are located,
could have an adverse effect on our business and possibly to a relatively
greater extent than the economy as a whole in such regions. For example, the
financial services industry, which has historically represented a significant
portion of our revenues, undergoes periods of contraction from time to time. In
addition, it is possible that the level of demand for information technology
services among prospective employers may decline.
12
<PAGE>
OUR RAPID GROWTH COULD STRAIN OUR FINANCIAL, MANAGEMENT AND OTHER RESOURCES.
Our rapid growth in recent years has placed, and any future expansion will
continue to place, a significant strain on our financial, management and
operational resources. The failure to maintain resources or to hire, train or
manage new personnel could have an adverse effect on our business. Historically,
the successful management of our business has not depended upon sophisticated
management information systems. However, in light of our expansion strategy and
the public company reporting requirements to which we will become subject after
this offering, we will need to continue to improve and expand our management
information systems to network across our company and process financial and
other information on a timely and accurate basis.
OUR FAILURE TO SUCCESSFULLY IMPLEMENT OUR OFFICE EXPANSION STRATEGY COULD
ADVERSELY AFFECT OUR BUSINESS AND THE MARKET PRICE OF OUR COMMON STOCK.
We intend to grow our business by expanding existing offices and opening new
offices, both in geographic markets in which we already operate and in new
markets. Our failure to successfully implement our expansion strategy could have
an adverse effect on our business, and the market price of our common stock
would most likely fall. The successful expansion of our existing offices and the
opening of new offices depends on many factors, including our ability to:
- successfully compete with existing placement, staffing and consulting
agencies in existing and new markets;
- attract motivated and productive placement counselors while continuing to
train, develop and promote existing placement counselors;
- minimize the disruption to existing practice groups caused by the transfer
of experienced personnel to new practice groups;
- accurately assess the demand for information technology professionals in
existing and new markets; and
- accurately assess the supply of information technology professionals in
existing and new markets.
When we expand an existing office or open a new office, we incur incremental
capital and operating expenses as a result of the need to purchase additional
office equipment and to hire additional entry-level trainees. As there is always
a delay before a new office reaches full productivity, expenses will exceed
revenues generated by the new office for at least several months, resulting in
initial losses. We may fail to successfully identify new markets for expansion
and to establish new office locations, and new offices may fail to meet growth
and profitability objectives within expected time frames, if at all. Moreover,
we may not be able to identify markets that present sufficient placement
opportunities for expanding or opening new offices.
WE MUST HIRE, DEVELOP AND RETAIN PLACEMENT STAFF TO SUSTAIN FUTURE GROWTH.
Our future success will depend in large part upon our ability to attract,
develop and retain highly-motivated and capable placement counselors. The loss
of a significant number of our current placement counselors or an inability to
hire and integrate on an on-going basis a sufficient number of additional
trainees or other employees could have an adverse effect on our business. In
addition, any reduction in our current employee compensation levels or a
restructuring of our compensation system, whether as a result of lower than
expected revenues, declining margins, a decline in the market price of our
common stock or any other reason, could impair our ability to retain our
existing placement staff and attract additional employees. Historically, we have
experienced a retention rate of approximately 32%. This historical retention
rate could decrease. We calculate our retention rate by expressing our total
number of employees at the end of a period as a percentage of the sum of our
total number of employees at
13
<PAGE>
the beginning of the period and total number of new employees hired during that
period. Substantially all of our attrition has historically occurred at the
placement trainee level.
OUR SUCCESS IS LARGELY DEPENDENT UPON MR. ROBICHAUD AND OUR SENIOR MANAGEMENT
TEAM.
Our success will depend largely on the continued availability of our senior
management team, in particular, upon Michael C. Robichaud, our President and
Chief Executive Officer. The loss of the services of Mr. Robichaud or any of the
other members of Stride's senior management team could have an adverse effect on
our business. We maintain a life insurance policy on Mr. Robichaud under which
we will receive $1,000,000 in the event Mr. Robichaud were to die while employed
by us. We do not, however, maintain similar policies on any of our other
executive officers or significant employees. We do not have employment
agreements with any members of our senior management team, except Mr. Robichaud,
and the existence of an employment agreement with Mr. Robichaud does not
guarantee his continued employment with us. Although we have entered into
noncompetition agreements with our executive officers, there can be no assurance
that these agreements will be enforceable, and these agreements do not ensure
the continued service of our executive officers.
WE MAY FACE LIABILITY CLAIMS FROM EMPLOYERS AND PLACEMENT CANDIDATES.
Our business may expose us to liability with respect to the placement of
candidates with employers. An employer could assert a claim against us for
referring a candidate who proves to be unsuitable for the position filled. A
liability claim, even one without merit, could result in significant legal
defense costs and expenditure of executive time, thereby increasing expenses,
lowering earnings and possibly resulting in operating losses. Any failure in an
employer's computer system which is the result of an act or omission by a
candidate referred by us could result in a claim for substantial damages against
us regardless of the merit of the claim. We generally do not conduct candidate
reference checks unless requested by a particular employer. In addition, a
candidate could assert an action against us for failure to maintain the
confidentiality of his or her employment search, or for discrimination or other
violations of employment laws by us or an employer with whom the candidate was
placed. Our professional liability insurance may not provide adequate coverage
for any claim or continue to be available on acceptable costs and terms.
FUTURE ACQUISITIONS COULD ADVERSELY AFFECT OUR BUSINESS AND HAVE A DILUTIVE
EFFECT ON OUTSTANDING COMMON STOCK.
Although we have no current acquisition plans, we may decide to pursue
acquisitions in the future. Risks associated with acquisitions could have an
adverse effect on our business, including the diversion of management's
attention, the loss of key personnel, legal and tax liabilities and exposure to
the Year 2000 issue. Acquisitions also may involve an increase in our debt or
new issuances of equity securities, which could have a dilutive effect on the
then outstanding shares of common stock. Even if we identify suitable
acquisition candidates, we may fail to negotiate favorable terms or successfully
integrate any proposed acquisition into our existing business operations.
THE MARKET PRICE OF OUR SHARES OF COMMON STOCK MAY EXPERIENCE EXTREME PRICE AND
VOLUME FLUCTUATIONS.
The market for shares in companies that have recently gone public has been
subject to extreme price and volume fluctuations. In the past, companies that
have experienced volatility in the market price of their stock have been the
object of securities class action litigation. If we were the object of
securities class action litigation, it could result in substantial costs and a
diversion of our management's attention and resources and have an adverse effect
on our business.
14
<PAGE>
OUR EXISTING STOCKHOLDERS WILL CONTROL ALL MATTERS REQUIRING A STOCKHOLDER VOTE
AND, AS A RESULT, COULD PREVENT OR DELAY A CHANGE IN CONTROL.
Upon the closing of the offering, our existing directors, officers and
stockholders will beneficially own approximately 55.9% of our outstanding common
stock. This control by our existing stockholders could have the effect of
delaying, deferring or preventing a change in control because these stockholders
will be in a position to control the outcome of all stockholder votes, including
votes concerning director elections, by-law amendments and possible mergers,
corporate control contests and other significant corporate transactions. As a
result, a change in control of our business that may be in the interest of new
investors who purchase shares in this offering could be delayed or prevented by
our existing stockholders. See "Principal Stockholders."
PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS MAY MAKE A TAKEOVER
MORE DIFFICULT.
Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt which is opposed by
our management. Public stockholders who might desire to participate in such a
transaction may not have an opportunity to do so, and the ability of public
stockholders to change our management could be substantially impeded by these
anti-takeover provisions. We have a staggered board of directors and we have the
right under our charter documents to issue preferred stock without further
stockholder approval, which could adversely affect the holders of our common
stock.
THE ESTIMATED INITIAL PUBLIC OFFERING PRICE IS SIGNIFICANTLY HIGHER THAN THE
BOOK VALUE OF OUR COMMON STOCK.
Purchasers of common stock in this offering will experience immediate and
substantial dilution of $10.31 per share in the net tangible book value of the
common stock from the initial public offering price based upon an assumed
initial public offering price of $12.00 per share. To the extent outstanding
options or warrants to purchase common stock are exercised, there will be
further dilution to the new investors. See "Dilution."
THE FUTURE SALE OF OUR COMMON STOCK COULD AVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK.
Substantial sales of common stock in the public market following this
offering, or the perception that sales could occur, could lower the market price
of the common stock or make it difficult for us to raise additional equity
capital in the future. The shares of common stock which are being sold in this
offering will generally be freely tradeable without restriction, and:
- the remaining 5,302,348 shares of common stock outstanding will be
"restricted securities" as defined in Rule 144 under the Securities Act,
and may be sold in the future without registration under the Securities
Act subject to compliance with the provisions of Rule 144 or any other
applicable exemption under the Securities Act;
- our principal stockholders have registration rights requiring us to
register for sale under the Securities Act up to 5,000,010 shares of
common stock currently outstanding and an additional 232,560 shares of
Common Stock issuable upon exercise of outstanding options; and
- all shares of common stock held by our officers, directors and
stockholders, who hold all of the currently outstanding shares of common
stock, are subject to lock-up agreements and may not be sold for 180 days
after the date of this prospectus. Hambrecht & Quist LLC may, however, in
its sole discretion and at any time without notice, release all or any
portion of the shares subject to these restrictions.
15
<PAGE>
In addition, as of April 30, 1999, there were 511,612 shares reserved for
issuance under our 1998 Stock Option and Grant Plan, of which 339,490 were then
outstanding. Beginning 180 days after the date of this prospectus, approximately
237,100 shares issuable upon exercise of vested options will become eligible for
sale.
COVENANTS IN OUR DEBT AGREEMENTS WILL RESTRICT OUR BUSINESS.
Our existing senior bank debt agreements, which will remain in effect and
under which we will owe approximately $21.9 million after this offering, contain
a number of significant covenants. The covenants will not expire until our
senior bank debt, which is due June 4, 2003, is paid in full. Our senior bank
debt agreements, among other matters, require us to maintain certain leverage,
debt service and current ratios. Our senior bank debt agreements, including
further details regarding these required ratios, are attached as exhibits to our
publicly available registration statement of which this prospectus is a part.
Our senior bank debt agreements also place significant limitations on our
ability to incur additional indebtedness that we may need to finance our working
capital needs or to expand our operations. These covenants also prohibit us from
paying any dividends to our stockholders, other than dividends payable in shares
of common stock. If we are unable to meet our debt service obligations or comply
with these covenants, there will be a default under these agreements. A default,
if not waived, could result in acceleration of our repayment obligations, which
would have an adverse effect on our business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Description of Indebtedness" and "Where You Can Find More
Information."
WE DO NOT INTEND TO PAY DIVIDENDS.
Since June 4, 1998, we have neither declared nor paid any cash dividends on
shares of our common stock. We currently intend to retain our earnings for
future growth and, therefore, do not anticipate paying any dividends in the
foreseeable future. In addition, under the terms of our senior bank debt, we are
prohibited from paying any dividends to our stockholders, other than dividends
payable in shares of common stock.
FORWARD LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors."
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the common stock
will be approximately $47.7 million, at an assumed initial offering price of
$12.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $55.0 million. We expect to use substantially all of the
net proceeds as follows:
- make a mandatory redemption payment due to a group of investment funds
associated with Summit Partners, LLC with respect to our preferred stock
upon consummation of this offering in an aggregate net amount of
approximately $32.9 million, which represents a gross redemption payment
of approximately $36.5 million less an offset of approximately $3.5
million representing the aggregate exercise price of outstanding warrants
that will be exercised in connection with this offering, plus accrued
dividends on the preferred stock, which amounted to approximately $2.2
million as of March 31, 1999,
- repay $10.0 million in principal amount of the subordinated debentures
owed to the Summit investors, together with any accrued and unpaid
interest, which debt bears interest at a rate of 12.0% annually, is
subject to mandatory repayment upon consummation of this offering and
otherwise matures on August 4, 2003; and
- repay with any remaining amount of net proceeds a portion, but not less
than $2.0 million, of the principal amount of senior bank debt owed in
respect of the senior credit facility with a number of lending
institutions, together with accrued and unpaid interest, which senior bank
debt bears interest at a variable rate, which is currently set at 6.75%
per annum and matures on June 4, 2003.
The proceeds from the senior bank debt and the sale to the Summit investors
of subordinated debentures, together with the proceeds from the sale to the
Summit investors of shares of preferred stock and common stock, were used to
redeem shares of common stock held by our founding stockholders in connection
with the leveraged recapitalization of Stride in June 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions with
Related Parties."
DIVIDEND POLICY
Before June 4, 1998, we were a subchapter "S" corporation. While maintaining
such status, we declared and paid an aggregate cash dividend of $929,000 to our
stockholders in June 1998. We terminated our subchapter "S" status in connection
with our recapitalization in June 1998. Since June 4, 1998, we have neither
declared nor paid any dividends on our common stock. Under the terms of our
senior bank debt, we are prohibited from paying any dividends to our
stockholders other than dividends payable in shares of common stock. In
addition, we currently intend to retain our earnings for future growth and,
therefore, do not anticipate paying dividends in the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 (a)
on an actual basis, (b) on a pro forma basis after giving effect to the
conversion of the series A convertible preferred stock into an aggregate of
1,000,000 shares of common stock and an aggregate of 24,802.5 shares of series B
redeemable preferred stock and the exercise of outstanding warrants to purchase
762,505 shares of common stock for an aggregate purchase price of $3.5 million
and (c) on a pro forma basis as adjusted to, in addition, give effect to our
receipt of the estimated net proceeds from the sale of the 4,350,000 shares of
common stock offered hereby at an assumed initial public offering price of
$12.00 per share, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us and the use of the net proceeds
as described in "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes to those statements
included elsewhere in this prospectus.
The table below excludes: 293,607 shares of common stock issuable upon
exercise of outstanding stock options at a weighted average exercise price of
$19.21 per share and 218,005 additional shares of common stock available for
future grant under our 1998 Stock Option and Grant Plan, in each case as of
March 31, 1999. On April 1, 1999, we issued stock options to purchase an
additional 45,383 shares of common stock at a price per share of $12.00 under
our 1998 Stock Option and Grant Plan, which options are also excluded from the
table below. The weighted average exercise price of all outstanding stock
options as of April 30, 1999 was $18.24 per share. See "Management--Executive
Compensation" and "--1998 Stock Option and Grant Plan."
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of term loan................................................ $ 4,002 $ 4,002 $ 4,002
--------- ----------- -----------
Term loan, less current portion............................................. 20,498 20,498 17,911
--------- ----------- -----------
Subordinated debentures..................................................... 10,000 10,000 --
--------- ----------- -----------
Series A convertible preferred stock, $0.01 par value per share: 24,802.5
shares authorized, issued and outstanding, actual; no shares authorized,
issued or outstanding pro forma and pro forma as adjusted................. 25,965 -- --
--------- ----------- -----------
Series B redeemable preferred stock, $0.01 par value per share; 24,802.5
shares authorized; no shares issued or outstanding, actual; 24,802.5
shares issued and outstanding, pro forma; no shares authorized, issued or
outstanding pro forma as adjusted......................................... -- 21,765 --
--------- ----------- -----------
Common stockholder's equity (deficiency):
Common stock, $0.01 par value per share; 50,000,000 shares authorized,
3,539,843 shares issued and outstanding actual; 50,000,000 shares
authorized, 5,302,348 shares issued and outstanding on a pro forma basis;
50,000,000 shares authorized, 9,652,348 shares issued and outstanding, pro
forma as adjusted......................................................... 35 53 97
Additional paid-in capital.................................................. 5,052 12,757 43,542(1)
Deferred compensation(2).................................................... (882) (882) --
Note receivable from officer and stockholder................................ (166) (166) (166)
Accumulated deficit......................................................... (58,899) (58,899) (59,781)(3)
--------- ----------- -----------
Total stockholders' equity (deficiency)................................. (54,860) (47,137) (16,308)
--------- ----------- -----------
Total capitalization................................................ $ 5,605 $ 9,128 $ 5,605
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------
(1) Includes approximately $16.9 million relating to a redemption premium on the
preferred stock which will be paid as a result of this offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
(2) Upon consummation of this offering, 290,710 shares of restricted common
stock which currently have a three year vesting schedule will accelerate and
become unrestricted. The deferred compensation charge related to these
restricted shares will be recognized as compensation expense upon completion
of this offering.
(3) Includes $882,000 of non-recurring charges to net income available to common
stockholders, consisting of deferred compensation charges related to the
acceleration of the vesting of restricted common stock as a result of this
offering.
18
<PAGE>
DILUTION
As of March 31, 1999, we had a pro forma net deficit in tangible book value
of $(47.1) million, or $(8.89) per share, after giving effect to the conversion
of the series A preferred stock and the exercise of the warrant. Pro forma net
deficit in tangible book value per share is equal to our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the conversion of all outstanding shares of
our series A convertible preferred stock into common stock and the exercise of
the warrant. Without taking into account any other changes in the deficit in net
tangible book value after March 31, 1999, other than to give effect to our
receipt of the estimated net proceeds from the sale of the 4,350,000 shares of
common stock offered hereby at an assumed initial public offering price of
$12.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us and the use of the net proceeds
as described in "Use of Proceeds," our pro forma net deficit in tangible book
value as of March 31, 1999 would have been $(16.3) million, or $(1.69) per
share. This represents an immediate increase in pro forma net tangible book
value of $7.20 per share to existing stockholders and an immediate dilution of
$10.31 per share to new investors. If the initial public offering price is
higher or lower than $12.00 per share, the dilution to new stockholders will be
lower or higher, respectively. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 12.00
Pro forma net deficit in tangible book value per share as
of March 31, 1999....................................... $ (8.89)
Increase per share attributable to new investors.......... 7.20
---------
Pro forma net deficit in tangible book value per share after
this offering............................................. (1.69)
---------
Dilution per share to new investors......................... $ 10.31
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the difference between existing stockholders and the new investors with respect
to the number of shares of common stock purchased, the total consideration paid
to Stride and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 5,302,348 54.9% $ 13,096,273 20.0% $ 2.47
New investors................... 4,350,000 45.1 52,200,000 80.0 12.00
---------- ----- ------------- -----
Total....................... 9,652,348 100.0% $ 65,296,273 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing table excludes:
- 293,607 shares of common stock subject to outstanding options as of March
31, 1999 at a weighted average exercise price of $19.21 per share;
- 218,005 shares available for future grant under our stock option plan as
of March 31, 1999.
On April 1, 1999, we issued stock options to purchase an additional 45,383
shares of common stock at a price per share of $12.00 under our 1998 Stock
Option and Grant Plan, which options are also excluded from the foregoing table.
The weighted average exercise price of all outstanding stock options as of April
30, 1999 was $18.24 per share. To the extent these options are exercised and the
underlying shares are granted, there will be further dilution to new investors.
See "Management" and note 9 of notes to our financial statements included
elsewhere in this prospectus.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following unaudited pro forma condensed financial data has been prepared
by our management from our financial statements and the notes to those
statements included elsewhere in this prospectus. We believe that the accounting
treatment used to prepare the pro forma data provides a reasonable basis on
which to present this unaudited pro forma condensed financial data. The
unaudited pro forma condensed statement of operations for the year ended
December 31, 1998 and the three months ended March 31, 1998 and 1999 reflects
adjustments as if our leveraged recapitalization in June 1998 and this offering
had occurred on January 1, 1998. The unaudited pro forma as adjusted condensed
balance sheet as of March 31, 1999 gives effect to the June 1998
recapitalization, this offering and the use of proceeds as stated in "Use of
Proceeds" as if each had occurred on March 31, 1999. The unaudited pro forma as
adjusted condensed statements of operations do not reflect non-recurring charges
of $19.8 million directly related to the June 1998 recapitalization and this
offering, consisting of:
- approximately $16.9 million which will be charged against net income
available to common stockholders in connection with the redemption of our
preferred stock and the related issuance of 1,000,000 shares of common
stock as a result of this offering;
- approximately $2.0 million in special non-recurring bonuses paid to senior
management as a result of the June 1998 recapitalization;
- $882,000 of deferred compensation charges which will be expensed in
connection with the acceleration of the vesting of restricted common stock
as a result of this offering; and
- approximately $35,000 of other non-recurring recapitalization costs.
We are providing the unaudited pro forma condensed financial data for
informational purposes only. The pro forma condensed financial data shown below
may not necessarily be indicative of either our financial position or the
results of our operations which would have occurred had the recapitalization and
this offering actually occurred on the dates described above, nor are they
necessarily indicative of the results of operations for any future period. The
unaudited pro forma condensed financial data and accompanying notes should be
read in conjunction with our financial statements and the notes to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------------------------------
ADJUSTMENTS ADJUSTMENTS
RELATED TO THE RELATED TO PRO FORMA
ACTUAL RECAPITALIZATION PRO FORMA THIS OFFERING AS ADJUSTED
--------- --------------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS:
Net revenues............................................. $ 28,804 $ -- $ 28,804 $ -- $ 28,804
Cost of services......................................... 9,849 -- 9,849 -- 9,849
--------- ------- ----------- ------------- -------------
Gross profit............................................. 18,955 -- 18,955 -- 18,955
Operating expenses....................................... 8,305 65(1) 8,370 -- 8,370
Management fees.......................................... 2,869 (2,869)(2) -- -- --
Non-recurring recapitalization costs..................... 2,239 (1,832)(3) 407 (407)(4) --
--------- ------- ----------- ------------- -------------
Income from operations................................... 5,542 4,636 10,178 407 10,585
Other income (expense):
Interest income.......................................... 108 -- 108 -- 108
Interest expense......................................... (1,856) (1,167)(5) (3,023) 1,375(6) (1,648)
--------- ------- ----------- ------------- -------------
Income before provision for income taxes................. 3,794 3,469 7,263 1,782 9,045
Provision for income taxes............................... 1,935 1,188(7) 3,123 766(7) 3,889
--------- ------- ----------- ------------- -------------
Net income............................................... 1,859 2,281 4,140 1,016 5,156
Preferred stock dividends................................ 1,553 1,147(8) 2,700 (2,700)(9) --
--------- ------- ----------- ------------- -------------
Net income available to common stockholders.............. $ 306 $ 1,134 $ 1,440 $ 3,716 $ 5,156
--------- ------- ----------- ------------- -------------
--------- ------- ----------- ------------- -------------
Net income per common share--
basic.................................................. $ 0.07 $ 0.41(10) $ 0.53(10)
--------- ----------- -------------
--------- ----------- -------------
diluted................................................ $ 0.06 $ 0.32(10) $ 0.53(10)
--------- ----------- -------------
--------- ----------- -------------
Pro forma weighted average common shares outstanding--
basic.................................................. 4,158 3,540(11) 9,652(12)
--------- ----------- -------------
--------- ----------- -------------
diluted................................................ 4,734 4,540(11) 9,652(12)
--------- ----------- -------------
--------- ----------- -------------
</TABLE>
- --------------
(SEE ACCOMPANYING NOTES)
20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------------
ADJUSTMENTS ADJUSTMENTS
RELATED TO THE RELATED TO THE
ACTUAL RECAPITALIZATION PRO FORMA OFFERING
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS:
Net revenues.................................................. $ 5,879 $ -- $ 5,879 $ --
Cost of services.............................................. 2,081 -- 2,081 --
----------- ------- ----------- -----
Gross profit.................................................. 3,798 -- 3,798 --
Operating expenses............................................ 1,749 65(1) 1,814
Management fees............................................... 1,533 (1,533)(2) -- --
Non-recurring recapitalization costs.......................... -- 102(3) 102 (102)(4)
----------- ------- ----------- -----
Income from operations........................................ 516 1,366 1,882 102
Other income (expense):
Interest income............................................... 18 -- 18 --
Interest expense.............................................. -- (761)(5) (761) 343(6)
----------- ------- ----------- -----
Income before provision for income taxes...................... 534 605 1,139 445
Provision for income taxes.................................... -- 490(7) 490 191(7)
----------- ------- ----------- -----
Net income.................................................... 534 115 649 254
Preferred stock dividends..................................... -- 666(8) 666 (666)(9)
----------- ------- ----------- -----
Net income available to common stockholders................... $ 534 $ (551) $ (17) $ 920
----------- ------- ----------- -----
----------- ------- ----------- -----
Net income per common share--
basic....................................................... $ 0.11 $ 0.00(10)
----------- -----------
----------- -----------
diluted..................................................... $ 0.11 $ 0.00(10)
----------- -----------
----------- -----------
Pro forma weighted average common shares outstanding--
basic....................................................... 5,000 3,540(11)
----------- -----------
----------- -----------
diluted..................................................... 5,000 4,540(11)
----------- -----------
----------- -----------
<CAPTION>
PRO FORMA
AS ADJUSTED
-------------
<S> <C>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS:
Net revenues.................................................. $ 5,879
Cost of services.............................................. 2,081
------
Gross profit.................................................. 3,798
Operating expenses............................................ 1,814
Management fees............................................... --
Non-recurring recapitalization costs.......................... --
------
Income from operations........................................ 1,984
Other income (expense):
Interest income............................................... 18
Interest expense.............................................. (418)
------
Income before provision for income taxes...................... 1,584
Provision for income taxes.................................... 681
------
Net income.................................................... 903
Preferred stock dividends..................................... --
------
Net income available to common stockholders................... $ 903
------
------
Net income per common share--
basic....................................................... $ 0.09(10)
------
------
diluted..................................................... $ 0.09(10)
------
------
Pro forma weighted average common shares outstanding--
basic....................................................... 9,652(12)
------
------
diluted..................................................... 9,652(12)
------
------
</TABLE>
- ------------------
(SEE ACCOMPANYING NOTES)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------------------
ADJUSTMENTS ADJUSTMENTS
RELATED TO THE RELATED TO THE
ACTUAL RECAPITALIZATION PRO FORMA OFFERING
----------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS:
Net revenues................................................ $ 8,427 $ -- $ 8,427 $ --
Cost of services............................................ 2,869 -- 2,869 --
----------- ------ ----------- -----
Gross profit................................................ 5,558 -- 5,558 --
Operating expenses.......................................... 2,692 -- 2,692
Management fees............................................. -- -- -- --
Non-recurring recapitalization costs........................ 102 -- 102 (102)(4)
----------- ------ ----------- -----
Income from operations...................................... 2,764 -- 2,764 102
Other income (expense):
Interest income............................................. 41 -- 41 --
Interest expense............................................ (776) 52(5) (724) 343(6)
----------- ------ ----------- -----
Income before provision for income taxes.................... 2,029 52 2,081 445
Provision for income taxes.................................. 900 (5)(7) 895 191(7)
----------- ------ ----------- -----
Net income.................................................. 1,129 57 1,186 254
Preferred stock dividends................................... 666 -- 666 (666)(9)
----------- ------ ----------- -----
Net income available to common stockholders................. $ 463 $ 57 $ 520 $ 920
----------- ------ ----------- -----
----------- ------ ----------- -----
Net income per common share--
basic..................................................... $ 0.13 $ 0.15(10)
----------- -----------
----------- -----------
diluted................................................... $ 0.09 $ 0.10(10)
----------- -----------
----------- -----------
Pro forma weighted average common shares outstanding--
basic..................................................... 3,540 3,540(11)
----------- -----------
----------- -----------
diluted................................................... 5,009 5,009(11)
----------- -----------
----------- -----------
<CAPTION>
PRO FORMA
AS ADJUSTED
-------------
<S> <C>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS:
Net revenues................................................ $ 8,427
Cost of services............................................ 2,869
------
Gross profit................................................ 5,558
Operating expenses.......................................... 2,692
Management fees............................................. --
Non-recurring recapitalization costs........................ --
------
Income from operations...................................... 2,866
Other income (expense):
Interest income............................................. 41
Interest expense............................................ (381)
------
Income before provision for income taxes.................... 2,526
Provision for income taxes.................................. 1,086
------
Net income.................................................. 1,440
Preferred stock dividends................................... --
------
Net income available to common stockholders................. $ 1,440
------
------
Net income per common share--
basic..................................................... $ 0.15(10)
------
------
diluted................................................... $ 0.15(10)
------
------
Pro forma weighted average common shares outstanding--
basic..................................................... 9,652(12)
------
------
diluted................................................... 9,652(12)
------
------
</TABLE>
- ------------------
(SEE ACCOMPANYING NOTES)
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(1) Represents additional compensation currently payable to our Chief Executive
Officer as required under his employment agreement entered into in
connection with the June 1998 recapitalization, in excess of actual
compensation paid during the respective periods. See
"Management--Employment, Severance and Non-Competition Agreements."
(2) Represents the elimination of management fees paid to entities affiliated
with our founding stockholders. See "Certain Transactions with Related
Parties--Management Fees." Prior to the June 1998 recapitalization, our
founding stockholders provided significant oversight and strategic advice
for which they were compensated through management fees. Three of our
founding stockholders no longer provide any such services. During 1998, many
of the functions formerly performed by our founding stockholders were
transitioned to our senior management team. Moreover, one of our founding
stockholders, Mr. Robichaud, has been employed under an employment agreement
since June 1998 under which his salary was increased and he is now eligible
for an annual bonus.
(3) Represents non-recurring expenses which are directly attributable to the
June 1998 recapitalization as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED --------------------
DECEMBER 31, 1998 1998 1999
----------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Special non-recurring bonuses...................................... $ (1,967) $ -- $ --
Amortization of deferred compensation.............................. 170 102 --
Other non-recurring recapitalization costs......................... (35) -- --
------- --------- ---------
$ (1,832) $ 102 $ --
------- --------- ---------
------- --------- ---------
</TABLE>
(4) Represents the elimination of non-recurring expenses with are directly
attributable to this offering as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED --------------------
DECEMBER 31, 1998 1998 1999
----------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortization of deferred compensation.............................. $ (407) $ (102) $ (102)
------- --------- ---------
------- --------- ---------
</TABLE>
(5) The interest expense adjustment relating to this offering is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED --------------------
DECEMBER 31, 1998 1998 1999
----------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest expense relating to the bank term loan using an assumed
interest rate of 6.75% per annum................................. $ 644 $ 453 $ (52)
Interest expense relating to the subordinated debentures computed
at a fixed rate of 12.0% per annum............................... 510 300 --
Amortization of deferred financing costs relating to borrowings
under the term loan.............................................. 13 8 --
------- --------- ---------
$ 1,167 $ 761 $ (52)
------- --------- ---------
------- --------- ---------
</TABLE>
22
<PAGE>
(6) Represents the elimination of interest expense due to the repayment of such
debt with the proceeds of this offering as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED --------------------
DECEMBER 31, 1998 1998 1999
----------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Elimination of interest expense relating to repayment of
approximately $2.6 million of the term loan...................... $ 175 $ 43 $ 43
Elimination of interest expense relating to repayment of
subordinated debentures.......................................... 1,200 300 300
------- --------- ---------
$ 1,375 $ 343 $ 343
------- --------- ---------
------- --------- ---------
</TABLE>
(7) We were a subchapter "S" corporation before closing of the June 1998
recapitalization. The pro forma income statement information reflects
adjustments to historical net income as if we had not elected subchapter "S"
corporation status for federal and state income tax purposes and reflects
the income tax effect of the pro forma adjustments related to the June 1998
recapitalization and this offering assuming an effective tax rate of 43.0%.
(8) Represents dividends of 9.0% per annum of the Base Liquidation Amount, or
$1,209.56 per share, accrued on the preferred stock.
(9) Represents the elimination of the dividends accrued on the preferred stock
due to the redemption of the preferred stock in connection with this
offering.
(10) Pro forma net income per common share has been computed by dividing pro
forma net income available to common stockholders by the pro forma weighted
average shares outstanding.
(11) Pro forma weighted average common shares outstanding assumes that the
shares issued and repurchased in connection with the June 1998
recapitalization occurred at the beginning of the period.
(12) Pro forma weighted average shares outstanding assumes that the shares of
common stock issued and repurchased in connection with the June 1998
recapitalization occurred at the beginning of the period and further assumes
the issuance of 1,000,000 shares of common stock upon the conversion of the
series A preferred stock, the issuance of 762,505 shares of common stock
upon the exercise of outstanding warrants and the issuance of 4,350,000
shares of common stock issuable in this offering were outstanding at the
beginning of the period indicated.
23
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------
ADJUSTMENTS
RELATED TO THE PRO FORMA
ACTUAL OFFERING AS ADJUSTED
-------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DATA:
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 4,079 $ 47,746(1) $ 4,079
3,523(2)
(51,269)(5)
Accounts receivable, net of allowances for placement fall-offs and
doubtful accounts................................................. 3,302 -- 3,302
Prepaid expenses and other current assets........................... 202 -- 202
-------- -------------- -----------
Total current assets................................................ 7,583 -- 7,583
Property, plant and equipment......................................... 1,139 1,139
Deferred costs........................................................ 712 (712)(6) --
Debt issuance costs................................................... 134 -- 134
-------- -------------- -----------
Total................................................................. $ 9,568 $ (712) $ 8,856
-------- -------------- -----------
-------- -------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of term loan........................................ $ 4,002 $ -- $ 4,002
Accounts payable.................................................... 708 -- 708
Accrued expenses.................................................... 2,680 (712)(6) 1,968
Deferred income taxes............................................... 25 -- 25
-------- -------------- -----------
Total current liabilities........................................... 7,415 (712) 6,703
Term loan............................................................. 20,498 (2,587)(5) 17,911
Subordinated debentures............................................... 10,000 (10,000)(5) --
Deferred income taxes................................................. 550 -- 550
-------- -------------- -----------
Total liabilities................................................... 38,463 (13,299) 25,164
-------- -------------- -----------
(4,200)(3)
16,917(4)
Series A Convertible Preferred Stock.................................. 25,965 (38,682)(5) --
-------- -------------- -----------
Series B Convertible Preferred Stock.................................. -- -- --
-------- -------------- -----------
Common stockholders' equity (deficiency):
Common stock........................................................ 35 44(1) 97
8(2)
10(3)
Additional paid-in capital.......................................... 5,052 47,702(1) 43,542
3,515(2)
4,190(3)
(16,917)(4)
Deferred compensation............................................... (882) 882(7) --
Note receivable from officer and stockholder........................ (166) -- (166)
Accumulated deficit................................................. (58,899) (882)(7) (59,781)
-------- -------------- -----------
Total common stockholders' equity (deficiency)...................... (54,860) 38,552 (16,308)
-------- -------------- -----------
Total................................................................. $ 9,568 $ (712) $ 8,856
-------- -------------- -----------
-------- -------------- -----------
</TABLE>
- --------------------------
(1) Represents the issuance of 4,350,000 shares of common stock in connection
with this offering at an assumed offering price of $12.00 per share, less
expenses directly relating to this offering.
(2) Represents the exercise of warrants to purchase 762,605 shares of common
stock at an exercise price of $4.62 per share.
(3) Represents the issuance of 1,000,000 shares of common stock upon the
redemption of the series A preferred stock. Prior to the redemption of the
series A preferred stock, we will reduce the carrying value of the series A
preferred stock by $4.2 million, which represents the fair value allocation
of the cash proceeds received at issuance attributable to the 1,000,000
shares of common stock, and increase common stock and additional paid-in
capital.
24
<PAGE>
(4) Represents the redemption premium associated with our preferred stock. The
redemption premium is the difference between the aggregate redemption
payment of approximately $36.5 million, which the Summit investors are
entitled to receive upon the closing of this offering, and the carrying
amount of the series A preferred stock at the offering date (before accrued
and unpaid dividends of approximately $2.2 million at March 31, 1999). Prior
to the redemption of the series A preferred stock, we will reduce the
carrying value of the series A preferred stock by $4.2 million, which
represents the fair value allocation of the cash proceeds received at
issuance attributable to the 1,000,000 shares of common stock (see pro forma
adjustment (3)).
(5) Represents the application of the net proceeds of this offering and from the
exercise of the warrant to repay the outstanding subordinated debentures, to
repay approximately $2.6 of the $24.5 million of the principal amount of our
senior bank debt and to redeem our preferred stock.
(6) Represents deferred costs associated with this offering which will be
charged against additional paid-in capital upon the effective date of this
offering.
(7) Represents the amortization of deferred compensation relating to the
acceleration of vesting of restricted common stock as a result of this
offering.
25
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the three months ended March 31,
1998 and 1999 are derived from our unaudited financial statements and the notes
to those statements included elsewhere in this prospectus. In the opinion of our
management, our unaudited financial statements have been prepared on the same
basis as our audited financial statements and include all adjustments,
consisting of only normal recurring adjustments, and adjustments necessary to
record the recapitalization discussed in note 1 to our financial statements
included elsewhere in this prospectus, necessary for a fair presentation of our
financial condition and results of operations for such periods. Prior to 1995,
our founding stockholders conducted operations through several loosely
affiliated predecessor entities. On January 1, 1995, we reorganized into one
corporation by purchasing these predecessor entities. The selected financial
data at December 31, 1994 and for the year ended December 31, 1994 reflects the
operations of our predecessor entities and are derived from unaudited combined
financial statements of these predecessor entities and the notes to those
statements which are not included in this prospectus. Net income per common
share and weighted average common shares outstanding for the year ended December
31, 1994 have not been presented because such information is not meaningful. The
selected financial data at December 31, 1995 and 1996 and for the year ended
December 31, 1995 have been derived from our audited financial statements and
the notes to those statements which are not included in this prospectus. The
selected financial data at December 31, 1997 and 1998 and for each of the three
years in the period ended December 31, 1998 have been derived from our audited
financial statements and the notes to those statements included elsewhere in
this prospectus. The selected financial data should be read in conjunction with,
and is qualified in its entirety by, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our audited financial statements
and the notes to those statements and the other financial data included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA
AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.................................................... $ 3,791 $ 6,592 $ 10,614 $ 19,187 $ 28,804 $ 5,879
Cost of services................................................ 1,598 2,951 3,742 6,426 9,849 2,081
--------- --------- --------- --------- --------- ---------
Gross profit.................................................... 2,193 3,641 6,872 12,761 18,955 3,798
Operating expenses.............................................. 993 1,925 2,460 4,655 8,305 1,749
Management fees(1).............................................. 435 32 3,719 7,620 2,869 1,533
Non-recurring recapitalization costs(2)......................... -- -- -- -- 2,239 --
--------- --------- --------- --------- --------- ---------
Income from operations.......................................... 765 1,684 693 486 5,542 516
Other income (expense):
Interest income................................................. -- 23 85 38 108 18
Interest expense................................................ (5) (15) (23) (11) (1,856) --
--------- --------- --------- --------- --------- ---------
Income before provision for income taxes........................ 760 1,692 755 513 3,794 534
Provision for income taxes...................................... -- 26 23 62 1,935 --
--------- --------- --------- --------- --------- ---------
Net income...................................................... 760 1,666 732 451 1,859 534
--------- --------- --------- --------- --------- ---------
Preferred stock dividends....................................... -- -- -- -- 1,553 --
--------- --------- --------- --------- --------- ---------
Net income available to common stockholders..................... $ 760 $ 1,666 $ 732 $ 451 $ 306 $ 534
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income per common share
basic......................................................... $ 0.33 $ 0.15 $ 0.09 $ 0.07 $ 0.11
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
diluted....................................................... $ 0.33 $ 0.15 $ 0.09 $ 0.06 $ 0.11
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding
basic......................................................... 5,000 5,000 5,000 4,158 5,000
diluted....................................................... 5,000 5,000 5,000 4,734 5,000
Pro forma provision for income taxes(3)......................... $ 326 $ 745 $ 355 $ 270 $ 1,669 $ 235
Pro forma net income............................................ 434 947 400 243 2,125 299
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma net income available to common stockholders........... $ 434 $ 947 $ 400 $ 243 $ 610 $ 299
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
"S" corporation distributions................................... $ -- $ -- $ -- $ -- $ 929 $ --
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
SELECTED OPERATING DATA:
Number of practice groups at end of period...................... 9 11 18 20 33 27
Number of placement transactions................................ 382 601 934 1,582 2,181 462
BALANCE SHEET DATA:
Net working capital............................................. $ 627 $ 1,482 $ 2,129 $ 2,288 $ 703 $ 2,710
Total assets.................................................... 998 2,072 2,852 3,780 8,348 4,520
Total debt (including current debt)............................. 118 90 52 10 35,200 6
Series A convertible preferred stock............................ -- -- -- -- 25,299 --
Common stockholders' equity (deficiency)........................ $ 749 $ 1,665 $ 2,397 $ 2,848 $ (55,419) $ 3,382
<CAPTION>
1999
---------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.................................................... $ 8,427
Cost of services................................................ 2,869
---------
Gross profit.................................................... 5,558
Operating expenses.............................................. 2,692
Management fees(1).............................................. --
Non-recurring recapitalization costs(2)......................... 102
---------
Income from operations.......................................... 2,764
Other income (expense):
Interest income................................................. 41
Interest expense................................................ (776)
---------
Income before provision for income taxes........................ 2,029
Provision for income taxes...................................... 900
---------
Net income...................................................... 1,129
---------
Preferred stock dividends....................................... 666
---------
Net income available to common stockholders..................... $ 463
---------
---------
Net income per common share
basic......................................................... $ 0.13
---------
---------
diluted....................................................... $ 0.09
---------
---------
Weighted average common shares outstanding
basic......................................................... 3,540
diluted....................................................... 5,009
Pro forma provision for income taxes(3)......................... $ 900
Pro forma net income............................................ 1,129
---------
---------
Pro forma net income available to common stockholders........... $ 463
---------
---------
"S" corporation distributions................................... $ --
---------
---------
SELECTED OPERATING DATA:
Number of practice groups at end of period...................... 39
Number of placement transactions................................ 590
BALANCE SHEET DATA:
Net working capital............................................. $ 168
Total assets.................................................... 9,568
Total debt (including current debt)............................. 34,500
Series A convertible preferred stock............................ 25,965
Common stockholders' equity (deficiency)........................ $ (54,860)
</TABLE>
- ------------------
(FOOTNOTES ON NEXT PAGE)
26
<PAGE>
- ----------------
(1) Represents management fees paid to entities affiliated with our founders in
connection with the management of our business. In connection with the June
1998 recapitalization, we ceased paying management fees. See "Certain
Transactions with Related Parties--Management Fees."
(2) Represents costs associated with the June 1998 recapitalization, primarily
one-time special compensation bonuses paid to senior management.
(3) Before June 4, 1998, we were a subchapter "S" corporation and, accordingly,
federal and state income taxes were paid at the stockholder level only. Upon
consummation of the June 1998 recapitalization, we terminated our subchapter
"S" corporation status and, accordingly, became subject to federal and state
income taxes. The pro forma income statement information reflects
adjustments to historical net income as if we had not elected subchapter "S"
corporation status for federal and state income tax purposes.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE
NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTAINED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We have experienced 64% annualized compound revenue growth between 1995 and
1998. In 1998, we completed 2,181 placement transactions, as compared to 601
placement transactions in 1995. In the three months ended March 31, 1999 we
completed 590 placement transactions, as compared to 462 for the three months
ended March 31, 1998. The principal factor driving this growth has been the
establishment of new practice groups, both in existing and new offices. Changes
in the average annual compensation rate of candidates placed and in the average
contracted placement fee as a percentage of such compensation have historically
not contributed significantly to the rate of growth in net revenues. Between
late 1994 and April 30, 1999, we established 32 new practice groups, including
practice groups in 12 offices opened during this period. In the four years ended
December 31, 1998, net revenues per practice group increased by 75%, primarily
as a result of the maturation of practice groups, which further contributed to
the growth in net revenues. However, as a result of our method of forming new
practice groups with experienced placement professionals taken from existing
practice groups, we anticipate that we will not experience continued growth in
annualized revenue per practice group but will rather derive additional revenue
principally through the successful establishment of new practice groups and
offices. While we intend to expand operations by adding practice groups at
existing offices, opening new offices in existing geographic markets and
entering new markets, there can be no assurance that we will be successful in
growing in this manner. We recognize revenue upon a candidate's employment start
date, net of a provision for anticipated refunds based on historical refund
rates. See "Risk Factors--Our rapid growth could strain our financial management
and other resources;" "--Our failure to successfully implement our office
expansion strategy could adversely affect our business and the market price of
our common stock;" and "--Our business could be materially adversely affected by
economic downturns."
In general, the least expensive method of opening a new practice group is to
expand the number of practice groups in an existing office from two to three. In
such cases, we incur relatively small capital expenditures and only a modest
investment in working capital. However, the productivity of existing groups may
decline because experienced placement professionals are transferred from
existing practice groups into the newly formed groups. When opening a new
office, we have generally invested less than $250,000 in capital expenditures
and working capital and have incurred operating losses over the first several
months. Typically, we have achieved operating profitability at our newly opened
offices within one year or less of opening the office. As a result of our growth
strategy, we may in the future experience quarterly fluctuations in our results
of operations. See "--Selected Quarterly Data" and "Risk Factors--We are subject
to many factors specific to our industry and business model that may cause our
quarterly results to fluctuate and any such fluctuations could cause the market
price of our common stock to fall."
Our employer customer base has historically been very diversified. No one
customer represented more than five percent of net revenues for the years ended
December 31, 1997 or 1998 or for the three months ended March 31, 1999. However,
our business has historically been concentrated in the financial services
industry, the technology industry and the telecommunications industry,
reflecting our presence in Atlanta, Boston, New York City and several cities in
California. In the years ended
28
<PAGE>
December 31, 1997 and 1998 and in the three months ended March 31, 1999,
placements in these three industries collectively represented in excess of 50%
of net revenues and placements for such periods, and financial services and
related industries accounted for a majority of such portions of net revenues and
placements for such periods.
For the years ended December 31, 1997 and 1998 and for the three months
ended March 31, 1999, the single largest cost item was compensation expense,
which represented approximately 67% and 69% of total expenses, respectively,
excluding management fees and non-recurring charges. A substantial portion of
compensation expense is commission based and varies directly with net revenues.
Commissions are accrued upon a placed candidate's start date, but are paid to
the placement counselor only upon actual receipt of payment from the candidate's
employer. Cost of services consists of salaries and commissions of personnel
whose day to day activity is providing placement services in one of our practice
groups.
Operating expenses include:
- compensation expense of executive management and administrative personnel;
- facility costs, including rent, office costs, communications, and
depreciation and amortization;
- advertising costs; and
- general and administrative costs.
A substantial portion of our operating expenses are relatively fixed as of the
beginning of any period. As a result, our failure to achieve anticipated
placement transaction volume, particularly from any newly formed groups, would
have a disproportionate impact on the results of operations during any such
period. Our operating expenses as a percentage of net revenues may increase over
time as we open new offices, enhance our information technology infrastructure
and expand our senior management team.
From inception until the time of the leveraged recapitalization in June
1998, we compensated our founding stockholders, Rachel C. Burnett, John J.
Devine, Alan P. Matthews and Michael C. Robichaud, for oversight and strategic
advice principally through management fees paid to affiliates of our founding
stockholders. In 1997 and 1998, we paid management fees of approximately $7.6
million and $2.9 million, respectively. At the time of the recapitalization, we
ceased making payments of management fees, entered into an employment agreement
with Mr. Robichaud, our Chief Executive Officer. In addition, in 1998, many of
the functions previously performed by our founding stockholders were
transitioned to our senior management team. See "Certain Transactions with
Related Parties-- Management Fees;" "Unaudited Pro Forma Condensed Financial
Data" and "Management-- Employment, Severance and Non-Competition Agreements."
The founders commenced their placement business operations in 1989 with the
establishment of an office in Boston. Between 1989 and 1994, the founders
conducted operations through several loosely affiliated predecessor entities
with additional offices in New York and Los Angeles. In January 1995, we
consolidated our operations into one legal entity. While each of the founders
has served Stride and its predecessors in various capacities since 1989, Mr.
Robichaud has been the only founder involved in the day-to-day operations of
Stride since March 1996.
During the period beginning October 7, 1994 through June 3, 1998, we elected
to be treated as a subchapter "S" corporation. During that period, all of our
outstanding common stock was owned by our founding stockholders. On June 4,
1998, we effected a leveraged recapitalization with a group of investment funds
affiliated with Summit Partners, LLC in which the funds purchased subordinated
debentures, shares of series A convertible preferred stock, shares of common
stock and warrants. At that time, we also borrowed $26.0 million in senior bank
debt. The proceeds from the investment by the Summit investors and the senior
bank debt were used principally to fund the redemption of
29
<PAGE>
approximately 60% of the common stock owned by the founders for an aggregate
redemption price of approximately $63.8 million. We accounted for the
transaction using the leveraged recapitalization accounting convention. As a
result of the recapitalization, we incurred non-recurring recapitalization costs
totaling approximately $2.2 million in 1998, consisting principally of one-time
bonus awards to senior management. See "Certain Transactions with Related
Parties--Recapitalization."
Upon consummation of the recapitalization, we terminated our subchapter "S"
corporation election, and, effective June 4, 1998, we became obligated to pay
federal and state income taxes as a subchapter "C" corporation. We currently
estimate our combined effective income tax rate will approximate 43% of taxable
income in 1999.
In connection with the sale of shares of common stock in the offering and
the use of the net proceeds therefrom as described in "Use of Proceeds," we
expect to incur a non-recurring charge to earnings of $17.8 million, consisting
of (a) approximately $16.9 million in connection with the redemption of shares
of the preferred stock and the related issuance of 1,000,000 shares of common
stock and (b) deferred compensation charges, which would equal $882,000 as of
March 31, 1999, related to the acceleration of vesting of restricted common
stock as a result of the offering. See "Use of Proceeds" and "Certain
Transactions with Related Parties."
RESULTS OF OPERATIONS
The following table sets forth the percentages of net revenues represented
by specific items reflected in the statement of operations. The information that
follows should be read in conjunction with our financial statements and the
notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-----------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services..................................... 35.3 33.5 34.2 35.4 34.0
--------- --------- --------- --------- ---------
Gross profit......................................... 64.7 66.5 65.8 64.6 66.0
Operating expenses................................... 23.2 24.3 28.8 29.7 31.9
Management fees(1)................................... 35.0 39.7 10.0 26.1 --
Non-recurring recapitalization costs................. -- -- 7.8 -- 1.2
--------- --------- --------- --------- ---------
Income from operations............................... 6.5 2.5 19.2 8.8 32.9
Other income (expense):
Interest income.................................... 0.8 0.2 0.4 0.3 0.5
Interest expense................................... (0.2) 0.0 (6.4) -- (9.2)
--------- --------- --------- --------- ---------
Income before provision for income taxes............. 7.1% 2.7% 13.2% 9.1% 24.2%
</TABLE>
- --------------
(1) Represents management fees paid to entities affiliated with our founders in
connection with the management of our business. In connection with the
recapitalization, we ceased paying management fees. See "Certain
Transactions with Related Parties--Management Fees."
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NET REVENUES
Net revenues increased by $2.5 million, or 43.3%, to $8.4 million in the
three months ended March 31, 1999, from $5.9 million in the three months ended
March 31, 1998. The increase resulted principally from an increase in the
overall number of placement transactions. Growth in the number of placement
transactions reflected the establishment of 12 new practice groups, increasing
the total to 39
30
<PAGE>
as of March 31, 1999, from 27 as of March 31, 1998. Of these additional practice
groups, six were established during the three months ended March 31, 1999 in
three new offices. In addition, the average fee per placement increased by
approximately $1,600, or 12.2%, to approximately $14,300 in the three months
ended March 31, 1999, from approximately $12,700 in the three months ended March
31, 1998, reflecting, in part, an increase in the number of candidates receiving
higher compensation relative to the total number of candidates placed.
GROSS PROFIT
Gross profit increased by $1.8 million, or 46.3%, to $5.6 million in the
three months ended March 31, 1999, from $3.8 million in the three months ended
March 31, 1998. Gross profit as a percentage of net revenues increased to 66.0%
in the three months ended March 1999, from 64.6% in the three months ended March
31, 1998. The increase in gross profit as a percentage of net revenues reflects,
in part, a faster rate of increase in revenues in new offices as compared to the
rate of increase in revenues from new offices in the comparable quarter in 1998.
OPERATING EXPENSES
Operating expenses increased by $943,000, or 53.9%, to $2.7 million in the
three months ended March 31, 1999, from $1.7 million in the three months ended
March 1998. Operating expenses as a percent of net revenues increased to 31.9%
in the three months ended March 1999, from 29.7% in the three months ended March
31, 1998. The increase resulted principally from an increase in compensation
expense related to the expansion of our executive management team in the second
half of 1998.
MANAGEMENT FEES--DISCONTINUED AFTER THE RECAPITALIZATION
Management fees paid during the three months ended March 31, 1998 were $1.5
million. During the second quarter of 1998, we ceased paying management fees.
The payment of such management fees should not be relied upon as an indication
of future results of operations. See "Unaudited Pro Forma Condensed Financial
Data."
NON-RECURRING RECAPITALIZATION COSTS
Non-recurring recapitalization costs of $102,000 were incurred in the three
months ended March 31, 1999, reflecting primarily amortization of deferred
compensation relating to restricted common stock awards. See note 9 of notes to
our financial statements included elsewhere in this prospectus.
OTHER INCOME--EXPENSE
Interest income increased by $23,000 to $41,000 in the three months ended
March 31, 1999, from $18,000 in the three months ended March 31, 1998. Interest
expense was $776,000 in the three months ended March 31, 1999 reflecting the
interest on debt obligations incurred in connection with the June 1998
recapitalization. See note 1 of notes to our financial statements included
elsewhere in this prospectus.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NET REVENUES
Net revenues increased by $9.6 million, or 50.1%, to $28.8 million in the
year ended December 31, 1998, from $19.2 million in the year ended December 31,
1997. This increase resulted principally from
31
<PAGE>
an increase in the overall number of placement transactions. Growth in the
number of placement transactions reflected the establishment of 13 new practice
groups, increasing the total to 33 as of December 31, 1998, from 20 as of
December 31, 1997. Of these additional practice groups, five were established at
existing offices and eight were established in connection with the opening of
three new offices in January 1998. In addition, the average fee per placement
increased by $1,100, or 9.1%, to approximately $13,200 in the year ended
December 31, 1998, from approximately $12,100 in the year ended December 31,
1997, reflecting, in part, an increase in the number of candidates receiving
higher compensation relative to the total number of candidates placed.
GROSS PROFIT
Gross profit increased by $6.2 million, or 48.5%, to $19.0 million in the
year ended December 31, 1998, from $12.8 million in the year ended December 31,
1997. Gross profit as a percentage of net revenues decreased to 65.8% in the
year ended December 31, 1998, from 66.5% in the year ended December 31, 1997.
The decline in gross profit as a percentage of net revenues reflects the
addition of 13 new practice groups during 1998 and the impact on gross margin
associated with the lower initial productivity of these new practice groups, as
well as the disruption to existing practice groups from the transfer of
experienced placement counselors from existing to new practice groups.
OPERATING EXPENSES
Operating expenses increased by $3.6 million, or 78.4%, to $8.3 million in
the year ended December 31, 1998, from $4.7 million in the year ended December
31, 1997. Operating expenses as a percentage of net revenues increased to 28.8%
in the year ended December 31, 1998, from 24.3% in the year ended December 31,
1997. The increase resulted principally from an increase in compensation expense
related to the expansion of our executive management team in 1998. To a lesser
degree, the increase also reflects higher advertising and recruiting costs as a
percentage of net revenues.
MANAGEMENT FEES--DISCONTINUED AFTER THE RECAPITALIZATION
Management fees paid decreased by $4.8 million, or 62.3%, to $2.9 million in
the year ended December 31, 1998 from $7.6 million in the year ended December
31, 1997 because we ceased paying management fees in the second quarter of 1998.
The payment of such management fees should not be relied upon as an indication
of future results of operations. The management fees were paid to affiliates of
our founding stockholders in return for the provision of strategic advice, as
well as their oversight of our operations prior to the June 1998
recapitalization. See "Unaudited Pro Forma Condensed Financial Data."
NON-RECURRING RECAPITALIZATION COSTS
Non-recurring recapitalization costs of $2.2 million were incurred in the
year ended December 31, 1998, reflecting primarily one-time bonus awards to
senior management. See note 11 of notes to our financial statements included
elsewhere in this prospectus.
OTHER INCOME--EXPENSE
Interest income increased by $70,000 to $108,000 in the year ended December
31, 1998, from $38,000 in the year ended December 31, 1997. Interest expense
increased to $1.9 million in the year ended December 31, 1998, from $11,000 in
the year ended December 31, 1997. This increase reflected the interest on debt
obligations incurred in connection with the June 1998 recapitalization. See note
1 of notes to our financial statements included elsewhere in this prospectus.
32
<PAGE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NET REVENUES
Net revenues increased by $8.6 million, or 80.8%, to $19.2 million in the
year ended December 31, 1997 from $10.6 million in the year ended December 31,
1996. This increase resulted principally from an increase in the overall number
of placement transactions. This growth in the number of placement transactions
reflects the addition of two new practice groups in 1997, increasing the total
number of practice groups to 20 as of December 31, 1997, from 18 as of December
31, 1996, and an increase in the productivity of the four practice groups
established in the fourth quarter of 1996. The two practice groups added in 1997
were established in connection with the opening of one new office. The average
productivity of our practice groups also improved in 1997, reflecting the
maturation of three offices opened in 1996. In addition, the average fee per
placement increased by approximately $700, or 6.1%, to approximately $12,100 in
the year ended December 31, 1997, from approximately $11,400 in the year ended
December 31, 1996, reflecting, in part, an increase in the number of candidates
receiving higher compensation relative to the total number of candidates placed.
GROSS PROFIT
Gross profit increased by $5.9 million, or 85.7%, to $12.8 million in the
year ended December 31, 1997, from $6.9 million in the year ended December 31,
1996. Gross profit as percentage of net revenues increased to 66.5% in 1997 from
64.7% in 1996. The increase in gross profit reflects the increased profitability
of two new offices opened in late 1996 and the return to higher profitability of
practice groups from which experienced placement counselors had been transferred
to staff new groups.
OPERATING EXPENSES
Operating expenses increased by $2.2 million, or 89.2%, to $4.7 million in
the year ended December 31, 1997, from $2.5 million in the year ended December
31, 1996. Operating expenses as a percentage of net revenues increased to 24.3%
in the year ended December 31, 1997, from 23.2% in the year ended December 31,
1996. The increase in operating expenses was due primarily to additional hiring
in our finance department, expansion of senior management and increases in
facility costs, including rent, office costs, communications, depreciation and
amortization, advertising costs and general and administrative costs associated
with the opening of new offices.
MANAGEMENT FEES--DISCONTINUED AFTER THE RECAPITALIZATION
Management fees paid increased $3.9 million to $7.6 million in the year
ended December 31, 1997, from $3.7 million in the year ended December 31, 1996.
The payment of such management fees should not be relied upon as an indication
of the results of operations for any future period. See "Unaudited Pro Forma
Condensed Financial Data."
OTHER INCOME--EXPENSE
Interest income decreased by $47,000 to $38,000 in the year ended December
31, 1997, from $85,000 in the year ended December 31, 1996. Interest expense
decreased by $12,000 to $11,000 in the year ended December 31, 1997, from
$23,000 in the year ended December 31, 1996.
SELECTED UNAUDITED HISTORICAL QUARTERLY FINANCIAL DATA
The following table sets forth unaudited quarterly operating results for
each of our last eight quarters, as well as a subset of such data expressed as a
percentage of net revenues for the periods
33
<PAGE>
indicated. This information has been prepared by us on a basis consistent with
our audited financial statements and includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the data.
These quarterly results are not necessarily indicative of results of operations
for any future period. This information should be read in conjunction with our
financial statements and the notes to those statements included elsewhere in
this prospectus. We have historically experienced and expect to experience in
the future, fluctuations in quarterly operating results as a result of our
growth model, including factors such as the timing of the opening of new offices
and the establishment of new practice groups, the length of time required for
new offices and practice groups to become fully productive, the adverse impact
of the transfer of experienced employees from existing into new practice groups
and economic and competitive changes impacting the availability of, demand for
and compensation levels of information technology professionals.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1997 1997 1997 1998 1998
----------- -------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net revenues...................................... $ 4,554 $ 5,178 $ 5,155 $ 5,879 $ 7,261
----------- ------- ------------- ----------- -----------
Gross profit...................................... 3,158 3,407 3,306 3,798 4,864
Operating expenses................................ 1,194 1,241 1,129 1,749 2,050
Management fees................................... 1,474 2,402 3,247 1,533 1,336
Non-recurring recapitalization costs.............. -- -- -- -- 2,035
----------- ------- ------------- ----------- -----------
Income (loss) from operations..................... $ 490 $ (236) $ (1,070) $ 516 $ (557)
----------- ------- ------------- ----------- -----------
----------- ------- ------------- ----------- -----------
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----------- ------- ------------- ----------- -----------
Gross profit...................................... 69.3 65.8 64.1 64.6 67.0
Operating expenses................................ 26.2 24.0 21.9 29.7 28.2
Management fees................................... 32.4 46.4 63.0 26.1 18.4
Nonrecurring recapitalization costs............... 0.0 0.0 0.0 0.0 28.0
----------- ------- ------------- ----------- -----------
Income (loss) from operations..................... 10.8% (4.6)% (20.8 )% 8.8% (7.7)%
----------- ------- ------------- ----------- -----------
----------- ------- ------------- ----------- -----------
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1999
-------------- ------------- -----------
<S> <C> <C> <C>
Net revenues...................................... $ 7,954 $ 7,710 $ 8,427
------- ------------- -----------
Gross profit...................................... 5,270 5,023 5,558
Operating expenses................................ 1,984 2,522 2,692
Management fees................................... -- -- --
Non-recurring recapitalization costs.............. 102 102 102
------- ------------- -----------
Income (loss) from operations..................... $ 3,184 $ 2,399 $ 2,764
------- ------------- -----------
------- ------------- -----------
<S> <C> <C> <C>
Net revenues...................................... 100.0% 100.0% 100.0%
------- ------------- -----------
Gross profit...................................... 66.3 65.1 66.0
Operating expenses................................ 24.9 32.7 31.9
Management fees................................... 0.0 0.0 --
Nonrecurring recapitalization costs............... 1.3 1.3 1.2
------- ------------- -----------
Income (loss) from operations..................... 40.0% 31.1% 32.9%
------- ------------- -----------
------- ------------- -----------
</TABLE>
Operating expenses as a percentage of net revenue as shown in the table above
increased to 32.7% in the quarter ended December 31, 1998 from 24.9% in the
quarter ended September 30, 1998. This increase principally came from the
expense of holiday bonuses and gifts to all of our employees, an increase in
advertising spending and development costs for the creation of our Web site and
official logos. We have in the past experienced seasonal fluctuations in revenue
in the fourth quarter due primarily to the fewer number of business days and the
holiday periods occurring in that quarter.
LIQUIDITY AND CAPITAL RESOURCES
We have historically funded our business through cash provided by
operations. We had cash and cash equivalents of approximately $4.1 million at
March 31, 1999. Although we believe that cash generated from operations will be
sufficient to meet our anticipated cash requirements, including scheduled debt
repayments and anticipated capital expenditures, for at least the next 12
months, we may in the future require additional funds to meet our cash
requirements and successfully execute on our business model beyond that 12-month
period. We may be required to raise additional funds through sales of equity or
debt securities or seek additional financing from financing institutions. There
can be no assurance, however, that financing will be available to us on
favorable terms or, if obtained, will be sufficient for our needs.
For the three months ended March 31, 1999, the major use of cash generated
by operations was to fund investing and financing activities. For the three
months ended March 31, 1998 and for the years ended December 31, 1997 and 1996,
the major use of cash generated by operations was to fund management fees. For
the year ended December 31, 1998, the major use of cash generated by operations
was to fund both management fees and non-recurring recapitalization costs. We
ceased paying
34
<PAGE>
management fees in the second quarter of 1998. See "--Comparison of the Three
Months Ended March 31, 1999 and 1998--Management Fees--Discontinued after the
Recapitalization", "--Comparison of the Years Ended December 31, 1998 and
1997--Management Fees--Discontinued after the Recapitalization" and
"--Comparison of the Years Ended December 31, 1997 and 1996--Management
Fees--Discontinued after the Recapitalization."
Cash provided by operating activities in the three months ended March 31,
1999 and 1998 and in the years ended December 31, 1998, 1997 and 1996 was
approximately $1.7 million, $898,000, $4.0 million, $556,000 and $441,000,
respectively. Cash provided by operating activities in the three months ended
March 31, 1999 was generated primarily by net income, as adjusted primarily by
an increase in accounts payable of $312,000 and an increase in accrued expenses
of $528,000, offset primarily by an increase in accounts receivable of $574,000.
Cash provided by operating activities in the three months ended March 31, 1998
was generated primarily by net income. Cash provided by operating activities in
the year ended December 31, 1998 was generated primarily by net income adjusted
primarily by an increase in accrued expenses of $1.3 million, offset primarily
by an increase in accounts receivable of $678,000. Cash from operating
activities in the year ended December 31, 1997 was generated primarily by net
income as adjusted by an increase in accrued expenses of $562,000, offset
primarily by an increase in accounts receivable of $676,000. Cash from operating
activities in the year ended December 31, 1996 was generated primarily by net
income, offset primarily by an increase in accounts receivable of $377,000.
Cash used in investing activities for the three months ended March 31, 1999
and 1998 and for the years ended December 31, 1998, 1997 and 1996 was $393,000,
$168,000, $529,000, $463,000 and $152,000, respectively. Cash used was for the
purchase of property and equipment, and we expect to continue to invest in
fixtures and equipment in the ordinary course of business, including
expenditures in connection with the opening of new offices and the upgrading of
computer equipment and networking in existing offices.
Cash (used in) provided by financing activities for the three months ended
March 31, 1999 and 1998 and for the years ended December 31, 1998, 1997 and 1996
was $(947,000), $0, ($490,000), $640,000 and ($286,000), respectively. Cash used
in financing activities in the three months ended March 31, 1999 was due
primarily to the repayment of debt of $700,000 and an increase in deferred costs
of $247,000. Cash provided by financing activities in the year ended December
31, 1998 was due primarily to the net recapitalization and redemption and
purchase of founding stockholders' common stock of approximately $1.7 million
net of direct costs, as offset by an increase in deferred costs of $465,000, the
repayment of principal of $800,000 of senior debt and the payment of S
corporation distributions of $929,000. Cash provided by financing activities in
the year ended December 31, 1997 was due primarily to the repayment of loans by
the founding stockholders to us. Cash used by financing activities in the year
ended December 31, 1996 was due primarily to loans made to the founders.
35
<PAGE>
The following table compares operating income, before management fees and
non-recurring recapitalization costs, to the cash flows generated from operating
income before management fees, non-recurring recapitalization costs and
non-operating expenses.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income from operations...................................... $ 693 $ 486 $ 5,542 $ 516 $ 2,764
Management fees............................................. 3,719 7,620 2,869 1,533 --
Non-recurring recapitalization costs........................ -- -- 2,239 -- 102
--------- --------- --------- --------- ---------
Operating income--before management fees and non-recurring
recapitalization costs.................................... $ 4,412 $ 8,106 $ 10,650 $ 2,049 $ 2,866
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net cash provided by operating activities................... $ 441 $ 556 $ 3,966 $ 898 $ 1,736
Add back (deduct):
Management fees........................................... 3,719 7,620 2,869 1,533 --
Cash paid for special non-recurring bonuses............... -- -- 1,967 -- --
Cash paid for other non-recurring recapitalization
costs................................................... -- -- 35 -- --
Interest paid........................................... 23 11 1,837 -- 768
Interest income received................................ (85) (38) (108) (18) (41)
Income tax paid......................................... 48 62 1,347 -- 10
--------- --------- --------- --------- ---------
Cash generated by operating income--before management fees,
non-recurring recapitalization costs and other
non-operating expenses.................................... $ 4,146 $ 8,211 $ 11,913 $ 2,413 $ 2,473
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
We expect to use substantially all of the net proceeds from the offering to
redeem outstanding shares of preferred stock and repay our outstanding
subordinated debentures and repay with any remaining net proceeds a portion, but
not less than $2.0 million, of the $25.2 million of senior bank debt. As such,
the senior bank debt will remain in place after the completion of the offering
and until the term loan matures and the revolving debt loan expires on June 4,
2003. See "Risks Factors--We will incur non-recurring charges as a result of
this offering" and "--The proceeds from this offering will benefit our existing
stockholders and will not be available to the fund working capital or capital
expenditures;" "Description of Indebtedness;" and "Certain Transactions With
Related Parties-- Recapitalization."
Management does not expect that the effect of inflation on the average
candidate compensation level and associated average placement fee will be
greater for us than for our competitors.
INTEREST RATE RISK
We have variable interest rate exposure under our senior bank debt
agreements, which we mitigate by utilizing derivative financial instruments. We
do not use derivative financial instruments for speculative or trading purposes.
We entered into an interest rate collar agreement on August 4, 1998,
covering a notional amount of $13.0 million of our outstanding senior debt, to
reduce our exposure to market risks from changes in interest rates. The interest
rate collar agreement expires on August 4, 2000. Under the interest rate collar
agreement, if during any period the floating interest rate on our senior debt
exceeds the cap rate under the interest rate collar agreement, which is
currently 7.75 percent, our bank will pay us the difference between the two
rates for the period. If the floating interest rate on our senior debt during
the period is less than the floor rate under the interest rate collar agreement,
which is currently 7.38 percent, we will pay our bank the difference between the
two rates for the period. If the floating interest rate is equal to or between
the floor rate and the cap rate during the period, neither we nor our bank will
be required to make any payment. Payments under the interest rate collar
agreement are
36
<PAGE>
to be made on the last business day of March, June, September and December in
each year. We record income or expense under the interest rate collar agreement
as a component of interest expense on our statement of income.
The interest rate collar agreement carrying value is $0. As of December 31,
1998 the interest rate collar agreement had a fair value liability of
approximately $125,000. The fair value liability of the interest rate collar was
calculated on the assumption that the underlying LIBOR rates will continue to
decrease through the remaining term of the agreement. As such, our obligation to
make payments under the terms of the interest rate collar agreement will be
largely offset by the impact of lower LIBOR rates on the balance outstanding
under our senior bank debt agreements. See "Description of Indebtedness."
THE YEAR 2000 ISSUE
INTRODUCTION
The term "Year 2000" issue is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems arise from hardware and software unable
to distinguish dates in the "2000's" from dates in the "1900's" and from other
sources such as the use of special codes and conventions in software that make
use of a date field.
OUR STATE OF READINESS
Being a provider of employment services, we do not furnish any of our
customers with date-sensitive devices or computer based services. Consequently,
we believe that we have no need to make any changes to its business practices in
response to the Year 2000 issue.
We do not rely on electronic interaction with customers or vendors. However,
we utilize in our day-to-day operations software, consisting principally of an
off-the-shelf accounting package and an internally customized billing system
developed in Lotus Notes-Registered Trademark-. This software has run on a
personal computer-based network since 1994 and has been upgraded as needed since
then.
We have undertaken an assessment of our vulnerability to the Year 2000 issue
with respect to our internal software. The assessment is based upon
communications with the software vendors, literature supplied with the software
and preliminary test evaluations of the software. The assessment is expected to
be completed, utilizing our existing resources, and is not expected to have a
material adverse effect on our financial results.
We are aware that some of our systems, such as telephone systems, facsimile
machines, heating and air conditioning systems, security systems and other
non-data processing oriented systems, may include embedded chips which process
dates and date sensitive material. Our failure to identify or remedy any
embedded chips, either on an individual or an aggregate basis, in systems on
which significant business operations depend, such as telephone systems, could
have a material adverse impact on our business.
COST TO ADDRESS OUR YEAR 2000 ISSUES
We are not currently able to estimate the final aggregate cost of addressing
the Year 2000 issue because funds may be required as a result of future
findings. We do not expect such costs to have a material effect on our business.
37
<PAGE>
RISKS PRESENTED BY YEAR 2000 ISSUES
We are still in the process of evaluating potential disruptions or
complications that might result from Year 2000 related problems. Any long term
disruption in the operation of our telephone system or in our ability to place
classified advertisements in any of the newspapers in which we advertize,
however unlikely, would have a material adverse effect on our business. Any
disruption in our accounting software or billing system would not, we believe,
have a material adverse effect on our business.
We believe that the results of our assessment to date indicate that our
accounting software is Year 2000 compliant, and based on our preliminary review,
that our billing system and the functionality of our telephone system is Year
2000 compliant. We have no knowledge regarding whether the systems of the
newspapers in which we place classified advertisements, particularly those
systems necessary for us to place such advertisements, are Year 2000 compliant.
We intend to continue reviewing the Year 2000 compliance of our billing system.
Based on our assessment to date, we believe that the Year 2000 issue is unlikely
to have a material impact on our operations. It is possible, however, that we
may identify business functions in the future that are specifically at risk of
Year 2000 related disruption. The absence of any such determination at this
point represents only our current status of evaluating potential Year 2000
related problems and facts presently known to us, and should not be construed to
mean that there is no risk of Year 2000 related disruption. Additionally, there
can be no assurances that the systems or software of third parties on which we
rely will be timely made Year 2000 compliant, and we may be adversely affected
by the failure of the systems or software of such a third party to become Year
2000 compliant. We believe that we have a sufficient base of third party product
and service suppliers so that if any supplier is unable to deliver products or
services due to Year 2000 related problems, alternate sources will be available
and that any supply interruption will not be material to operations. There can
be no assurances, however, that we would be able to obtain all of our product
and service requirements from such alternate sources on terms comparable with
that of its current product and service suppliers.
OUR CONTINGENCY PLANS
In the event that our accounting software or billing system fails as a
result of Year 2000 related problems, we will immediately begin to utilize
spreadsheet and word processing software known to be Year 2000 compliant to
track our revenues and expenses and to create sales invoices. We do not have a
contingency plan to address any disruption in the operations of our telephone
system or in our ability to place classified advertisements in the newspapers in
which we advertise and, based on our assessment to date, we do not believe that
any such contingency plan is necessary. In the event of a Year 2000 disruption
with respect to other third party suppliers of products and services, we plan to
immediately utilize any other available third party suppliers of such products
and services.
Although we have contingency plans for some business risks that might result
from Year 2000 related events, there can be no assurance that this plan will
cover all risks, and we will continue to evaluate the need for more
comprehensive contingency plans for all of our business risks.
38
<PAGE>
BUSINESS
OVERVIEW
We are a provider of placement services for full-time professional employees
in the information technology field. We have placed thousands of professionals
in the rapidly growing market for mid-level professionals with information
technology skills and now have 41 practice groups in 15 offices. We place
candidates on a non-exclusive, contingency basis by using a practice group-based
approach that has allowed us to grow rapidly while providing our employees with
strong compensation incentives and a performance-driven career advancement path.
Our placement transactions increased to 2,181 in 1998 from 601 in 1995, and to
590 for the three months ended March 31, 1999 from 462 for the three months
ended March 31, 1998.
INDUSTRY BACKGROUND
As information technology systems have become more cost-effective, easier to
use and more readily available, they have enabled businesses to streamline
operations, increase responsiveness to clients and customers, reduce costs and
improve profitability. As more and more businesses are rapidly adopting
comprehensive information technology solutions, businesses find themselves
compelled to develop, deploy and maintain robust information technology
solutions that connect an increasing number of end-users across multiple
hardware platforms, operating systems, networking and telecommunications
protocols and architectures.
This increasing reliance on information technology systems has created a
growing demand for qualified mid-level professionals in the information
technology field. Compounding the demand for these professionals are continuous
changes brought about by technological advancements coupled with a continuing
shortage of professionals skilled in the latest technologies. As a result, these
professionals have a broad range of job opportunities available to them and have
become increasingly mobile as they seek out higher pay, broader experience and
faster career advancement. These factors make it increasingly difficult for
businesses to identify, recruit and retain qualified employees as quickly as
they require. Nearly 190,000 job openings in the information technology field
were unfilled in 1997, which increased to approximately 340,000 unfilled
information technology jobs by the first half of 1998, according to a leading
industry source.
Businesses often lack the expertise, resources and contacts necessary to
efficiently identify and attract professionals with the desired skills and
experience. In response to these challenges, many businesses are turning to
placement agencies, professional search firms and professional service companies
to obtain qualified personnel rapidly and on a cost-effective basis. The
increasing use of placement agencies and professional search firms to satisfy
recruiting and hiring requirements also represents part of an overall trend in
business to outsource non-core activities to reduce costs and increase
efficiency. Worldwide executive search industry revenue has grown at a 20%
compound annual growth rate, from approximately $3.8 billion in 1993 to
approximately $6.6 billion in 1997, according to a leading industry source.
Placement agencies and professional search firms are particularly well
qualified to meet the growing demand for professionals with information
technology skills. Placement agencies and professional search firms can offer
employers not only industry contacts, but also access to qualified candidates,
expertise in qualifying and judging candidates and experience in understanding
skill requirements for open positions. Those placement agencies that specialize
in particular industries also benefit from their knowledge of current industry
trends, skill requirements and pay scales. Placement agencies and professional
search firms therefore can create an efficient selection process, with the
result that employers can consider several candidates for an open position, and
a candidate can interview with several employers before accepting an offer.
39
<PAGE>
Placement agencies and professional search firms usually operate under
either an exclusive retainer-based model or a non-exclusive contingency-based
model. We believe that retainer-based firms, which are paid regardless of
whether a search is successful, are not particularly well suited to meet the
fast-paced and high turnover market for mid-level professionals in the
information technology field. Retained search firms generally work on searches
to fill senior executive positions with annual compensation of $150,000 or more.
These searches can take a long time to complete and require that the search firm
have in-depth knowledge of the employer, its industry and the particular
requirements of the open position. Moreover, the exclusive nature of its
employer relationships often limit a retained firm's available candidate pool
and the job opportunities that it can offer to candidates. As a result,
employers tend to engage search firms on a retainer basis only for hard-to-fill
executive positions.
Contingency-based firms, on the other hand, generally conduct searches on a
non-exclusive basis for positions with annual compensation of less than
$150,000. These firms are paid only upon the successful placement of a
candidate. Contingency-based firms are particularly well suited to handle a high
volume of hiring activity because contingency firms generally do not enter into
exclusive arrangements with employers and are not limited in their ability to
approach potential candidates. Due to the high transaction volume in mid-level
positions, industry-focused contingency firms are generally better able to
rapidly train and develop qualified placement staff, eliminating one of the
constraints to growth in high volume markets, such as the market for mid-level
employees in the information technology field. We believe that relatively few
contingency-based firms have built nationwide practices, resulting in a highly
fragmented market. While contingency-based firms accounted for almost two-thirds
of the approximately 4,000 search firms which were in business in 1997, the vast
majority of them had revenues below $1.0 million, according to a leading
industry source. As a result, we believe that a focused contingency-based
placement firm can successfully achieve market penetration across multiple
metropolitan markets by leveraging a proven business model and expansion plan.
THE STRIDE SOLUTION
We provide placement services on a non-exclusive, contingency basis targeted
toward mid-level professionals in the information technology field seeking
full-time employment. Our focus on the mid-level segment of this market and our
structured, performance-driven approach to completing placements enables us to
quickly and effectively match candidates with the appropriate skills to
available job opportunities and thereby serve the needs of both hiring employers
and placement candidates. The benefits to employers include our ability to
produce for consideration a number of candidates with the skills required for an
employer's particular needs, frequently within a matter of days. In addition, we
believe that our contingency-based placements are a more cost-effective solution
for employers because they only pay for our services if a candidate is hired.
Our process also benefits candidates by quickly identifying a range of available
job opportunities among multiple employers.
Our practice groups concentrating on networking and communications
placements place professionals capable of providing networking and hardware
maintenance support and other related services. Our software development and
implementation practice groups focus on professionals with expertise in software
tools development and proficiency in a wide range of software languages. Our
management information systems practice groups place individuals into positions
requiring business data processing and business applications development skills.
Our compensation structure and emphasis on productivity motivate each of the
practice group's counselors to leverage their combined efforts to process as
many placement transactions as quickly and effectively as possible. We believe
that our use of practice groups is a key factor in our ability to hire, develop
and retain highly productive placement professionals. We believe that this
trained resource base will provide the professional staff necessary to implement
our strategy of rapid growth through the opening of new offices and the
establishment of new practice groups within existing offices. In addition, we
believe that reproducing our high volume placement strategy in additional
markets will allow us to
40
<PAGE>
effectively scale our business. The chart below sets forth the total number of
candidates placed by us and the number of different employers with which such
candidates were placed for the periods presented below:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- -----------
1995 1996 1997 1998 1998
----- --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Number of Placement Transactions.................................. 601 934 1,582 2,181 462
Number of Different Employers Served.............................. 353 531 856 1,247 349
<CAPTION>
1999
-----
<S> <C>
Number of Placement Transactions.................................. 590
Number of Different Employers Served.............................. 469
</TABLE>
STRATEGY
Our business objective is to become the leading provider of permanent
placement services in the United States for mid-level employees in the
information technology field. The key elements of our business strategy include:
CONTINUE GROWING BY EXPANDING EXISTING OFFICES AND OPENING NEW OFFICES. We
intend to expand our operations aggressively by adding practice groups at
existing offices, opening new offices in existing markets and entering new
markets. Stride has historically formed a new practice group or opened a new
office with experienced placement counselors taken from existing practice
groups. Our approach of transitioning experienced employees from existing
practice groups to newly established practice groups is designed to maximize the
effectiveness of the new practice group while minimizing the disruptive impact
on existing practice groups. We believe that this systematic expansion process
can reduce both the costs and risks associated with expanding the number of
practice groups and provide a career path for successful placement counselors.
We increased the number of practice groups to 39 at March 31, 1999 from 18 at
December 31, 1996.
SPECIALIZE IN THE MARKET FOR MID-LEVEL EMPLOYEES WITH INFORMATION TECHNOLOGY
SKILLS. We believe that the rapidly growing market for mid-level employees in
the information technology field affords an extremely attractive opportunity.
Mid-level professionals with these skills have been limited in number and in
high demand, command salaries in a range well-suited for contingency placement
and often seek positions that employers must fill immediately.
CONTINUE UTILIZING PRACTICE GROUPS TO COMPLETE PLACEMENTS. We believe that
our use of practice groups can result in more efficient placements involving
fewer candidate interviews by the hiring companies and the rapid placement of
qualified candidates whose skills match the needs of the employers served by us.
In each office, our placement counselors are organized into two or three
practice groups consisting of one group manager, one senior placement counselor
and two to four placement counselors, including trainees. Practice groups handle
placements as team transactions, with any member of a group initially
identifying either a candidate or hiring company and the team as a whole working
to quickly match available candidates and job orders. We believe that this
team-based approach provides a rigorous and structured mechanism for training
and developing employees and has been a significant factor in our growth as
newly trained employees have advanced to more senior positions in conjunction
with the establishment of new practice groups within existing offices and the
opening of new offices.
FOSTER PERFORMANCE-DRIVEN CULTURE. The transactional nature of our business
model requires a fast-paced working environment with increases in compensation
and career advancement based on an individual's and a practice group's
performance. Our practice groups are organized to identify job openings rapidly
and to promote the quick evaluation and placement of candidates with the
available openings. Our placement counselors regularly contact the line managers
of employers in the region to determine immediate and future hiring needs. At
the same time, each practice group conducts skill-set screening interviews on a
daily basis with candidates who have responded to our advertisements or have
41
<PAGE>
been referred to us by other professionals. The combination of the flow of
evaluated candidates and the direct contact with corporate customer line
managers with immediate hiring needs allows a practice group to quickly match
available candidates with relevant skills to new job openings. Nearly all of our
successfully filled job orders are filled within two to three weeks of the
initial contact with the line manager.
PROVIDE PERFORMANCE-BASED COMPENSATION AND CAREER ADVANCEMENT
OPPORTUNITIES. To motivate our employees and attract new trainees, we provide
the opportunity for rapid career advancement and significant increases in
compensation. We hire entry-level placement counselors and provide "hands-on"
training on an on-going basis in our team-based operating environment.
Experienced counselors are promoted in conjunction with the establishment of new
practice groups. With each promotion, a counselor takes on an increased level of
responsibility for training junior counselors and, at the higher levels,
responsibility for the business generated by a practice group, office or
district. We believe that our methodology of hiring and training entry-level
employees and providing career growth opportunities through practice group and
office expansion will enable us to grow while still maintaining the
effectiveness and profitability of our existing practice groups.
PLACEMENT SERVICES
The mid-level professionals placed by us generally have two to three years
of experience in the information technology field and typically earn annual
salaries ranging from $35,000 to $90,000 a year. We operate on a non-exclusive
contingency basis and receive fees from employers based upon a negotiated
percentage of the placed candidate's first year salary. Our placement fees
typically range between $8,000 and $20,000 and are refundable if a candidate
does not remain employed for at least 30 days. In order to maximize market
penetration, we operate more than one office in several markets under various
names. Our offices within the same market compete with each other for qualified
candidates and job orders. We believe that this multiple office strategy has
allowed us to target numerous business operations in our markets and address the
preferences of hiring managers to choose candidates from multiple sources. The
following table lists each of our current offices, together with the name under
which it operates and when it was opened.
<TABLE>
<CAPTION>
LOCATION OFFICE NAME QUARTER OPENED
- ----------------------------------- ---------------------------- ------------------------
<S> <C> <C>
Atlanta, GA Atlantis Partners First Quarter 1999
Remington International First Quarter 1997
Boston, MA Atlantis Partners Second Quarter 1996
Remington International Second Quarter 1989
Chicago, IL Remington International First Quarter 1999
Los Angeles, CA The Boylston Group First Quarter 1999
Remington International Fourth Quarter 1996
New York, NY Atlantis Partners First Quarter 1998
The Boylston Group Third Quarter 1993
MacArthur & Associates Fourth Quarter 1994
Remington International Second Quarter 1995
Newport Beach, CA Atlantis Partners First Quarter 1998
MacArthur & Associates First Quarter 1991
San Jose, CA Remington International Fourth Quarter 1996
Stride & Associates First Quarter 1998
</TABLE>
THE PLACEMENT PROCESS. We conduct our placement operations using multiple
practice groups, each of which works as a team to complete placements. Each
practice group is responsible for both
42
<PAGE>
identifying job openings and generating a list of qualified professionals
available for placement. To identify job openings, our counselors regularly
contact line managers who have previously used our placement services and
continually cold-call other employers with potential hiring needs. Our
counselors determine whether the line managers they contact have a budget to
hire any professionals and seek to understand the skill sets required to fill
open positions. At the same time, the counselors communicate with their practice
group to begin reviewing available candidates for any job openings they have
identified. The counselors conclude their calls with employers by establishing
several time slots during which the contacted line manager will be available to
interview candidates. Establishing a time commitment from the line manager,
which we call a "send-out," is the primary goal for counselors on every call to
an employer.
Following calls to line managers, and often even before a call has
concluded, counselors and their teams begin matching existing candidates with
open positions, or "job orders," based on the skill sets and experience of
available candidates and those required for the identified job orders. We
generally do not conduct candidate reference checks unless requested by a
particular employer. Scheduling candidates for send-outs often occurs within 48
hours of the initial call to the line manager. Promptly following the initial
round of candidate interviews by the line managers, our counselors call the line
managers to determine which candidates should be scheduled for second interviews
and make the necessary arrangements for those interviews.
We identify qualified professionals both through advertising and referrals.
As part of this process, each practice group regularly runs print advertisements
for a variety of skills, not only based upon immediate needs but also in
anticipation of market requirements in the practice group's specialized area.
Our counselors follow-up with all respondents and are trained to use such
follow-up both to initially assess the candidate's qualifications and to
generate other potential candidate leads as part of the placement process. We
have historically generated a substantial portion of our leads on available
candidates through referrals from professionals previously placed by us. To
ensure that we have access to the broadest pool of available candidates, we have
not entered into any agreements restricting our ability to recruit professionals
from any employer.
Our placement counselors interview all candidates before send-outs with
prospective employers. During the interview process, the counselors discuss
career goals, desired income level, income history, background in technology and
previous experience. Our counselors also use the interview process to prepare
the candidate for a successful interview with the hiring manager for a
prospective employer. The counselors provide candidates with available
background information on the prospective employer, as well as the hiring
process, including who has the responsibility for negotiating the salary and
terms of the employment offer. Our placement process is designed to ensure that
individual candidates are quickly matched with appropriate opportunities based
upon their experience, pay requirements and career objectives. After the
candidate's interview with us, the practice group updates its list of available
candidates to reflect the likely level of interest in the candidate. Individual
members of a practice group share job orders and candidates and work together to
match several candidates to a job order and several job orders to a particular
candidate. If a send-out does not result in a prompt placement, the practice
group will seek to place the candidate into other appropriate job opportunities
and to match other qualified candidates if the job order remains unfilled.
OUR GROWTH METHODOLOGY. In recent years, we have grown rapidly by adding
practice groups at existing offices, opening new offices in existing markets and
entering new markets. We continuously evaluate new markets and expansion
opportunities within our existing markets. Although our individual offices act
independently with respect to developing lists of candidates and filling job
orders, we have common internal procedures which govern training, operations and
sales.
After selecting the metropolitan area for a new office, which may be in an
existing or new market, we then select the team to open the new office.
Generally, new offices are initially staffed with an
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<PAGE>
office manager, who also acts as a group manager, another group manager and two
senior counselors. These employees are generally drawn from different practice
groups and offices, mitigating the impact on each office that loses an
experienced group manager or counselor and distributing the opportunity for
advancement among several offices. We believe that the successful transition of
employees to date is due, in part, to our procedures for training employees and
our structured approach to expanding operations. After the initial staff at a
new office has generated several successful placements, we generally expand the
office by fully staffing the two initial practice groups with additional
counselors and adding a third practice group. As each office reaches its
targeted operating level, we generally consider whether the demand for employees
with information technology skills within that market can support an additional
office or if a new office would be more successful in a geographic market in
which the company does not already have a presence. We believe that this
proprietary approach of adding practice groups and opening new offices can
reduce the costs and risks associated with expansion and provides a clear and
defined career path for successful employees.
MANAGEMENT STRUCTURE, TRAINING AND CAREER ADVANCEMENT
We have a relatively flat management structure, which is intended to provide
direct performance incentives for key managers and to facilitate growth by
developing group managers who can replicate our business model in new practice
groups and offices. In addition to our executive management team, we currently
have five district managers with responsibility for the Northern California,
Southern California, Boston, Chicago/New York and Atlanta regions. Each district
manager has oversight responsibility for all offices within his or her region,
as well as direct responsibility as an office manager. At the office level, each
office manager is responsible for his or her own practice group and has
oversight of the other two practice groups within the office. Each group manager
is responsible for the counselors and trainees within the practice group. We
believe that our requirement that senior managers bear multiple responsibilities
at the district, office and group levels both minimizes our compensation costs
related to non-revenue generating personnel and provides opportunities for
career progression as managers develop and advance within the company.
Our offices and operations are structured both to produce rapid and
successful placements and to encourage employees to assume increasing levels of
responsibility. As counselors demonstrate an ability to generate successful
placements and train new counselors, they are eligible to progress along a clear
and defined career path with the company with successive levels of increased
compensation and responsibility as new offices are opened and existing offices
are expanded. For example, a senior counselor is eligible to transition to the
position of group manager, where he or she will lead a practice group and be
responsible for the development of each team member of that group. Successful
group managers are then eligible to advance to the position of office manager,
in which they retain responsibilities as group managers, but also assume
responsibility for the overall office, including the development of the other
group managers in the office.
Historically, we have experienced a retention rate of approximately 32%.
Substantially all of our attrition has occurred at the placement trainee level,
which we believe is largely due to our, or the trainee's, determination early on
that the trainee does not have the skills or interest necessary to succeed in an
aggressive working environment which demands high productivity and the ability
to work as part of a team. Since 1995, of the employees who have progressed
through the placement trainee and counselor stages during their first 18 months
with the company, only six have left us. Substantially all of the individuals
who reached the group manager level have remained with us.
Our compensation structure is designed to reward major contributors and
provide a lucrative opportunity for motivated and productive employees. We
review our placement trainees regularly and provide performance-based salary
increases after the trainee's first two to six months. Trainees, counselors and
senior counselors are generally paid salaries, with no commission-based
compensation. Group managers, office managers and district managers receive
commission-based compensation, which is
44
<PAGE>
highly dependent on the individual's position and the revenues generated by the
individual's practice group, office or district.
EMPLOYERS SERVED BY US
We have historically provided placement services across a broad spectrum of
businesses ranging from start-ups to Fortune 500 companies. The future success
of our business strategy will depend in large part on the ability of our
practice groups to continually identify and solicit job orders from new
employers. We provided placement services to 1,247 different employers for the
year ended December 31, 1998, to 856 different employers during the year ended
December 31, 1997 and to 469 different employers for the three months ended
March 31, 1999 from 349 for the three months ended March 31, 1998. For these
same periods, the ten largest employers we served represented less than 10% of
net revenues. However, our business historically has been concentrated in
specific industries, reflecting our geographic presence in markets where those
industries are prevalent. Therefore, a significant economic downturn,
particularly in regions, or industries prevalent in those regions, in which our
operations are located, could have an adverse effect on our business. For
example, the financial services industry, which has historically represented a
significant portion of our revenues, undergoes a period of contraction from time
to time, prompting financial institutions to announce layoffs. In addition, it
is possible that the level of demand for information technology services among
prospective employers may decline. For example, as businesses resolve the "Year
2000" issue, demand among prospective employers for information technology
services and employees with information technology skills may diminish
significantly.
COMPETITION
We face significant competition, both for employers looking for solutions to
information technology problems, and for mid-level employees in the information
technology field looking for improved career opportunities.
We believe that the availability and quality of candidates, the scope of
geographic service and, to a lesser extent, the price of service, are the
principal elements of competition. The availability of qualified mid-level
information technology professionals is a particularly important facet of
competition. To attract employers we emphasize our ability to quickly provide
employers with a choice of several candidates with the applicable skill set, as
well as a guarantee to refund its fee if the placement is not successful for at
least 30 days. To attract qualified candidates, we place emphasis upon our
ability to provide such candidates with a choice of attractive full-time
employment opportunities at competitive compensation levels. We believe that our
ability to compete also depends in part on a number of other competitive factors
outside our control, including the ability of competitors to recruit qualified
candidates. Although to date we have not experienced any significant pricing
pressure from our competitors, there can be no assurance that we will not
experience such pressure in the future.
The permanent placement industry, particularly firms focused on the
placement of employees with information technology skills, is extremely
competitive, and there are few, if any, barriers to entry. We compete with
national, regional and local placement firms for both employers seeking
candidates and information technology professionals. Many of these national and
regional firms have greater financial, technical and marketing resources than we
have. Smaller firms typically are owner-operated, and each market generally has
one or more significant established competitors. Particularly as we attempt to
expand into new geographic markets, we expect to compete with additional
national, regional and local firms. Although we focus on permanent placements,
we also compete with providers of non-permanent
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<PAGE>
information technology staffing services and consulting firms. These competitors
offer employers professionals on a contract basis, often at a fixed price,
without the long term commitment of hiring permanent employees. The information
technology staffing and consulting industry is itself intensely competitive,
with multinational, national, regional and local firms aggressively marketing
their services to the same employers targeted by us.
In addition, we compete for candidates directly with employers who continue
to rely on their internal human resource departments to recruit some, if not
all, of the professionals they require. This is often the case with employers
who hire professionals on an ongoing basis and can justify the investment in
developing an experienced recruiting staff in-house and avoid the direct cost of
multiple placement fees which, at $8,000 to $20,000 per candidate, can be
substantial.
We expect increased competition from placement, staffing and consulting
firms which are adopting the Internet to both solicit employers and candidates,
as well as post job openings and candidate profiles. Currently, hundreds of Web
sites offer these services and more can be expected. We recently established
several Web sites for our different offices on which we post job openings and
solicit resumes. However, we currently do not conduct any material amount of
business on the Internet. There can be no assurance that we will be able to
compete successfully against competitors using the Internet.
Although we have offices in major cities across the United States, we use
multiple operating names. As a result, we do not expect to develop any national
brand awareness. This may put us at a competitive disadvantage to regional or
national firms with established identities which are recognizable to employers
and candidates alike.
EMPLOYEES
As of April 30, 1999, we had 187 full-time employees, which included 67
counselors, 41 group managers and 54 trainees. We are not a party to any
collective bargaining agreements covering any of our employees, have never
experienced any material labor disruption and are unaware of any current efforts
or plans to organize our employees. We consider our relationships with our
employees to be good. See "Risk Factors--We must hire, develop and retain
placement staff to sustain future growth" and "--Our success is largely
dependent upon Mr. Robichaud and our senior management team."
FACILITY
We lease each of our 15 office locations. Our leases cover in the aggregate
approximately 42,000 square feet of space, with each office lease covering
approximately 2,700 square feet. We believe that our current facilities are
suitable and adequate for our business and, upon expiration of our leases, we do
not anticipate any significant difficulty in obtaining renewals or alternative
space.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages as of April 30, 1999,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael C. Robichaud (1)............................. 35 President, Chief Executive Officer and Director
Anthony J.M. Groves.................................. 42 Chief Financial Officer, Senior Vice
President--Finance and Administration
Glen P. Froio........................................ 29 Senior Vice President--Operations
Bethann G. Gilfeather................................ 29 Senior Vice President--Operations
Rachel C. Burnett.................................... 35 Director
Scott C. Collins (1)(2).............................. 33 Director
John J. Devine....................................... 46 Director
Alan P. Matthews (1)................................. 41 Director
James C. New......................................... 53 Director
Thomas S. Roberts (1)(2)............................. 35 Director
</TABLE>
- --------------
(1) Member of the compensation committee
(2) Member of the audit committee
MICHAEL C. ROBICHAUD co-founded Stride in July 1989 and has served as our
President since January 1995 and our Chief Executive Officer since January 1998.
Mr. Robichaud has served as a director since October 1994. From 1991 to 1995,
Mr. Robichaud served in numerous positions with us, including operations
manager, with responsibility for strategic planning and implementation of
expansion efforts. Before joining us, Mr. Robichaud served as an information
technology recruiter and sales manager for D.C.R., an employee placement
company. Mr. Robichaud is also a stockholder and a director of Bond
Technologies, Inc., an information technology consulting company, and Percussion
Software, Inc., a software development company, each of which is privately owned
and affiliated with our founding stockholders. See "Certain Transactions with
Related Parties."
ANTHONY J.M. GROVES joined us in June 1998 and has served as our Chief
Financial Officer and Senior Vice President of Finance and Administration since
then. From November 1997 to June 1998, Mr. Groves was an employee of Percussion
Software, Inc. where he provided consulting services to us and to Bond
Technologies, Inc. Before that, Mr. Groves served in numerous positions with
Cognos Inc., a Canadian software company, between 1988 and November 1997, most
recently as Vice President of Finance and Administration of its U.S. subsidiary.
See "Certain Transactions with Related Parties."
GLEN P. FROIO joined us in August 1992 and has served as Senior Vice
President of Operations since January 1998. Mr. Froio has served in numerous
positions with us, including Group Manager from January 1994 to December 1995,
Office Manager of our Los Angeles office from January 1996 to December 1996 and
District Manager of our California region from January 1997 to December 1997.
BETHANN G. GILFEATHER joined us in September 1991 and has served as Senior
Vice President of Operations since January 1998. Ms. Gilfeather has served in
numerous positions with us, including Group Manager from December 1992 to April
1993, Office Manager at various offices from May 1994 to November 1995 and
District Manager of our New York region from December 1995 to December 1997.
RACHEL C. BURNETT co-founded Stride in July 1989 and has served as a
director since October 1994. Ms. Burnett has been the Chief Operating Officer of
Bond Technologies, Inc. since April 1996. Before joining Bond Technologies,
Inc., Ms. Burnett served in numerous positions with us with responsibility for
strategic planning and implementation of expansion efforts, including
responsibility for the opening
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<PAGE>
of our Los Angeles MacArthur Associates and New York Boylston Group offices. Ms.
Burnett is also a stockholder and director of Bond Technologies, Inc. and
Percussion Software, Inc. See "Certain Transactions with Related Parties."
SCOTT C. COLLINS has served as a director since June 1998. Mr. Collins has
been employed by Summit Partners, LLC or its predecessors since 1996. Before
joining Summit Partners, Mr. Collins was employed by McKinsey & Company, a
management consulting firm, from 1995 to 1996 and worked as an Assistant U.S.
Attorney from 1992 to 1995. See "Certain Transactions with Related Parties."
JOHN J. DEVINE co-founded Stride in July 1989 and served as President until
January 1995 and as Chief Executive Officer until March 1996. Mr. Devine is also
a founding stockholder and director of Bond Technologies, Inc. and Percussion
Software, Inc. See "Certain Transactions with Related Parties."
ALAN P. MATTHEWS co-founded Stride in July 1989 and has served as Chairman
of our board of directors since October 1994. Mr. Matthews is also a founding
stockholder and director of Bond Technologies, Inc. and Percussion Software,
Inc. Mr. Matthews has been Chief Executive Officer of Bond Technologies, Inc.
since 1987. See "Certain Transactions with Related Parties."
JAMES C. NEW has served as a director of Stride since August 1998. Mr. New
has served as the President, Chief Executive Officer and a director of
AmeriPath, Inc., a physician practice management services company, since
February 1996. Before joining AmeriPath, Inc., Mr. New served as President and
Chief Executive Officer and as a director of RehabClinics, Inc., an outpatient
rehabilitation company, which he formed in 1991. RehabClinics merged with
NovaCare, Inc. in February 1994. Mr. New was President of NovaCare, Inc.'s
Outpatient Division from 1994 to 1996. From 1993 through 1996, Mr. New was the
Chairman of the Acquisition Committee of the board of directors of Pet Practice,
Inc.
THOMAS S. ROBERTS has served as a director of Stride since June 1998. Mr.
Roberts has been associated with Summit Partners, LLC or its predecessor since
1989 and is currently a member of that firm. Mr. Roberts is a director of AMX
Corporation, a manufacturer and marketer of integrated remote control systems,
and is Chairman of the Board of Directors of AmeriPath, Inc. See "Certain
Transactions with Related Parties."
The number of our directors is currently fixed at seven. Following the
completion of this offering, the board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
board of directors will consist of two Class I directors, Rachel C. Burnett and
Thomas S. Roberts, three Class II directors, Scott C. Collins, John J. Devine
and Alan P. Matthews, and two Class III directors, James C. New and Michael C.
Robichaud. At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The terms of the Class I directors, Class II directors
and Class III directors expire upon the election and qualification of successor
directors at the annual meeting of stockholders to be held during the calendar
year 2000, 2001 and 2002, respectively.
Each officer, except the Chief Executive Officer, serves at the discretion
of the board of directors and holds office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. The Chief
Executive Officer serves under his employment agreement with us. See
"--Employment, Severance and Non-Competition Agreements." There are no family
relationships among any of our directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
The audit committee is responsible for recommending to the board of
directors the engagement of our outside auditors and reviewing our accounting
controls and the results and scope of audits and other services provided by our
auditors. The members of the Audit Committee are Scott C. Collins and Thomas S.
Roberts.
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<PAGE>
Under our 1998 Stock Option and Grant Plan, the board of directors may
designate a committee of two independent directors to administer the 1998 Stock
Option and Grant Plan. No such committee has been appointed and the 1998 Stock
Option and Grant Plan is currently administered by the board of directors.
The compensation committee is responsible for reviewing and approving the
amount and type of consideration to be paid to senior management. The members of
the compensation committee are Scott C. Collins, Alan P. Matthews, Thomas S.
Roberts and Michael C. Robichaud.
The board of directors may establish, from time to time, other committees to
facilitate the management of our business.
DIRECTOR COMPENSATION
James C. New, one of our directors, will be paid a fee of $1,500 for each
meeting of the board of directors attended and be reimbursed for all travel
related expenses in connection with attendance. In addition, Mr. New has been
granted an option to purchase 14,535 shares of common stock at an exercise price
of $13.76 per share and an option to purchase 7,500 shares of common stock at an
exercise price of $12.00 per share. No other current director will receive
compensation for their services as a director. We anticipate that persons who in
the future become directors and are not employees will be offered compensation
for their services substantially similar to that received by Mr. New.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation that was
paid to our Chief Executive Officer and the other most highly compensated
executive officers whose aggregate compensation exceeded $100,000 in the year
ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
------------------------
ANNUAL COMPENSATION SECURITIES RESTRICTED
---------------------- UNDERLYING STOCK
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS AWARDS
- ----------------------------------------------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Michael C. Robichaud (1)......................................... $ 317,250 $ -- 58,140 --
President and Chief Executive Officer
Anthony J.M. Groves (2).......................................... 116,667 60,000 46,512 --
Chief Financial Officer, Senior Vice President--Finance and
Administration
Glen P. Froio (3)................................................ 200,000 522,725 -- 41,530
Senior Vice President--Operations
Bethann G. Gilfeather (4)........................................ 200,000 522,725 -- 41,530
Senior Vice President--Operations
</TABLE>
- --------------
(1) Mr. Robichaud became our Chief Executive Officer in January 1998. Mr.
Robichaud's compensation from January 1998 to March 1998 was $69,000.
Beginning in April 1998, Mr. Robichaud was compensated at an annual base
salary rate of $400,000 and is eligible to receive an annual incentive bonus
in an annual amount determined by our compensation committee if we meet
targets set by the compensation committee for financial performance. In
addition to the compensation shown in the table above, an entity affiliated
with Mr. Robichaud was paid $666,667 in management fees by us in 1998. See
"--Employment, Severance and Non-Competition Agreements" and "Certain
Transactions with Related Parties--Management Fees."
(2) Mr. Groves became our Chief Financial Officer in June 1998. Mr. Groves was
employed by Percussion Software, Inc. from November 1997 to June 1998.
During 1998, we paid an aggregate of $31,398 in consulting fees to
Percussion Software, Inc. for services provided to us by Mr. Groves. See
"Certain Transactions with Related Parties."
(3) Mr. Froio became our Senior Vice President of Operations in January 1998.
During 1997, Mr. Froio was District Manager of our California region.
(4) Ms. Gilfeather became our Senior Vice President of Operations in January
1998. Before becoming Senior Vice President of Operations, Ms. Gilfeather
was District Manager of our New York region.
49
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during 1998 to our Chief Executive Officer and the other most highly compensated
executive officers. The exercise price per share of each option is equal to the
fair market value of the common stock as of the grant date as determined by our
board of directors after consideration of a number of factors, including, but
not limited to:
- our financial performance;
- our status as a private company at the time of grant;
- the minority interests represented by shares underlying options; and
- the price of shares of equity securities sold to or purchased by outside
investors.
The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term using
the 5% and 10% appreciation rates established in regulations of the SEC
compounded annually. The options granted to each of Mr. Robichaud and Mr. Groves
have no potential realizable value using an assumed initial public offering
price of $12.00 per share and an assumed 5% or 10% appreciation rate. The
potential realizable value is not intended to predict future appreciation of the
price of our common stock. The values shown do not consider nontransferability,
vesting or termination of the options upon termination of employee's employment
relationship with us.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE PER FOR OPTION TERM
OPTIONS EMPLOYEES IN SHARE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% 10%
- -------------------------------------- ----------- --------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael C. Robichaud.................. 58,140 19.8% $ 20.64 6/04/03 $ 0 $ 0
Anthony J.M. Groves................... 46,512 15.8% 13.76 7/14/03 45,392 177,173
Glen P. Froio......................... -- -- -- -- -- --
Bethann G. Gilfeather................. -- -- -- -- -- --
</TABLE>
Mr. Robichaud's options are fully vested and exercisable as of the date of
grant until the expiration date. These options were granted on June 4, 1998.
Mr. Groves' options vest 33 1/3% on April 30, 2000 and 8.333% on each fiscal
quarter end thereafter. These options were granted on July 14, 1998. Vesting of
these options is subject to the continuation of such employee's employment
relationship with us.
OPTIONS EXERCISES AND YEAR-END HOLDINGS. The following table sets forth
information concerning the number and value of unexercised options to purchase
common stock held by our Chief Executive Officer and the other most highly
compensated executive officers. The Chief Executive Officer and the named
executive officers did not exercise any stock options during 1998. There was no
public trading market for our common stock as of December 31, 1998. Accordingly,
the values of the unexercised in-the-money options have been calculated on the
basis of an assumed initial public offering price of $12.00 per share, less the
applicable exercise price.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Neither our Chief Executive Officer nor the named executive officers
exercised any stock option during the fiscal year ended December 31, 1998. The
following table sets forth certain information
50
<PAGE>
regarding stock options held as of December 31, 1998 by our Chief Executive
Officer and by the named executive officers. The "Value of Unexercised
In-The-Money Options at December 31, 1998" is based upon a value of $12.00 per
share, the estimated initial public offering price, minus the per share exercise
price, multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 AT DECEMBER 31, 1998
-------------------------- ----------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- --------------- -----------------
Michael C. Robichaud...................................... 58,140 -- -- --
Anthony J.M. Groves....................................... -- 46,512 -- --
Glen P. Froio............................................. -- -- -- --
Bethann G. Gilfeather..................................... -- -- -- --
</TABLE>
EMPLOYEE BENEFIT PLANS
1998 STOCK OPTION AND GRANT PLAN. Our board of directors and stockholders
adopted the 1998 Stock Option and Grant Plan in June 1998, which was amended and
restated in November 1998. The 1998 Stock Option and Grant Plan permits us to:
- grant incentive stock options;
- grant non-qualified stock options; and
- issue or sell common stock with vesting or other restrictions, or without
restrictions.
These grants may be made to our officers, employees, directors, consultants,
advisors and other key persons of Stride. The 1998 Stock Option and Grant Plan
allows for the issuance of 813,950 shares of common stock.
Of the shares reserved for issuance under the 1998 Stock Option and Grant
Plan:
- 232,560 shares are subject to outstanding options granted on June 4, 1998
to our founding stockholders, Rachel C. Burnett, John J. Devine, Alan P.
Matthews and Michael C. Robichaud, with an exercise price of $20.64 per
share. These options were fully vested and exercisable as of the date of
grant;
- an additional 46,512 shares are subject to outstanding options granted to
Anthony J.M. Groves, our Chief Financial Officer, on July 14, 1998, with
an exercise price of $13.76 per share of which 15,504 shares will vest on
April 30, 2000 and an additional 3,876 shares will vest at the end of each
fiscal quarter thereafter;
- an additional 14,535 shares are subject to options granted to James C.
New, a director, on August 11, 1998 with an exercise price of $13.76 per
share, of which 3,631.25 shares will vest on August 11, 1999 and an
additional 908.4375 will vest at the end of each fiscal quarter
thereafter;
- an additional 290,710 shares were granted on June 4, 1998 to several of
our key employees as restricted common stock awards, all of which shares
will vest upon the closing of the offering;
- an additional 11,628 shares were sold on June 23, 1998 to Mr. Groves as
restricted common stock awards for an aggregate purchase price of
$160,001, all of which shares will vest on April 30, 1999.
- an additional 38,383 shares are subject to options granted to Mr. Groves
on April 1, 1999 with an exercise price of $12.00 per share, of which
19,191.5 will vest on October 1, 1999 and an additional 3,192.5833 will
vest at the end of each fiscal quarter thereafter; and
51
<PAGE>
- an additional 7,500 shares are subject to options granted to Mr. New on
April 1, 1999 with an exercise price of $12.00 per share, of which 1,875
will vest on April 1, 2000 and an additional 468.75 will vest at the end
of each fiscal quarter thereafter.
The 1998 Stock Option and Grant Plan is administered by the board of
directors or a committee designated by the board of directors consisting solely
of two or more independent directors. Subject to the provisions of the 1998
Stock Option and Grant Plan, the committee may select the individuals eligible
to receive awards, determine the terms and conditions of the awards granted,
accelerate the vesting schedule of any award and generally administer and
interpret the plan.
The exercise price of options granted under the 1998 Stock Option and Grant
Plan is determined by the committee. Under present law, incentive stock options
and options intended to qualify as performance-based compensation under Section
162(m) of the Internal Revenue Code of 1986 may not be granted at an exercise
price less than the fair market value of the common stock on the date of grant,
or less than 110% of the fair market value in the case of incentive stock
options granted to optionees holding more than 10% of the voting power.
Non-qualified stock options may be granted at prices which are less than the
fair market value of the underlying shares on the date granted. Options are
typically subject to vesting schedules, terminate ten years from the date of
grant and may be exercised for specified periods after to the termination of the
optionee's employment or other service relationship with us. Upon the exercise
of options, the option exercise price must be paid in full either in cash or by
certified or bank check or other instrument acceptable to the committee or, in
the sole discretion of the committee, by delivery of shares of common stock that
have been owned by the optionee free of restrictions for at least six months.
The exercise price may also be delivered to us (a) by the optionee in the form
of a promissory note if the loan of such funds to the optionee has been
authorized by the board of directors and the optionee pays so much of the
exercise price as represents the par value of the common stock acquired in a
form other than a promissory note and (b) by a broker under irrevocable
instructions to the broker selling the underlying shares from the optionee.
In the event of a merger, reorganization or consolidation, the sale of all
or substantially all of our assets or all of our outstanding capital stock or a
liquidation or other similar transaction, 50% of any outstanding awards, issued
under the 1998 Stock Option and Grant Plan that are not then vested will become
fully vested and exercisable upon the closing of the transaction. The 1998 Stock
Option and Grant Plan and all awards issued under the plan will terminate upon
any of the transactions described above, unless Stride and the other parties to
such transactions have agreed otherwise. All participants under the 1998 Stock
Option and Grant Plan will be permitted to exercise for a period of 15 days
before any such termination all awards held by them which are then exercisable
or will become exercisable upon the closing of the transaction.
EMPLOYMENT, SEVERANCE AND NON-COMPETITION AGREEMENTS
Under an employment agreement dated June 4, 1998, we agreed to employ
Michael C. Robichaud as our President and Chief Executive Officer. The
employment agreement also provides that Mr. Robichaud will be nominated to serve
as a director during the term of the employment agreement. Under the terms of
the employment agreement, Mr. Robichaud will receive an annual base salary of
$400,000 and will be eligible to receive an annual incentive bonus in an amount
determined annually by the compensation committee of the board of directors if
we meet targets set by the compensation committee for financial performance. We
also agreed to provide Mr. Robichaud 12 months of base salary continuation and
continuation of hospital, health and insurance benefits upon termination of Mr.
Robichaud's employment if we terminate him without cause, including any
constructive termination such as a significant change in his responsibilities or
other similar demotion.
In connection with our June 1998 leveraged recapitalization, we entered into
Non-Solicitation, Non-Competition and Non-Disclosure Agreements with Rachel C.
Burnett, John J. Devine, Alan P.
52
<PAGE>
Matthews and Michael C. Robichaud. Each of the agreements provides that the
individual will not engage in competitive activities before the later of (a) May
31, 2003 and (b) the first anniversary of the termination of the individual's
employment with us. Each of the agreements also places restrictions on the
individual during the same period with respect to solicitation of our clients or
employees and restrictions for an unlimited period with respect to disclosure of
confidential information. We also entered into typical non-solicitation,
non-competition and confidentiality agreements with substantially all of our
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before June 1998, we did not have a compensation committee or similar
committee of the board of directors. In June 1998, the compensation committee of
the board of directors consisting of Michael C. Robichaud, Scott C. Collins,
Alan P. Matthews and Thomas S. Roberts was established. Before the establishment
of the compensation committee, Michael C. Robichaud, Rachel C. Burnett and John
J. Devine and Alan P. Matthews each participated in deliberations of our board
of directors concerning executive officer compensation. During 1997, in
connection with the management of our business, we paid management fees totaling
approximately $7.6 million to entities affiliated with Messrs. Robichaud, Devine
and Matthews and Ms. Burnett. Each of Messrs. Robichaud, Devine and Matthews and
Ms. Burnett also serve on the board of directors of Bond Technologies, Inc. and
Percussion Software, Inc. and has participated in deliberations of the board of
directors of each company concerning executive compensation. For information
regarding transactions and relationships between Stride and Messrs. Robichaud,
Devine and Matthews and Ms. Burnett, see "--Employment, Severance and
Non-Competition Agreements" and "Certain Transactions with Related Parties."
53
<PAGE>
CERTAIN TRANSACTIONS WITH RELATED PARTIES
RECAPITALIZATION
On June 4, 1998, we underwent a leveraged recapitalization. The proceeds of
the recapitalization were used primarily to redeem 60% of the outstanding common
stock then held by our founding stockholders, Rachel C. Burnett, John J. Devine,
Alan P. Matthews and Michael C. Robichaud. As part of the recapitalization, a
group of investment funds associated with Summit Partners, LLC, but unaffiliated
with any of our founding stockholders, acquired shares of series A convertible
preferred stock, shares of common stock, warrants to purchase additional shares
of common stock and subordinated debentures, each as described in more detail
below. Immediately before the closing of this offering, the Summit investors
will convert their shares of series A convertible preferred stock into 1,000,000
shares of common stock and 24,802.5 shares of series B redeemable preferred
stock. Approximately $32.9 million of the net proceeds of this offering will be
used to make a net redemption payment on the the shares of series B redeemable
preferred stock, and $10.0 million of the net proceeds of this offering will be
used to repay the outstanding subordinated debentures. Following the closing of
this offering, the Summit investors will own an aggregate of 3,000,010 shares of
common stock, or 31.0% of the total shares of common stock outstanding, and our
founding stockholders will own an aggregate of 2,000,000 shares of common stock,
or 2,232,560 shares of common stock assuming the exercise by the founders of
outstanding options to purchase 232,560 shares of common stock, or 20.7% of the
total outstanding shares of common stock, or 22.5% assuming the exercise by the
founders of outstanding options to purchase 232,560 shares of common stock. The
terms of the recapitalization are shown in more detail below.
- The Summit investors invested $40.0 million in our business to acquire:
-- 24,802.5 shares of series A convertible preferred stock, which shares
are convertible in connection with this offering into 1,000,000 shares
of common stock and 24,802.5 shares of series B redeemable preferred
stock;
-- warrants to purchase 762,505 shares of common stock with an exercise
price of $4.62 per share;
-- 1,237,505 shares of common stock; and
-- $10.0 million in subordinated debentures which bear interest at a rate
of 12.0% annually.
In connection with this offering, the Summit investors will convert their
shares of series A convertible preferred stock into 24,802.5 shares of
series B redeemable preferred stock and 1,000,000 shares of common stock,
and we will redeem all of the series B redeemable preferred stock for an
aggregate redemption price of approximately $36.5 million, together with
accrued dividends of approximately $2.2 million as of March 31, 1999, and we
will repay the outstanding subordinated debentures, which would otherwise
mature as of August 4, 2003, for an aggregate repayment of $10.0 million. In
addition, the Summit investors will exercise their warrants for an aggregate
exercise price of approximately $3.5 million.
- We borrowed $26.0 million in senior bank debt from BankBoston, N.A., an
affiliate of BancBoston Robertson Stephens, which bears interest at a
variable rate and matures on June 4, 2003. As of March 31, 1999, the
interest rate was approximately 6.75% annually. In connection with this
offering, we will repay with any remaining net proceeds a portion, but not
less than $2.0 million, of the $24.5 in principal of the senior bank debt.
- We redeemed 750,000 shares of common stock held by each of our founding
stockholders at a per share price of approximately $21.26, representing an
aggregate of approximately 60% of the outstanding common stock held by
each of them, for a price of approximately $15.9 million each and an
aggregate price of approximately $63.8 million;
54
<PAGE>
- The parties to the recapitalization entered into a Registration Rights
Agreement under which the Summit investors and the founding stockholders
each received rights to require us (a) to file a registration statement
with the SEC covering the shares of common stock held by such stockholders
and (b) to register shares of common stock held by such stockholders in a
registration statement being filed by Stride to register other securities
for sale to the public. See "Description of Capital Stock--Registration
Rights."
- The parties to the recapitalization entered into a Shareholders' Agreement
under which the Summit investors and the founding stockholders were
granted rights regarding proposed sales or other transfers of shares of
common stock and future issuances of securities proposed by us. The
parties to the Shareholders' Agreement also agreed to vote their shares of
common stock in favor of individuals nominated by each of the founding
stockholders and the Summit investors for election as directors. All of
our current directors were nominated for and elected to their positions as
provided under the Shareholders' Agreement. Effective upon and subject to
the closing of this offering, the Shareholders' Agreement will terminate
under its original terms.
MANAGEMENT FEES
In connection with the management of our business from its founding until
June 1998, we paid management fees to affiliates of our founding stockholders.
The payment of such management fees ceased upon the closing of the
recapitalization in June 1998. In the years ended December 31, 1994, 1995, 1996,
1997 and 1998, we paid the following management fees:
- on behalf of Rachel C. Burnett, $666,667 in 1998, $1,866,980 in 1997 and
$897,887 in 1996;
- on behalf of John J. Devine, $668,005 in 1998, $1,931,172 in 1997,
$944,435 in 1996 and $217,727 in 1994;
- on behalf of Alan P. Matthews, $868,005 in 1998, $1,942,050 in 1997,
$979,069 in 1996, $31,703 in 1995 and $217,727 in 1994;
- on behalf of Michael C. Robichaud, $666,667 in 1998, $1,866,980 in 1997
and $897,887 in 1996.
REORGANIZATION
Prior to 1995, our placement business was conducted through three separate
entities that were owned by Messrs. Devine, Matthews and Robichaud and Ms.
Burnett. On January 1, 1995, we reorganized into one corporation by purchasing:
- N.Y. Futures, Inc., a New York corporation, for consideration of $101,385,
consisting of $14,496 in cash and the assumption of capital leases by the
company;
- LA Futures, Inc., a California corporation, for consideration of $17,197;
and
- Mass. Futures, Inc., a Massachusetts corporation, for consideration of
$46,480, consisting of $12,660 in cash and the assumption of capital
leases.
RESTRICTED STOCK GRANTS
In June 1998, we sold 11,628 shares of restricted common stock to Anthony
J.M. Groves, our Chief Financial Officer, under the 1998 Stock Option and Grant
Plan for an aggregate purchase price of $160,001. In connection with the sale,
we loaned Mr. Groves $160,001. The loan to Mr. Groves matures as of July 14,
2002, bears interest at the rate of 6% annually, is required to be prepaid to
the extent of the after-tax net proceeds realized from the sale of the
restricted common stock as such stock is sold and is secured by a pledge of the
stock, with recourse to Mr. Groves' personal assets limited to 25% of the
principal and accrued and unpaid interest thereon.
55
<PAGE>
PLACEMENT SERVICES FOR ENTITIES AFFILIATED WITH OUR FOUNDING STOCKHOLDERS
In the regular course of business, we provide placement services to Bond
Technologies, Inc., an information technology consulting firm, and Percussion
Software, Inc., a software development company, each of which is affiliated with
our founding stockholders, Messrs. Devine, Matthews and Robichaud and Ms.
Burnett. We receive fees for such services which we believe are no less
favorable from those entities than fees we could receive from unaffiliated third
parties.
PROPERTY LEASES
Our Remington Boston and Atlantis New York offices are situated in office
space sublet from Bond Technologies, Inc., a majority interest of which is owned
collectively by our founding stockholders, Messrs. Devine, Matthews and
Robichaud and Ms. Burnett. Remington Boston currently occupies all of the office
space covered by the Bond Technologies, Inc. master lease for the Boston office
space, and we pay the full amount due under such lease. Atlantis New York
currently occupies a portion of the office space covered by the Bond
Technologies, Inc. master lease for the New York office space, and we pay a
pro-rata portion of the full amount due under such lease.
SERVICES OF CHIEF FINANCIAL OFFICER
From November 1997 to June 1998, Anthony J.M. Groves, our Chief Financial
Officer, was employed by Percussion Software, Inc. During that period, Mr.
Groves provided consulting services to us and to Bond Technologies, Inc. Stride
and Bond Technologies, Inc. together paid to Percussion Software, Inc.
consulting fees in an aggregate amount of approximately $62,000 for such
services, $31,398 of which was paid solely by Stride.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of April 30, 1999 and as adjusted to reflect the
sale of the common stock offered hereby, by (a) all persons known by us to own
beneficially 5% or more of the common stock, (b) each of our directors, (c) the
Chief Executive Officer and each of the other named executive officers and (d)
all directors and named executive officers as a group. Unless otherwise
indicated, each of the stockholders has sole voting and investment power with
respect to the shares of common stock beneficially owned by such stockholder.
The address of the Summit Partners Group is 600 Atlantic Avenue, Boston, MA
02210. The address of Messrs. Collins and Roberts is c/o Summit Partners, LLC,
600 Atlantic Avenue, Boston, MA 02210. The address of all other listed
stockholders is c/o Stride & Associates, Inc., 222 Berkeley Street, Suite 1620,
Boston, MA 02116.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the SEC. The information is not necessarily indicative of
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting power or investment power and any shares as to which the
individual or entity has the right to acquire beneficial ownership within 60
days after April 30, 1999 through the exercise of any stock option or other
right. As of April 30, 1999, a total of 5,534,908 shares of common stock were
either outstanding or subject to options, warrants or other convertible
securities that are exercisable or that will become exercisable within 60 days
of the estimated effective date of this offering. The inclusion in this
prospectus of such shares, however, does not constitute an admission that the
named stockholder is a direct or indirect beneficial owner of such shares. In
the event that the overallotment option is exercised in full, the aggregate
number of outstanding shares of common stock would be 10,304,848. The applicable
percentage of "beneficial ownership" after this offering is based upon 3,539,843
shares of common stock outstanding at April 30, 1999. The number of shares of
common stock shown in this prospectus includes 24,802.5 shares of series A
convertible preferred stock on an as converted basis, which will be converted
into an aggregate of 1,000,000 shares of common stock and 24,802.5 shares of
series B redeemable preferred stock upon completion of this offering.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENTAGE OF SHARES BENEFICIALLY OWNED
NAME OF BENEFICIAL OWNERS OWNED BEFORE THE OFFERING AFTER THE OFFERING
- ----------------------------------------------------------- -------------- --------------------- -------------------
<S> <C> <C> <C>
Summit Partners Group (1).................................. 3,000,010 56.6% 31.0%
Thomas S. Roberts (2)...................................... 3,000,010 56.6 31.0
Rachel C. Burnett (3)...................................... 558,140 15.5 5.7
John J. Devine (3)......................................... 558,140 15.5 5.7
Alan P. Matthews (3)....................................... 558,140 15.5 5.7
Michael C. Robichaud (3)................................... 558,140 15.5 5.7
Glen P. Froio (4).......................................... 41,530 * *
Bethann G. Gilfeather (5).................................. 41,530 * *
Anthony J.M. Groves (6).................................... 11,628 * *
Scott C. Collins (7)....................................... 3,904 * *
James C. New (8)........................................... -- -- --
All executive officers and directors as a group (10
persons) (9)............................................. 5,327,258 96.2 55.9
</TABLE>
- --------------
* Less than 1%
(1) Represents:
- 1,372,128.1495 shares of common stock owned by Summit Ventures IV, L.P.;
57
<PAGE>
- 1,175,557.80 shares of common stock owned by Summit Ventures V, L.P.;
- 196,570.3285 shares of common stock owned by Summit V Companion Fund,
L.P.;
- 123,800.0 shares of common stock owned by Summit Subordinated Debt Fund
II, L.P.;
- 78,629.2685 shares of common stock owned by Summit V Advisors Fund (QP),
L.P.;
- 29,294.1790 shares of common stock owned by Summit Investors III, L.P.;
and
- 24,030.2745 shares of common stock owned by Summit V Advisors Fund, L.P.
Summit Ventures IV, L.P., Summit Ventures V, L.P., Summit V Companion Fund,
L.P., Summit Subordinated Debt Fund II, L.P., Summit V Advisors Fund (QP),
L.P., Summit Investors III, L.P. and Summit V Advisors Fund, L.P. are part
of an affiliated group of investment partnerships referred to, collectively,
as the Summit Partners Group. Mr. Roberts, one of our directors, is a
general partner of Stamps, Woodsum & Co., IV, which is the ultimate general
partner of Summit Ventures IV, L.P., a member of Summit Partners, LLC, which
is the ultimate general partner of each of Summit Ventures V, L.P., Summit V
Companion Fund, L.P., Summit V Advisors Fund (QP), L.P. and Summit V
Advisors Fund, L.P. and a member of Summit Partner SD II, LLC, which is the
general partner of Summit Subordinated Debt Fund II, L.P.
(2) Represents shares described in note (1) above. Mr. Roberts, one of our
directors is a member of Summit Partners, LLC and is a member or general
partner of affiliates of Summit Partners, LLC, and, as such, has the power
to vote or direct the vote of and to dispose of or direct the disposition of
the shares owned by the Summit Partners Group. Mr. Roberts disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(3) Includes 58,140 shares of common stock which may be acquired upon exercise
of stock options that are currently exercisable.
(4) Represents shares of restricted common stock held by Mr. Froio all of which
shares will be vested upon the completion of this offering.
(5) Represents shares of restricted common stock held by Ms. Gilfeather all of
which shares will be vested upon the completion of this offering.
(6) Represents shares of restricted common stock held by Mr. Groves of which no
shares will be vested upon the completion of this offering. All of such
shares of restricted common stock will vest on April 30, 1999. Excludes
46,512 shares of common stock which may be acquired upon exercise of
unvested stock options, of which 15,504 will vest on April 30, 2000 and an
additional 3,878 will vest at the end of each fiscal quarter beginning June
30, 2000 and ending March 31, 2002, and 38,383 shares of common stock which
may be acquired upon exercise of unvested stock options, of which 19,191.5
will vest on October 1, 2000 and an additional 3,192.5833 will vest at the
end of each fiscal quarter beginning December 31, 2000 and ending March 31,
2002.
(7) Represents shares of common stock owned by Summit Investors III, L.P. in
which Mr. Collins holds a pecuniary interest.
(8) Excludes 14,535 shares of common stock which may be acquired upon exercise
of unvested stock options, of which 3,631.25 will vest on August 11, 1999
and an additional 908.4375 will vest at the end of each fiscal quarter
beginning September 30, 1999 and ending June 30, 2002, and 7,500 shares of
common stock which may be acquired upon exercise of unvested stock options,
of which 1,875 will vest on April 1, 2000 and an additional 468.75 will vest
at the end of each fiscal quarter beginning June 30, 2000 and ending March
31, 2002.
(9) Represents 5,327,258 shares held of record by current executive officers and
directors as a group and 207,650 shares subject to options or warrants
exercisable within 60 days of April 30, 1999 held by current executive
officers and directors as a group.
58
<PAGE>
DESCRIPTION OF INDEBTEDNESS
Our senior bank debt with BankBoston, N.A. and several other lending
institutions will remain in place following the completion of the offering. The
following is a summary of the material terms of the senior bank debt. Although
the material provisions have been accurately summarized, statements concerning
the provisions of any documents are not necessarily complete, and in each
instance you should refer to the form of the relevant document to be filed as an
exhibit to the registration statement. Each statement below is qualified in its
entirety by such reference.
SENIOR BANK DEBT
As of March 31, 1999, as part of our senior bank debt, we had $24.5 million
outstanding under a term loan and $2.0 million available under a revolving
credit facility. The term loan matures on June 4, 2003, and the revolving credit
facility commitment terminates June 4, 2003. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The senior bank debt is secured, with limited exceptions, by a perfected
first priority security interest in all our assets owned today and all assets we
acquire in the future. We have agreed to pledge as additional collateral all
assets owned by any subsidiaries which we may form or acquire in the future, and
we have agreed to cause any future subsidiaries to guarantee all outstanding
amounts.
Interest accrues on each base rate loan made under the revolving credit
facility at a rate equal to the higher of the interest rate established by
BankBoston, N.A. as its base rate or 0.5% above the federal funds effective
rate, plus the applicable margin.
Interest accrues on each LIBOR rate loan made under the revolving credit
facility at a rate equal to the rate determined by BankBoston, N.A. at which
dollar deposits for the applicable interest period are offered based on
information presented on Telerate Page 3750 as of 11:00 a.m. London time on the
second LIBOR business day before the first day of the applicable interest
period, divided by a number equal to 1.00 minus the eurocurrency reserve rate
determined under the loan documents.
Interest accrues on borrowings under the term loan, at our option, at either
of the following rates:
- to the extent that all or any portion of the term loan bears interest
during the applicable interest period at the base rate, the loan will bear
interest at the base rate, plus the applicable margin; or
- to the extent that all or any portion of the term loan bears interest
during the applicable interest period at the LIBOR rate, the loan will
bear interest at the LIBOR rate, plus the applicable margin.
The senior bank debt agreements impose a number of affirmative covenants on
us, including, without limitation, obligations to:
- deliver to the lenders financial statements and other periodic reports;
- provide the lenders notice of defaults, litigation, material events,
claims against collateral and judgments;
- afford the lenders access to our business for inspection purposes;
- pay all taxes or other assessments when due;
- comply with applicable laws and contracts;
- maintain our corporate existence and maintain our properties in good
repair; and
- maintain adequate and suitable insurance for our industry.
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<PAGE>
The senior bank debt agreements also impose on us a number of negative
covenants, including, without limitation, prohibitions on:
- incurring indebtedness, other than pursuant to subordinated indebtedness
or other limited circumstances;
- incurring liens on assets, other than in limited circumstances;
- making investments, except for permitted investments such as government
obligations and deposit accounts;
- making dividend or distribution payments on any class of our capital
stock, other than dividends payable in shares of common stock;
- making any payments to affiliates;
- entering into any merger or acquisition transaction with any third party
or any dissolution transaction;
- entering into sale leaseback transactions;
- changing lines of business; and
- entering into transactions with affiliates, other than on terms as
favorable as those obtainable on an arm's length basis in the ordinary
course of business.
We are required under the senior bank debt to meet financial covenants,
consisting of (a) a maximum leverage ratio, (b) a minimum debt service coverage
ratio and (c) a minimum current ratio of consolidated current assets to
consolidate current liabilities.
The senior bank debt agreements specify events of default, including,
without limitation:
- non-payment of principal when due or interest, fees or other amounts after
a three-day grace period;
- breach of any other agreement in the senior bank debt agreements not cured
within 30 days of notice of the breach;
- default under other agreements governing indebtedness;
- material breach of any representation or warranty in the agreements;
- events of bankruptcy or insolvency;
- failure of the lenders' security interest to be perfected or to have first
priority;
- failure to satisfy material ERISA requirements;
- any reduction of the ownership of the Summit investors below 25% of the
outstanding common stock; and
- any liquidity event.
Our senior bank debt agreements, including further detail regarding the
affirmative covenants, negative covenants, financial covenants and default
provisions of such agreements, are attached as exhibits to our publicly
available registration statement of which this prospectus is a part. See "Where
You Can Find More Information."
In connection with our senior bank debt, we also entered into an interest
rate collar agreement for the term loan, with a notional amount of $13.0
million, to reduce our exposure to market risks from changes in interest rates.
The interest rate collar expires on August 4, 2000. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Interest Rate
Risk," and notes 2 and 5 of notes to our financial statements included elsewhere
in this prospectus.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
There are 3,539,843 shares of common stock and 24,802.5 shares of series A
convertible preferred stock issued and outstanding. In connection with and
subject to the closing of the offering, the Summit investors will convert all of
the outstanding shares of series A convertible preferred stock into an aggregate
of 1,000,000 shares of common stock and 24,802.5 shares of series B redeemable
preferred stock. Under the terms of the series B redeemable preferred stock,
upon the closing of the offering all of the outstanding shares of series B
redeemable preferred stock will be redeemed by us for an aggregate of
approximately $36.5 million, together with accrued dividends of approximately
$2.2 million as of March 31, 1999. At the same time, the holders of the
outstanding warrants will exercise the warrants for 780,005 shares of common
stock for an aggregate exercise price of approximately $3.5 million.
Following the offering, our authorized capital stock will consist of
50,000,000 shares of common stock of which 9,652,348 will be issued and
outstanding; and 5,000,000 shares of undesignated preferred stock issuable in
one or more series designated by the board of directors, of which no shares will
be issued and outstanding.
COMMON STOCK
VOTING RIGHTS
The holders of common stock have one vote per share. Holders of common stock
are not entitled to vote cumulatively for the election of directors. Generally,
all matters to be voted on by stockholders must be approved by a majority, or,
in the case of election of directors, by a plurality, of the votes entitled to
be cast at a meeting at which a quorum is present by all shares of common stock
present in person or represented by proxy, voting together as a single class,
subject to any voting rights granted to holders of any then outstanding
preferred stock. Except as otherwise provided by law, amendments to our
certificate of incorporation, which will be effective upon consummation of the
offering must be approved by a majority of the voting power of the common stock.
DIVIDENDS
Holders of common stock will share ratably in any dividends declared by the
board of directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock.
OTHER RIGHTS
In the event of any merger or consolidation of Stride with or into another
company as a result of which shares of common stock are converted into or
exchangeable for shares of stock, other securities or property, including cash,
all holders of common stock will be entitled to receive the same kind and
amount, on a per share of common stock basis, of such shares of stock and other
securities and property, including cash. On liquidation, dissolution or winding
up of Stride, all holders of common stock are entitled to share ratably in any
assets available for distribution to holders of shares of common stock. No
shares of common stock are subject to redemption or have preemptive rights to
purchase additional shares of common stock.
Following the offering, all the outstanding shares of common stock will be
legally issued, fully paid and nonassessable.
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<PAGE>
PREFERRED STOCK
Our certificate of incorporation provides that shares of preferred stock may
be issued from time to time in one or more series. Our board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences,
qualifications, limitations and restrictions thereof, applicable to the shares
of each series. The board of directors may, without stockholder approval, issue
preferred stock with voting and other rights that could adversely affect the
voting power and other rights of the holders of the common stock and could have
anti-takeover effects. We have no present plans to issue any shares of preferred
stock. The ability of the board of directors to issue preferred stock without
stockholder approval could have the effect of delaying, deferring or preventing
a change of control of Stride or the removal of existing management.
REGISTRATION RIGHTS
Under the terms of the Registration Rights Agreement entered into for the
June 1998 leveraged recapitalization, after the date of the recapitalization,
any of the Summit investors and our founding stockholders, who in the aggregate
hold twenty-five percent of the shares of common stock held by all of them, may
demand that we file a registration statement for the registration of at least
fifteen percent of their shares under the Securities Act. We are not required to
effect more than a total of four of these demand registrations.
After the closing of the offering, those stockholders also will be entitled
to piggyback registration rights in connection with any registration by us of
securities for our own account or the account of other stockholders. If we
propose to register any shares of common stock under the Securities Act, we are
required to give those stockholders notice of the registration and to include
their shares in the registration statement. At any time after we become eligible
to file a registration statement on Form S-3 under the Securities Act, these
stockholders may require us to file an unlimited number of registration
statements on Form S-3 with respect to their shares of common stock.
The registration rights of these stockholders will terminate when the shares
held by them may be sold under Rule 144 under the Securities Act. We are
generally required to bear all of the expenses of all demand and piggyback
registrations, except underwriting discounts and commissions. We also have
agreed to indemnify those stockholders under the terms of the Registration
Rights Agreement.
INDEMNIFICATION MATTERS
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director has
breached his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation Law
or obtained in improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our by-laws provide that directors and officers shall
be, and in the discretion of the board of directors, non-officer employees may
be, indemnified by Stride to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
Stride. The by-laws also provide that the right of directors and officers to
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. We also have directors' and officers'
insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Stride as
described above, we have been advised that in the
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<PAGE>
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable. At present, there is no
pending material litigation or proceeding involving any director, officer,
employee or agent of Stride in which indemnification will be required or
permitted.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Any amendment to our certificate of incorporation must first be approved by
a majority of the board of directors and thereafter approved by a majority of
the total votes eligible to be cast by holders of voting stock with respect to
such amendment.
BY-LAW PROVISIONS
Our by-laws provide that a special meeting of stockholders may be called
only by the President or the board of directors unless otherwise required by
law. Our by-laws provide that only those matters included in the notice of the
special meeting may be considered or acted upon at that special meeting unless
otherwise provided by law. In addition, our by-laws include advance notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stockholder wishes to make at an annual meeting of
stockholders.
ABILITY TO ADOPT STOCKHOLDER RIGHTS PLAN
The board of directors may in the future resolve to issue shares of
preferred stock or rights to acquire such shares to implement a stockholder
rights plan. A stockholder rights plan typically creates voting or other
impediments to discourage persons seeking to gain control of Stride by means of
a merger, tender offer, proxy contest or otherwise if the board of directors
determines that such change in control is not in the best interests of Stride
and our stockholders. The board of directors has no present intention of
adopting a stockholder rights plan and is not aware of any attempt to obtain
control of Stride.
STATUTORY BUSINESS COMBINATION PROVISION
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date such
person became an "interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66 2/3% of the outstanding
voting stock of the corporation not owned by the interested stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned, 15% or more of a corporation's outstanding voting stock. The term
"business combination" includes mergers, asset sales and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more
63
<PAGE>
difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. A Delaware corporation
may "opt out" of Section 203 with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or by-laws resulting from an amendment approved by holders of at
least a majority of the outstanding voting stock. Neither our certificate of
incorporation nor our by-laws contains any such exclusion.
TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM
We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the symbol STDA.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be American Stock
Transfer & Trust Company.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and no prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market price
of the common stock prevailing from time to time. Nonetheless, substantial sales
of common stock in the public market following the offering, or the perception
that such sales could occur, could lower market price of the common stock or
make it difficult for us to raise additional equity capital in the future.
Following this offering, there will be 9,652,348 shares of common stock
outstanding on a fully diluted basis. Of these shares, the 4,350,000 shares
which are being sold in the offering generally will be freely transferable
without restriction or further registration under the Securities Act, except
that any shares held by our "affiliates" as is defined in Rule 144 under the
Securities Act may be sold only in compliance with the limitations described
below. The remaining 5,302,348 shares of common stock which will be outstanding
after this offering will be "restricted securities" as defined in Rule 144, and
may be sold in the future without registration under the Securities Act subject
to compliance with the provisions of Rule 144 or any other applicable exemption
under the Securities Act. In connection with the offering, our existing
officers, directors and stockholders, who hold all of the currently outstanding
shares of common stock and will own the remaining 5,302,348 shares of common
stock after this offering, have agreed with the underwriters that, subject to
exceptions, they will not sell or dispose of any of their shares for 180 days
after the date of this prospectus. Hambrecht & Quist LLC may, in its sole
discretion and at any time without notice, release all or any portion of the
shares subject to such restrictions. Subject to these lock-up agreements, the
shares of common stock outstanding upon the closing of this offering will be
available for sale in the public market as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
SHARES DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
4,350,000 After the date of this prospectus, freely tradeable shares sold in this offering.
5,302,348 After 180 days from the date of this prospectus, the lock-up is released and these shares are
saleable under Rule 144 (subject, in some cases, to volume limitations), Rule 144(k), or under a
registration statement to register for resale shares of common stock issued upon the exercise of
stock options.
</TABLE>
In general, under Rule 144, as currently in effect, a person or persons
whose shares are required to be aggregated, including an affiliate of ours, and
who has beneficially owned shares for at least one year is entitled to sell,
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock, which is expected to be approximately
97,000 shares upon the completion of the offering, or the average weekly trading
volume of the common stock during the calendar weeks preceding the date on which
notice of such sale is filed, subject to certain restrictions. In addition, a
person who is not deemed to have been an affiliate of ours at any time during
the 90 days preceding a sale and who has beneficially owned the shares proposed
to be sold for at least two years would be entitled to sell such shares under
Rule 144(i) without regard to the requirements described above. To the extent
that shares were acquired from an affiliate of ours, such person's holding
period for the purpose of effecting a sale under Rule 144 commences on the date
of transfer from the affiliate.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except we
may issue, and grant options to purchase, shares of common stock under the 1998
Stock Option and Grant Plan. See "Risk Factors--The future sale of our common
stock could adversely affect the market price of our common stock."
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<PAGE>
Following the offering, under specified circumstances and subject to
customary conditions, the Summit investors and our founding stockholders will
have rights with respect to 5,000,010 shares of common stock, subject to the
180-day lock-up arrangement described above, to require us to register their
shares of common stock under the Securities Act, and they will have rights to
participate in any future registration of securities by us. We are not required
to effect more than an aggregate of four demand registrations on behalf of these
holders.
As of April 30, 1999, 511,612 shares were reserved for issuance under our
1998 Stock Option and Grant Plan, of which options to purchase 339,490 shares
were then outstanding. Beginning 180 days after the date of this prospectus,
approximately 237,100 shares issuable upon the exercise of vested options will
become eligible for sale.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC
and BancBoston Robertson Stephens Inc. have severally agreed with us to purchase
from us the following respective numbers of shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------
<S> <C>
Hambrecht & Quist LLC......................................................
BancBoston Robertson Stephens Inc. .......................................
---
Total......................................................................
---
---
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions precedent, including the absence of any material
adverse change in our business and the receipt of certificates, opinions and
letters from us, our counsel and independent auditors. The nature of the
underwriters' obligation is that they are committed to purchase all shares of
common stock offered by this prospectus if any of the shares are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price shown on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $ per share. The underwriters may allow and the dealers may reallow
a concession not in excess of $ per share to other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the representatives of the underwriters. The
representatives have advised us that the underwriters do not intend to confirm
discretionary sales in excess of 5% of the shares of common stock offered by
this prospectus.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus to purchase up to 652,500 additional
shares of common stock at the initial public offering price less the
underwriting discount, shown on the cover page of this prospectus. To the extent
that the underwriters exercise this option, each of the underwriters will have a
firm commitment to purchase approximately the same percentage of the option
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered. We will
be obligated, as part of the option, to sell shares to the underwriters to the
extent the option is exercised. The underwriters may exercise such option only
to cover over-allotments made in connection with the sale of shares of common
stock offered.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Stride, the founding stockholders and a group investment funds associated
with Summit Partners, LLC have agreed to indemnify the underwriters against
specific liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
those liabilities.
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All our stockholders and directors, who will own in the aggregate 5,302,348
shares of common stock after the offering, have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell, or
otherwise dispose of any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable for or convertible into shares
of common stock owned by them during the 180-day period following the date of
this prospectus. We have agreed that we will not, without the prior written
consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock during
the 180-day period following the date of this prospectus, except that we may
issue shares upon the exercise of options granted before the closing of this
offering, and may grant additional options under our stock option plans,
provided that, without the prior written consent of Hambrecht & Quist LLC, these
additional options will not be exercisable during that period.
Before the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation among us and the underwriters. Among the factors considered in
determining the initial public offering price are prevailing market and economic
conditions, our revenue and earnings, market valuations of other companies
engaged in activities similar to us, estimates of our business potential and
prospects, the present state of our business operations, our management and
other factors deemed relevant. The estimated initial public offering price range
shown on the cover of this prospectus is subject to change as a result of market
conditions and other factors.
Some persons participating in the offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effective syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting any purchase, for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when the common stock sold by the syndicate member is purchased in
syndicate covering transactions. Such transactions may be effected on the Nasdaq
National Market, in the over-the-counter market, or otherwise. Such stabilizing,
if commenced may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Stride by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Various
legal matters related to the sale of the common stock offered hereby will be
passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
Our audited financial statements as of December 31, 1997 and 1998, and for
each of the three years in the period ended December 31, 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this prospectus, and have been so included
in reliance upon their authority as experts in accounting and auditing.
68
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act and the rules and regulations thereunder, for the registration of
the common stock offered hereby. This prospectus, which forms a part of the
registration statement, does not contain all the information included in the
registration statement, parts of which have been omitted as permitted by the SEC
rules and regulations. For further information about us and our common stock,
you should refer to the registration statement. Statements contained in this
prospectus as to any contract or other document are not necessarily complete.
Where the contract or other document is an exhibit to the registration
statement, each statement is qualified by the provisions of that exhibit.
The registration statement can be inspected and copied at the public
reference facility maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the registration statement can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the registration statement is publicly available
through the SEC's site on the Internet's World Wide Web, located at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the Web site of the SEC referred to above.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999 (Unaudited)........................... F-3
Statements of Income for the Years Ended December 31, 1996, 1997 and 1998
and for the Three Months Ended March 31, 1998 (Unaudited) and 1999 (Unaudited)......................... F-4
Statements of Common Stockholders' Equity (Deficiency) for the Years Ended December 31, 1996, 1997 and
1998 and for the Three Months Ended March 31, 1999 (Unaudited)......................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and for the Three Months
Ended March 31, 1998 (Unaudited) and 1999 (Unaudited).................................................. F-6
Notes to Financial Statements............................................................................ F-7
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES:
The information required for supplemental financial statement schedules is either not applicable or is included
elsewhere in the financial statements.
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Stride & Associates, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Stride & Associates, Inc.
(the "Company") as of December 31, 1997 and 1998, and the related statements of
income, common stockholders' equity (deficiency) 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
NEW YORK, NEW YORK
FEBRUARY 1, 1999 (MAY 6, 1999 AS TO NOTE 14)
------------------------
F-2
<PAGE>
STRIDE & ASSOCIATES, INC.
BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- -----------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 736 $ 3,683 $ 4,079
Accounts receivable, net of allowances for placement fall-offs and doubtful
accounts of $380, $640 and 744, respectively (Note 13)................... 2,359 2,832 3,302
Prepaid expenses and other current assets.................................. 125 388 202
---------- ---------- -----------
Total current assets................................................... 3,220 6,903 7,583
DEBT ISSUANCE COSTS.......................................................... -- 142 134
DEFERRED COSTS............................................................... -- 465 712
PROPERTY AND EQUIPMENT, Net.................................................. 560 838 1,139
---------- ---------- -----------
TOTAL ASSETS................................................................. $ 3,780 $ 8,348 $ 9,568
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable........................................................... $ 71 $ 396 $ 708
Accrued expenses........................................................... 861 2,152 2,680
Current portion of term loan............................................... -- 3,577 4,002
Deferred income taxes...................................................... -- 75 25
---------- ---------- -----------
Total current liabilities.............................................. 932 6,200 7,415
TERM LOAN.................................................................... -- 21,623 20,498
SUBORDINATED DEBENTURES...................................................... -- 10,000 10,000
DEFERRED INCOME TAXES........................................................ -- 645 550
---------- ---------- -----------
Total liabilities...................................................... 932 38,468 38,463
---------- ---------- -----------
SERIES A CONVERTIBLE PREFERRED STOCK,
$0.01 par value per share; 24,802.5 shares authorized, issued and
outstanding as of December 31, 1998 and March 31, 1999..................... -- 25,299 25,965
---------- ---------- -----------
SERIES B REDEEMABLE PREFERRED STOCK,
$0.01 par value per share; 24,802.5 shares authorized and no shares issued
and outstanding............................................................ -- -- --
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 12)
COMMON STOCKHOLDERS' EQUITY (DEFICIENCY):
Common Stock, $0.01 par value per share; 50,000,000 shares authorized;
5,000,000 shares issued and outstanding as of December 31, 1997;
3,539,843 shares issued and outstanding as of December 31, 1998 and March
31, 1999................................................................. 50 35 35
Additional paid-in capital................................................. -- 5,718 5,052
Deferred compensation...................................................... -- (984) (882)
Note receivable from officer and stockholder............................... -- (160) (166)
Retained earnings (accumulated deficit).................................... 2,798 (60,028) (58,899)
---------- ---------- -----------
Total common stockholders' equity (deficiency)......................... 2,848 (55,419) (54,860)
---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)...................... $ 3,780 $ 8,348 $ 9,568
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
STRIDE & ASSOCIATES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
NET REVENUES (Note 13)....................................... $ 10,614 $ 19,187 $ 28,804 $ 5,879 $ 8,427
COST OF SERVICES............................................. 3,742 6,426 9,849 2,081 2,869
--------- --------- --------- --------- ---------
GROSS PROFIT................................................. 6,872 12,761 18,955 3,798 5,558
OPERATING EXPENSES........................................... 2,460 4,655 8,305 1,749 2,692
MANAGEMENT FEES (Note 13).................................... 3,719 7,620 2,869 1,533 --
NON-RECURRING RECAPITALIZATION COSTS (Note 11)............... -- -- 2,239 -- 102
--------- --------- --------- --------- ---------
INCOME FROM OPERATIONS....................................... 693 486 5,542 516 2,764
OTHER INCOME (EXPENSE):
Interest income............................................ 85 38 108 18 41
Interest expense........................................... (23) (11) (1,856) -- (776)
--------- --------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES..................... 755 513 3,794 534 2,029
PROVISION FOR INCOME TAXES................................... 23 62 1,935 -- 900
--------- --------- --------- --------- ---------
NET INCOME................................................... 732 451 1,859 534 1,129
PREFERRED STOCK DIVIDENDS.................................... -- -- 1,553 -- 666
--------- --------- --------- --------- ---------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS.................. $ 732 $ 451 $ 306 $ 534 $ 463
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NET INCOME PER COMMON SHARE:
Basic...................................................... $ 0.15 $ 0.09 $ 0.07 $ 0.11 $ 0.13
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted.................................................... $ 0.15 $ 0.09 $ 0.06 $ 0.11 $ 0.09
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic...................................................... 5,000 5,000 4,158 5,000 3,540
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted.................................................... 5,000 5,000 4,734 5,000 5,009
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
STRIDE & ASSOCIATES, INC.
STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTE RETAINED
COMMON STOCK ADDITIONAL RECEIVABLE EARNINGS
------------------------- PAID-IN DEFERRED FROM OFFICER AND (ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDER DEFICIT)
------------ ----------- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996............... 5,000,000 $ 50 $ -- $ -- $ -- $ 1,615
Net income........................... -- -- -- -- -- 732
------------ --- ----------- ------------- ----- ------------
BALANCE, DECEMBER 31, 1996............. 5,000,000 50 -- -- -- 2,347
Net income........................... -- -- -- -- -- 451
------------ --- ----------- ------------- ----- ------------
BALANCE, DECEMBER 31, 1997............. 5,000,000 50 -- -- -- 2,798
"S" corporation distributions........ -- -- -- -- -- (929)
Issuance of common stock............. 1,237,505 12 5,185 -- -- --
Common stock warrants granted in
connection with the issuance of
Series A Convertible Preferred
Stock.............................. -- -- 1,057 -- -- --
Direct costs of common and preferred
stock issuance..................... -- -- (349) -- -- --
Issuance of restricted stock......... 302,338 3 1,378 (1,221) (160) --
Repurchase of common stock........... (3,000,000) (30) -- -- -- (63,756)
Dividends on Series A Convertible
Preferred Stock.................... -- -- (1,553) -- -- --
Compensation expense recognized...... -- -- -- 237 -- --
Net income........................... -- -- -- -- -- 1,859
------------ --- ----------- ------------- ----- ------------
BALANCE, DECEMBER 31, 1998............. 3,539,843 35 5,718 (984) (160) (60,028)
Dividends on Series A Convertible
Preferred Stock (Unaudited)........ -- -- (666) -- -- --
Compensation expense recognized
(Unaudited)........................ -- -- -- 102 -- --
Interest on Note Receivable from
Officer and Stockholder
(Unaudited)........................ -- -- -- -- (6) --
Net income (Unaudited)............... -- -- -- -- -- 1,129
------------ --- ----------- ------------- ----- ------------
BALANCE, MARCH 31, 1999 (Unaudited).... 3,539,843 $ 35 $ 5,052 $ (882) $ (166) $ (58,899)
------------ --- ----------- ------------- ----- ------------
------------ --- ----------- ------------- ----- ------------
<CAPTION>
TOTAL
----------
<S> <C>
BALANCE, JANUARY 1, 1996............... $ 1,665
Net income........................... 732
----------
BALANCE, DECEMBER 31, 1996............. 2,397
Net income........................... 451
----------
BALANCE, DECEMBER 31, 1997............. 2,848
"S" corporation distributions........ (929)
Issuance of common stock............. 5,197
Common stock warrants granted in
connection with the issuance of
Series A Convertible Preferred
Stock.............................. 1,057
Direct costs of common and preferred
stock issuance..................... (349)
Issuance of restricted stock......... --
Repurchase of common stock........... (63,786)
Dividends on Series A Convertible
Preferred Stock.................... (1,553)
Compensation expense recognized...... 237
Net income........................... 1,859
----------
BALANCE, DECEMBER 31, 1998............. (55,419)
Dividends on Series A Convertible
Preferred Stock (Unaudited)........ (666)
Compensation expense recognized
(Unaudited)........................ 102
Interest on Note Receivable from
Officer and Stockholder
(Unaudited)........................ (6)
Net income (Unaudited)............... 1,129
----------
BALANCE, MARCH 31, 1999 (Unaudited).... $ (54,860)
----------
----------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
STRIDE & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 732 $ 451 $ 1,859 $ 534 $ 1,129
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 95 180 251 56 92
Provision for doubtful accounts receivable................... 247 180 205 137 104
Amortization of deferred compensation........................ -- -- 237 -- 102
Amortization of debt issuance costs.......................... -- -- 19 -- 8
Deferred income taxes........................................ -- -- 720 -- (145)
Other........................................................ 15 -- -- -- (6)
Changes in operating assets and liabilities:
Accounts receivable........................................ (615) (721) (678) 29 (574)
Prepaid expenses and other current assets.................. (81) (11) (263) (65) 186
Accounts payable........................................... (45) (85) 325 57 312
Accrued expenses........................................... 93 562 1,291 150 528
--------- --------- ---------- --------- ---------
Net cash provided by operating activities................ 441 556 3,966 898 1,736
--------- --------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES --
Purchases of property and equipment............................ (152) (463) (529) (168) (393)
--------- --------- ---------- --------- ---------
Net cash used in investing activities.................... (152) (463) (529) (168) (393)
CASH FLOWS FROM FINANCING ACTIVITIES:
S corporation distributions.................................... -- -- (929) -- --
Proceeds from issuance of common stock......................... -- -- 5,197 -- --
Proceeds from issuance of Series A Convertible Preferred Stock
and warrants................................................. -- -- 24,803 -- --
Direct costs of common and preferred stock issuance............ -- -- (349) -- --
Proceeds from issuance of subordinated debentures.............. -- -- 10,000 -- --
Borrowings under term loan..................................... -- -- 26,000 -- --
Repayments under term loan..................................... -- -- (800) -- (700)
Debt issuance costs............................................ -- -- (161) -- --
Repurchase of common stock..................................... -- -- (63,786) -- --
Deferred costs................................................. -- -- (465) -- (247)
Decrease in notes receivable from stockholders................. (286) 640 -- -- --
--------- --------- ---------- --------- ---------
Net cash provided by (used in) financing activities...... (286) 640 (490) -- (947)
--------- --------- ---------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................ 3 733 2,947 730 396
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................... 0 3 736 736 3,683
--------- --------- ---------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR........................... $ 3 $ 736 $ 3,683 $ 1,466 $ 4,079
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest......................... $ 23 $ 11 $ 1,837 $ -- $ 768
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Cash paid during the year for income taxes..................... $ 48 $ 62 $ 1,347 $ -- $ 10
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
See notes to financial statements
F-6
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (INFORMATION AS IT RELATES TO THE
THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
NATURE OF BUSINESS--Stride & Associates, Inc. (the "Company") was formed on
October 7, 1994 and commenced operations on January 1, 1995. The Company
operates in one business segment and is a leading provider of information
technology professionals on a permanent, full-time basis. At December 31, 1998,
the Company had 12 offices in New York, California, Massachusetts and Georgia.
In January 1999, the Company opened three new offices in Chicago, Illinois,
Atlanta, Georgia and Los Angeles, California.
On June 4, 1998, the Company engaged in a leveraged recapitalization of the
Company (the "Recapitalization") pursuant to which, (i) the Company borrowed
$26.0 million under a term loan agreement (ii) the Company received $10.0
million in cash from an investor in connection with the issuance of Subordinated
Debentures (iii) the Company received $24,802,500 in cash from an investor in
connection with the issuance of 24,802.5 shares of Series A Convertible
Preferred Stock and warrants to purchase 762,505 shares of common stock at an
exercise price of $4.62 per share (iv) the Company received $5,197,500 in cash
from an investor in connection with the issuance of 1,237,505 shares of common
stock, and (v) the Company paid $63,786,100 in cash to reacquire 3,000,000
shares of common stock (the "Redemption Shares") from the founding stockholders.
Upon the surrender of the Redemption Shares to the Company, the Company
cancelled such Redemption Shares, which shares thereafter ceased to be issued
and outstanding.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION--Placement fee revenues are recognized at the effective
hire date of the individual placed, net of the appropriate allowance for
placement fall-offs. The Company's placement contracts typically provide a
30-day refundable guarantee under which the Company will refund payments to the
customer if the placed candidate ceases to be employed for any reason at the end
of the 30-day period.
The table below depicts the activity in the allowances for placement
fall-offs and doubtful accounts for the years ended December 31, 1996, 1997 and
1998:
<TABLE>
<CAPTION>
ALLOWANCE FOR
PLACEMENT ALLOWANCE FOR TOTAL
FALL-OFFS DOUBTFUL ACCOUNTS ALLOWANCES
------------------ ------------------- -----------
<S> <C> <C> <C>
Balance, January 1, 1996...................................... $ 106 $ 130 $ 236
Charged to operating expenses................................. -- 247 247
Charged against revenues...................................... 584 -- 584
Amounts written off........................................... (570) (252) (822)
------- ----- -----------
Balance, December 31, 1996.................................... 120 125 245
Charged to operating expenses................................. -- 180 180
Charged against revenues...................................... 1,151 -- 1,151
Amounts written off........................................... (1,071) (125) (1,196)
------- ----- -----------
Balance, December 31, 1997.................................... 200 180 380
Charged to operating expenses................................. -- 205 205
Charged against revenues...................................... 1,711 -- 1,711
Amounts written off........................................... (1,604) (52) (1,656)
------- ----- -----------
Balance, December 31, 1998.................................... $ 307 $ 333 $ 640
------- ----- -----------
------- ----- -----------
</TABLE>
F-7
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS--Cash equivalents represent investments with
maturities of three months or less and are stated at carrying value, which
approximates market value.
DEBT ISSUANCE COSTS--Debt issuance costs relate to the costs associated with
obtaining the term loan and revolving credit facility, and are being amortized
on a straight-line basis over the five-year term of the related debt and are
included in interest expense.
DEFERRED COSTS--Deferred costs include costs associated with the Company's
proposed initial public offering. Such costs will be charged against additional
paid-in capital upon the effective date of the initial public offering.
PROPERTY AND EQUIPMENT--Property and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation of property and
equipment is provided for by the straight-line method over the estimated useful
lives of the related assets (3 to 5 years). Leasehold improvements are amortized
over the lesser of the term of the respective lease or the estimated useful
lives of the improvements (5 years).
LONG-LIVED ASSETS--In 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"),
which requires the Company to periodically assess the recoverability of the
carrying value of long-lived assets, including intangible assets, property and
equipment, based on estimated undiscounted cash flows on an individual asset
basis. If the estimated undiscounted cash flows are less than the carrying
value, an impairment loss is charged to operations based on the difference
between the carrying amount and the estimated discounted cash flows. The
adoption of SFAS 121 did not have a material impact on the Company's financial
statements.
INCOME TAXES--Prior to the Recapitalization, the Company was an "S"
corporation, pursuant to the Internal Revenue Code. Under the "S" corporation
election, all of the Company's income, deductions and credits are passed through
to, and taken into account by, the Company's stockholders in computing their own
taxable income. No provision for Federal income taxes has been recorded in the
accompanying financial statements for the periods prior to the Recapitalization.
A provision for state and local taxes has been recorded in the accompanying
financial statements for those jurisdictions which tax "S" corporations. Upon
consummation of the Recapitalization, the Company terminated its "S" corporation
status.
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires an asset and liability approach to income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities, and are
measured using enacted tax rates and laws that are expected to be in effect when
the differences are expected to reverse.
NET INCOME PER COMMON SHARE--Basic net income per common share is computed
by dividing net income available to common stockholders by the weighted average
common shares outstanding. Diluted net income per common share further assumes
the issuance of common shares for all dilutive outstanding common stock
equivalents. For the years ended December 31, 1996 and 1997 and the three months
ended March 31, 1998, there were no outstanding common stock equivalents. For
the year ended December 31, 1998 and the three months ended March 31, 1999, the
effect of dilutive common stock equivalents was approximately 576,000 shares and
1,000,000 shares, respectively, resulting from the
F-8
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assumed conversion of the Series A Convertible Preferred Stock. The effect of
outstanding options and warrants for the year ended December 31, 1998 and the
three months ended March 31, 1999 was zero and approximately 469,000 shares,
respectively.
STOCK SPLIT--Effective June 4, 1998, the Company authorized a 5,000 for one
stock split effected in the form of a stock dividend. All share and per share
data in these financial statements have been retroactively restated to reflect
this stock split.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The following methods and assumptions
were used to estimate the fair value of each class of financial instruments:
1. CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED
EXPENSES--The carrying amounts approximate fair value because of the short
maturity of these instruments.
2. TERM LOAN AND SUBORDINATED DEBENTURES--The carrying amounts approximate fair
value based on borrowing rates currently available to the Company for debt
with similar terms.
3. NOTE RECEIVABLE FROM OFFICER AND STOCKHOLDER--The carrying amount
approximates fair value based on the Company's estimate of the current
replacement cost of this instrument.
4. SERIES A CONVERTIBLE PREFERRED STOCK--The carrying amount approximates fair
value due to the relatively short period of time between the issuance of
this instrument and the balance sheet date, and the Company's estimate of
the current replacement cost of this instrument.
5. INTEREST RATE COLLAR--The carrying value of the financial instrument is $0
and the approximate fair value at December 31, 1998 is a liability of
approximately $125,000, based on the net present value of the future
expected cash flows using the current LIBOR yield curve at December 31,
1998.
UNAUDITED INTERIM FINANCIAL STATEMENTS--In the opinion of management, the
unaudited financial statements for the three months ended March 31, 1998 and
1999 are presented on a basis consistent with the audited financial statements
and reflect all adjustments, consisting of only normal recurring adjustments
necessary for a fair presentation of the results thereof. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for the entire year.
INTEREST RATE COLLAR AGREEMENT--The Company's interest rate collar agreement
is designated and effective as a modification to an existing debt obligation to
reduce the impact of changes in the interest rate on its floating rate
borrowings and, accordingly, is accounted for using the settlement method of
accounting. The differential to be paid or received under the interest rate
collar agreement is accrued as interest rates change and is recognized as an
adjustment to interest expense. The Company considers collar terms including the
reference rate, payment and maturity dates and the notional amount in
determining if an interest rate collar agreement is effective at modifying an
existing debt obligation. If the criteria for designation are no longer met or
the underlying instrument is extinguished, the Company will account for its
outstanding collar agreement at fair market value and any resulting gain or loss
will be recognized as other income or expense. Any gains or losses on the early
termination of the collar agreement will be deferred and amortized over the
shorter of the remaining useful life of the hedged existing debt obligation or
the original life of the interest rate collar agreement.
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
F-9
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS--Certain prior year balances have been reclassified to
conform with current year classifications.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT--During 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires that all derivative financial instruments be recognized
as either assets or liabilities in the balance sheet. Measurement is at fair
value, and if the derivative is not designated as a hedging instrument, changes
in fair value (i.e., gains and losses) are to be recognized in earnings in the
period of change. If certain conditions are met, a derivative may be designated
as a hedge, in which case the accounting for changes in fair value will depend
on the specific exposure being hedged. The method that will be used for
assessing the effectiveness of a hedging derivative, as well as the measurement
approach for determining the ineffective aspects of the hedge, must be
established at the inception of the hedge. The methods must be consistent with
the Company's approach to managing risk. SFAS 133 will be effective for fiscal
years beginning after June 15, 1999. The Company is currently evaluating the
impact that SFAS 133 will have on its financial statements.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Computer equipment............................................... $ 178 $ 307 $ 378
Furniture and fixtures........................................... 662 942 1,245
Leasehold improvements........................................... 123 231 250
--------- --------- -----------
963 1,480 1,873
Less accumulated depreciation and amortization................... 403 642 734
--------- --------- -----------
Property and equipment--net...................................... $ 560 $ 838 $ 1,139
--------- --------- -----------
--------- --------- -----------
</TABLE>
During 1997 and 1998, approximately $20,000 and $12,000 of fully depreciated
computer equipment was written-off.
F-10
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Employee compensation............................................ $ 551 $ 1,412 $ 1,025
Advertising...................................................... 74 120 150
Income taxes payable............................................. -- -- 904
Other............................................................ 236 620 601
--------- --------- -----------
Total............................................................ $ 861 $ 2,152 $ 2,680
--------- --------- -----------
--------- --------- -----------
</TABLE>
5. TERM LOAN AND REVOLVING CREDIT FACILITY
The Company has an available line of credit with a bank totaling $300,000.
Borrowings under this line of credit bear interest at the prime rate (the prime
rate being 7.75 percent at December 31, 1998) plus one percent. The line of
credit expires December 31, 1999. There were no borrowings under this line of
credit as of December 31, 1997 and 1998.
In connection with the Recapitalization, the Company borrowed $26.0 million
under a term loan agreement with a number of lending institutions (the "Term
Loan"). Additionally, a $2.0 million revolving credit facility (the "Credit
Facility") was also obtained from the same lending institutions, to provide for
working capital requirements, and such Credit Facility expires in June 2003.
There were no borrowings under the Credit Facility as of December 31, 1998. The
Term Loan is payable in twenty consecutive quarterly payments, payable on the
last day of each calendar quarter commencing on September 30, 1998, with a final
payment representing the remaining unpaid principal balance due on June 4, 2003.
In addition, the Company is required to make mandatory annual repayments equal
to fifty percent of excess cash flow, as defined, no later than 120 days after
the end of the fiscal year end. As of December 31, 1998, approximately $777,000
representing mandatory payments for excess cash flow for the period from June 4,
1998 to December 31, 1998, is included in the current portion of term loan on
the accompanying balance sheet. In the event of an Asset Sale, as defined, or
Equity Issuance, as defined, all of the net proceeds must be applied first to
repay the remaining outstanding balance of the Term Loan (see Note 14). Minimum
required repayments of the Term Loan are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------- AMOUNT
-----------------------
(IN THOUSANDS OF
DOLLARS)
<S> <C>
1999............................................................... $ 3,577
2000............................................................... 4,500
2001............................................................... 6,300
2002............................................................... 7,300
2003............................................................... 3,523
-------
Total.............................................................. $ 25,200
-------
-------
</TABLE>
Borrowings under the Term Loan and Credit Facility bear interest at the
bank's base rate, as defined, plus the applicable margin (ranging between 25 and
100 basis points), or at the LIBOR rate plus the applicable margin (ranging
between 150 and 225 basis points). Such margins are subject to
F-11
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. TERM LOAN AND REVOLVING CREDIT FACILITY (CONTINUED)
reduction based upon the achievement of certain performance targets, as defined.
The Company's borrowing rate at December 31, 1998 was 7.03 percent per annum.
The Company must also pay a commitment fee of 0.375 percent per annum. The Term
Loan and Credit Facility are secured by substantially all of the assets of the
Company.
The Term Loan and Credit Facility, among other matters, requires the Company
to maintain certain leverage, debt service and current ratios and places
restrictions on additional indebtedness and the payment of dividends.
Additionally, effective August 4, 1998, the Company entered into an interest
rate collar agreement (the "Collar") with a notional amount of $13.0 million
related to the Term Loan to reduce its exposure to market risks from changes in
interest rates. The Collar expires on August 4, 2000. Under the terms of the
Collar, if the floating rate option is greater than the cap rate of 7.75 percent
(inclusive of the applicable margin at December 31, 1998), the bank will pay the
Company an amount equal to the difference of the two rates. If the floating rate
option is less than the floor rate of 7.38 percent (inclusive of the applicable
margin at December 31, 1998), the Company will pay the bank an amount equal to
the difference of the two rates. If the floating rate option is equal to or
between the floor rate of 7.38 percent and the cap rate of 7.75 percent, no
payments will be made. The payment dates are on the last business days of March,
June, September and December in each year. Income or expense with respect to the
Collar is recorded as a component of interest expense on the accompanying
statement of income.
At December 31, 1998, the fair market value of the Collar, as discussed in
Note 2, was calculated on the assumption that the underlying LIBOR rates will
continue to decrease through the remaining term of the Collar. As such, the
Company's obligation to make payments under the terms of the Collar will be
largely offset by the impact of lower LIBOR rates on the balance of the Term
Loan.
6. SUBORDINATED DEBENTURES
The Subordinated Debentures (the "Debentures") bear interest at 12 percent
per annum, payable quarterly. Upon an occurrence of an Event of Default, as
defined, any unpaid principal balance may become due upon demand and shall bear
an interest rate of 14 percent per annum. The Debentures mature on August 4,
2003. The Debentures are subordinated in right of payment to all existing and
future senior indebtedness of the Company. The Debentures are required to be
repaid in full upon consummation of a Liquidity Event, as defined. The Company
can repay the Debentures in whole or from time to time in installments of not
less than $100,000, without premium or penalty.
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1996 and
1997, and through the consummation of the Recapitalization on June 4, 1998,
represents state and local taxes for those jurisdictions that impose a tax on
"S" corporations. Upon consummation of the Recapitalization, the Company
terminated its "S" corporation status.
F-12
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Current:
Federal............................................................ $ -- $ -- $ 787
State and local.................................................... 23 62 428
--------- --------- ---------
23 62 1,215
--------- --------- ---------
Deferred:
Federal............................................................ -- -- 493
State and local.................................................... -- -- 227
--------- --------- ---------
-- -- 720
--------- --------- ---------
$ 23 $ 62 $ 1,935
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of timing differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The income tax effects of
significant items comprising the Company's net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
CURRENT LONG-TERM TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Deferred tax assets:
Allowance for doubtful accounts............................ $ 277 $ -- $ 277
Difference between book and tax basis of property and
equipment................................................ -- 29 29
Accrued straight-line rent................................. 28 -- 28
----- ----- ---------
305 29 334
----- ----- ---------
Deferred tax liabilities:
Deferred compensation...................................... (151) (215) (366)
Change from cash to accrual basis.......................... (229) (459) (688)
----- ----- ---------
(380) (674) (1,054)
----- ----- ---------
Net deferred tax liabilities................................. $ (75) $ (645) $ (720)
----- ----- ---------
----- ----- ---------
</TABLE>
F-13
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The difference between the statutory Federal tax rate and the Company's
effective tax rate is as follows (as a percentage of pre-tax income):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Statutory Federal income tax rate............................... 34.0% 34.0% 34.0%
State and local income taxes (net of Federal tax benefit)....... 3.0 12.1 12.3
Exempt income due to "S" corporation status..................... (34.0) (34.0) (10.8)
Change in tax status............................................ -- -- 11.0
Other........................................................... -- -- 4.5
--------- --------- ---------
Effective tax rate.............................................. 3.0% 12.1% 51.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
8. PREFERRED STOCK AND WARRANTS
Each share of Series A Non-voting Convertible Preferred Stock ("Series A
Preferred Stock") may, at the election of the holder, be converted into one
share of Series B Non-voting Redeemable Preferred Stock ("Series B Preferred
Stock") and 40.3185 shares of common stock (which represents a total of
1,000,000 shares of common stock). Upon the conversion of the Series A Preferred
Stock to Series B Preferred Stock, the Company will reduce the balance
applicable to the preferred stock by $4.2 million, which represents the fair
value allocation of the cash proceeds received at issuance attributable to the
1,000,000 shares of common stock, and increase common stock and additional
paid-in capital. The Series A Preferred Stock shall pay dividends of nine
percent per annum of the Base Liquidation Amount ($1,209.56 per share) when and
as declared by the Board of Directors. To the extent not paid, dividends shall
cumulate and compound annually. Upon conversion of the Series A Preferred Stock,
any dividends which have cumulated and have not been paid shall attach to the
Series B Preferred Stock into which such Series A Preferred Stock is convertible
and thereafter shall be payable with respect to the Series B Preferred Stock. In
the event of a Liquidity Event, as defined, the holders of the Series A
Preferred Stock shall be entitled to be paid an amount in cash equal to (i)
$1,470.13 per share, plus (ii) all accrued and unpaid dividends, plus (iii) the
amount which would have been payable with respect to the shares of common stock
issuable upon conversion of the Series A Preferred Stock had such conversion
occurred immediately prior to such Liquidity Event (collectively, the "Series A
Liquidation Amount").
The holders of a majority of the Series B Preferred Stock may, at their
election and upon the consummation of a Liquidity Event, as defined, require the
Company to redeem all the Series B Preferred Stock. In the event of a Liquidity
Event, as defined, the holders of the Series B Preferred Stock shall be entitled
to be paid an amount in cash equal to (i) $1,470.13 per share, plus (ii) all
accrued and unpaid dividends (collectively, the "Series B Liquidation Amount"
and together with the Series A Liquidation Amount, the "Liquidation Amount").
The Series B Preferred Stock shall pay a dividend of nine percent per annum of
the Base Liquidation Amount ($1,209.56 per share) when and as declared by the
Board of Directors. To the extent not paid, dividends shall cumulate and
compound annually.
Upon an initial public offering, the Company shall redeem all of the shares
of Series A and Series B Preferred Stock at the Liquidation Amount, except that,
with respect to the Series A Preferred Stock, the Company shall issue the shares
of common stock in lieu of the cash payment which would
F-14
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. PREFERRED STOCK AND WARRANTS (CONTINUED)
otherwise be required upon a Liquidity Event. Prior to the redemption of the
Series A Preferred Stock, the Company will reduce the Series A Preferred Stock
by $4.2 million, which represents the fair value allocation of the cash proceeds
received at issuance attributable to the 1,000,000 shares of common stock, and
increase common stock and additional paid-in capital.
The Company is prohibited from paying dividends on its common stock without
the consent of a majority of the holders of the outstanding shares of Series A
and Series B Preferred Stock (the "Preferred Stock"). In the event the holders
of the Series A Preferred Stock consent to the payment of a dividend to the
common stockholders, the holders of the Series A Preferred Stock would be
entitled to be paid a dividend equal to the amount which would have been paid to
them had they held the shares of common stock into which the Series A Preferred
Stock is convertible immediately prior to the record date of payment of such
dividends.
In connection with the issuance of the Series A Preferred Stock to an
investor, the Company also issued warrants to purchase 762,505 shares of common
stock at an exercise price of $4.62 per share. The warrants expire on June 4,
2008. If the Series A or Series B Preferred Stock is ever redeemed, the Company
may require the holders of the warrants to exercise any warrants then
outstanding in full and offset the redemption amount with the proceeds from the
exercise of the warrants. The fair value of the warrants was approximately
$1,057,000, as determined by the Black-Scholes method, and recorded as an
increase in additional paid-in capital.
9. COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
In connection with the Recapitalization, the Board of Directors and the
stockholders of the Company adopted the 1998 Stock Option and Grant Plan (the
"Plan"). The Plan permits the Company to (i) grant incentive stock options, (ii)
grant non-qualified stock options and (iii) issue or sell common stock with
vesting or other restrictions ("Restricted Stock") or without restrictions.
These grants may be made to officers, employees, directors, consultants,
advisors and other key persons of the Company. Options which are designated as
incentive stock options under the Plan may be granted with an exercise price not
less than fair market value of the underlying shares at the date of grant and
are subject to certain limitations specified in Section 422 of the Internal
Revenue Code. Non-qualified stock options may be granted at prices which are
less than the fair market price of the underlying shares on the date of grant.
The rights to exercise the options generally vest in annual increments over a
period of up to four years from the grant date. The Plan provides for the
issuance of up to 813,950 shares of common stock. At December 31, 1998,
1,056,112 shares of common stock were reserved for issuance upon the exercise of
outstanding warrants and stock options and 218,005 shares of common stock were
available for future grant under the Plan.
During the year ended December 31, 1998, options to purchase 293,607 shares
of common stock were granted at a weighted average exercise price of $19.21 per
share. At December 31, 1998, options to purchase 293,607 shares of common stock
were outstanding with exercise prices ranging from $20.64 to $13.76 per share.
At December 31, 1998, options to purchase 232,560 shares of common stock were
exercisable at a weighted average exercise price of $20.64 per share.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Compensation Issued to Employees," and selected interpretations, in
accounting for its option plans. Accordingly, as options have been granted at
exercise prices equal to or in excess of fair market value on the date of grant,
no compensation expense has been recognized by the Company in connection
F-15
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
with its stock option issuances. Had compensation cost for the Company's stock
options been determined based upon the fair value at the date of grant
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net income available to common stockholders and related per share
amounts would not have changed for the year ended December 31, 1998. The
weighted average fair value of the options granted during the year ended
December 31, 1998 is estimated at $-0- per share on the date of grant (using the
minimum value method) with the following weighted average assumptions; zero
volatility, risk-free interest rate of 5.5 percent, and expected life of five
years.
In June 1998, the Company issued 290,710 shares of restricted common stock
to certain key employees of the Company. The Company recorded deferred
compensation of approximately $1,221,000 related to this restricted stock. The
Company is amortizing the deferred compensation over the three-year vesting
period of the stock. Upon the effective date of an initial public offering of
the Company's common stock, the vesting of the restricted stock accelerates to
become fully vested. In June 1998, the Company sold approximately 11,628 shares
of restricted common stock to an officer and stockholder of the Company for
approximately $160,000. In connection with the sale, the Company issued a note
receivable from the officer and stockholder for approximately $160,000. The note
receivable from an officer and stockholder matures on July 14, 2002 and bears
interest at six percent per annum. The note is required to be prepaid to the
extent of the after-tax net proceeds realized from the sale of the restricted
common stock and is secured by a pledge of the restricted common stock, with
recourse to the officer and stockholder's personal assets limited to twenty-five
percent of the principal and accrued and unpaid interest thereon.
10. EMPLOYEE BENEFIT PLAN
On January 1, 1992, Bond Technologies, Inc. ("Bond"), a corporation under
the common control of the stockholders of the Company, established the Bond
Technologies 401(k) Savings Plan (the "401(k) Plan") covering substantially all
employees who have at least one year of service. This 401(k) Plan was
subsequently amended to include employees of the Company. Under the terms of the
401(k) Plan, the Company may make a discretionary contribution equal to a
percentage of the amounts contributed by the participants. As of December 31,
1996, 1997 and 1998, the Company matched 25 percent of the first 4 percent of
salary contributed by each employee. The Company's matching contributions under
the 401(k) Plan for the years ended December 31, 1996, 1997 and 1998 were
$18,000, $25,000 and $50,000, respectively. Effective January 1, 1999, the
Company established its own 401(k) Savings Plan with terms identical to the
401(k) Plan.
11. NON-RECURRING RECAPITALIZATION COSTS
In connection with the Recapitalization, the Company paid special
non-recurring bonuses of approximately $1,967,000 (inclusive of the Company's
portion of related payroll taxes), and incurred approximately $35,000 related to
other costs of the Recapitalization which are included in the caption
non-recurring recapitalization costs on the accompanying statement of income for
the year ended December 31, 1998. Also included in non-recurring
recapitalization costs is amortization expense relating to deferred compensation
(see Note 9) of approximately $237,000.
F-16
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
As of December 31, 1998, the Company was obligated to make rental payments
under noncancelable lease agreements which provide for escalations based on real
estate taxes and other costs. The minimum annual rental commitments under
noncancelable leases having an initial or remaining term of more than one year
from December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------------- AMOUNT
-----------------------
(IN THOUSANDS OF
DOLLARS)
<S> <C>
1999............................................................................... $ 951
2000............................................................................... 879
2001............................................................................... 817
2002............................................................................... 573
2003............................................................................... 307
Thereafter......................................................................... 274
------
$ 3,801
------
------
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
$300,000, $517,000 and $889,000, respectively.
The Company has an employment agreement with its President and Chief
Executive Officer, the terms of which expire on June 4, 2001. Such agreement
provides for annual compensation of $400,000 per year, as well as incentive
bonuses that are payable if specified earnings targets are achieved.
The Company has been, from time to time, involved in various litigation
matters arising in the ordinary course of business. The Company believes that
the resolution of currently pending legal proceedings, either individually or
taken as a whole, will not have an adverse effect on the Company, its business
and its financial statements.
13. RELATED PARTY TRANSACTIONS
The Company had an arrangement with various affiliated companies, owned by
the individual stockholders of the Company, whereby the individual stockholders
provide management services to the Company at a fee, plus certain allocated and
out-of-pocket expenses. The services provided include consultation and direct
management assistance with respect to operations, strategic planning and other
aspects of the business of the Company. Fees and expenses paid to the affiliated
companies for these services amounted to $3,719,000, $7,620,000 and $2,869,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
The Company had sales to affiliated entities which are under the common
control of the stockholders of the Company. Sales to these affiliated entities
for the years ended December 31, 1996, 1997 and 1998 were $115,000, $116,000 and
$339,000, respectively. As of December 31, 1997 and 1998, accounts receivable
from these affiliated entities amounted to $45,000 and $128,000, respectively.
14. SUBSEQUENT EVENTS
On March 16, 1999, the Company amended its Term Loan to allow the Company to
use proceeds from an initial public offering ("IPO") to repay the outstanding
Preferred Stock and Debentures, with the remaining proceeds used to repay a
portion of the outstanding principal amount of the Term Loan (which remaining
amount shall in no event be less than $2.0 million) in consideration for a fee
payable
F-17
<PAGE>
STRIDE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS (CONTINUED)
( 1/4% of the total commitment after giving effect to the prepayment) to the
lending institutions upon the receipt of the cash proceeds by the Company,
subject to certain conditions set forth in the Term Loan.
On March 17, 1999, the Board of Directors approved a change in the
authorized number of shares of the Common and Preferred Stock to 50,000,000 and
5,000,000, respectively.
On March 30, 1999, the Company filed a registration statement on Form S-1 in
respect of an offering by the Company for sale to the public of shares of its
common stock. The expected use of the net proceeds of the IPO together with
available cash resources of the Company will be used to redeem all the
outstanding shares of the Preferred Stock, which has an aggregate liquidation
preference of approximately $36.5 million (plus accrued and unpaid dividends
thereon), to repay the $10.0 million of principal relating to the Debentures
(plus accrued and unpaid interest) and pay down, with any remaining net
proceeds, principal relating to the Term Loan.
Effective May 6, 1999, the Company authorized a five-for-one stock split
effected in the form of a dividend. All share and per share data in these
financial statements have been retroactively restated to reflect this stock
split.
* * * * *
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,350,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
-----------
HAMBRECHT & QUIST
BANCBOSTON ROBERTSON STEPHENS
--------------
, 1999
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND
THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
The following table sets forth the estimated expenses payable by us in
connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
SEC Registration Fee................................................................................ $ 18,079.04
NASD Filing Fee..................................................................................... 7,004
Nasdaq National Market Listing Fee.................................................................. 75,625
Accounting Fees and Expenses........................................................................ *
Legal Fees and Expenses............................................................................. *
Printing Expenses................................................................................... *
Blue Sky Qualification Fees and Expenses............................................................ 10,000
Transfer Agent's Fee................................................................................ *
Miscellaneous....................................................................................... *
------------
Total........................................................................................... $ 750,000
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq National
Market fees, are in each case estimated.
- --------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law,
Article VIII of our first amended and restated certificate of incorporation
provides that no director of Stride be personally liable to Stride, its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of the director's duty of loyalty to
Stride or its stockholders, (2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (3) in respect of
unlawful dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, the first amended and restated certificate of incorporation provides
that if the Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification
by Stride of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of the registrant if such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of Stride, and, with respect to criminal actions or proceedings, if
such person had no reasonable cause to believe his or her conduct was unlawful.
Under Section 7 of the underwriting agreement filed as Exhibit 1.1 hereto,
the underwriters have agreed to indemnify, under certain conditions, Stride, its
directors, certain officers and persons who control Stride within the meaning of
the Securities Act against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock issued by the Registrant during the past three years.
Further included is the consideration, if any, received by the Registrant for
such shares, and information relating to the section of the Securities Act or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed.
(1) In June 1998, pursuant to a Securities Purchase and Redemption
Agreement, the Registrant sold an aggregate of 24,802.5 shares of the
Registrant's Series A Convertible Preferred Stock and warrants to
purchase an aggregate of 762,505 shares of common stock for an aggregate
purchase price of $24,802,500 and 1,237,505 shares of the Registrant's
common stock for an aggregate purchase price of $5,197,500 to Summit
Ventures IV, L.P., Summit Subordinated Debt Fund II, L.P., Summit V
Ventures, L.P., Summit V Advisors Fund, L.P., Summit Advisors V (QP),
L.P. and Summit Investors III, L.P., in reliance upon the exemption from
registration under Regulation D of the Securities Act.
(2) In June 1998, pursuant to Restricted Stock Award Agreements, the
Registrant issued an aggregate of 290,710 shares of restricted common
stock to seven employees in reliance upon the exemption from registration
under Rule 701 promulgated under the Securities Act.
(3) In June 1998, pursuant to Non-Qualified Stock Option Agreements, the
Registrant granted options to purchase up to an aggregate of 279,072
shares of common stock to four directors in reliance upon the exemption
from registration under Rule 701 promulgated under the Securities Act.
(4) In June 1998, pursuant to a Restricted Stock Award Agreement, the
Registrant sold an aggregate of 11,628 shares of restricted common stock
for an aggregate purchase price of $160,001 to the Registrant's Chief
Financial Officer in reliance upon the exemption from registration under
Rule 701 promulgated under the Securities Act.
(5) In July 1998, pursuant to a Non-Qualified Stock Option Agreement, the
Registrant granted options to purchase up to an aggregate of 46,512
shares of common stock to the Registrant's Chief Financial Officer in
reliance upon the exemption from registration under Rule 701 promulgated
under the Securities Act.
(6) In August 1998, pursuant to a Non-Qualified Stock Option Agreement, the
Registrant granted options to purchase up to an aggregate of 14,535
shares of common stock to one director in reliance on the exemption from
registration under Rule 701 promulgated under the Securities Act.
(7) In April 1999, pursuant to Non-Qualified Stock Option Agreements, the
Registrant granted options to purchase up to an aggregate of 45,883
shares of common stock to one director and the Registrant's Chief
Financial Officer in reliance on the exemption from registration under
Rule 701 promulgated under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <C> <S>
* 1.1 Form of Underwriting Agreement.
+ 2.1 Securities Purchase and Redemption Agreement, dated as of June 4, 1998, by and
among the Registrant, the Principal Stockholders and the Purchasers named
therein (excluding schedules, which the Registrant agrees to furnish
supplementally to the Commission upon request).
+ 3.1 Second Amended and Restated Certificate of Incorporation of the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <C> <S>
+ 3.2 Form of Third Amended and Restated Certificate of Incorporation of the
Registrant (to be effective upon consummation of this offering).
+ 3.3 By-laws of the Registrant.
+ 3.4 Form of Amended and Restated By-laws of the Registrant (to be effective upon
consummation of this offering)
4.1 Specimen certificate for shares of common stock, $.01 par value, of the
Registrant.
* 5.1 Opinion of Goodwin, Procter & Hoar LLP as to the validity of the securities
being offered.
+ 10.1 Shareholders' Agreement, dated June 4, 1998, between the Registrant and the
Shareholders named therein.
+ 10.2 Registration Rights Agreement, dated June 4, 1998, between the Registrant and
the Shareholders named therein.
+ 10.3 Warrant Agreement, dated June 4, 1998, between the Registrant and the Purchasers
named therein.
+ 10.4 Second Amendment and Restatement of the 1998 Stock Option and Grant Plan of the
Registrant.
+ 10.5 Form of standard Non-Qualified Stock Option Agreement.
+ 10.6 Form of standard Restricted Stock Award Agreement.
+ 10.7 Form of Non-Qualified Stock Option Agreement issued to Rachel C. Burnett, John
J. Devine, Alan P. Matthews and Michael C. Robichaud on June 4, 1998.
+ 10.8 Form of Amended and Restated Restricted Stock Award Agreement between the
Registrant and Glen P. Froio, Bethann G. Gilfeather and other senior level
employees entered into on November 16, 1998.
10.9 Form of Non-Solicitation, Non-Competition and Non-Disclosure Agreement, dated
June 4, 1998, between the Registrant and Michael C. Robichaud, Rachel C.
Burnett, John J. Devine, and Alan P. Matthews entered into on June 4, 1998.
10.10 Amended and Restated Employment Agreement, dated March 19, 1999, between the
Registrant and Michael C. Robichaud.
+ 10.11 Promissory Note, dated July 14, 1998, from Anthony J.M. Groves in favor of the
Registrant.
+ 10.12 Subordinated Debenture D-1 Due August 4, 2003 of the Registrant.
+ 10.13 Subordinated Debenture D-2 Due August 4, 2003 of the Registrant.
10.14 Revolving Credit and Term Loan Agreement, dated as of June 4, 1998, among the
Registrant, BankBoston, N.A. and other lending institutions named therein.
10.15 First Amendment to Revolving Credit and Term Loan Agreement, dated as of August
10, 1998, among the Registrant, BankBoston, N.A. and the other lending
institutions named therein.
10.16 Second Amendment to Revolving Credit and Term Loan Agreement, dated as of
December 31, 1998, among the Registrant, BankBoston, N.A. and the other lending
institutions named therein.
10.17 Third Amendment to Revolving Credit and Term Loan Agreement, dated as of March
16, 1999, among the Registrant, BankBoston, N.A. and the other lending
institutions named therein.
+ 10.18 Subordination and Intercreditor Agreement, dated as of June 4, 1998, among
BankBoston, N.A., Summit Investors III, L.P., Summit Subordinated Debt Fund II,
L.P. and the Registrant.
+ 10.19 Security Agreement, dated as of June 4, 1998, between the Registrant and
BankBoston, N.A.
10.20 Interest Rate Collar Transaction Letter Agreement, dated July 31, 1998, between
the registrant and BankBoston, N.A.
11.1 Computation of income per common share.
* 23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <C> <S>
23.2 Consent of Deloitte & Touche LLP.
+ 24.1 Powers of Attorney (included on page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment to this Registration Statement.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not required or because the
required information is given in our Financial Statements or Notes to those
statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant 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
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on May 7, 1999.
STRIDE & ASSOCIATES, INC.
BY: /S/ MICHAEL C. ROBICHAUD
----------------------------------------
Michael C. Robichaud
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ MICHAEL C. ROBICHAUD Officer and Director
- ------------------------------ (Principal Executive May 7, 1999
Michael C. Robichaud Officer)
Chief Financial Officer
* (Principal Financial
- ------------------------------ Officer and Principal May 7, 1999
Anthony J.M. Groves Accounting Officer)
* Director
- ------------------------------ May 7, 1999
Rachel C. Burnett
* Director
- ------------------------------ May 7, 1999
Scott C. Collins
* Director
- ------------------------------ May 7, 1999
John J. Devine
* Director
- ------------------------------ May 7, 1999
Alan P. Matthews
* Director
- ------------------------------ May 7, 1999
James C. New
* Director
- ------------------------------ May 7, 1999
Thomas S. Roberts
</TABLE>
/S/ MICHAEL C. ROBICHAUD
----------------------------------------
Michael C. Robichaud
*By: Attorney-in-Fact
II-5
<PAGE>
Exhibit 4.1
COMMON STOCK
COMMON STOCK
STR
STRIDE & ASSOCIATES, INC.
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 863310
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER
SHARE, OF STRIDE & ASSOCIATES, INC. transferable upon the books of the
Corporation in person or by attorney upon surrender of this certificate duly
endorsed or assigned. This certificate and the shares represented hereby are
subject to the laws of the State of Delaware and to the provisions of the
Certificate of Incorporation and By-laws of the Corporation, as from time to
time amended or restated. This certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, Stride & Associates, Inc. has caused its facsimile corporate
seal and facsimile signatures of its duly authorized officers to be hereunto
affixed.
Dated:
TREASURER
president
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
STRIDE & ASSOCIATES, INC.
The Corporation is authorized to issue more than one class of stock. The
Corporation will furnish to each stockholder upon request WITHOUT CHARGE the
powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof, and the
qualifications, limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM N as tenants in common
TEN ENT N as tenants by the entireties
JT TEN N as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT N ......................... Custodian ..................
(Cust) (Minor)
under Uniform Gifts to Minors
Act ..........................................................
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the
books of the within named Corporation with full power of substitution in the
premises.
Dated,
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO SECURITIES AND
EXCHANGE COMMISSION RULE 17Ad-15.
<PAGE>
Exhibit 10.9
FORM OF
NON-SOLICITATION,
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
This Non-Solicitation, Non-competition and Non-Disclosure Agreement (the
"Agreement") is entered into by and between Stride & Associates, Inc., with its
principal office at 222 Berkeley Street, Suite 1620, Boston, Massachusetts 02116
(the "Company") and _________________, an individual residing at ______________,
__________, ________________ (the "Principal Stockholder").
RECITALS
Pursuant to the terms of that certain Securities Purchase and Redemption
Agreement (the "Purchase Agreement") by and between the Company, the principal
stockholders of the Company and the Investors named therein, the Principal
Stockholder has sold a majority of his or her shares in the Company. The
Principal Stockholder is executing this Agreement as an inducement to the
Investors to enter into and perform the Purchase Agreement.
DEFINITIONS
1.01 "BUSINESS" shall mean (a) the Company's present business, which
consists of permanent placement of information technology professionals, and,
subject to the last sentence of this Section 1.01, (b) such other business as
the Company may undertake during the Restriction Period (as herein defined) so
long as such other business is reasonably related or incidental to, or an
outgrowth of, the permanent placement of information technology professionals.
It is expressly acknowledged and agreed that the term "Business" shall not
include (a) activities currently conducted by Bond Technologies and Percussion
Software, Inc., (which current activities the Principal Stockholder acknowledges
do not include the permanent placement of information technology professionals)
or (b) activities undertaken after the date hereof by Bond Technologies and
Percussion Software, Inc. if at the time such entities or the Principal
Stockholder first become engaged in such activities, such activities have not
theretofore been engaged in by the Company.
1.03 "COMPETE" OR "COMPETING" shall mean entering into or attempting to
enter into any business which competes with the Business, either alone or with
any individual, partnership, corporation or association.
1.04 "DIRECTLY OR INDIRECTLY" as they modify the word "compete" shall mean:
(i) acting in a management or oversight capacity as an agent, representative,
consultant, officer, director, independent contractor or employee of any entity
or enterprise which is competing (as defined in Section 1.03) with the Business;
or (ii) participating in any material management or oversight role in any such
competing entity or enterprise as an owner, partner, limited partner, joint
venturer, creditor or stockholder (except as a stockholder owning less than a
five percent interest
<PAGE>
in a corporation or other entity whose shares are actively traded on a national
securities exchange or in the over-the-counter market).
1.06 "TERRITORY" shall mean all countries in which the Company is
conducting Business, or actively preparing to conduct Business at any time
during the Restriction Period (as herein defined).
NON-COMPETITION AND NON-DISCLOSURE
2.01 SCOPE AND REASONABLENESS. The Principal Stockholder acknowledges that
the Company has a present and future expectation of conducting operations and
generating revenues within the Territory and that, in his or her capacity with
the Company, the Principal Stockholder had important duties and responsibilities
with respect to the Business. The Company is engaged in a highly competitive
business and the success of the Company's Business in the marketplace depends
upon its goodwill and reputation for quality and dependability. The Principal
Stockholder further agrees that reasonable limits may be placed on his or her
ability to compete against the Company as provided herein so as to protect and
preserve the legitimate business interests and goodwill of the Company.
2.02 CONFIDENTIALITY AND TRADE SECRETS.
(a) The Principal Stockholder acknowledges and agrees that his or her prior
and current position as an stockholder of the Company has afforded him or her,
and will continue to afford him or her, a unique opportunity to acquire
confidential information concerning the Company and that the misappropriation or
disclosure of such confidential information would cause irreparable harm to the
Company. The Principal Stockholder recognizes and agrees that he or she has had
and will continue to have access to certain confidential information of the
Company and its subsidiaries which is not generally available to the public and
that such information constitutes valuable, special and unique property of the
Company or one of its subsidiaries. The Principal Stockholder acknowledges that
such confidential information includes information concerning the Business, the
Company and its subsidiaries, including without limitation financial information
concerning the Business and the Company, the names and addresses of actual and
potential customers of the Business or the Company, studies of prospective
market areas for the Business, supply sources, products, technical data, ideas,
processes, and trade secrets of the Business and the Company (such information
whether related to the Business the Company or its subsidiaries being referred
to collectively as the "Confidential Information"). Confidential Information
shall not include any information or documents (i) that are or become publicly
available without breach of this Section 2.02, (ii) that the Principal
Stockholder rightfully receives from any third party which is not breaching an
obligation of confidence with the Company or any of its subsidiaries or without
an accompanying obligation of confidence or (iii) that are required to be
released by a valid court or governmental order. In the event that the Principal
Stockholder is requested in any court or governmental proceeding to
-2-
<PAGE>
disclose any Confidential Information, the Principal Stockholder shall give the
Company prompt notice of such request such that the Company may seek a
protective order or other appropriate relief and shall cooperate with all
reasonable requests of the Company in connection therewith.
(b) The Principal Stockholders will keep confidential and will not, at any
time hereafter, directly or indirectly, divulge to anyone, use or otherwise
appropriate any of the Confidential Information for any reason or purpose
whatsoever except to authorized representatives of the Company.
(c) With respect to any trade secrets included in the Confidential
Information, the Principal Stockholder also agrees not to use or disclose any of
such trade secrets at any time until such trade secrets become generally
available to the public by independent discovery or development and publication
through no fault of the Principal Stockholder. The Principal Stockholder
acknowledges and agrees that these prohibitions against disclosure of
Confidential Information are in addition to, and not in lieu of, any rights or
remedies which the Company or any of its subsidiaries may have available
pursuant to the laws of any jurisdiction or at common law to prevent the
disclosure of trade secrets or proprietary information, and the enforcement by
the Company of any of its rights and remedies pursuant to this Agreement shall
not be construed as a waiver of any other rights or available remedies which it
may possess in law or equity absent this Agreement.
2.03 NON-COMPETITION. The Principal Stockholder agrees that for a period
(the "Restriction Period") from the date hereof through the later of (i) May 31,
2003; or (ii), if applicable, the first anniversary of termination of his or her
employment with the Company, he or she will not directly or indirectly, for
himself or herself, or on behalf of or in conjunction with any other person,
partnership, firm or corporation, engage in the Business within the Territory,
or, except as an owner of less than 5% of the capital stock of any publicly held
company or entity, directly or indirectly be an owner, partner, director,
manager, officer or employee, of consultant or advisor to, or otherwise render
services to or be associated with any business which competes with the Business
of the Company in the Territory and in any other geographical area in which the
Company establishes offices during the term of this Agreement. Notwithstanding
the provisions of this Section 2.03, the Principal Stockholder shall be
permitted to engage in those activities described in EXHIBIT A hereto, so long
as in doing so the Principal Stockholder does not violate any of the other
provisions of this Agreement.
2.04 NON-SOLICITATION AND NON-INTERFERENCE. The Principal Stockholder
agrees that during the Restriction Period, he or she will not in any way,
directly or indirectly (but only to the extent with his or her control), for
himself or herself or on behalf of or in conjunction with any other person,
partnership, firm or corporation:
(i) Solicit or divert away or attempt to solicit or divert any
customer served or solicited by the Company, in each case to provide
services in competition with the Business; or
-3-
<PAGE>
(ii) Solicit or induce or attempt to induce any employee of the
Company or independent contractor who, over the six months immediately
preceding such solicitation or inducement, has spent at least
two-thirds of his or her business time providing services to the
Company (a "Protected Consultant"), to terminate his or her employment
with the Company, or employ or otherwise engage as an employee,
independent contractor or otherwise, except in an enterprise in which
the Principal Stockholder has no responsibility or authority for
hiring decisions, any person who is an employee or Protected
Consultant of the Company or was an employee or Protected Consultant
of the Company in the four (4) months preceding the proposed date of
hiring of such person.
2.05 REMEDIES. The Principal Stockholder acknowledges that any violation of
this Section 2 will cause irreparable harm to the Company and that damages are
not an adequate remedy. The Principal Stockholder therefore agrees that the
Company shall be entitled to seek an injunction enjoining, prohibiting and
restraining the Principal Stockholder from the continuance of any such
violation, in addition to any monetary damages which might occur by reason of a
violation of this Agreement or any other remedies at law or in equity, including
without limitation specific performance, and that in any such action, the
Principal Stockholder will not raise as a defense the argument that an adequate
remedy for such breach exists at law.
2.06 INDEPENDENT. The covenants set forth in the foregoing Sections of this
Section 2 are and shall be deemed and construed as separate and independent
covenants. Should any part or provision of such covenants be held invalid, void
or unenforceable in any court of competent jurisdiction, such invalidity,
voidness or unenforceability shall not render invalid, void or unenforceable any
other part or provision thereof. Specifically, and without limiting the
generality of the foregoing, if any portion of Sections 2.01, 2.02, 2.03 or 2.04
is found to be invalid by a court of competent jurisdiction because its
duration, the Territory and/or the Business are invalid or unreasonable in
scope, such duration, Territory and/or Business, as the case may be, shall be
redefined (but in no event expanded or enlarged) by consideration of the
reasonable concerns and needs of the Company such that the intent of the Company
and the Principal Stockholder, in agreeing to Sections 2.01, 2.02, 2.03 and
2.04, will not be impaired and shall be enforceable to the fullest extent of the
applicable laws.
3. NOTICES. All notices or elections required or permitted under this
Agreement shall be in writing and shall be hand delivered, sent by facsimile or
other electronic medium, or first class mail, postage prepaid, to the Company or
the Principal Stockholder to the address set forth above, or to such other
address as one party may advise the other as provided in this Agreement.
4. PRONOUNS. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular forms of nouns and pronouns shall include the plural, and vice
versa.
-4-
<PAGE>
5. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this Agreement.
6. AMENDMENT. This Agreement may be amended or modified only by a written
instrument executed by both the Company and the Principal Stockholder.
7. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the internal laws (and not the laws of conflicts) of
The Commonwealth of Massachusetts.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of both parties and their respective successors and assigns,
including any corporation with which or into which the Company may be merged or
which may succeed to its assets or business; provided, however, that the
obligations of the Principal Stockholders are personal and shall not be
assigned, and provided, further no such assignment shall expand or enlarge the
scope or breadth of any of the provisions hereof.
9. MISCELLANEOUS.
9.1. No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion shall be effective only in that
instance and shall not be construed as a bar or waiver of any right on any other
occasion.
9.2. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
9.3. In case any provision of this Agreement shall be invalid, illegal
or otherwise unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
[Rest of Page Intentionally Left Blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
COMPANY:
STRIDE & ASSOCIATES, INC.
By:
-------------------------------------
Title:
----------------------------------
PRINCIPAL STOCKHOLDER:
----------------------------------------
-6-
<PAGE>
EXHIBIT A
1.
-7-
<PAGE>
Exhibit 10.10
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") is made and entered into as of the 19th day of March, 1999, by and
between Stride & Associates, Inc., a Delaware corporation (the "Company"), and
Michael Robichaud, an individual residing in Concord, Massachusetts (the
"Executive"), and amends and restates that certain Employment Agreement (the
"June Agreement") made and entered into on June 4, 1998 by and between the
Company and the Executive.
BACKGROUND
On the date of the June Agreement the Company executed that certain
Securities Purchase and Redemption Agreement (the "Securities Purchase
Agreement") by and between the Company, certain shareholders of the Company and
the investors named therein ) the "Investors"). A condition to the obligations
of the Investors under the Securities Purchase Agreement was the execution of
this Agreement by the Executive. The Executive is currently a key employee of
the Company. The Executive and the Company entered into the June Agreement and
to formalize the terms and conditions of the Executive's relationship with the
Company. The Executive is a shareholder of the Company. On the date hereof the
Company and the Executive desire to amend and restate the June Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises, representations, warranties and covenants set forth below, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
SECTION I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings unless the context specifically requires otherwise:
1.01 "CAUSE" shall mean only one or more of the following:
(a) the conviction of the Executive of a felony or a crime involving
moral turpitude under any state or federal law (or the entry of a plea of guilty
or no contest by the Executive with respect thereto);
Execution Copy
<PAGE>
(b) any willful failure by the Executive to fulfill, in any material
respect, his duties and responsibilities (other than by reason of death or
Disability, as defined below) as set out in Sections 2.01 and 2.03 for a period
of thirty days after written notice of such failure form the Company to the
Executive;
(c) the failure or refusal of the Executive to adhere to any
established lawful policy of the Company for a period of thirty days after
written notice of such failure or refusal from the Company to the Executive;
(d) the commission by the Executive of any (i) fraud, (ii)
embezzlement, or (iii) misappropriation of funds or breach of fiduciary duty or
other act of dishonesty against the Company which, in the case of the actions
described in this clause (iii) results in material harm to the Company; or
(e) any material breach by the Executive of his obligations under the
provision of the Confidentiality and Non-Competition Agreement that continues
for a period of thirty days after written notice thereof from the Company.
1.02 "CONFIDENTIALITY AND NON-COMPETITION AGREEMENT" shall mean the
Confidentiality and Non-Competition Agreement dated the date hereof between the
Company and the Executive which shall be in the form attached hereto as EXHIBIT
A.
1.03 "DISABILITY" shall mean the Executive's inability to perform his
duties, obligations and responsibilities under this Agreement by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months.
SECTION II
EMPLOYMENT
2.01 POSITION. Upon the terms and conditions set forth in this
Agreement, the Company agrees to employ the Executive in the capacity of
President and Chief Executive Officer, and the Executive accepts such
employment. In addition, during the Term the Executive shall serve on the Board
of Directors of the Company.
2.02 TERM OF EMPLOYMENT. The initial term of Executive's employment
shall be for a period of three (3) years commencing on June 4, 1998 (the
"Term"), unless earlier terminated pursuant to Section 4.01.
Execution Copy
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<PAGE>
2.03 DUTIES.
(a) The Executive shall have the responsibility and authority to manage
the operations of the Company on a daily basis, together with such other duties
and responsibilities as shall be prescribed from time to time by the Board of
Directors consistent with the foregoing. During the Term commencing on the date
of this Agreement, the Executive shall devote substantially all of his working
time, attention and energy during normal working hours to the affairs of the
Company; provided, however, that nothing shall restrict the Executive's ability
to engage in religious, charitable or other community or non-profit activities
that do not impair his ability to fulfill his duties under this Agreement.
(b) During the Term, the Executive shall perform his duties to the best
of his ability, pursuant to the policies and regulations of the Company, and
shall use his best efforts to promote the success of the present and future
businesses of the Company.
2.04 CONFIDENTIALITY AND NON-COMPETITION AGREEMENT. As a condition to
the Executive's employment hereunder, the Executive shall execute and deliver to
the Company the Confidentiality and Non-Competition Agreement substantially in
the form of EXHIBIT A hereto, and shall fulfill his obligations set forth
therein.
SECTION III
COMPENSATION AND RELATED MATTERS
3.01 COMPENSATION.
(a) The Executive will receive a salary from the Company for his
services under this Agreement at an annual rate of $400,000, paid in accordance
with the Company's normal payroll practices.
(b) At the end of each fiscal year during the term of this Agreement
the Executive shall be eligible to receive an annual incentive bonus in an
amount determined by the Compensation Committee of the Board of Directors or, if
no such committee exists, the Board of Directors in the event the Company's
financial performance, as reflected in the Company's audited financial
statements for such fiscal year, meets performance objectives set by the
Compensation Committee of the Board of Directors or, if no such committee
exists, the Board of Directors from time to time during the term of the
Agreement.
3.02 EXPENSES. The Company will reimburse the Executive for his
reasonable out-of-pocket expenses, subject to delivery of appropriate
documentation, incurred in connection with the performance of services
hereunder.
Execution Copy
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<PAGE>
3.03 BENEFITS. The Executive will, at all times during his employment
with the Company, be entitled to participate in all hospital, health and
accident insurance programs and other routine employee benefits maintained by
the Company for its other similarly situated employees. Included in such
benefits shall be six weeks of vacation per year and $1,000,000 of life
insurance; provided that the Company shall be required to provide such life
insurance only so long as the premiums payable with respect thereto are within a
normal range for individuals of the same age as the Executive.
SECTION IV
TERMINATION
4.01 TERMINATION. Notwithstanding the provisions of Section 2.02, the
Executive's employment under this Agreement may be terminated prior to
expiration of the Term under the following circumstances:
(a) TERMINATION BY THE COMPANY FOR CAUSE. The Executive's
employment under this Agreement may be terminated for Cause without further
liability on the part of the Company effective immediately upon a vote of the
Board of Directors and written notice to the Executive.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the
payment of Termination Benefits pursuant to Section 4.02, the Executive's
employment under this Agreement may be terminated by the Company without Cause
upon written notice to the Executive by a vote of the Board of Directors;
provided that the Company may not terminate without Cause prior to the first
anniversary of the date of execution of this Agreement.
(c) TERMINATION UPON DEATH OR DISABILITY. Subject to the
payment of Termination Benefits pursuant to Section 4.02, the Executive's
employment under this Agreement (i) may be terminated by the Company upon the
Disability of the Executive after prior written notice to the Executive by a
vote of the Board of Directors or (ii) automatically without notice upon the
death of the Executive.
(d) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The
Executive may terminate his employment with the Company for Good Reason and
shall be entitled to receive the Termination Benefits pursuant to Section 4.02.
Good Reason shall be the occurrence of any of the following events:
(i) a significant change in the Executive's
responsibilities and/or duties which constitutes, when
compared to the Executive's responsibilities and/or his duties
before change, a demotion which chance continues for a period
of thirty days after written notice from the Executive;
Execution Copy
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<PAGE>
(ii) a material loss of title or office; or
(iii) the relocation of the Company's current Boston
office at which the Executive is principally employed to a
location more than thirty (30) miles from such Boston office,
which relocation is not approved by the Executive.
(e) TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.
The Executive's employment under this Agreement may be terminated by the
Executive for any reason other than Good Reason by written notice to the Board
of Directors at least thirty (30) days prior to such termination.
4.02 PAYMENT ON TERMINATION. Upon termination hereunder the Executive
shall not be required to seek other employment, nor shall any compensation paid
by any other employer reduce the severance benefit payable to the Executive
pursuant to this Section 4.02. The Executive shall not be entitled to any
severance benefit from the Company in the event of termination of the
Executive's employment by the Company (a) for Cause, (b) upon disability, (c)
upon the Executive's death, or (d) upon expiration of the term of this
Agreement. In the event the Executive's employment hereunder is terminated by
the Company for Cause, the Executive shall not be eligible for any part of the
bonus payable pursuant to Section 3.01(b) hereof. Payment of severance under
this Section 4.02 shall constitute liquidated damages and the sole and exclusive
remedy available to the Executive upon termination of his employment for any and
all claims the Executive may have against the Company, its directors, its
officers, and controlling persons. Unless otherwise specifically provided in
this Agreement or otherwise required by law, all compensation and benefits
payable to the Executive under this Agreement shall terminate on the date of
termination of the Executive's employment under this Agreement, provided that
upon termination for any reason other than pursuant to Section 4.01(a), the
Company shall provide to the Executive (or his estate or other legal
representatives, as the case may be) any accrued but unpaid compensation and
benefits through the date of termination (including, without limitation any pro
rated cash bonus payable under Section 3.01(b)). Notwithstanding the foregoing,
in the event of termination of the Executive's employment with the Company
pursuant to Section 4.01(b) or (d) above, the Company shall also provide to the
Executive the following termination benefits (collectively, "Termination
Benefits") for a period of time equal to twelve (12) months following
termination:
(a) continuation of the Executive's Salary at the rate then in
effect pursuant to Section 3.01(a); and
(b) continuation of hospital, health and insurance benefits,
with the cost of the regular premium for such benefits paid by the Company.
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<PAGE>
4.03 NON-RENEWAL. If the Executive continues his employment beyond the
Term without reaching agreement on an extension of this Agreement or an new
employment agreement and the Executive's employment is terminated other than for
Cause, the Company shall pay to the Executive the severance benefits specified
in Section 4.02 for a six-month period commencing on such termination.
SECTION V
MISCELLANEOUS
5.01 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Massachusetts without giving
effect to its conflict of laws principles.
5.02 ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement between the Company and the Executive with respect to his employment
with the Company and supersedes all prior agreements relating to the same
subject matter, including any prior employment agreement between the Executive
and the Company or any of its subsidiaries. This Agreement cannot be amended,
changed or supplemented except in writing signed by the parties or their duly
authorized agents or attorneys in fact.
5.03 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective heirs, executors,
administrators, successors and permitted assigns.
5.04 ASSIGNMENT. This Agreement is nonassignable except that the
Company's rights, duties and obligations under this Agreement may be assigned
and delegated to any subsidiary or affiliate of the Company or to the acquiror
of the Company pursuant to merger, sale of stock or substantially all the assets
of the Company.
5.05 SEVERABILITY. If any one or more of the provisions of this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not in any way be impaired.
5.06 NOTICES. All notices, requests, demands and other communications
under or in connection with this Agreement shall be in writing, shall be sent by
registered or certified mail, return receipt requested and shall be deemed to
have been given or made when received at the following offices:
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<PAGE>
If to the Company: Stride & Associates, Inc.
222 Berkeley Street, Suite 1620
Boston, Massachusetts 02116
Attention:
If to the Executive: Mr. Michael Robichaud
45 Bronson Way
Concord, Massachusetts 01742
The above addresses may be changed by written notice given as above provided.
5.07 CONSENT TO JURISDICTION. Each of the Company and the Executive, by
its or his execution hereof, (i) hereby irrevocably submits to the exclusive
jurisdiction of the state courts of The Commonwealth of Massachusetts for the
purpose of any claim or action arising out of or based upon this Agreement or
relating to the subject matter hereof, (ii) hereby waives, to the extent not
prohibited by applicable law, and agrees not to assert by way of motion, as a
defense or otherwise, in any such claim or action, any claim that is not subject
personally to the jurisdiction of the above-named courts, that its or his
property is exempt or immune from attachment or execution, that any such
proceeding brought in the above-named court is improper, or that this Agreement
or the subject matter hereof may not be enforced in or by such court, and (iii)
hereby agrees not to commence any claim or action arising out of or based upon
this Agreement or relating to the subject matter hereof other than before the
above-named courts nor to make any motion or take any other action seeking or
intending to cause the transfer or removal of any such claim or action to any
court other than the above-named courts whether on the grounds of inconvenient
forum or otherwise. Each of the Company and the Executive hereby consents to
service of process in any such proceeding in any manner permitted by
Massachusetts law, and agrees that service of process by registered or certified
mail, return receipt requested, at its address specified pursuant to Section
5.06 hereof is reasonably calculated to give actual notice.
5.08 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will take effect as an original and all of which
will evidence one and the same agreement.
5.09 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
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<PAGE>
IN WITNESS WHEREOF this Agreement has been executed by the parties as
an instrument under SEAL as of the date first appearing above.
THE COMPANY:
Stride & Associates, Inc.
/s/ Anthony J. M. Groves
------------------------------------
Anthony J. M. Groves
Chief Financial Officer
EXECUTIVE:
/s/ Michael Robichaud
------------------------------------
Michael Robichaud
Execution Copy
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<PAGE>
EXHIBIT A
Confidentiality and Non-Competition Agreement
- 9 -
<PAGE>
Exhibit 10.14
- --------------------------------------------------------------------------------
REVOLVING CREDIT
AND
TERM LOAN AGREEMENT
dated as of June 4, 1998
among
STRIDE & ASSOCIATES, INC.
BANKBOSTON, N.A. and the other lending institutions
set forth on SCHEDULE 1 attached hereto
and
BANKBOSTON, N.A.
as Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND RULES OF INTERPRETATION.........................................................1
1.1. DEFINITIONS..........................................................................1
1.2. RULES OF INTERPRETATION..............................................................17
2. THE REVOLVING CREDIT FACILITY...................................................................18
2.1. COMMITMENT TO LEND...................................................................18
2.2. COMMITMENT FEE.......................................................................18
2.3. REDUCTION OF TOTAL COMMITMENT........................................................19
2.4. THE REVOLVING CREDIT NOTES...........................................................19
2.5. INTEREST ON REVOLVING CREDIT LOANS...................................................19
2.6. REQUESTS FOR REVOLVING CREDIT LOANS..................................................20
2.7. CONVERSION OPTIONS...................................................................20
2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN.....................20
2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN.............................20
2.7.3. LIBOR RATE LOANS..........................................................21
2.8. FUNDS FOR REVOLVING CREDIT LOAN......................................................21
2.8.1. FUNDING PROCEDURES........................................................21
2.8.2. ADVANCES BY AGENT.........................................................21
3. REPAYMENT OF THE REVOLVING CREDIT LOANS.........................................................22
3.1. MATURITY.............................................................................22
3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS.......................................22
3.3. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS........................................23
4. THE TERM LOAN...................................................................................23
4.1. COMMITMENT TO LEND...................................................................23
4.2. THE TERM NOTES.......................................................................23
4.3. MANDATORY PAYMENTS OF PRINCIPAL ON TERM LOAN.........................................24
4.3.1. SCHEDULED AMORTIZATION....................................................24
4.3.2. ANNUAL EXCESS CASH FLOW RECAPTURE.........................................24
4.3.3. PROCEEDS OF ASSET DISPOSITIONS AND EQUITY ISSUANCES.......................25
4.4. OPTIONAL PREPAYMENT OF TERM LOAN.....................................................25
4.5. INTEREST ON TERM LOAN................................................................26
4.5.1. INTEREST RATES............................................................26
4.5.2. NOTIFICATION BY BORROWER..................................................26
4.5.3. AMOUNTS, ETC..............................................................26
5. CERTAIN GENERAL PROVISIONS......................................................................26
5.1. CLOSING FEE..........................................................................26
5.2. AGENT'S FEE..........................................................................26
5.3. FUNDS FOR PAYMENTS...................................................................26
5.3.1. PAYMENTS TO AGENT.........................................................26
5.3.2. NO OFFSET, ETC............................................................26
5.4. COMPUTATIONS.........................................................................27
5.5. INABILITY TO DETERMINE LIBOR RATE....................................................27
5.6. ILLEGALITY...........................................................................27
5.7. ADDITIONAL COSTS, ETC................................................................28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.8. CAPITAL ADEQUACY.....................................................................29
5.9. CERTIFICATE..........................................................................30
5.10. INDEMNITY...........................................................................30
5.11. INTEREST AFTER DEFAULT..............................................................30
5.11.1. OVERDUE AMOUNTS..........................................................30
5.11.2. AMOUNTS NOT OVERDUE......................................................30
6. COLLATERAL SECURITY AND GUARANTIES..............................................................31
6.1. SECURITY OF BORROWER.................................................................31
6.2. GUARANTIES AND SECURITY OF SUBSIDIARIES..............................................31
7. REPRESENTATIONS AND WARRANTIES..................................................................31
7.1. CORPORATE AUTHORITY..................................................................31
7.1.1. INCORPORATION; GOOD STANDING..............................................32
7.1.2. AUTHORIZATION.............................................................32
7.1.3. ENFORCEABILITY............................................................32
7.2. GOVERNMENTAL APPROVALS...............................................................32
7.3. TITLE TO PROPERTIES; LEASES..........................................................32
7.4. FINANCIAL STATEMENTS AND PROJECTIONS.................................................33
7.4.1. FISCAL YEAR...............................................................33
7.4.2. FINANCIAL STATEMENTS......................................................33
7.4.3. PROJECTIONS...............................................................33
7.4.4. SOLVENCY..................................................................33
7.5. NO MATERIAL CHANGES, ETC.............................................................33
7.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC.................................................33
7.7. LITIGATION...........................................................................34
7.8. NO MATERIALLY ADVERSE CONTRACTS, ETC.................................................34
7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC.........................................34
7.10. TAX STATUS..........................................................................34
7.11. NO EVENT OF DEFAULT.................................................................34
7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS.........................................35
7.13. ABSENCE OF FINANCING STATEMENTS, ETC................................................35
7.14. PERFECTION OF SECURITY INTEREST.....................................................35
7.15. CERTAIN TRANSACTIONS................................................................35
7.16. EMPLOYEE BENEFIT PLANS..............................................................35
7.16.1. IN GENERAL...............................................................35
7.16.2. TERMINABILITY OF WELFARE PLANS...........................................36
7.16.3. GUARANTEED PENSION PLANS.................................................36
7.16.4. MULTIEMPLOYER PLANS......................................................36
7.17. USE OF PROCEEDS.....................................................................37
7.17.1. GENERAL..................................................................37
7.17.2. REGULATIONS U AND X......................................................37
7.17.3. INELIGIBLE SECURITIES....................................................37
7.18. ENVIRONMENTAL COMPLIANCE............................................................37
7.19. SUBSIDIARIES, ETC...................................................................39
7.20. BANK ACCOUNTS.......................................................................39
7.21. YEAR 2000 PROBLEM...................................................................39
7.22. DISCLOSURE..........................................................................39
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.23. CAPITALIZATION DOCUMENTS AND SUBORDINATION DOCUMENTS................................39
7.24. CHIEF EXECUTIVE OFFICE..............................................................40
7.25. INSURANCE...........................................................................40
8. AFFIRMATIVE COVENANTS OF THE BORROWER...........................................................40
8.1. PUNCTUAL PAYMENT.....................................................................40
8.2. MAINTENANCE OF OFFICE................................................................40
8.3. RECORDS AND ACCOUNTS.................................................................40
8.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION...................................41
8.5. NOTICES..............................................................................42
8.5.1. DEFAULTS..................................................................42
8.5.2. ENVIRONMENTAL EVENTS......................................................43
8.5.3. NOTIFICATION OF CLAIM AGAINST COLLATERAL..................................43
8.5.4. NOTICE OF LITIGATION AND JUDGMENTS........................................43
8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES.......................................43
8.7. INSURANCE............................................................................45
8.8. TAXES................................................................................45
8.9. INSPECTION OF PROPERTIES AND BOOKS, ETC..............................................45
8.9.1. GENERAL...................................................................45
8.9.2. APPRAISALS................................................................45
8.9.3. COMMUNICATIONS WITH ACCOUNTANTS...........................................46
8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS..............................46
8.11. EMPLOYEE BENEFIT PLANS..............................................................46
8.12. USE OF PROCEEDS.....................................................................47
8.13. FAIR LABOR STANDARDS ACT............................................................47
8.14. GUARANTORS..........................................................................47
8.15. ADDITIONAL SUBSIDIARIES.............................................................47
8.16. INTEREST RATE PROTECTION ARRANGEMENTS...............................................47
8.17. FURTHER ASSURANCES..................................................................47
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER......................................................47
9.1. RESTRICTIONS ON INDEBTEDNESS.........................................................48
9.2. RESTRICTIONS ON LIENS................................................................49
9.3. RESTRICTIONS ON INVESTMENTS..........................................................51
9.4. RESTRICTED PAYMENTS..................................................................52
9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS......................................52
9.5.1. MERGERS AND ACQUISITIONS..................................................52
9.5.2. DISPOSITION OF ASSETS.....................................................52
9.6. SALE AND LEASEBACK...................................................................53
9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS...................................................53
9.8. SUBORDINATED DEBT....................................................................53
9.9. EMPLOYEE BENEFIT PLANS...............................................................54
9.10. BUSINESS ACTIVITIES.................................................................54
9.11. FISCAL YEAR.........................................................................54
9.12. TRANSACTIONS WITH AFFILIATES........................................................54
9.13. BANK ACCOUNTS.......................................................................55
9.14. MODIFICATION OF DOCUMENTS AND CHARTER...............................................55
9.15. UPSTREAM LIMITATIONS................................................................55
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.16. INCONSISTENT AGREEMENTS.............................................................55
10. FINANCIAL COVENANTS OF THE BORROWER............................................................55
10.1. LEVERAGE RATIO......................................................................55
10.2. DEBT SERVICE COVERAGE RATIO.........................................................56
10.3. CURRENT RATIO.......................................................................56
11. CLOSING CONDITIONS.............................................................................56
11.1. LOAN DOCUMENTS ETC..................................................................56
11.1.1. LOAN DOCUMENTS...........................................................56
11.1.2. SUBORDINATION AND CAPITALIZATION DOCUMENTS...............................56
11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS...............................................56
11.3. CORPORATE ACTION....................................................................56
11.4. INCUMBENCY CERTIFICATE..............................................................56
11.5. VALIDITY OF LIENS...................................................................57
11.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS......................................57
11.7. CERTIFICATES OF INSURANCE...........................................................57
11.8. SOLVENCY CERTIFICATE................................................................57
11.9. OPINION OF COUNSEL..................................................................57
11.10. PAYMENT OF FEES....................................................................57
11.11. PAYOFF LETTER......................................................................57
11.12. DISBURSEMENT INSTRUCTIONS..........................................................57
11.13. CONSENTS AND APPROVALS.............................................................58
12. CONDITIONS TO ALL BORROWINGS...................................................................58
12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT...........................................58
12.2. NO LEGAL IMPEDIMENT.................................................................58
12.3. GOVERNMENTAL REGULATION.............................................................58
12.4. PROCEEDINGS AND DOCUMENTS...........................................................58
13. EVENTS OF DEFAULT; ACCELERATION; ETC...........................................................58
13.1. EVENTS OF DEFAULT AND ACCELERATION..................................................58
13.2. TERMINATION OF COMMITMENTS..........................................................62
13.3. REMEDIES............................................................................62
13.4. DISTRIBUTION OF COLLATERAL PROCEEDS.................................................62
14. SETOFF.........................................................................................63
15. THE AGENT......................................................................................64
15.1. AUTHORIZATION.......................................................................64
15.2. EMPLOYEES AND AGENTS................................................................64
15.3. NO LIABILITY........................................................................65
15.4. NO REPRESENTATIONS..................................................................65
15.4.1. GENERAL..................................................................65
15.4.2. CLOSING DOCUMENTATION, ETC...............................................65
15.5. PAYMENTS............................................................................66
15.5.1. PAYMENTS TO AGENT........................................................66
15.5.2. DISTRIBUTION BY AGENT....................................................66
15.5.3. DELINQUENT BANKS.........................................................66
15.6. HOLDERS OF NOTES....................................................................67
15.7. INDEMNITY...........................................................................67
15.8. AGENT AS BANK.......................................................................67
</TABLE>
<PAGE>
<TABLE>
<S> <C>
15.9. RESIGNATION.........................................................................67
15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT.....................................67
15.11. DUTIES IN THE CASE OF ENFORCEMENT..................................................67
16. EXPENSES AND INDEMNIFICATION...................................................................68
16.1. EXPENSES............................................................................68
16.2. INDEMNIFICATION.....................................................................69
16.3. SURVIVAL............................................................................69
17. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION..................................................69
17.1. SHARING OF INFORMATION WITH SECTION 20 SUBSIDIARY...................................69
17.2. CONFIDENTIALITY.....................................................................70
17.3. PRIOR NOTIFICATION..................................................................70
17.4. OTHER...............................................................................70
18. SURVIVAL OF COVENANTS, ETC.....................................................................71
19. ASSIGNMENT AND PARTICIPATION...................................................................71
19.1. CONDITIONS TO ASSIGNMENT BY BANKS...................................................71
19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS......................71
19.3. REGISTER............................................................................73
19.4. NEW NOTES...........................................................................73
19.5. PARTICIPATIONS......................................................................73
19.6. DISCLOSURE..........................................................................73
19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER................................74
19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS.................................................74
19.9. ASSIGNMENT BY BORROWER..............................................................75
20. NOTICES, ETC...................................................................................75
21. GOVERNING LAW..................................................................................75
22. HEADINGS.......................................................................................76
23. COUNTERPARTS...................................................................................76
24. ENTIRE AGREEMENT, ETC..........................................................................76
25. WAIVER OF JURY TRIAL...........................................................................76
26. CONSENTS, AMENDMENTS, WAIVERS, ETC.............................................................77
27. SEVERABILITY...................................................................................77
</TABLE>
<PAGE>
REVOLVING CREDIT
AND
TERM LOAN AGREEMENT
This REVOLVING CREDIT AND TERM LOAN AGREEMENT is made as of June 4, 1998,
by and among (a) STRIDE & ASSOCIATES, INC. (the "Borrower"), a Delaware
corporation having its principal place of business at 222 Berkeley Street, Suite
1620, Boston, Massachusetts 02116; (b) BANKBOSTON, N.A., a national banking
association and the other lending institutions listed on SCHEDULE 1; and (c)
BANKBOSTON, N.A. as agent for itself and such other lending institutions.
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. DEFINITIONS. The following terms shall have the meanings set forth in
this Section 1 or elsewhere in the provisions of this Credit Agreement referred
to below:
ACCOUNTS RECEIVABLE. All rights of the Borrower or any of its Subsidiaries
to payment for goods sold, leased or otherwise marketed in the ordinary course
of business and all rights of the Borrower or any of its Subsidiaries to payment
for services rendered in the ordinary course of business and all sums of money
or other proceeds due thereon pursuant to transactions with account debtors,
except for that portion of the sum of money or other proceeds due thereon that
relate to sales, use or property taxes in conjunction with such transactions,
recorded on books of account in accordance with generally accepted accounting
principles.
ADJUSTMENT DATE. The first day of the month immediately following the
month in which a Compliance Certificate is to be delivered by the Borrower
pursuant to Section 8.4(d).
AFFILIATE. Any Person that would be considered to be an affiliate of the
Borrower under Rule 144(a) of the Rules and Regulations of the Securities and
Exchange Commission, as in effect on the date hereof, if the Borrower were
issuing securities.
AGENT'S HEAD OFFICE. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
AGENT. BankBoston, N.A. acting as agent for the Banks.
AGENT'S SPECIAL COUNSEL. Bingham Dana LLP or such other counsel as may
be approved by the Agent.
APPLICABLE MARGIN. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a "Rate
<PAGE>
2
Adjustment Period"), the Applicable Margin shall be the applicable margin set
forth below with respect to the Borrower's Leverage Ratio as determined for the
period ending on the fiscal quarter ended immediately preceding the applicable
Rate Adjustment Period.
<TABLE>
<CAPTION>
BASE LIBOR
RATE RATE COMMITMENT
LEVEL LEVERAGE RATIO LOANS LOANS FEE RATE
<S> <C> <C> <C> <C>
---------------------------------------------------------------
3 Greater than or 1.00% 2.25% 0.375%
equal to 3.00:1.00
---------------------------------------------------------------
2 Less than 0.50% 1.75% 0.375%
3.00:1.00 but
greater than or
equal to 2.00:1.00
---------------------------------------------------------------
1 Less than 2.00:1.00 0.25% 1.50% 0.375%
---------------------------------------------------------------
</TABLE>
Notwithstanding the foregoing, (a) for Loans outstanding and the
commitment fees payable during the period commencing on the Closing Date through
the date immediately preceding the first Adjustment Date to occur after June 30,
1998, the Applicable Margin shall be at Level 3 set forth above; and (b) if the
Borrower fails to deliver any Compliance Certificate pursuant to Section 8.4(d)
hereof then, for the period commencing on the next Adjustment Date to occur
subsequent to such failure through the date immediately following the date on
which such Compliance Certificate is delivered, the Applicable Margin shall be
the highest Applicable Margin set forth above.
ASSET SALE. Any one or series of related transactions in which any
applicable Person conveys, sells, transfers or otherwise disposes of, directly
or indirectly, any of its properties, business or assets (including the sale or
issuance of capital stock of a Subsidiary), whether owned on the Closing Date or
thereafter acquired.
ASSIGNMENT AND ACCEPTANCE. See Section 19.1.
BALANCE SHEET DATE. December 31, 1997.
BANKS. BKB and the other lending institutions listed on SCHEDULE 1
hereto and any other Person who becomes an assignee of any rights and
obligations of a Bank pursuant to Section 19.
BASE RATE. The higher of (a) the annual rate of interest announced from
time to time by BKB at its head office in Boston, Massachusetts, as its "base
rate" and (b) one-half of one percent (1/2%) above the Federal Funds Effective
Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall
mean for any day, the rate per annum equal to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, 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
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3
quotations for such day on such transactions received by the Agent from three
funds brokers of recognized standing selected by the Agent.
BASE RATE LOANS. Revolving Credit Loans and all or any portion of the
Term Loan bearing interest calculated by reference to the Base Rate.
BKB. BankBoston, N.A. (f/k/a The First National Bank of Boston), a
national banking association, in its individual capacity.
BORROWER. As defined in the preamble hereto.
BUSINESS DAY. Any day on which banking institutions in Boston,
Massachusetts, are open for the transaction of banking business and, in the case
of LIBOR Rate Loans, also a day which is a LIBOR Business Day.
CAPITAL ASSETS. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); PROVIDED that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of twelve (12) months or less in accordance with generally accepted
accounting principles.
CAPITAL EXPENDITURES. Amounts paid or Indebtedness incurred by the
Borrower or any of its Subsidiaries in connection with (a) the purchase or lease
by the Borrower or any of its Subsidiaries of Capital Assets that would be
required to be capitalized and shown on the balance sheet of such Person in
accordance with generally accepted accounting principles or (b) the lease of any
assets by the Borrower or any of its Subsidiaries as lessee under any Synthetic
Lease to the extent that such assets would have been Capital Assets had the
Synthetic Lease been treated for accounting purposes as a Capitalized Lease.
CAPITALIZATION DOCUMENTS. Collectively, the Securities Purchase and
Redemption Agreement, the Shareholders' Agreement (including the agreements,
instruments and documents that are exhibits thereto) and the articles of
incorporation and by-laws of the Borrower and its Subsidiaries.
CAPITALIZED LEASES. Leases under which the Borrower or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are required to be capitalized on the balance sheet of
the lessee or obligor in accordance with generally accepted accounting
principles.
CERCLA. See Section 7.18(a).
CLOSING DATE. The first date on which the conditions set forth in Section
11 have been satisfied and any Revolving Credit Loans and the Term Loan are to
be made hereunder.
CODE. The Internal Revenue Code of 1986.
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4
COLLATERAL. All of the property, rights and interests of the Borrower
and its Subsidiaries that are or are intended to be subject to the security
interests and mortgages created by the Security Documents.
COMMITMENT. With respect to each Bank, the amount set forth on Schedule 1
hereto as the amount of such Bank's commitment to make Loans to the Borrower, as
the same may be reduced from time to time; or if such commitment is terminated
pursuant to the provisions hereof, zero.
COMMITMENT FEE RATE. As referred to as such in the table contained in
the definition of Applicable Margin.
COMMITMENT PERCENTAGE. With respect to each Bank, the percentage set
forth on SCHEDULE 1 hereto as such Bank's percentage of the aggregate
Commitments of all of the Banks.
COMPLIANCE CERTIFICATE. See Section 8.4(d) hereof.
CONSOLIDATED OR CONSOLIDATED. With reference to any term defined herein,
shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
CONSOLIDATED CURRENT ASSETS. All assets of the Borrower and its
Subsidiaries on a consolidated basis that, in accordance with generally accepted
accounting principles, are properly classified as current assets, PROVIDED that
(a) notes and accounts receivable shall be included only if good and collectible
as determined by the Borrower in accordance with established practice
consistently applied and, with respect to such notes, only if payable on demand
or within one (1) year from the date as of which Consolidated Current Assets are
to be determined and if not directly or indirectly renewable or extendible at
the option of the debtors, by their terms, or by the terms of any instrument or
agreement relating thereto, beyond such year, and, with respect to such accounts
receivable, only if payable and outstanding not more than ninety (90) days after
the date of the shipment of goods or other transaction out of which any such
account receivable arose; and such notes and accounts receivable shall be taken
at their face value less reserves determined to be sufficient in accordance with
generally accepted accounting principles; and (b) inventory shall be included
only if and to the extent that the same shall consist of saleable finished goods
ready and available for shipment to purchasers thereof.
CONSOLIDATED CURRENT LIABILITIES. All liabilities and other Indebtedness
of the Borrower and its Subsidiaries on a consolidated basis maturing on demand
or within one (1) year from the date as of which Consolidated Current
Liabilities are to be determined, and such other liabilities as may properly be
classified as current liabilities in accordance with generally accepted
accounting principles.
CONSOLIDATED EXCESS CASH FLOW. With respect to the Borrower and its
Subsidiaries and any particular fiscal period, an amount equal to (a)
Consolidated
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5
Excess Operating Cash Flow for such period LESS (b) the sum of (i) Consolidated
Total Interest Expense for such period, PLUS (ii) any mandatory repayments
(whether scheduled or otherwise) of principal on any Indebtedness of the
Borrower or any of its Subsidiaries paid or due and payable during such period
(other than payments made in respect of the prior fiscal year's Consolidated
Excess Cash Flow).
CONSOLIDATED EXCESS OPERATING CASH FLOW. For any period, an amount equal
to (a) the sum of (i) EBITDA for such period, PLUS (ii) if applicable, in-flows
resulting from Net Working Capital Changes for such period, LESS (b) the sum of
(i) cash payments for all taxes paid during such period, PLUS (ii) to the extent
not already deducted in the determination of EBITDA, Capital Expenditures made
during such period, PLUS (iii) if applicable, out-flows resulting from Net
Working Capital Changes for such period.
CONSOLIDATED NET INCOME (OR DEFICIT). The consolidated net income (or
deficit) of the Borrower and its Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with generally
accepted accounting principles, after eliminating therefrom all extraordinary
nonrecurring items of income.
CONSOLIDATED OPERATING CASH FLOW. For any period, an amount equal to (a)
EBITDA for such period, less (b) the sum of (i) cash payments for all taxes paid
during such period, PLUS (ii) to the extent not already deducted in the
determination of EBITDA, Capital Expenditures made during such period.
CONSOLIDATED TOTAL DEBT SERVICE. For any fiscal period with respect to the
Borrower and its Subsidiaries, the sum of (a) Consolidated Total Interest
Expense for such period, PLUS (b) any and all mandatory or required payments of
principal in respect of Indebtedness of the Borrower and its Subsidiaries made
or required to be made in such period.
CONSOLIDATED TOTAL INTEREST EXPENSE. For any period, the aggregate amount
of interest required to be paid or accrued by the Borrower and its Subsidiaries
during such period on all Indebtedness of the Borrower and its Subsidiaries
outstanding during all or any part of such period, whether such interest was or
is required to be reflected as an item of expense or capitalized, including
payments consisting of interest in respect of any Capitalized Lease or any
Synthetic Lease, and including commitment fees, agency fees, facility fees,
balance deficiency fees and similar fees or expenses in connection with the
borrowing of money.
CONVERSION REQUEST. A notice given by the Borrower to the Agent of the
Borrower's election to convert or continue a Loan in accordance with Section
2.7.
CREDIT AGREEMENT. This Revolving Credit and Term Loan Agreement,
including the Schedules and Exhibits hereto.
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6
DEBT SERVICE COVERAGE RATIO. As at any date of determination, the ratio of
(a) Consolidated Operating Cash Flow of the Borrower and its Subsidiaries for
the Reference Period most recently ended to (b) Consolidated Total Debt Service
of the Borrower and its Subsidiaries for the Reference Period most recently
ended.
DEFAULT. See Section 13.1.
DELINQUENT BANK. See Section 15.5.3.
DISTRIBUTION. The declaration or payment of any dividend on or in respect
of any shares of any class of capital stock of the Borrower, other than
dividends payable solely in shares of common stock of the Borrower; the
purchase, redemption, or other retirement of any shares of any class of capital
stock of the Borrower, directly or indirectly through a Subsidiary of the
Borrower or otherwise; the return of capital by the Borrower to its shareholders
as such; or any other distribution on or in respect of any shares of any class
of capital stock of the Borrower.
DOLLARS or $. Dollars in lawful currency of the United States of America.
DOMESTIC LENDING OFFICE. Initially, the office of each Bank designated as
such in SCHEDULE 1 hereto; thereafter, such other office of such Bank, if any,
located within the United States that will be making or maintaining Base Rate
Loans.
DOMESTIC SUBSIDIARY. A Subsidiary which is not a Foreign Subsidiary.
DRAWDOWN DATE. The date on which any Revolving Credit Loan or the Term
Loan is made or is to be made, and the date on which any Revolving Credit Loan
is converted or continued in accordance with Section 2.7 or all or any portion
of the Term Loan is converted or continued in accordance with Section 4.5.2.
EBITDA. With respect to the Borrower and its Subsidiaries for any fiscal
period, an amount equal to Consolidated Net Income for such period, PLUS, to the
extent deducted in the calculation of Consolidated Net Income and without
duplication, (a) depreciation and amortization for such period, (b) other
noncash charges for such period, (c) income tax expense for such period, (d)
Consolidated Total Interest Expense for such period, and MINUS, to the extent
added in computing Consolidated Net Income and without duplication, all noncash
gains (including income tax benefits) for such period, all as determined in
accordance with generally accepted accounting principles.
ELIGIBLE ASSIGNEE. Any of (a) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (b) a
savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with generally
accepted accounting
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7
principles; (c) a commercial bank organized under the laws of any other country
which is a member of the Organization for Economic Cooperation and Development
(the "OECD"), or a political subdivision of any such country, and having total
assets in excess of $1,000,000,000, PROVIDED that such bank is acting through a
branch or agency located in the country in which it is organized or another
country which is also a member of the OECD; (d) the central bank of any country
which is a member of the OECD; and (e) if, but only if, any Event of Default has
occurred and is continuing, any other bank, insurance company, commercial
finance company or other financial institution or other Person approved by the
Agent, such approval not to be unreasonably withheld.
EMPLOYEE BENEFIT PLAN. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained of contributed to by the Borrower or any ERISA
Affiliate, other than a Guaranteed Pension Plan or a Multiemployer Plan.
ENVIRONMENTAL LAWS. See Section 7.18(a).
EPA. See Section 7.18(b).
EQUITY ISSUANCE. The sale or issuance by the Borrower or any of its
Subsidiaries of any of its capital stock or equity interests or any warrants,
rights or options to acquire its capital stock or equity interests.
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA AFFILIATE. Any Person which is treated as a single employer with the
Borrower under Section 414 of the Code.
ERISA REPORTABLE EVENT. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder.
EUROCURRENCY RESERVE RATE. For any day with respect to a LIBOR Rate Loan,
the maximum rate (expressed as a decimal) at which any lender subject thereto
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulations
relating to such reserve requirements) against "Eurocurrency Liabilities" (as
that term is used in Regulation D), if such liabilities were outstanding. The
Eurocurrency Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurocurrency Reserve Rate.
EVENT OF DEFAULT. See Section 13.1.
FEE LETTER. The fee letter dated on or prior to the Closing Date
between the Borrower and the Agent, as the same may be amended, modified or
supplemented from time to time.
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8
FOREIGN SUBSIDIARY. Any Subsidiary which conducts substantially all of its
business in countries other than the United States of America and that is
organized under the laws of a jurisdiction other than the United States of
America and the States (or the District of Columbia) thereof.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. (a) When used in Section 10,
whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(ii) to the extent consistent with such principles, the accounting practice of
the Borrower reflected in its financial statements for the year ended on the
Balance Sheet Date, and (b) when used in general, other than as provided above,
means principles that are (i) consistent with the principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors, as in
effect from time to time, and (ii) consistently applied with past financial
statements of the Borrower adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower or
any ERISA Affiliate the benefits of which are guaranteed on termination in full
or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
GUARANTOR. Each Domestic Subsidiary of the Borrower which is required
to be or become a guarantor from time to time pursuant to Section 8.14 hereof.
HAZARDOUS SUBSTANCES. See Section 7.18(b).
INDEBTEDNESS. As to any Person and whether recourse is secured by or is
otherwise available against all or only a portion of the assets of such Person
and whether or not contingent, but without duplication:
(a) every obligation of such Person for money borrowed,
(b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses,
(c) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person,
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9
(d) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (including securities
repurchase agreements but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith),
(e) every obligation of such Person under any Capitalized Lease,
(f) every obligation of such Person under any lease (a "Synthetic
Lease") treated as an operating lease under generally accepted accounting
principles and as a loan or financing for U.S. income tax purposes,
(g) all sales by such Person of (i) accounts or general intangibles
for money due or to become due, (ii) chattel paper, instruments or
documents creating or evidencing a right to payment of money or (iii)
other receivables (collectively "receivables"), whether pursuant to a
purchase facility or otherwise, other than in connection with the
disposition of the business operations of such Person relating thereto or
a disposition of defaulted receivables for collection and not as a
financing arrangement, and together with any obligation of such Person to
pay any discount, interest, fees, indemnities, penalties, recourse,
expenses or other amounts in connection therewith,
(h) every obligation of such Person (an "equity related purchase
obligation") to purchase, redeem, retire or otherwise acquire for value
any shares of capital stock of any class issued by such Person, any
warrants, options or other rights to acquire any such shares, or any
rights measured by the value of such shares, warrants, options or other
rights,
(i) every obligation of such Person under any forward contract,
futures contract, swap, option or other financing agreement or arrangement
(including, without limitation, caps, floors, collars and similar
agreements), the value of which is dependent upon interest rates, currency
exchange rates, commodities or other indices (a "derivative contract"),
(j) every obligation in respect of Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to
the extent that such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity,
except to the extent that the terms of such Indebtedness provide that such
Person is not liable therefor and such terms are enforceable under
applicable law,
(k) every obligation, contingent or otherwise, of such Person
guaranteeing, or having the economic effect of guarantying or otherwise
acting as surety for, any obligation of a type described in any of clauses
(a) through (j) (the "primary obligation") of another Person (the "primary
obligor"), in any manner, whether directly or indirectly, and including,
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10
without limitation, any obligation of such Person (i) to purchase or pay
(or advance or supply funds for the purchase of) any security for the
payment of such primary obligation, (ii) to purchase property, securities
or services for the purpose of assuring the payment of such primary
obligation, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such primary obligation.
The "amount" or "principal amount" of any Indebtedness at any time of
determination represented by (u) any Indebtedness, issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with generally accepted
accounting principles, (v) any Capitalized Lease shall be the principal
component of the aggregate of the rentals obligation under such Capitalized
Lease payable over the term thereof that is not subject to termination by the
lessee, (w) any sale of receivables shall be the amount of unrecovered capital
or principal investment of the purchaser (other than the Borrower or any of its
wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or
interest earned on such investment, (x) any Synthetic Lease shall be the
stipulated loss value, termination value or other equivalent amount, (y) any
derivative contract shall be the maximum amount of any termination or loss
payment required to be paid by such Person if such derivative contract were, at
the time of determination, to be terminated by reason of any event of default or
early termination event thereunder, whether or not such event of default or
early termination event has in fact occurred and (z) any equity related purchase
obligation shall be the maximum fixed redemption or purchase price thereof
inclusive of any accrued and unpaid dividends to be comprised in such redemption
or purchase price.
INELIGIBLE SECURITIES. Securities which may not be underwritten or
dealt in by member banks of the Federal Reserve System under Section 16 of
the Banking Act of 1993 (12 U.S.C. Section 24, Seventh), as amended.
INITIAL PUBLIC OFFERING. The initial underwritten public offering of
the common stock of the Borrower registered under the Securities Act of 1933.
INSTRUMENT OF ADHERENCE. See Section 9.5.1.
INTEREST PAYMENT DATE. (a) As to any Base Rate Loan, the last day of the
calendar month with respect to interest accrued during such calendar month,
including, without limitation, the calendar month which includes the Drawdown
Date of such Base Rate Loan; and (b) as to any LIBOR Rate Loan in respect of
which the Interest Period is (i) 3 months or less, the last day of such Interest
Period and (ii) more than 3 months, the date that is 3 months from the first day
of such Interest Period and, in addition, the last day of such Interest Period.
INTEREST PERIOD. With respect to each Revolving Credit Loan or all or any
relevant portion of the Term Loan, (a) initially, the period commencing on the
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11
Drawdown Date of such Loan and ending on the last day of one of the periods set
forth below, as selected by the Borrower in a Loan Request or as otherwise
required by the terms of this Credit Agreement (i) for any Base Rate Loan, the
last day of the calendar month; (ii) for any LIBOR Rate Loan, 1, 2, 3 or 6
months; and (b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Revolving Credit Loan or all or
such portion of the Term Loan and ending on the last day of one of the periods
set forth above, as selected by the Borrower in a Conversion Request; PROVIDED
that all of the foregoing provisions relating to Interest Periods are subject to
the following:
(a) if any Interest Period with respect to a LIBOR Rate Loan would
otherwise end on a day that is not a LIBOR Business Day, that Interest
Period shall be extended to the next succeeding LIBOR Business Day unless
the result of such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period shall end on
the immediately preceding LIBOR Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would
end on a day that is not a Business Day, that Interest Period shall end on
the next succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in Section
2.7, the Borrower shall be deemed to have requested a conversion of the
affected LIBOR Rate Loan to a Base Rate Loan and the continuance of all
Base Rate Loans as Base Rate Loans on the last day of the then current
Interest Period with respect thereto;
(d) any Interest Period relating to any LIBOR Rate Loan that begins
on the last LIBOR Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last LIBOR Business Day of a
calendar month; and
(e) any Interest Period that would otherwise extend beyond the
Revolving Credit Loan Maturity Date (if comprising a Revolving Credit
Loan) or the Term Loan Maturity Date (if comprising the Term Loan or a
portion thereof) shall end on the Revolving Credit Loan Maturity Date or
(as the case may be) the Term Loan Maturity Date.
INVESTMENTS. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at the principal amount of
the obligations guaranteed and still outstanding, together with any interest
accrued thereon; (b) there shall be included as an Investment all
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12
interest accrued with respect to Indebtedness constituting an Investment unless
and until such interest is paid; (c) there shall be deducted in respect of each
such Investment any amount received as a return of capital (but only by
repurchase, redemption, retirement, repayment, liquidating dividend or
liquidating distribution); (d) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment, whether as
dividends, interest or otherwise, except that accrued interest included as
provided in the foregoing clause (b) may be deducted when paid; and (e) there
shall not be deducted from the aggregate amount of Investments any decrease in
the value thereof.
INVESTORS. Collectively, Summit Partners, Summit Ventures V, L.P.,
Summit V Advisors Fund, L.P., Summit V Advisors Fund (QP), L.P. and Summit
Subordinated Debt Fund II, L.P.
LEVERAGE RATIO. As of any date of determination, the ratio of (a) Senior
Funded Indebtedness of the Borrower and its Subsidiaries outstanding on such
date to (b) the EBITDA of the Borrower and its Subsidiaries for the Reference
Period ended on such date; PROVIDED, HOWEVER, for purposes of determining the
Leverage Ratio for purposes of calculating the Applicable Margin and compliance
with Section 10.1 hereof for the period from the Closing Date through December
31, 1998, EBITDA for the quarter ending (i) June 30, 1997 shall be $2,147,200;
(ii) September 30, 1997 shall be $2,557,500; (iii) December 31, 1997 shall be
$1,382,000; and (iv) March 31, 1998 shall be $2,068,300.
LIBOR BUSINESS DAY. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
LIBOR LENDING OFFICE. Initially, the office of each Bank designated as
such in SCHEDULE 1 hereto; thereafter, such other office of such Bank, if any,
that shall be making or maintaining LIBOR Rate Loans.
LIBOR RATE. For any Interest Period with respect to a LIBOR Rate Loan, the
rate of interest equal to (a) the rate determined by the Agent at which Dollar
deposits for such Interest Period are offered based on information presented on
Telerate Page 3750 as of 11:00 a.m. London time on the second LIBOR Business Day
prior to the first day of such Interest Period, divided by (b) a number equal to
1.00 minus the Eurocurrency Reserve Rate, if applicable.
LIBOR RATE LOANS. Revolving Credit Loans and all or any portion of any
Term Loan bearing interest calculated by reference to the LIBOR Rate.
LOAN DOCUMENTS. This Credit Agreement, the Notes, the Subordination
and Intercreditor Agreement, the Fee Letter and the Security Documents.
LOAN REQUEST. See Section 2.6.
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13
LOANS. The Revolving Credit Loans and the Term Loan.
MAJORITY BANKS. As of any date, (a) if there are less than three (3) Banks
on such date, all Banks and (b) if there are three (3) Banks or more on such
date, the Banks holding at least fifty one percent (51%) of the outstanding
principal amount of the Notes on such date PLUS the unused portion of the
Commitments; and if no such principal is outstanding, the Banks whose aggregate
Commitments constitutes at least fifty one percent (51%) of the Total
Commitment.
MATERIAL ADVERSE EFFECT. A material adverse effect on (a) the business,
condition (financial or otherwise), operations, performance or properties of the
Borrower and its Subsidiaries taken as a whole, or the Collateral, (b) the
rights and remedies of the Agent or any Bank under any Loan Document or (c) the
ability of the Borrower or any of its Subsidiaries to perform their Obligations
under the Loan Document.
MULTIEMPLOYER PLAN. Any multiemployer plan within the meaning of Section
3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
NET CASH PROCEEDS. With respect to any Equity Issuance, the excess of the
gross cash proceeds received by such Person from such Equity Issuance after
deduction of reasonable and customary transaction expenses (including without
limitation, underwriting discounts and commissions) actually incurred in
connection with the Equity Issuance.
NET CASH SALE PROCEEDS. The net cash proceeds received by the Borrower and
any of its Subsidiaries in respect of any Asset Sale, less the sum of (a) all
reasonable out-of-pocket fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount (estimated in good faith
by such Person) of income, franchise, sales and other applicable taxes required
to be paid by such Person in connection with such Asset Sale and (b) the
aggregate amount of cash so received by such Person which is used to retire (in
whole or in part) any Indebtedness (other than under the Loan Documents) of such
Person permitted by this Credit Agreement that was secured by a lien or security
interest (if any) permitted by this Credit Agreement having priority over the
liens and security interests (if any) of the Agent, for the benefit of the
Banks, with respect to such assets transferred, and which is required to be
repaid in whole or in part (which repayment, in the case of any other revolving
credit arrangements or multiple advance arrangements, reduces the commitment
thereunder) in connection with such Asset Sale.
NET WORKING CAPITAL CHANGES. For any fiscal period, the net change from
the immediately preceding like fiscal period in (a) both billed and unbilled
Accounts Receivable, (b) current accounts payable of the Borrower and its
Subsidiaries, (c) current accruals and accretions (exclusive of interest
accruals and accretions) of the Borrower and its Subsidiaries and (d) inventory
of the Borrower and its Subsidiaries.
<PAGE>
14
NOTES. The Term Notes and the Revolving Credit Notes.
OBLIGATIONS. All indebtedness, obligations and liabilities of any of the
Borrower and its Subsidiaries to any of the Banks and the Agent, individually or
collectively, existing on the date of this Credit Agreement or arising
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this
Credit Agreement or any of the other Loan Documents or in respect of any of the
Loans made or any of the Notes, or arising or incurred in connection with any
interest rate protection arrangements contemplated by Section 8.16 or any
documents, agreements or instruments executed in connection therewith, or other
instruments at any time evidencing any thereof.
OUTSTANDING. With respect to the Loans, the aggregate unpaid principal
thereof as of any date of determination.
PBGC. The Pension Benefit Guaranty Corporation created by Section 4002 of
ERISA and any successor entity or entities having similar responsibilities.
PERFECTION CERTIFICATE. The Perfection Certificate as defined in the
Security Agreement.
PERMITTED LIENS. Liens, security interests and other encumbrances
permitted by Section 9.2.
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
RATE ADJUSTMENT PERIOD. See definition of "Applicable Margin".
RCRA. See Section 7.18(a).
REAL ESTATE. All real property at any time owned or currently leased (as
lessee or sublessee) by the Borrower or any of its Subsidiaries.
RECORD. The grid attached to a Note, or the continuation of such grid, or
any other similar record, including computer records, maintained by any Bank
with respect to any Loan referred to in such Note.
REDEEMABLE PREFERRED STOCK. The Series B Redeemable Preferred Stock of
the Borrower, par value $.01 per share.
REFERENCE PERIOD. The period of four (4) consecutive fiscal quarters
of the Borrower ending on the relevant date.
REGISTER. See Section 19.3.
<PAGE>
15
RESTRICTED PAYMENT. In relation to the Borrower and its Subsidiaries, any
(a) Distribution or (b) payment or prepayment by the Borrower or its
Subsidiaries to the Investors or to any other Affiliate of the Borrower, any
Subsidiary or the Investors.
REVOLVING CREDIT LOAN MATURITY DATE. June 4, 2003.
REVOLVING CREDIT LOANS. Revolving credit loans made or to be made by the
Banks to the Borrower pursuant to Section 2.
REVOLVING CREDIT NOTE RECORD. A Record with respect to a Revolving Credit
Note.
REVOLVING CREDIT NOTES. See Section 2.4.
ROBICHAUD EMPLOYMENT AGREEMENT. That certain Employment Agreement dated as
of June 4, 1998 by and between the Borrower and Michael Robichaud, and in
substantially the form delivered to the Agent on or prior to the Closing Date.
SARA. See Section 7.18(a).
SECTION 20 SUBSIDIARY. A Subsidiary of the bank holding company
controlling any Bank, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.
SECURITIES PURCHASE AND REDEMPTION AGREEMENT. The Securities Purchase and
Redemption Agreement dated as of a date on or prior to the Closing Date, and in
form and substance acceptable to the Agent and the Banks.
SECURITY AGREEMENT. The Security Agreements, dated or to be dated on
or prior to the Closing Date, between the Borrower and the Agent and in form
and substance satisfactory to the Banks and the Agent.
SECURITY DOCUMENTS. The Security Agreement and all other instruments and
documents, including without limitation Uniform Commercial Code financing
statements, required to be executed or delivered pursuant to any Security
Document.
SENIOR FUNDED INDEBTEDNESS. With respect to the Borrower and its
Subsidiaries on a consolidated basis as at any date of determination, an amount
(without duplication) equal to the aggregate amount of all Indebtedness (other
than Subordinated Debt) of the Borrower and its Subsidiaries on a consolidated
basis at such time (including, without limitation, the aggregate amount of all
commitments to fund such Indebtedness) pursuant to any agreement or instrument
to which the Borrower or any of its Subsidiaries is a party relating to the
borrowing of money or the obtaining of credit or in respect of Capitalized
Leases or Synthetic Leases.
<PAGE>
16
STOCKHOLDER'S AGREEMENT. The Shareholders' Agreement dated June 4, 1998
among the Borrower, the Investors and the certain shareholders of the Borrower
named therein, and in the form delivered to the Agent on or prior to the Closing
Date.
STOCK OPTION PLAN. The Borrower's employee stock option plan as in effect
on the Closing Date, a copy of which has been delivered to the Agent on or prior
to the Closing Date.
SUBORDINATED DEBT. Unsecured Indebtedness of the Borrower or any of its
Subsidiaries that is expressly subordinated and made junior to the payment and
performance in full of the Obligations, and evidenced as such by the
Subordination Documents or by another written agreement containing subordination
provisions in form and substance approved by the Banks in writing.
SUBORDINATED NOTES. The 12% Subordinated Notes due August 4, 2003, in the
initial aggregate principal amount of $10,000,000 issued pursuant to the
Securities Purchase and Redemption Agreement.
SUBORDINATION AND INTERCREDITOR AGREEMENT. The Subordination and
Intercreditor Agreement, dated or to be dated on or prior to the Closing Date
among the Agent, the Investors and the Borrower and in form and substance
satisfactory to the Banks and the Agent.
SUBORDINATION DOCUMENTS. The Securities Purchase and Redemption Agreement,
the Subordinated Notes and the Subordination and Intercreditor Agreement.
SUBSIDIARY. Any corporation, association, trust, or other business entity
of which the designated parent shall at any time own directly or indirectly
through a Subsidiary or Subsidiaries at least a majority (by number of votes) of
the outstanding Voting Stock.
SUMMIT PARTNERS. Collectively, Summit Investors III, L.P. and Summit
Ventures IV, L.P..
SYNTHETIC LEASE. As defined in paragraph (f) of the definition of
"Indebtedness".
TERM LOAN. The term loan made or to be made by the Banks to the Borrower
on the Closing Date in the aggregate principal amount of $4,000,000 pursuant to
Section 4.1.
TERM LOAN MATURITY DATE. June 4, 2003.
TERM NOTES. See Section 4.2.
TERM NOTE RECORD. A Record with respect to a Term Note.
<PAGE>
17
TOTAL COMMITMENT. The sum of the Commitments of the Banks, as in effect
from time to time.
TYPE. As to any Revolving Credit Loan or all or any portion of the Term
Loan, its nature as a Base Rate Loan or a LIBOR Rate Loan.
VOTING STOCK. Stock or similar interests, of any class or classes (however
designated), the holders of which are at the time entitled, as such holders, to
vote for the election of a majority of the directors (or persons performing
similar functions) of the corporation, association, trust or other business
entity involved, whether or not the right so to vote exists by reason of the
happening of a contingency.
1.2. RULES OF INTERPRETATION.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Credit Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification to
such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in the Commonwealth of Massachusetts, have
the meanings assigned to them therein, with the term "instrument" being
that defined under Article 9 of the Uniform Commercial Code.
(h) Reference to a particular "Section " refers to that section of
this Credit Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Credit Agreement as a whole and not to any
particular section or subdivision of this Credit Agreement.
<PAGE>
18
(j) Unless otherwise expressly indicated, in the computation of
periods of time from a specified date to a later specified date, the word
"from" means "from and including," the words "to" and "until" each mean
"to but excluding," and the word "through" means "to and including."
(k) This Credit Agreement and the other Loan Documents may use
several different limitations, tests or measurements to regulate the same
or similar matters. All such limitations, tests and measurements are,
however, cumulative and are to be performed in accordance with the terms
thereof.
(l) This Credit Agreement and the other Loan Documents are the
result of negotiation among, and have been reviewed by counsel to, among
others, the Agent and the Borrower and are the product of discussions and
negotiations among all parties. Accordingly, this Credit Agreement and the
other Loan Documents are not intended to be construed against the Agent or
any of the Banks merely on account of the Agent's or any Bank's
involvement in the preparation of such documents.
2. THE REVOLVING CREDIT FACILITY.
2.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth in
this Credit Agreement, each of the Banks severally agrees to lend to the
Borrower and the Borrower may borrow, repay, and reborrow from time to time from
the Closing Date up to but not including the Revolving Credit Loan Maturity Date
upon notice by the Borrower to the Agent given in accordance with Section 2.6,
such sums as are requested by the Borrower up to a maximum aggregate amount
outstanding (after giving effect to all amounts requested) at any one time equal
to such Bank's Commitment, PROVIDED that the sum of the outstanding amount of
the Revolving Credit Loans (after giving effect to all amounts requested) shall
not at any time exceed the Total Commitment. The Revolving Credit Loans shall be
made PRO RATA in accordance with each Bank's Commitment Percentage. Each request
for a Revolving Credit Loan hereunder shall constitute a representation and
warranty by the Borrower that the conditions set forth in Section 11 and Section
12, in the case of the initial Revolving Credit Loans to be made on the Closing
Date, and Section 12, in the case of all other Revolving Credit Loans, have been
satisfied on the date of such request.
2.2. COMMITMENT FEE. The Borrower agrees to pay to the Agent for the
accounts of the Banks in accordance with their respective Commitment Percentages
a commitment fee calculated at the applicable Commitment Fee Rate on the average
daily amount during each calendar quarter or portion thereof from the date
hereof to the Revolving Credit Loan Maturity Date by which the Total Commitment
exceeds the outstanding amount of Revolving Credit Loans during such calendar
quarter. The commitment fee shall be payable quarterly in arrears on the last
day of each calendar quarter for such calendar quarter commencing on the first
such date following the date hereof, with a final payment on the Revolving
Credit Maturity Date or any earlier date on which the Commitments shall
terminate.
<PAGE>
19
2.3. REDUCTION OF TOTAL COMMITMENT. The Borrower shall have the right at
any time and from time to time upon one (1) Business Day prior written notice to
the Agent to reduce by $500,000 or an integral multiple of $250,000 in excess
thereof or terminate entirely the Total Commitment, whereupon the Commitments of
the Banks shall be reduced PRO RATA in accordance with their respective
Commitment Percentages of the amount specified in such notice or, as the case
may be, terminated. Promptly after receiving any notice of the Borrower
delivered pursuant to this Section 2.3, the Agent will notify the Banks of the
substance thereof. Upon the effective date of any such reduction or termination,
the Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction.
No reduction or termination of the Commitments may be reinstated.
2.4. THE REVOLVING CREDIT NOTES. The Revolving Credit Loans shall be
evidenced by separate promissory notes of the Borrower in substantially the form
of EXHIBIT A hereto (each a "Revolving Credit Note"), dated as of the Closing
Date and completed with appropriate insertions. One Revolving Credit Note shall
be payable to the order of each Bank in a principal amount equal to such Bank's
Commitment or, if less, the outstanding amount of all Revolving Credit Loans
made by such Bank, plus interest accrued thereon, as set forth below. The
Borrower irrevocably authorizes each Bank to make or cause to be made, at or
about the time of the Drawdown Date of any Revolving Credit Loan or at the time
of receipt of any payment of principal on such Bank's Revolving Credit Note, an
appropriate notation on such Bank's Revolving Credit Note Record reflecting the
making of such Revolving Credit Loan or (as the case may be) the receipt of such
payment. The outstanding amount of the Revolving Credit Loans set forth on such
Bank's Revolving Credit Note Record shall be PRIMA FACIE evidence of the
principal amount thereof owing and unpaid to such Bank, but the failure to
record, or any error in so recording, any such amount on such Bank's Revolving
Credit Note Record shall not limit or otherwise affect the obligations of the
Borrower hereunder or under any Revolving Credit Note to make payments of
principal of or interest on any Revolving Credit Note when due.
2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise provided
in Section 5.11,
(a) Each Base Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the rate per annum equal to
the Base Rate PLUS the Applicable Margin.
(b) Each LIBOR Rate Loan shall bear interest for the period
commencing with the Drawdown Date thereof and ending on the last day of
the Interest Period with respect thereto at the rate per annum equal to
the LIBOR Rate determined for such Interest Period PLUS the Applicable
Margin.
<PAGE>
20
(c) The Borrower promises to pay interest on each Revolving Credit
Loan in arrears on each Interest Payment Date with respect thereto.
2.6. REQUESTS FOR REVOLVING CREDIT LOANS. The Borrower shall give to the
Agent written notice in the form of EXHIBIT B hereto (or telephonic notice
confirmed in a writing in the form of EXHIBIT B hereto) of each Revolving Credit
Loan requested hereunder (a "Loan Request") no less than (a) one (1) Business
Day prior to the proposed Drawdown Date of any Base Rate Loan and (b) three (3)
LIBOR Business Days prior to the proposed Drawdown Date of any LIBOR Rate Loan.
Each such notice shall specify (i) the principal amount of the Revolving Credit
Loan requested, (ii) the proposed Drawdown Date of such Revolving Credit Loan,
(iii) the Interest Period for such Revolving Credit Loan and (iv) the Type of
such Revolving Credit Loan. Promptly upon receipt of any such notice, the Agent
shall notify each of the Banks thereof. Each Loan Request shall be irrevocable
and binding on the Borrower and shall obligate the Borrower to accept the
Revolving Credit Loan requested from the Banks on the proposed Drawdown Date.
Each Loan Request shall be in a minimum aggregate amount of $250,000 or an
integral multiple thereof.
2.7. CONVERSION OPTIONS.
2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT Loan. The
Borrower may elect from time to time to convert any outstanding Revolving
Credit Loan to a Revolving Credit Loan of another Type, PROVIDED that (a)
with respect to any such conversion of a Revolving Credit Loan to a Base
Rate Loan, the Borrower shall give the Agent at least one (1) Business Day
prior written notice of such election; (b) with respect to any such
conversion of a Base Rate Loan to a LIBOR Rate Loan, the Borrower shall
give the Agent at least three (3) LIBOR Business Days prior written notice
of such election; (c) with respect to any such conversion of a LIBOR Rate
Loan into a Revolving Credit Loan of another Type, such conversion shall
only be made on the last day of the Interest Period with respect thereto
and (d) no Loan may be converted into a LIBOR Rate Loan when any Default
or Event of Default has occurred and is continuing. On the date on which
such conversion is being made each Bank shall take such action as is
necessary to transfer its Commitment Percentage of such Revolving Credit
Loans to its Domestic Lending Office or its LIBOR Lending Office, as the
case may be. All or any part of outstanding Revolving Credit Loans of any
Type may be converted into a Revolving Credit Loan of another Type as
provided herein, PROVIDED that any partial conversion shall be in an
aggregate principal amount of $250,000 or a whole multiple thereof. Each
Conversion Request relating to the conversion of a Revolving Credit Loan
to a LIBOR Rate Loan shall be irrevocable by the Borrower.
2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any Revolving
Credit Loan of any Type may be continued as a Revolving Credit Loan of the
same Type upon the expiration of an Interest Period with respect thereto
by compliance by the Borrower with the notice provisions contained
<PAGE>
21
in Section 2.7.1; provided that no LIBOR Rate Loan may be continued as
such when any Default or Event of Default has occurred and is continuing,
but shall be automatically converted to a Base Rate Loan on the last day
of the first Interest Period relating thereto ending during the
continuance of any Default or Event of Default of which officers of the
Agent active upon the Borrower's account have actual knowledge. In the
event that the Borrower fails to provide any such notice with respect to
the continuation of any LIBOR Rate Loan or as such, then such LIBOR Rate
Loan shall be automatically converted to a Base Rate Loan on the last day
of the first Interest Period relating thereto. The Agent shall notify the
Banks promptly when any such automatic conversion contemplated by this
Section 2.7 is scheduled to occur.
2.7.3. LIBOR RATE LOANS. Any conversion to or from LIBOR Rate Loans
shall be in such amounts and be made pursuant to such elections so that,
after giving effect thereto, the aggregate principal amount of all LIBOR
Rate Loans having the same Interest Period shall not be less than $500,000
or a whole multiple of $100,000 in excess thereof.
2.8. FUNDS FOR REVOLVING CREDIT LOAN.
2.8.1. FUNDING PROCEDURES. Not later than 11:00 a.m. (Boston time)
on the proposed Drawdown Date of any Revolving Credit Loans, each of the
Banks will make available to the Agent, at the Agent's Head Office, in
immediately available funds, the amount of such Bank's Commitment
Percentage of the amount of the requested Revolving Credit Loans. Upon
receipt from each Bank of such amount, and upon receipt of the documents
required by Sections 11 and 12 and the satisfaction of the other
conditions set forth therein, to the extent applicable, the Agent will
make available to the Borrower the aggregate amount of such Revolving
Credit Loans made available to the Agent by the Banks. The failure or
refusal of any Bank to make available to the Agent at the aforesaid time
and place on any Drawdown Date the amount of its Commitment Percentage of
the requested Revolving Credit Loans shall not relieve any other Bank from
its several obligation hereunder to make available to the Agent the amount
of such other Bank's Commitment Percentage of any requested Revolving
Credit Loans.
2.8.2. ADVANCES BY AGENT. The Agent may, unless notified to the
contrary by any Bank prior to a Drawdown Date, assume that such Bank has
made available to the Agent on such Drawdown Date the amount of such
Bank's Commitment Percentage of the Revolving Credit Loans to be made on
such Drawdown Date, and the Agent may (but it shall not be required to),
in reliance upon such assumption, make available to the Borrower a
corresponding amount. If any Bank makes available to the Agent such amount
on a date after such Drawdown Date, such Bank shall pay to the Agent on
demand an amount equal to the product of (a) the average computed for the
period referred to in clause (c) below, of the weighted
<PAGE>
22
average interest rate paid by the Agent for federal funds acquired by the
Agent during each day included in such period, TIMES (b) the amount of
such Bank's Commitment Percentage of such Revolving Credit Loans, TIMES
(c) a fraction, the numerator of which is the number of days that elapse
from and including such Drawdown Date to the date on which the amount of
such Bank's Commitment Percentage of such Revolving Credit Loans shall
become immediately available to the Agent, and the denominator of which is
365. A statement of the Agent submitted to such Bank with respect to any
amounts owing under this paragraph shall be PRIMA FACIE evidence of the
amount due and owing to the Agent by such Bank. If the amount of such
Bank's Commitment Percentage of such Revolving Credit Loans is not made
available to the Agent by such Bank within three (3) Business Days
following such Drawdown Date, the Agent shall be entitled to recover such
amount from the Borrower on demand, with interest thereon at the rate per
annum applicable to the Revolving Credit Loans made on such Drawdown Date.
3. REPAYMENT OF THE REVOLVING CREDIT LOANS.
3.1. MATURITY. The Borrower promises to pay on the Revolving Credit Loan
Maturity Date, and there shall become absolutely due and payable on the
Revolving Credit Loan Maturity Date, all of the Revolving Credit Loans
outstanding on such date, together with any and all accrued and unpaid interest
thereon.
3.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS. If at any time the
sum of the outstanding amount of the Revolving Credit Loans exceeds the Total
Commitment, then the Borrower shall immediately pay the amount of such excess to
the Agent for the respective accounts of the Banks for application to the
Revolving Credit Loans. Each payment of any Revolving Credit Loans shall be
allocated among the Banks, in proportion, as nearly as practicable, to the
respective unpaid principal amount of each Bank's Revolving Credit Note, with
adjustments to the extent practicable to equalize any prior payments or
repayments not exactly in proportion.
3.3. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS. The Borrower shall
have the right, at its election, to repay the outstanding amount of the
Revolving Credit Loans, as a whole or in part, at any time without penalty or
premium (but subject to Section 5.10). The Borrower shall give the Agent, no
later than 10:00 a.m., Boston time, at least one (1) Business Day prior written
notice of any proposed prepayment pursuant to this Section 3.3 of Base Rate
Loans, and three (3) LIBOR Business Days notice of any proposed prepayment
pursuant to this Section 3.3 of LIBOR Rate Loans, in each case specifying the
proposed date of prepayment of Revolving Credit Loans and the principal amount
to be prepaid. Each such partial prepayment of the Revolving Credit Loans shall
be in an integral multiple of $100,000, shall be accompanied by the payment of
accrued interest on the principal prepaid to the date of prepayment and shall be
applied, in the absence of instruction by the Borrower, first to the principal
of Base Rate Loans and then to the principal of LIBOR Rate Loans. Each partial
prepayment shall be allocated among the Banks, in proportion,
<PAGE>
23
as nearly as practicable, to the respective unpaid principal amount of each
Bank's Revolving Credit Note, with adjustments to the extent practicable to
equalize any prior repayments not exactly in proportion. Any amount so prepaid
may be reborrowed by the Borrower as provided in, and subject to the conditions
of, Section 2.1 hereof.
4. THE TERM LOAN.
4.1. COMMITMENT TO LEND. Subject to the terms and conditions set forth in
this Credit Agreement, each Bank agrees to lend to the Borrower on the Closing
Date the amount of its Commitment Percentage of the principal amount of
$26,000,000.
4.2. THE TERM NOTES. The Term Loan shall be evidenced by separate
promissory notes of the Borrower in substantially the form of EXHIBIT C hereto
(each a "Term Note"), dated the Closing Date and completed with appropriate
insertions. One Term Note shall be payable to the order of each Bank in a
principal amount equal to such Bank's Commitment Percentage of the Term Loan and
representing the obligation of the Borrower to pay to such Bank such principal
amount or, if less, the outstanding amount of such Bank's Commitment Percentage
of the Term Loan, plus interest accrued thereon, as set forth below. The
Borrower irrevocably authorizes each Bank to make or cause to be made a notation
on such Bank's Term Note Record reflecting the original principal amount of such
Bank's Commitment Percentage of the Term Loan and, at or about the time of such
Bank's receipt of any principal payment on such Bank's Term Note, an appropriate
notation on such Bank's Term Note Record reflecting such payment. The aggregate
unpaid amount set forth on such Bank's Term Note Record shall be PRIMA FACIE
evidence of the principal amount thereof owing and unpaid to such Bank, but the
failure to record, or any error in so recording, any such amount on such Bank's
Term Note Record shall not affect the obligations of the Borrower hereunder or
under any Term Note to make payments of principal of and interest on any Term
Note when due.
4.3. MANDATORY PAYMENTS OF PRINCIPAL ON TERM LOAN.
4.3.1. SCHEDULED AMORTIZATION. The Borrower promises to pay to the
Agent for the account of the Banks the principal amount of the Term Loan
in twenty (20) consecutive quarterly payments, payable on the last day of
each calendar quarter ending within any period set forth below in the
amount set forth opposite such period, commencing on September 30, 1998
with a final payment on the Term Loan Maturity Date in an amount equal to
the unpaid balance of the Term Loan.
<PAGE>
24
<TABLE>
<CAPTION>
----------------------------------------------------------------
Amount of
Quarter Ending: Each Payment
----------------------------------------------------------------
<S> <C>
September 30, 1998 - December 31, 1998 $ 400,000
----------------------------------------------------------------
March 30, 1999 - December 31, 1999 $ 700,000
----------------------------------------------------------------
March 30, 2000 - December 31, 2000 $ 1,125,000
----------------------------------------------------------------
March 30, 2001 - December 31, 2001 $ 1,575,000
----------------------------------------------------------------
March 30, 2002 - December 31, 2002 $ 1,825,000
----------------------------------------------------------------
March 30, 2003 $ 2,150,000
----------------------------------------------------------------
Term Loan Maturity Date Remaining unpaid
balance of the Term
Loan
----------------------------------------------------------------
</TABLE>
4.3.2. ANNUAL EXCESS CASH FLOW RECAPTURE. For each fiscal year of
the Borrower ending on or after December 31, 1998 in which the Leverage
Ratio for the period of two consecutive fiscal quarters ending December 31
of such year is equal to or less than 1.50:1.00, the Borrower shall make a
prepayment of principal on the Term Loan in an amount equal to fifty
percent (50%) of Consolidated Excess Cash Flow for such fiscal year, such
mandatory prepayment to be due one hundred twenty (120) days after the end
of each applicable fiscal year and to be applied to the Term Loan based on
the then outstanding amount of the Term Loan and applied against the
scheduled installments of principal due on the Term Loan on a pro rata
basis.
4.3.3. PROCEEDS OF ASSET DISPOSITIONS AND EQUITY ISSUANCES. In the
event the Borrower or any of its Subsidiaries receives any (a) Net Cash
Sale Proceeds from any Asset Sales permitted by Section 9.5.2 (except for
any Net Cash Sale Proceeds received by the Borrower from the sale or other
disposition of obsolete assets as permitted by Section 9.5.2 so long as
the Borrower uses such Net Cash Sale Proceeds to purchase replacement
assets within twelve (12) months from the date of such sale or other
disposition); or (b) Net Cash Proceeds from any Equity Issuances by the
Borrower and its Subsidiaries after the Closing Date (except for Net Cash
Proceeds received by the Borrower from Equity Issuances of the Borrower
(i) made in connection with its Stock Option Plan or to members of the
Company's management (other than in connection with the sale of Equity
Issuances to such members of management in the Initial Public Offering);
or (ii) to Investors of the Borrower existing on the Closing Date so long
as no Event of Default has occurred and is continuing and provided such
Net Cash Proceeds are not received in connection with the sale of Equity
Issuances to the Investors in the Initial Public Offering), the Borrower
shall make a prepayment of principal on the Term Loan in an amount equal
to 100% of such Net Cash Sale Proceeds or Net Cash Proceeds, as the case
may be, with such prepayment to be applied to the Term Loan based on the
then outstanding amount of the Term Loan and applied against the scheduled
installments of principal due on the Term Loan on a pro rata basis;
PROVIDED, HOWEVER, that
<PAGE>
25
notwithstanding the foregoing, the Borrower shall be permitted to use all
or any portion of the proceeds of an Equity Issuance to redeem the
Redeemable Preferred Stock outstanding on such date and/or the
Subordinated Notes PROVIDED (a) the Leverage Ratio is less than or equal
to 1.00:1.00 on a pro forma basis immediately after giving effect to any
prepayments; (b) no Default or Event of Default has occurred and is
continuing or would exist as a result thereof; and (c) the Summit
Investors at all times prior to and after giving effect to such a
redemption are the legal and beneficial owners of not less than
twenty-five percent (25%) of the capital stock of the Borrower.
4.4. OPTIONAL PREPAYMENT OF TERM LOAN. The Borrower shall have the right
at any time to prepay the Term Note on or before the Term Loan Maturity Date, as
a whole, or in part, subject to Section 5.10, upon not less than one (1)
Business Days prior written notice to the Agent, without premium or penalty,
PROVIDED that (a) each partial prepayment shall be in the principal amount of
$500,000 or an integral multiple of $100,000 in excess thereof, and (b) each
partial prepayment shall be allocated among the Banks, in proportion, as nearly
as practicable, to the respective outstanding amount of each Bank's Term Note,
with adjustments to the extent practicable to equalize any prior prepayments not
exactly in proportion. Any prepayment of principal of the Term Loan shall
include all interest accrued to the date of prepayment and shall be applied
against the scheduled installments of principal due on the Term Loan on a pro
rata basis. No amount repaid with respect to the Term Loan may be reborrowed.
4.5. INTEREST ON TERM LOAN.
4.5.1. INTEREST RATES. Except as otherwise provided in Section 5.11,
the Term Loan shall bear interest during each Interest Period relating to
all or any portion of the Term Loan at the following rates:
(a) To the extent that all or any portion of the Term Loan
bears interest during such Interest Period at the Base Rate, the
Term Loan or such portion shall bear interest during such Interest
Period at the rate per annum equal to the Base Rate PLUS the
Applicable Margin.
(b) To the extent that all or any portion of the Term Loan
bears interest during such Interest Period at the LIBOR Rate, the
Term Loan or such portion shall bear interest during such Interest
Period at the rate per annum equal to the LIBOR Rate plus the
Applicable Margin.
The Borrower promises to pay interest on the Term Loan or any
portion thereof outstanding during each Interest Period in arrears on each
Interest Payment Date applicable to such Interest Period.
4.5.2. NOTIFICATION BY BORROWER. The Borrower shall notify the
Agent, such notice to be irrevocable, at least three (3) LIBOR Business
Days prior to the Drawdown Date of the Term Loan if all or any portion of
the
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26
Term Loan is to bear interest at the LIBOR Rate. After the Term Loan has
been made, the provisions of Section 2.7 shall apply mutatis mutandis with
respect to all or any portion of the Term Loan so that the Borrower may
have the same interest rate options with respect to all or any portion of
the Term Loan as it would be entitled to with respect to the Revolving
Credit Loans.
4.5.3. AMOUNTS, ETC. That portion of the Term Loan bearing interest
at the LIBOR Rate relating to any Interest Period shall be in the amount
of $500,000 or an integral multiple of $100,000 in excess thereof. No
Interest Period relating to the Term Loan or any portion thereof bearing
interest at the LIBOR Rate shall extend beyond the date on which a
regularly scheduled installment payment of the principal of the Term Loan
is to be made unless a portion of the Term Loan at least equal to such
installment payment has an Interest Period ending on such date or is then
bearing interest at the Base Rate.
5. CERTAIN GENERAL PROVISIONS.
5.1. CLOSING FEE. The Borrower agrees to pay to the Agent on the Closing
Date the closing fees as set forth in the Fee Letter.
5.2. AGENT'S FEE. The Borrower shall pay to the Agent an Agent's fee (the
"Agent's Fee") at the times and in the amounts set forth in the Fee Letter.
5.3. FUNDS FOR PAYMENTS.
5.3.1. PAYMENTS TO AGENT. All payments of principal, interest,
commitment fees and any other amounts due hereunder or under any of the
other Loan Documents shall be made to the Agent, for the respective
accounts of the Banks and the Agent, at the Agent's Head Office or at such
other location in the Boston, Massachusetts, area that the Agent may from
time to time designate, in each case in immediately available funds.
5.3.2. NO OFFSET, ETC. All payments by the Borrower hereunder and
under any of the other Loan Documents shall be made without setoff or
counterclaim and free and clear of and without deduction for any taxes,
levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless the
Borrower is compelled by law to make such deduction or withholding. If any
such obligation is imposed upon the Borrower with respect to any amount
payable by it hereunder or under any of the other Loan Documents, the
Borrower will pay to the Agent, for the account of the Banks or (as the
case may be) the Agent, on the date on which such amount is due and
payable hereunder or under such other Loan Document, such additional
amount in Dollars as shall be necessary to enable the Banks or the Agent
to receive the same net amount which the Banks or
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27
the Agent would have received on such due date had no such obligation been
imposed upon the Borrower. The Borrower will deliver promptly to the Agent
certificates or other valid vouchers for all taxes or other charges
deducted from or paid with respect to payments made by the Borrower
hereunder or under such other Loan Document.
5.4. COMPUTATIONS. All computations of interest on the Base Rate Loans and
of commitment fees or other fees shall, unless otherwise expressly provided
herein, be based on a 365-day year and paid for the actual number of days
elapsed, and all computations on interest on LIBOR Rate Loans shall be based on
a 360-day year and paid for the actual number of days elaped. Except as
otherwise provided in the definition of the term "Interest Period" with respect
to LIBOR Loans, whenever a payment hereunder or under any of the other Loan
Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The outstanding amount of the Loans as
reflected on the Revolving Credit Note Records and the Term Note Records from
time to time shall be considered correct and binding on the Borrower unless
within five (5) Business Days after receipt of any notice by the Agent or any of
the Banks of such outstanding amount, the Agent or such Bank shall notify the
Borrower to the contrary.
5.5. INABILITY TO DETERMINE LIBOR RATE. In the event, prior to the
commencement of any Interest Period relating to any LIBOR Rate Loan, the Agent
shall determine or be notified by the Majority Banks that adequate and
reasonable methods do not exist for ascertaining the LIBOR Rate that would
otherwise determine the rate of interest to be applicable to any LIBOR Rate Loan
during any Interest Period, the Agent shall forthwith give notice of such
determination (which shall be conclusive and binding on the Borrower and the
Banks) to the Borrower and the Banks. In such event (a) any Loan Request or
Conversion Request with respect to LIBOR Rate Loans shall be automatically
withdrawn and shall be deemed a request for Base Rate Loans, (b) each LIBOR Rate
Loan will automatically, on the last day of the then current Interest Period
relating thereto, become a Base Rate Loan, and (c) the obligations of the Banks
to make LIBOR Rate Loans shall be suspended until the Agent or the Majority
Banks determine that the circumstances giving rise to such suspension no longer
exist, whereupon the Agent or, as the case may be, the Agent upon the
instruction of the Majority Banks, shall so notify the Borrower and the Banks.
5.6. ILLEGALITY. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or change in the
interpretation or application thereof shall make it unlawful for any Bank to
make or maintain LIBOR Rate Loans, such Bank shall forthwith give prompt notice
of such circumstances to the Borrower and the other Banks and thereupon (a) the
commitment of such Bank to make LIBOR Rate Loans or convert Loans of another
Type to LIBOR Rate Loans shall forthwith be suspended and (b) such Bank's
Revolving Credit Loans then outstanding as LIBOR Rate Loans, if any, shall be
converted automatically to Base
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28
Rate Loans on the last day of each Interest Period applicable to such LIBOR Rate
Loans or within such earlier period as may be required by law. The Borrower
hereby agrees promptly to pay the Agent for the account of such Bank, upon
demand by such Bank, any additional amounts necessary to compensate such Bank
for any costs incurred by such Bank in making any conversion in accordance with
this Section 6.6, including any interest or fees payable by such Bank to lenders
of funds obtained by it in order to make or maintain its LIBOR Rate Loans
hereunder.
5.7. ADDITIONAL COSTS, ETC. If any present or future applicable law, which
expression, as used herein, includes statutes, rules and regulations thereunder
and interpretations thereof by any competent court or by any governmental or
other regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time hereafter made upon or otherwise issued to any Bank or
the Agent by any central bank or other fiscal, monetary or other authority
(whether or not having the force of law), shall:
(a) subject any Bank or the Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Credit Agreement, the other Loan Documents, such Bank's Commitment or the
Loans (other than taxes based upon or measured by the income or profits of
such Bank or the Agent), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to any Bank of the principal of or
the interest on any Loans or any other amounts payable to any Bank or the
Agent under this Credit Agreement or any of the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Credit Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or other
similar requirements (whether or not having the force of law) against
assets held by, or deposits in or for the account of, or loans by, or
letters of credit issued by, or commitments of an office of any Bank, or
(d) impose on any Bank or the Agent any other conditions or
requirements with respect to this Credit Agreement, the other Loan
Documents, the Loans, such Bank's Commitment, or any class of loans,
letters of credit or commitments of which any of the Loans or such Bank's
Commitment forms a part, and the result of any of the foregoing is
(i) to increase the cost to any Bank of making, funding,
issuing, renewing, extending or maintaining any of the Loans or such
Bank's Commitment, or
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29
(ii) to reduce the amount of principal, interest, or other
amount payable to such Bank or the Agent hereunder on account of
such Bank's Commitment, or any of the Loans, or
(iii) to require such Bank or the Agent to make any payment or
to forego any interest or other sum payable hereunder, the amount of
which payment or foregone interest or other sum is calculated by
reference to the gross amount of any sum receivable or deemed
received by such Bank or the Agent from the Borrower hereunder,
then, and in each such case, the Agent or such Bank shall give prompt notice
thereof to the Borrower, and the Borrower will, upon demand made by such Bank or
(as the case may be) the Agent at any time and from time to time and as often as
the occasion therefor may arise, pay to such Bank or the Agent such additional
amounts as will be sufficient to compensate such Bank or the Agent for such
additional cost, reduction, payment or foregone interest or other sum.
5.8. CAPITAL ADEQUACY. If after the date hereof any Bank or the Agent
determines that (a) the adoption of or change in any law, governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (b) compliance by such Bank or the
Agent or any corporation controlling such Bank or the Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has the
net effect (taking into account any other such changes after the date hereof) of
reducing the return on such Bank's or the Agent's commitment with respect to any
Loans to a level below that which such Bank or the Agent could have achieved but
for such adoption, change or compliance (taking into consideration such Bank's
or the Agent's then existing policies with respect to capital adequacy and
assuming full utilization of such entity's capital) by any amount deemed by such
Bank or (as the case may be) the Agent to be material, then such Bank or the
Agent shall notify the Borrower of such fact. To the extent that the amount of
such reduction in the return on capital is not reflected in the Base Rate, the
Borrower and such Bank shall thereafter attempt to negotiate in good faith,
within thirty (30) days of the day on which the Borrower receives such notice,
an adjustment payable hereunder that will adequately compensate such Bank in
light of these circumstances. If the Borrower and such Bank are unable to agree
to such adjustment within thirty (30) days of the date on which the Borrower
receives such notice, then commencing on the date of such notice (but not
earlier than the effective date of any such increased capital requirement), the
fees payable hereunder shall increase by an amount that will, in such Bank's
reasonable determination, provide adequate compensation. Each Bank shall
allocate such cost increases among its customers in good faith and on an
equitable basis.
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30
5.9. CERTIFICATE. A certificate setting forth any additional amounts
payable pursuant to Sections 5.7 or 5.8 and a brief explanation of such amounts
which are due, submitted by any Bank or the Agent to the Borrower, shall be
conclusive, absent manifest error, that such amounts are due and owing.
5.10. INDEMNITY. The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from and against any loss, cost or expense (excluding loss of
anticipated profits) that such Bank may sustain or incur as a consequence of (a)
default by the Borrower in payment of the principal amount of or any interest on
any LIBOR Rate Loans as and when due and payable, including any such loss or
expense arising from interest or fees payable by such Bank to lenders of funds
obtained by it in order to maintain its LIBOR Rate Loans, (b) default by the
Borrower in making a borrowing or conversion after the Borrower has given (or is
deemed to have given) a Loan Request, notice (in the case of all or any portion
of the Term Loans pursuant to Section 4.5.2) or a Conversion Request relating
thereto in accordance with Section 2.6 or Section 2.7 or Section 4.5 or (c) the
making of any payment of a LIBOR Rate Loan or the making of any conversion of
any such Loan to a Base Rate Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by such Bank to lenders of funds obtained by it in order to maintain any
such Loans.
5.11. INTEREST AFTER DEFAULT.
5.11.1. OVERDUE AMOUNTS. Overdue principal and (to the extent
permitted by applicable law) interest on the Loans shall bear interest
compounded monthly and payable on demand at a rate per annum equal to two
percent (2%) above the Base Rate until such amount shall be paid in full
(after as well as before judgment).
5.11.2. AMOUNTS NOT OVERDUE. During the continuance of an Event of
Default under Sections 13.1(a), (b) or (c) as it relates to Section 10,
the principal of the Loans not overdue shall, until such Event of Default
has been cured or remedied or such Event of Default has been waived by the
Majority Banks pursuant to Section 26, bear interest at a rate per annum
equal to the greater of (a) two percent (2%) above the rate of interest
otherwise applicable to such Revolving Credit Loans pursuant to Section
2.5 and the Term Loan pursuant to Section 4.5 and (b) the rate of interest
applicable to overdue principal pursuant to Section 5.11.1.
5.12. REPLACEMENT OF BANKS. Within thirty (30) days after (a) any Bank had
demanded compensation from the Borrower pursuant to Sections 5.7 or 5.8 hereof,
or (b) there shall have occurred a change in law with respect to any Bank as a
consequence of which it shall have become unlawful for such Bank to make a LIBOR
Rate Loan on any Drawdown Date, as described in Section 5.6 hereof (any such
Bank described in the foregoing clauses (a) or (b) is hereinafter referred to as
an "Affected Bank"), the Borrower may request that the other Banks
(collectively, the "Non-Affected Banks") acquire all, but not less than all, of
the Affected Bank's Commitment or may
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31
designate a replacement bank or banks, which must be an Eligible Assignee and
which also must be reasonably acceptable to the Agent, to acquire and assume all
or any portion of the outstanding Loans and Commitment of the Affected Bank (the
"Replacement Bank"). If the Borrower so requests the Non-Affected Banks to
acquire all or a portion of the Affected Bank's Commitment, the Non-Affected
Banks may elect to acquire all or any portion of the Affected Banks outstanding
Loans and to assume all or any portion of the Affected Bank's Commitment. If the
Non-Affected Banks do not elect to acquire and assume all or any portion of the
Affected Bank's outstanding Loans and Commitment, the Replacement Bank may
acquire and assume that portion of the outstanding Loans and Commitments of the
Affected Bank not otherwise acquired or assumed by the Non-Affected Banks. The
provisions of Section 19 hereof shall apply to all reallocations pursuant to
this Section 5.12, and the Affected Bank and any Non-Affected Banks and/or
replacement banks which are to acquire the Loans and Commitment of the Affected
Bank shall execute and deliver to the Agent, in accordance with the provisions
of Section 19 hereof, such Assignments and Acceptances and other instruments,
including, without limitation, the Notes, as are required pursuant to Section 19
hereof to give effect to such reallocations. On the effective date of the
applicable Assignment and Acceptance, the Borrower shall pay to the Affected
Bank all interest accrued on its Loans up to but excluding such date, along with
any fees payable to such Affected Bank hereunder up to but excluding such date.
6. COLLATERAL SECURITY AND GUARANTIES.
6.1. SECURITY OF BORROWER. The Obligations shall be secured by a perfected
first priority security interest (subject only to Permitted Liens entitled to
priority under applicable law) in all of the assets of the Borrower, whether now
owned or hereafter acquired, pursuant to the terms of the Security Documents to
which the Borrower is a party.
6.2. GUARANTIES AND SECURITY OF SUBSIDIARIES. To the extent the Borrower
forms or otherwise acquires any Subsidiaries after the Closing Date, from the
date of such formation or acquisition, as the case may be, the Obligations shall
also be guaranteed pursuant to the terms of the guaranty in form and substance
reasonably acceptable to the Agent. The obligations of the Guarantors under such
guaranty shall be in turn secured by a perfected first priority security
interest (subject only to Permitted Liens entitled to priority under applicable
law) in all of the assets of each such Guarantor, whether now owned or hereafter
acquired, pursuant to the terms of the Security Documents to which such
Guarantor is a party.
7. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Banks and the Agent as
follows:
7.1. CORPORATE AUTHORITY.
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32
7.1.1. INCORPORATION; GOOD STANDING. Each of the Borrower and its
Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as
now conducted, and (c) is in good standing as a foreign corporation and is
duly authorized to do business in each jurisdiction where such
qualification is necessary except where a failure to be so qualified would
not have a Material Adverse Effect.
7.1.2. AUTHORIZATION. The execution, delivery and performance of
this Credit Agreement and the other Loan Documents to which the Borrower
or any of its Subsidiaries is or is to become a party and the transactions
contemplated hereby and thereby (a) are within the corporate authority of
such Person, (b) have been duly authorized by all necessary corporate
proceedings, (c) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to
which the Borrower or any of its Subsidiaries is subject or any judgment,
order, writ, injunction, license or permit applicable to the Borrower or
any of its Subsidiaries and (d) do not conflict with any provision of the
corporate charter or bylaws of, or, except where it would have a Material
Adverse Effect, any agreement or other instrument binding upon, the
Borrower or any of its Subsidiaries.
7.1.3. ENFORCEABILITY. The execution and delivery of this Credit
Agreement and the other Loan Documents to which the Borrower or any of its
Subsidiaries is or is to become a party will result in valid and legally
binding obligations of such Person enforceable against it in accordance
with the respective terms and provisions hereof and thereof, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights and except to the extent that
availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding
therefor may be brought.
7.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by
the Borrower and any of its Subsidiaries of this Credit Agreement and the other
Loan Documents to which the Borrower or any of its Subsidiaries is or is to
become a party and the transactions contemplated hereby and thereby do not
require the approval or consent of, or filing with, any governmental agency or
authority other than those already obtained.
7.3. TITLE TO PROPERTIES; LEASES. Except as indicated on SCHEDULE 7.3
hereto, the Borrower and its Subsidiaries own all of the assets reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date or acquired since that date (except property and assets sold
or otherwise disposed of in the ordinary course of business since that date),
subject to no rights of others, including any mortgages, leases, conditional
sales agreements, title retention agreements, liens or other encumbrances except
Permitted Liens.
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33
7.4. FINANCIAL STATEMENTS AND PROJECTIONS.
7.4.1. FISCAL YEAR. The Borrower and each of its Subsidiaries has a
fiscal year which is the twelve months ending on December 31 of each
calendar year.
7.4.2. FINANCIAL STATEMENTS. There has been furnished to each of the
Banks a consolidated balance sheet of the Borrower and its Subsidiaries as
at the Balance Sheet Date, and a consolidated statement of income of the
Borrower and its Subsidiaries for the fiscal year then ended, certified by
Deloitte & Touche LLC. Such balance sheet and statement of income have
been prepared in accordance with generally accepted accounting principles
and fairly present the financial condition of the Borrower as at the close
of business on the date thereof and the results of operations for the
fiscal year then ended. There are no contingent liabilities of the
Borrower or any of its Subsidiaries as of such date involving material
amounts, known to the officers of the Borrower, which were not disclosed
in such balance sheet and the notes related thereto.
7.4.3. PROJECTIONS. The Borrower has delivered to the Agent copies
of the projections of the annual operating budgets of the Borrower,
balance sheets and cash flow statements for the 1998 to 2003 fiscal years.
To the knowledge of the Borrower, no facts exist that (individually or in
the aggregate) would result in any material adverse change in any such
projections.
7.4.4. SOLVENCY. The Borrower and its Subsidiaries, on a
consolidated and consolidating basis, both before and after giving effect
to the transactions contemplated by this Credit Agreement and the other
Loan Documents (a) are solvent; (b) have assets having a fair value in
excess of their liabilities; (c) have assets having a fair value in excess
of the amount required to pay their liabilities on existing debts as such
debts become due and payable, and (d) have, and expect to continue to
have, access to adequate capital for the conduct of their business and the
ability to pay their debts from time to time incurred in connection with
the operation of their business as such debts mature.
7.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date there has
occurred no Material Adverse Change as shown on or reflected in the consolidated
balance sheet of the Borrower and its Subsidiaries as at the Balance Sheet Date,
or the consolidated statement of income for the fiscal year then ended, other
than changes in the ordinary course of business that have not had Material
Adverse Effect. Except as set forth on SCHEDULE 7.5, since the Balance Sheet
Date, the Borrower has not made any Distributions.
7.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrower and its
Subsidiaries possesses all material franchises, patents, copyrights, trademarks,
trade
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34
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
7.7. LITIGATION. Except as set forth in SCHEDULE 7.7 hereto, there are no
actions, suits, proceedings or investigations of any kind pending or threatened
against the Borrower or any of its Subsidiaries before any court, tribunal or
administrative agency or board that, if adversely determined, could, either in
any case or in the aggregate, have a Material Adverse Effect or materially
impair the right of the Borrower and its Subsidiaries, considered as a whole, to
carry on business substantially as now conducted by them, or result in any
substantial liability not adequately covered by insurance, or for which adequate
reserves are not maintained on the consolidated balance sheet of the Borrower
and its Subsidiaries, or which question the validity of this Credit Agreement or
any of the other Loan Documents, or any action taken or to be taken pursuant
hereto or thereto.
7.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower nor any of
its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or any of its Subsidiaries.
Neither the Borrower nor any of its Subsidiaries is a party to any contract or
agreement that has or is expected, in the judgment of the Borrower's officers,
to have any Material Adverse Effect.
7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the Borrower
nor any of its Subsidiaries is in violation of any provision of its charter
documents, bylaws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that could result in the imposition of substantial penalties or have a
Material Adverse Effect.
7.10. TAX STATUS. The Borrower and its Subsidiaries (a) have made or filed
all federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which any of them is subject, (b) have paid all
taxes and other governmental assessments and charges shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and by appropriate proceedings and (c) have set aside on their books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Borrower know of no basis
for any such claim.
7.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.
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35
7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
7.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to
Permitted Liens, there is no financing statement, security agreement, chattel
mortgage, real estate mortgage or other document filed or recorded with any
filing records, registry or other public office, that purports to cover, affect
or give notice of any present or possible future lien on, or security interest
in, any assets or property of the Borrower or any of its Subsidiaries or any
rights relating thereto.
7.14. PERFECTION OF SECURITY INTEREST. All filings, assignments, pledges
and deposits of documents or instruments have been made and all other actions
have been taken that are necessary or advisable, under applicable law, to
establish and perfect the Agent's security interest in the Collateral. The
Collateral and the Agent's rights with respect to the Collateral are not subject
to any setoff, claims, withholdings or other defenses. The Borrower or a
Subsidiary of the Borrower is the owner of the Collateral free from any lien,
security interest, encumbrance and any other claim or demand, except for
Permitted Liens.
7.15. CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 7.15 and
except for arm's length transactions pursuant to which the Borrower or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Borrower or such Subsidiary could obtain from third
parties, none of the officers, directors, or employees of the Borrower or any of
its Subsidiaries is presently a party to any transaction with the Borrower or
any of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
7.16. EMPLOYEE BENEFIT PLANS.
7.16.1. IN GENERAL. Each Employee Benefit Plan and, to the extent
the Borrower currently has or in the future has each Guaranteed Pension
Plans, such Guaranteed Pension Plan has been maintained and operated in
compliance in all material respects with the provisions of ERISA and, to
the extent applicable, the Code, including but not limited to the
provisions thereunder respecting prohibited transactions and the bonding
of fiduciaries and other persons handling plan funds as required by
Section 412 of ERISA. The
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Borrower has heretofore delivered to the Agent the most recently completed
annual report, Form 5500, with all required attachments, and actuarial
statement required to be submitted under Section 103(d) of ERISA, with
respect to each Guaranteed Pension Plan.
7.16.2. TERMINABILITY OF WELFARE PLANS. No Employee Benefit Plan,
which is an employee welfare benefit plan within the meaning of Section
3(1) or Section 3(2)(B) of ERISA, provides benefit coverage subsequent to
termination of employment, except as required by Title I, Part 6 of ERISA
or the applicable state insurance laws. The Borrower may terminate each
such Plan at any time (or at any time subsequent to the expiration of any
applicable bargaining agreement) in the discretion of the Borrower without
liability to any Person other than for claims arising prior to
termination.
7.16.3. GUARANTEED PENSION PLANS. As of the Closing Date, the
Borrower does not have any Guaranteed Pension Plans. Should the Borrower
thereafter maintain any such Guaranteed Pension Plans, from such time,
each contribution required to be made to a Guaranteed Pension Plan,
whether required to be made to avoid the incurrence of an accumulated
funding deficiency, the notice or lien provisions of Section 302(f) of
ERISA, or otherwise, has been timely made. No waiver of an accumulated
funding deficiency or extension of amortization periods has been received
with respect to any Guaranteed Pension Plan, and neither the Borrower nor
any ERISA Affiliate is obligated to or has posted security in connection
with an amendment to a Guaranteed Pension Plan pursuant to Section 307 of
ERISA or Section 401(a)(29) of the Code. No liability to the PBGC (other
than required insurance premiums, all of which have been paid) has been
incurred by the Borrower or any ERISA Affiliate with respect to any
Guaranteed Pension Plan and there has not been any ERISA Reportable Event
(other than an ERISA Reportable Event as to which the requirement of 30
days notice has been waived), or any other event or condition which
presents a material risk of termination of any Guaranteed Pension Plan by
the PBGC. Based on the latest valuation of each Guaranteed Pension Plan
(which in each case occurred within twelve months of the date of this
representation), and on the actuarial methods and assumptions employed for
that valuation, the aggregate benefit liabilities of all such Guaranteed
Pension Plans within the meaning of Section 4001 of ERISA did not exceed
the aggregate value of the assets of all such Guaranteed Pension Plans,
disregarding for this purpose the benefit liabilities and assets of any
Guaranteed Pension Plan with assets in excess of benefit liabilities.
7.16.4. MULTIEMPLOYER PLANS. As of the Closing Date, the Borrower
does not have any Multiemployer Plans. Should the Borrower thereafter
maintain any such Multiemployer Plans, from such time, neither the
Borrower nor any ERISA Affiliate has incurred any material liability
(including secondary liability) to any Multiemployer Plan as a result of a
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37
complete or partial withdrawal from such Multiemployer Plan under Section
4201 of ERISA or as a result of a sale of assets described in Section 4204
of ERISA. Neither the Borrower nor any ERISA Affiliate has been notified
that any Multiemployer Plan is in reorganization or insolvent under and
within the meaning of Section 4241 or Section 4245 of ERISA or is at risk
of entering reorganization or becoming insolvent, or that any
Multiemployer Plan intends to terminate or has been terminated under
Section 4041A of ERISA.
7.17. USE OF PROCEEDS.
7.17.1. GENERAL. The proceeds of the Term Loan shall be used to
repurchase a portion of the Borrower's capital stock from existing
shareholders pursuant to the terms of the Securities Purchase and
Redemption Agreement and the proceeds of the Revolving Credit Loans shall
be used for working capital and general corporate purposes.
7.17.2. REGULATIONS U AND X. No portion of any Loan is to be used
for the purpose of purchasing or carrying any "margin security" or "margin
stock" as such terms are used in Regulations U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
7.17.3. INELIGIBLE SECURITIES. No portion of the proceeds of any
Loans is to be used for the purpose of (a) knowingly purchasing, or
providing credit support for the purchase of, Ineligible Securities from a
Section 20 Subsidiary during any period in which such Section 20
Subsidiary makes a market in such Ineligible Securities, (b) knowingly
purchasing, or providing credit support for the purchase of, during the
underwriting or placement period, any Ineligible Securities being
underwritten or privately placed by a Section 20 Subsidiary, or (c)
making, or providing credit support for the making of, payments of
principal or interest on Ineligible Securities underwritten or privately
placed by a Section 20 Subsidiary and issued by or for the benefit of the
Borrower or any Subsidiary or other Affiliate of the Borrower.
7.18. ENVIRONMENTAL COMPLIANCE. The Borrower has taken all necessary steps
to investigate the past and present condition and usage of the owned Real Estate
and the present condition and usage of the leased Real Estate and the operations
conducted thereon and, based upon such diligent investigation, has determined
that:
(a) none of the Borrower or its Subsidiaries or, to the knowledge of
the Borrower, any operator of the Real Estate or any operations thereon is
in violation, or alleged violation, of any judgment, decree, order, law,
license, rule or regulation pertaining to environmental matters, including
without limitation, those arising under the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments
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38
and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the
Federal Clean Air Act, the Toxic Substances Control Act, or any state or
local statute, regulation, ordinance, order or decree relating to health,
safety or the environment (hereinafter "Environmental Laws"), which
violation would have a Material Adverse Effect;
(b) neither the Borrower nor any of its Subsidiaries has received
notice from any third party including, without limitation, any federal,
state or local governmental authority, (i) that any one of them has been
identified by the United States Environmental Protection Agency ("EPA") as
a potentially responsible party under CERCLA with respect to a site listed
on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that
any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any
hazardous substances as defined by 42 U.S.C. Section 9601(14), any
pollutant or contaminant as defined by 42 U.S.C. Section 9601(33) and any
toxic substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous Substances")
which any one of them has generated, transported or disposed of has been
found at any site at which a federal, state or local agency or other third
party has conducted or has ordered that any Borrower or any of its
Subsidiaries conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii) that it is or shall be
a named party to any claim, action, cause of action, complaint, or legal
or administrative proceeding (in each case, contingent or otherwise)
arising out of any third party's incurrence of costs, expenses, losses or
damages of any kind whatsoever in connection with the release of Hazardous
Substances;
(c) except as set forth on SCHEDULE 7.18 attached hereto: (i) no
portion of the Real Estate has been used for the handling, processing,
storage or disposal of Hazardous Substances except in accordance with
applicable Environmental Laws; and to the knowledge of the Borrower, no
underground tank or other underground storage receptacle for Hazardous
Substances is located on any portion of the Real Estate; (ii) in the
course of any activities conducted by the Borrower or its Subsidiaries, no
Hazardous Substances have been generated or are being used on the Real
Estate except in accordance with applicable Environmental Laws; (iii)
there have been no releases (i.e. any past or present releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, disposing or dumping) or threatened releases of Hazardous
Substances on, upon, into or from the properties of the Borrower or its
Subsidiaries, which releases would have a material adverse effect on the
value of any of the Real Estate or adjacent properties or the environment;
(iv) to the best of the Borrower's knowledge, there have been no releases
on, upon, from or into any real property in the vicinity of any of the
Real Estate which, through soil or groundwater contamination, may have
come to be located on, and which would have a material adverse effect on
the value of, the Real Estate; and (v) in addition, any Hazardous
Substances that have been generated on any of
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39
the Real Estate have been transported offsite only by carriers having an
identification number issued by the EPA, treated or disposed of only by
treatment or disposal facilities maintaining valid permits as required
under applicable Environmental Laws, which transporters and facilities
have been and are, to the best of the Borrower's knowledge, operating in
compliance with such permits and applicable Environmental Laws; and
(d) None of the Borrower and its Subsidiaries or any Real Estate is
subject to any applicable environmental law requiring the performance of
Hazardous Substances site assessments, or the removal or remediation of
Hazardous Substances, or the giving of notice to any governmental agency
or the recording or delivery to other Persons of an environmental
disclosure document or statement by virtue of the transactions set forth
herein and contemplated hereby.
7.19. SUBSIDIARIES, ETC. SCHEDULE 7.19(A) sets forth the Subsidiaries of
the Borrower. Except as set forth on SCHEDULE 7.19(B) hereto, neither the
Borrower nor any Subsidiary of the Borrower is engaged in any joint venture or
partnership with any other Person.
7.20. BANK ACCOUNTS. SCHEDULE 7.20 sets forth the account numbers of all
bank accounts of the Borrower or any of its Subsidiaries.
7.21. YEAR 2000 PROBLEM. The Borrower and its Subsidiaries have reviewed
the areas within their businesses and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the "Year 2000 Problem" (i.e. the risk that computer applications
used by the Borrower or any of its Subsidiaries may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999). Based upon such review, the Borrower
reasonably believes that the "Year 2000 Problem" will not have a Material
Adverse Effect.
7.22. DISCLOSURE. This Credit Agreement and the other Loan Documents,
taken together, do not contain any untrue statement of a material fact or omit
to state a material fact (known to the Borrower or any of its Subsidiaries in
the case of any document or information not furnished by it or any of its
Subsidiaries) necessary in order to make the statements herein or therein not
misleading. As of the Closing Date, there is no fact known to the Borrower or
any of its Subsidiaries which materially adversely affects the business, assets
or financial condition of the Borrower or any of its Subsidiaries, exclusive of
effects resulting from changes in general economic conditions, legal standards
or regulatory conditions.
7.23. CAPITALIZATION DOCUMENTS AND SUBORDINATION DOCUMENTS. The Borrower
has delivered to the Agent true and complete copies of all of the Capitalization
Documents and Subordination Documents, and the Borrower has not amended any of
such documents in any material respect. Each of the representations and
warranties made by the Borrower and its Subsidiaries in any of
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40
the Capitalization Documents and Subordination Documents was true and correct in
all material respects when made and continue to remain true and correct in all
material respects on the Closing Date, except to the extent that any of such
representations and warranties relate, by the express terms thereof, solely to a
date falling prior to the Closing Date, and except to the extent that any of
such representations and warranties may have been affected by the consummation
of the transactions contemplated and permitted or required by the Loan
Documents.
7.24. CHIEF EXECUTIVE OFFICE. The Borrower's chief executive office is at
222 Berkeley Street, Suite 1620, Boston, Massachusetts 02116, at which location
its principal books and records are kept. Each Guarantor's chief executive
office is as set forth in the Security Agreement to which it is a party.
7.25. INSURANCE. The Borrower and each of its Subsidiaries maintains with
insurers which are to the Borrower's knowledge financially sound and reputable,
insurance with respect to its properties and businesses against such casualties
and contingencies as are in accordance with sound business practices and with
the details of such coverage being more fully described on SCHEDULE 7.25 hereto.
8. AFFIRMATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan or Note is
outstanding or any Bank has any obligation to make any Loans:
8.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually pay or cause
to be paid the principal and interest on the Loans, the commitment fees, the
Agent's fee and all other amounts provided for in this Credit Agreement and the
other Loan Documents to which the Borrower or any of its Subsidiaries is a
party, all in accordance with the terms of this Credit Agreement and such other
Loan Documents.
8.2. MAINTENANCE OF OFFICE. The Borrower will maintain its chief executive
office in 222 Berkeley Street, Suite 1620, Boston, Massachusetts 02116, or at
such other place in the United States of America as the Borrower shall designate
upon written notice to the Agent, where notices, presentations and demands to or
upon the Borrower in respect of the Loan Documents to which the Borrower is a
party may be given or made.
8.3. RECORDS AND ACCOUNTS. The Borrower will (a) keep, and cause each of
its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with generally
accepted accounting principles, (b) maintain adequate accounts and reserves for
all taxes (including income taxes), depreciation, depletion, obsolescence and
amortization of its properties and the properties of its Subsidiaries,
contingencies, and other reserves, and (c) at all times engage Deloitte & Touche
LLC. or any other nationally-recognized independent certified public accounting
firm that is currently known as a "Big Six" accounting firm or any other
independent certified public accountants
<PAGE>
41
reasonably satisfactory to the Agent as the independent certified public
accountants of the Borrower and its Subsidiaries and will not permit more than
thirty (30) days to elapse between the cessation of such firm's (or any
successor firm's) engagement as the independent certified public accountants of
the Borrower and its Subsidiaries and the appointment in such capacity of a
successor firm as shall be satisfactory to the Agent.
8.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Borrower
will deliver to each of the Banks:
(a) as soon as practicable, but in any event not later than ninety
(90) days after the end of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower and its Subsidiaries and the
consolidating balance sheet of the Borrower and its Subsidiaries, each as
at the end of such year, and the related consolidated statement of income
and consolidated statement of cash flow and consolidating statement of
income and consolidating statement of cash flow for such year, each
setting forth in comparative form the figures for the previous fiscal year
and all such consolidated and consolidating statements to be in reasonable
detail, prepared in accordance with generally accepted accounting
principles, and, except in the case of such consolidating statements,
certified without qualification by Deloitte & Touche LLC or any other
nationally-recognized independent certified public accounting firm that is
currently known as a "Big Six" accounting firm or any other independent
certified public accountants reasonably satisfactory to the Agent,
together with a written statement from such accountants to the effect that
they have read a copy of this Credit Agreement, and that, in making the
examination necessary to said certification, they have obtained no
knowledge of any Default or Event of Default, or, if such accountants
shall have obtained knowledge of any then existing Default or Event of
Default they shall disclose in such statement any such Default or Event of
Default; PROVIDED that such accountants shall not be liable to the Banks
for failure to obtain knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the fiscal quarters of the
Borrower, copies of the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries and the unaudited consolidating balance
sheet of the Borrower and its Subsidiaries, each as at the end of such
quarter, and the related consolidated statement of income and consolidated
statement of cash flow and consolidating statement of income and
consolidating statement of cash flow for the portion of the Borrower's
fiscal year then elapsed, all in reasonable detail and prepared in
accordance with generally accepted accounting principles thereof (subject
to year-end adjustments and the absence of footnotes), together with a
certification by the principal financial or accounting officer of the
Borrower that the information contained in such
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42
financial statements fairly presents the financial position of the
Borrower and its Subsidiaries on the date;
(c) as soon as practicable, but in any event within thirty (30) days
after the end of each month in each fiscal year of the Borrower, unaudited
monthly consolidated financial statements of the Borrower and its
Subsidiaries for such month and unaudited monthly consolidating financial
statements of the Borrower and its Subsidiaries for such month, each
prepared in accordance with generally accepted accounting principles
(subject to year-end adjustments and the absence of footnotes), together
with a certification by the principal financial or accounting officer of
the Borrower that the information contained in such financial statements
fairly presents the financial condition of the Borrower and its
Subsidiaries on the date thereof;
(d) simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement certified by the
principal financial or accounting officer of the Borrower in substantially
the form of EXHIBIT D hereto (the "Compliance Certificate") and setting
forth in reasonable detail computations evidencing compliance with the
covenants contained in Section 10 and (if applicable) reconciliations to
reflect changes in generally accepted accounting principles since the
Balance Sheet Date;
(e) contemporaneously with the filing or mailing thereof, copies of
all material of a financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Borrower;
(f) from time to time upon request of the Agent, copies of the
budget approved by the Borrower's board of directors;
(g) within fifteen (15) days after Borrower's management shall have
prepared its draft balance sheet as of the end of any fiscal year of the
Borrower, but in any event no later than sixty (60) days after the end of
such fiscal year, a statement certified by the principal financial or
accounting officer of the Borrower setting forth in reasonable detail the
computation of the Consolidated Excess Cash Flow for such fiscal year; and
(h) from time to time such other financial data and information
(including accountants, management letters) as the Agent or any Bank may
reasonably request.
8.5. NOTICES.
8.5.1. DEFAULTS. The Borrower will promptly notify the Agent and
each of the Banks in writing of the occurrence of any Default or Event of
Default. If any Person shall give any notice or take any other action in
respect of a claimed default (whether or not constituting an Event of
Default)
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43
under this Credit Agreement or any other note, evidence of indebtedness,
indenture or other obligation involving amounts in excess of $100,000 in
the aggregate to which or with respect to which the Borrower or any of its
Subsidiaries is a party or obligor, whether as principal, guarantor,
surety or otherwise, the Borrower shall forthwith give written notice
thereof to the Agent and each of the Banks, describing the notice or
action and the nature of the claimed default.
8.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give notice
to the Agent and each of the Banks (a) of any violation of any
Environmental Law that the Borrower or any of its Subsidiaries reports in
writing or is reportable by such Person in writing (or for which any
written report supplemental to any oral report is made) to any federal,
state or local environmental agency and (b) upon becoming aware thereof,
of any inquiry, proceeding, investigation, or other action, including a
notice from any agency of potential environmental liability, of any
federal, state or local environmental agency or board, that has the
potential to materially affect the assets, liabilities, financial
conditions or operations of the Borrower or any of its Subsidiaries, or
the Agent's security interests pursuant to the Security Documents.
8.5.3. NOTIFICATION OF CLAIM AGAINST COLLATERAL. The Borrower will,
immediately upon becoming aware thereof, notify the Agent and each of the
Banks in writing of any setoff, claims (including, with respect to the
Real Estate, environmental claims), withholdings or other defenses to
which any of the Collateral, or the Agent's rights with respect to the
Collateral, are subject.
8.5.4. NOTICE OF LITIGATION AND JUDGMENTS. The Borrower will, and
will cause each of its Subsidiaries to, give notice to the Agent and each
of the Banks in writing within fifteen (15) days of becoming aware of any
litigation or proceedings threatened in writing or any pending litigation
and proceedings affecting the Borrower or any of its Subsidiaries or to
which the Borrower or any of its Subsidiaries is or becomes a party
involving an uninsured claim against the Borrower or any of its
Subsidiaries that could reasonably be expected to have a Material Adverse
Effect and stating the nature and status of such litigation or
proceedings. The Borrower will, and will cause each of its Subsidiaries
to, give notice to the Agent and each of the Banks, in writing, in form
and detail satisfactory to the Agent, within ten (10) days of any judgment
not covered by insurance, final or otherwise, against the Borrower or any
of its Subsidiaries in an amount in excess of $250,000.
8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Borrower will do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and those of its
Subsidiaries and will not, and will not cause or permit any of its Subsidiaries
to, convert to a limited liability company. It (a) will cause all of its
properties and those of its Subsidiaries
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44
used or useful in the conduct of its business or the business of its
Subsidiaries to be maintained and kept in good condition, repair and working
order, normal wear and tear excepted, and supplied with all necessary equipment,
(b) will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times, and (c) will, and will cause
each of its Subsidiaries to, continue to engage primarily in the businesses now
conducted by them and in related businesses; PROVIDED that nothing in this
Section 8.6 shall prevent the Borrower from discontinuing the operation and
maintenance of any of its properties or any of those of its Subsidiaries if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its or their business and that do not in the aggregate materially adversely
affect the business of the Borrower and its Subsidiaries on a consolidated
basis.
8.7. INSURANCE.
8.7.1. MAINTENANCE OF INSURANCE. The Borrower will, and will cause
each of its Subsidiaries to, maintain with insurers which are, to the
Borrower's knowledge, financially sound and reputable, insurance with
respect to its properties and business against such casualties and
contingencies as shall be in accordance with general practices of
businesses engaged in similar activities in similar geographic areas. Such
insurance shall be in such minimum amounts that the Borrower will not be
deemed a co-insurer under applicable insurance laws, regulations and
policies and otherwise shall be in such amounts, contain such terms, be in
such forms and be for such periods as may be reasonably satisfactory to
the Agent. In addition, all such insurance shall be payable to the Agent
as loss payee under a "standard" or "New York" loss payee clause for the
benefit of the Banks and the Agent. Without limiting the foregoing, the
Borrower will (a) keep all of its physical property insured with casualty
or physical hazard insurance on an "all risk" basis, with electronic data
processing coverage, with a full replacement cost endorsement and an
"agreed amount" clause in an amount equal to 100% of the full replacement
cost of such property, (b) maintain all such workers' compensation or
similar insurance as may be required by law and (c) maintain, in amounts
and with deductibles equal to those generally maintained by businesses
engaged in similar activities in similar geographic areas, general public
liability insurance against claims of bodily injury, death or property
damage occurring on, in or about the properties of the Borrower; business
interruption insurance; and product liability insurance.
8.7.2. INSURANCE PROCEEDS. The proceeds of any casualty insurance in
respect of any casualty loss of any of the Collateral shall, subject to
the rights, if any, of other parties with a prior interest in the property
covered thereby, (a) so long as no Event of Default has occurred and is
continuing, and to the extent that the amount of such proceeds is less
than $25,000, be disbursed to
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45
the Borrower for direct application by the Borrower solely to the repair
or replacement of the Borrower's property so damaged or destroyed and (b)
in all other circumstances, be held by the Agent as cash collateral for
the Obligations. The Agent may, at its sole option, disburse from time to
time all or any part of such proceeds so held as cash collateral, upon
such terms and conditions as the Agent may reasonably prescribe, for
direct application by the Company solely to the repair or replacement of
the Borrower's property so damaged or destroyed, or the Agent may apply
all or any part of such proceeds to the Obligations with the Total
Commitment (if not then terminated) being reduced by the amount so applied
to the Obligations.
8.7.3. NOTICE OF CANCELLATION, ETC.. All policies of insurance shall
provide for at least thirty (30) days prior written cancellation notice to
the Agent. In the event of failure by the Borrower to provide and maintain
insurance as herein provided, the Agent may, at its option, provide such
insurance and charge the amount thereof to the Borrower. The Borrower
shall furnish the Agent with certificates of insurance and policies
evidencing compliance with the foregoing insurance provision.
8.8. TAXES. The Borrower will, and will cause each of its Subsidiaries to,
duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by law become a lien or
charge upon any of its property; PROVIDED that any such tax, assessment, charge,
levy or claim need not be paid if the validity or amount thereof shall currently
be contested in good faith by appropriate proceedings and if the Borrower or
such Subsidiary shall have set aside on its books adequate reserves with respect
thereto; and PROVIDED FURTHER that the Borrower and each Subsidiary of the
Borrower will pay all such taxes, assessments, charges, levies or claims
forthwith upon the commencement of proceedings to foreclose any lien that may
have attached as security therefor.
8.9. INSPECTION OF PROPERTIES AND BOOKS, ETC.
8.9.1. GENERAL. The Borrower shall permit the Banks, through the
Agent or any of the Banks' other designated representatives, to visit and
inspect any of the properties of the Borrower or any of its Subsidiaries,
to examine the books of account of the Borrower and its Subsidiaries (and
to make copies thereof and extracts therefrom), and to discuss the
affairs, finances and accounts of the Borrower and its Subsidiaries with,
and to be advised as to the same by, its and their officers, and so long
as no Event of Default has occurred and is continuing, all upon reasonable
notice and at such reasonable times, during normal hours, and intervals as
the Agent or any Bank may reasonably request. The Agent may, at the
Borrower's expense, participate in or observe any physical count of
inventory included in the Collateral.
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46
8.9.2. APPRAISALS. No more frequently than once each calendar year,
or more frequently as determined by the Agent if an Event of Default shall
have occurred and be continuing, upon the request of the Agent, the
Borrower will obtain and deliver to the Agent appraisal reports in form
and substance and from appraisers satisfactory to the Agent, stating (a)
the then current fair market, orderly liquidation and forced liquidation
values of all or any portion of the equipment or real estate owned by the
Borrower or any of its Subsidiaries and (b) the then current business
value of each of the Borrower and its Subsidiaries. All such appraisals
shall be conducted and made at the expense of the Borrower.
8.9.3. COMMUNICATIONS WITH ACCOUNTANTS. The Borrower authorizes the
Agent and, if accompanied by the Agent, the Banks to communicate directly
with the Borrower's independent certified public accountants and
authorizes such accountants to disclose to the Agent and the Banks any and
all financial statements and other supporting financial documents and
schedules including copies of any management letter with respect to the
business, financial condition and other affairs of the Borrower or any of
its Subsidiaries; PROVIDED, so long as no Event of Default has occurred
and is continuing, the Borrower shall have the right to elect to attend
any such meeting or conference. At the request of the Agent, the Borrower
shall deliver a letter addressed to such accountants instructing them to
comply with the provisions of this Section 8.9.3.
8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The Borrower
will, and will cause each of its Subsidiaries to, comply with (a) the applicable
laws and regulations wherever its business is conducted, including all
Environmental Laws, (b) the provisions of its charter documents and by-laws, (c)
all agreements and instruments by which it or any of its properties may be
bound, and (d) all applicable decrees, orders, and judgments. If any
authorization, consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or required in order
that the Borrower or any of its Subsidiaries may fulfill any of its obligations
hereunder or any of the other Loan Documents to which the Borrower or such
Subsidiary is a party, the Borrower will, or (as the case may be) will cause
such Subsidiary to, immediately take or cause to be taken all reasonable steps
within the power of the Borrower or such Subsidiary to obtain such
authorization, consent, approval, permit or license and furnish the Agent and
the Banks with evidence thereof.
8.11. EMPLOYEE BENEFIT PLANS. The Borrower will (a) promptly upon filing
the same with the Department of Labor or Internal Revenue Service upon request
of the Agent, furnish to the Agent a copy of the most recent actuarial statement
required to be submitted under Section 103(d) of ERISA and Annual Report, Form
5500, with all required attachments, in respect of each Guaranteed Pension Plan
and (b) promptly upon receipt or dispatch, furnish to the Agent any notice,
report or demand sent or received in respect of a Guaranteed Pension Plan under
Sections 302, 4041,
<PAGE>
47
4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer
Plan, under Sections 4041A, 4202, 4219, 4242, or 4245 of ERISA.
8.12. USE OF PROCEEDS. The Borrower will use the proceeds of the Term Loan
solely to repurchase a portion of the Borrower's capital stock pursuant to the
terms of the Securities Purchase and Redemption Agreement and the proceeds of
the Revolving Credit Loans solely for working capital and general corporate
purposes.
8.13. FAIR LABOR STANDARDS ACT. The Borrower shall, and shall require each
Subsidiary to, at all times operate its business in compliance with all material
applicable provisions of the Fair Labor Standards Act of 1938, as amended.
8.14. GUARANTORS. The Borrower will, and will cause each Domestic
Subsidiary created, acquired or existing on or after the Closing Date to become
a Guarantor immediately and shall cause such Domestic Subsidiary to execute and
deliver to the Agent for the benefit of the Agent and the Banks (a) a guaranty
in form and substance reasonably acceptable to the Agent (or an Instrument of
Adherence to any guaranty executed after the Closing Date by any other
Subsidiary of the Borrower), and (b) further Security Documents or other
instruments and documents as the Agent may reasonably require in order to grant
to the Agent a first priority perfected security interest in such Subsidiary's
assets, together with legal opinions in form and substance satisfactory to the
Agent and the Banks to be delivered to the Agent and the Banks opining as to the
authorization, validity and enforceability of such guaranty or Instrument of
Adherence and Security Documents and (as to the applicable Security Documents)
the perfection of such security interests.
8.15. ADDITIONAL SUBSIDIARIES. If, after the Closing Date, the Borrowers
or any of their Subsidiaries creates or acquires, either directly or indirectly,
any Subsidiary, it will immediately notify the Agent of such creation or
acquisition, as the case may be, and provide the Agent with an updated SCHEDULE
7.19(A) hereof and take all other actions required by Section 8.14 and Section
9.5.1 hereof.
8.16. INTEREST RATE PROTECTION ARRANGEMENTS. The Borrower will, not later
than ninety (90) days after the Closing Date, purchase an interest rate cap or
swap or effect other interest rate protection arrangements for a minimum period
of two (2) years applicable to not less than fifty percent (50%) of the Loans,
on terms and conditions satisfactory to the Agent and the Banks.
8.17. FURTHER ASSURANCES. The Borrower will, and will cause each of its
Subsidiaries to, cooperate with the Banks and the Agent and execute such further
instruments and documents as the Banks or the Agent shall reasonably request to
carry out to their satisfaction the transactions contemplated by this Credit
Agreement and the other Loan Documents.
<PAGE>
48
9. CERTAIN NEGATIVE COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan or Note is
outstanding or any Bank has any obligation to make any Loans:
9.1. RESTRICTIONS ON INDEBTEDNESS. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Banks and the Agent arising under any of
the Loan Documents;
(b) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
(c) Subordinated Debt;
(d) Indebtedness incurred in connection with the acquisition after
the date hereof of any real or personal property by the Borrower or such
Subsidiary or under any Capitalized Lease, PROVIDED that the aggregate
principal amount of such Indebtedness of the Borrower and its Subsidiaries
shall not exceed the aggregate amount of $100,000 at any one time;
(e) Indebtedness existing on the date hereof and listed and
described on SCHEDULE 9.1 hereto;
(f) Indebtedness of a Guarantor to the Borrower or another
Guarantor and Indebtedness of the Borrower to any Guarantor;
(g) Indebtedness of the Borrower in respect of interest rate
protection arrangements required to be maintained by Section 8.16 or in
respect of currency swap arrangements so long as such arrangements are in
the ordinary course of business and are not for speculative purposes;
(h) Indebtedness of the Borrower in respect of the Borrower's
Convertible Preferred Stock and Redeemable Preferred Stock issued under
the Securities Purchase and Redemption Agreement;
(i) Indebtedness in respect of redemptions or repurchases of the
Borrower's capital stock under the Stock Option Plan and other similar
employee stock option programs approved by the Board of Directors and the
Agent;
(j) unsecured Indebtedness of the Borrower not otherwise permitted
by this Section 9.1 in an aggregate amount outstanding at any time not to
exceed $250,000; and
<PAGE>
49
(k) Indebtedness of the Borrower existing as a result of a
refinancing of Indebtedness permitted by this Section 9.1, provided that
the terms of any such refinancing Indebtedness, and any agreement or
instrument relating thereto, are otherwise permitted by the Loan Documents
and further provided that the principal amount of such Indebtedness shall
not be increased above the amount of such Indebtedness outstanding on the
date of such refinancing and the direct (and any contingent) obligors
therefor and any collateral security in respect thereof shall not be
changed (or increased), as a result of or in connection with such
refinancing;
PROVIDED, HOWEVER, notwithstanding the foregoing provisions of this Section 9.1,
all such Indebtedness must in any event qualify at all times as Indebtedness
permitted to be incurred pursuant to Section 4.9 of the Securities Purchase and
Redemption Agreement.
9.2. RESTRICTIONS ON LIENS. The Borrower will not, and will not permit any
of its Subsidiaries to, (a) create or incur or suffer to be created or incurred
or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or
other security interest of any kind upon any of its property or assets of any
character whether now owned or hereafter acquired, or upon the income or profits
therefrom; (b) transfer any of such property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to payment of its general
creditors; (c) acquire, or agree or have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money security
agreement, device or arrangement; (d) suffer to exist for a period of more than
thirty (30) days after the same shall have been incurred any Indebtedness or
claim or demand against it that if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its general
creditors; (e) sell, assign, pledge or otherwise transfer any "receivables" as
defined in clause (g) of the definition of the term "Indebtedness," with or
without recourse; or (f) enter into or permit to exist any arrangement or
agreement, enforceable under applicable law, which directly or indirectly
prohibits the Borrower or any of its Subsidiaries from creating or incurring any
lien, encumbrance, mortgage, pledge, charge, restriction or other security
interest other than in favor of the Agent for the benefit of the Banks and the
Agent under the Loan Documents and other than customary anti-assignment
provisions in leases and licensing agreements entered into by the Borrower or
such Subsidiary in the ordinary course of its business, PROVIDED that the
Borrower or any of its Subsidiaries may create or incur or suffer to be created
or incurred or to exist:
(i) liens in favor of the Borrower on all or part of the assets
of Subsidiaries of the Borrower securing Indebtedness owing by
Subsidiaries of the Borrower to the Borrower;
(ii) liens to secure taxes, assessments and other government charges
in respect of obligations not overdue or liens on properties to secure
claims for labor, material or supplies in respect of obligations not
overdue;
<PAGE>
50
(iii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iv) liens on properties in respect of judgments or awards that have
been in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which the
Borrower or such Subsidiary shall at the time in good faith be prosecuting
an appeal or proceedings for review and in respect of which a stay of
execution shall have been obtained pending such appeal or review;
(v) liens of carriers, warehousemen, mechanics and materialmen, and
other like liens on properties in existence less than 120 days from the
date of creation thereof in respect of obligations not overdue;
(vi) encumbrances on Real Estate consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's
liens under leases to which the Borrower or a Subsidiary of the Borrower
is a party, and other minor liens or encumbrances none of which in the
opinion of the Borrower interferes materially with the use of the property
affected in the ordinary conduct of business of the Borrower and its
Subsidiaries, which defects do not individually or in the aggregate have a
materially adverse effect on the business of the Borrower individually or
of the Borrower and its Subsidiaries on a consolidated basis;
(vii) liens existing on the date hereof and listed on
SCHEDULE 9.2 hereto;
(viii) purchase money security interests in or purchase money
mortgages on real or personal property acquired after the date hereof to
secure purchase money Indebtedness of the type and amount permitted by
Section 9.1(d), incurred in connection with the acquisition of such
property, which security interests or mortgages cover only the real or
personal property so acquired and liens in favor of lessors under
Capitalized Leases on assets subject to Capitalized Leases permitted by
Section 9.1(d) hereof; and liens existing in accordance with the
provisions of Section 9.1(k) securing refinancings of the Indebtedness
provided for therein;
(ix) liens on security deposits with respect to leases of office
space of the Borrower or any Subsidiary and other liens arising under
leases or rental agreements made by the Borrower or any Subsidiary, in
each case in the ordinary course of business consistent with past
practices, which liens cover only the real property so rented;
(ix) liens in favor of the Agent for the benefit of the Banks
and the Agent under the Loan Documents; and
<PAGE>
51
(x) UCC-1 financing statements filed solely for notice or
precautionary purposes under operating leases which do not secure
Indebtedness and which are limited to the items of equipment leased by the
Borrower or any Subsidiary pursuant to the lease in questions.
9.3. RESTRICTIONS ON INVESTMENTS. The Borrower will not, and will not
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments in:
(a) marketable direct or guaranteed obligations of the United States
of America that mature within one (1) year from the date of purchase by
the Borrower;
(b) demand deposits, certificates of deposit, bankers acceptances
and time deposits of United States banks having total assets in excess of
$1,000,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Service, Inc., and not less than "A 1" if rated by Standard and
Poor's Rating Group;
(d) Investments by the Borrower in repurchase agreements secured
by any one or more of the foregoing;
(e) Investments existing on the date hereof and listed on
SCHEDULE 9.3 hereto;
(f) Investments with respect to Indebtedness permitted by Section
9.1(f) so long as such entities are Guarantors hereunder and remain
Subsidiaries of the Borrower;
(g) Investments consisting of the Guaranty or Investments by the
Borrower in Guarantors so long as such Guarantor is a Subsidiary of the
Borrower;
(h) Investments consisting of promissory notes received as
proceeds of asset dispositions permitted by Section 9.5.2;
(i) Investments in respect of interest rate protection arrangements
entered into by the Borrower in the ordinary course of business consistent
with past practices and which are not for speculative purposes;
(j) Investments consisting of loans and advances by the Borrower to
employees for moving, entertainment, travel or other similar expenses in
the
<PAGE>
52
ordinary course of business not to exceed $10,000 in the aggregate at any
time outstanding, and Investments consisting of loans or advances to
officers, directors, employees and consultants to fund the purchase or
exercise price of stock grants or options issued under the Stock Option
Plan or in connection with any other employee benefit plan of the Borrower
which has been approved by the Borrower's Board of Directors and the
Agent; and
(k) so long as no Default or Event of Default has occurred and is
continuing or would exist as a result thereof, Investments by the Borrower
not otherwise included in this Section 9.3 in the aggregate amount not to
exceed $250,000 outstanding at any time;
PROVIDED, HOWEVER, that, with the exception of demand deposits referred to in
Section 9.3(b), such Investments will be considered Investments permitted by
this Section 9.3 only if all actions have been taken to the satisfaction of the
Agent to provide to the Agent, for the benefit of the Banks and the Agent, a
first priority perfected security interest in all of such Investments free of
all encumbrances other than Permitted Liens and PROVIDED, FURTHER,
notwithstanding anything to the contrary contained herein, all Investments made
pursuant to this Section 9.3 must be permitted to be made pursuant to the
Subordinated Debenture.
9.4. RESTRICTED PAYMENTS. Neither the Borrower nor any of its Subsidiaries
will make any Restricted Payments; PROVIDED, HOWEVER, so long as no Event of
Default has occurred or is continuing or would exist as a result thereof, (a)
any Subsidiary of the Borrower shall be permitted to make a Restricted Payment
to the Borrower; (b) the Borrower shall be permitted to make a Restricted
Payment to the extent permitted by Section 4.3.; (c) the Borrower shall be
permitted to make a Restricted Payment to Micheal Robichaud pursuant to the
terms of the Robichaud Employment Agreement and (d) the Borrower shall be
permitted to repurchase its capital stock from former employees pursuant to the
Stock Option Plan or otherwise upon the termination of such employees employment
so long as the aggregate amount of all such repurchases does not exceed $100,000
in any fiscal year.
9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS.
9.5.1. MERGERS AND ACQUISITIONS. The Borrower will not, and will not
permit any of its Subsidiaries to, become a party to any merger or
consolidation, or agree to or effect any asset acquisition or stock
acquisition (other than the acquisition of assets in the ordinary course
of business consistent with past practices) except the merger or
consolidation of one or more of the Subsidiaries of the Borrower with and
into the Borrower, or the merger or consolidation of two or more
Subsidiaries of the Borrower.
9.5.2. DISPOSITION OF ASSETS. The Borrower will not, and will not
permit any of its Subsidiaries to, become a party to or agree to or effect
any disposition of assets, other than (a) the sale of inventory, the
licensing of intellectual property and the disposition of obsolete assets,
in each case in the
<PAGE>
53
ordinary course of business consistent with past practices and (b) an
Asset Sale for fair and reasonable value, provided that with respect to
this clause (b) (i) no Default or Event of Default shall have occurred and
be continuing at the time of such sale, and no Default or Event of Default
will exist after giving effect to such Asset Sale; (ii) at least 80% of
the purchase price for such assets is received in cash, and 100% of the
Net Cash Sale Proceeds are applied in the manner required by Section 4.3.3
hereof; (iii) the Borrower or the applicable Subsidiary has delivered any
promissory note or other instrument received by such Borrower or such
Subsidiary in connection with such Asset Sale to the Agent to be held in
pledge for the benefit of itself and the Banks in accordance with the
terms of the Loan Documents; and (iv) the aggregate Net Cash Sale Proceeds
from all such Asset Sales does not exceed $100,000 in any fiscal year.
Notwithstanding anything to the contrary contained in this Section
9.5, (a) the Borrower and its Subsidiaries shall not be permitted to
dispose of any assets or take (or omit to take) any action in connection
with an Asset Sale or other asset disposition or engage in any transaction
which action (or omission) would require or result in any repayment,
repurchase or redemption (or any mandatory offer to repay, repurchase or
redeem) by the Borrower or any of its Subsidiaries of the Subordinated
Debt pursuant to any of the Subordination Documents or would violate the
provisions of the Subordination Documents; and (b) the Borrower shall not
directly or indirectly sell or otherwise dispose of all or substantially
all of its assets.
9.6. SALE AND LEASEBACK. Except for Asset Sales permitted by Section 9.5.2
hereof, the Borrower will not, and will not permit any of its Subsidiaries to,
enter into any arrangement, directly or indirectly, whereby the Borrower or any
Subsidiary of the Borrower shall sell or transfer any property owned by it in
order then or thereafter to lease such property or lease other property that the
Borrower or any Subsidiary of the Borrower intends to use for substantially the
same purpose as the property being sold or transferred.
9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower will not, and will
not permit any of its Subsidiaries to, (a) use any of the Real Estate or any
portion thereof for the handling, processing, storage or disposal of Hazardous
Substances, (b) cause or permit to be located on any of the Real Estate any
underground tank or other underground storage receptacle for Hazardous
Substances, (c) generate any Hazardous Substances on any of the Real Estate, (d)
conduct any activity at any Real Estate or use any Real Estate in any manner so
as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing or
dumping) or threatened release of Hazardous Substances on, upon or into the Real
Estate or (e) otherwise conduct any activity at any Real Estate or use any Real
Estate, in each case in any manner that would violate any Environmental Law in
any material respect or bring such Real Estate in violation of any Environmental
Law in any material respect.
<PAGE>
54
9.8. SUBORDINATED DEBT. The Borrower will not, and will not permit any of
its Subsidiaries to, amend, supplement or otherwise modify the terms of any of
the Subordinated Documents or prepay, redeem or repurchase (or offer to prepay,
redeem or repurchase) any of the Subordinated Debt.
9.9. EMPLOYEE BENEFIT PLANS. Neither the Borrower nor any ERISA
Affiliate will
(a) engage in any "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code which could result in a
material liability for the Borrower or any of its Subsidiaries; or
(b) permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA,
whether or not such deficiency is or may be waived; or
(c) fail to contribute to any Guaranteed Pension Plan to an extent
which, or terminate any Guaranteed Pension Plan in a manner which, could
result in the imposition of a lien or encumbrance on the assets of the
Borrower or any of its Subsidiaries pursuant to Section 302(f) or Section
4068 of ERISA; or
(d) amend any Guaranteed Pension Plan in circumstances requiring the
posting of security pursuant to Section 307 of ERISA or Section 401(a)(29)
of the Code; or
(e) permit or take any action which would result in the aggregate
benefit liabilities (with the meaning of Section 4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets of
such Plans, disregarding for this purpose the benefit liabilities and
assets of any such Plan with assets in excess of benefit liabilities.
9.10. BUSINESS ACTIVITIES. The Borrower will not, and will not permit any
of its Subsidiaries to, engage directly or indirectly (whether through
Subsidiaries or otherwise) in any type of business other than the businesses
conducted by them on the Closing Date and in related businesses.
9.11. FISCAL YEAR. The Borrower will not, and will not permit any of its
Subsidiaries to, change the date of the end of its fiscal year from that set
forth in Section 7.4.1.
9.12. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not
permit any of its Subsidiaries to, engage in any transaction with any Affiliate
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such Affiliate or, to the
knowledge of the Borrowers, any corporation, partnership, trust or other entity
in which any such Affiliate has a
<PAGE>
55
substantial interest or is an officer, director, trustee or partner, on terms
more favorable to such Person than would have been obtainable on an arm's-length
basis in the ordinary course of business.
9.13. BANK ACCOUNTS. The Borrower will not, and will not permit any of its
Subsidiaries to, (a) establish any bank accounts other than those accounts
listed on SCHEDULE 7.20, without the Agent's prior written consent or (b)
deposit into any of the payroll accounts listed on SCHEDULE 7.20 any amounts in
excess of amounts necessary to pay current payroll obligations from such
accounts.
9.14. MODIFICATION OF DOCUMENTS AND CHARTER. Neither the Borrower nor any
of its Subsidiaries will consent to or agree to any amendment, supplement or
other modification to the Capitalization Documents without the prior written
consent of the Agent unless such amendment, supplement or modification is
immaterial and ministerial in nature and would not have any material adverse
effect on the Agent's or the Banks' rights under the Loan Documents or the
Borrower's or any of its Subsidiaries' obligations under the Loan Documents.
9.15. UPSTREAM LIMITATIONS. Neither the Borrower nor any of its
Subsidiaries will enter into, or permit any of its Subsidiaries to enter into,
any agreement, contract or arrangement (other than the Credit Agreement and the
other Loan Documents) restricting the ability of any Subsidiary to pay or make
dividends or distributions in cash or kind, to make loans, advances or other
payments of whatsoever nature or to make transfers or distributions of all or
any part of its assets to the Borrower or any Guarantor.
9.16. INCONSISTENT AGREEMENTS. Neither the Borrower nor any of its
Subsidiaries will, nor will they permit their Subsidiaries to, enter into any
agreement containing any provision which would be violated or breached by the
performance by the Borrowers or such Subsidiary of its obligations hereunder or
under any of the Loan Documents.
10. FINANCIAL COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any Loan or Note is
outstanding or any Bank has any obligation to make any Loans:
10.1. LEVERAGE RATIO. The Borrower will not at any time during any period
described in the table set forth below, permit the Leverage Ratio to exceed the
ratio set forth opposite such period in such table:
<TABLE>
<CAPTION>
-------------------------------------------------------------
PERIOD RATIO
-------------------------------------------------------------
<S> <C>
Closing Date - September 30, 1998 3.50:1.00
-------------------------------------------------------------
October 1, 1998 - December 31, 1998 3.25:1.00
-------------------------------------------------------------
January 1, 1999 - December 31, 1999 2.50:1.00
-------------------------------------------------------------
any time thereafter 2.00:1.00
-------------------------------------------------------------
</TABLE>
<PAGE>
56
10.2. DEBT SERVICE COVERAGE RATIO. The Borrower will not permit the Debt
Service Coverage Ratio at the end of any fiscal quarter to be less than
1.25:1.00.
10.3. CURRENT RATIO. The Borrower will not permit the ratio of
Consolidated Current Assets to Consolidated Current Liabilities to be less than
1.00:1.00 at any time.
11. CLOSING CONDITIONS.
The obligations of the Banks to make the initial Revolving Credit Loans
and the Term Loan shall be subject to the satisfaction of the following
conditions precedent on or prior to June 4, 1998:
11.1. LOAN DOCUMENTS ETC.
11.1.1. LOAN DOCUMENTS. Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto, shall be in
full force and effect and shall be in form and substance satisfactory to
each of the Banks. Each Bank shall have received a fully executed copy of
each such document.
11.1.2. SUBORDINATION AND CAPITALIZATION DOCUMENTS. Each of the
Subordination Documents and Capitalization Documents shall have been duly
executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to each
of the Banks. Each Bank shall have received a fully executed copy of each
such document.
11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall have
received from the Borrower and each of its Subsidiaries a copy, certified by a
duly authorized officer of such Person to be true and complete on the Closing
Date, of each of (a) its charter or other incorporation documents as in effect
on such date of certification, and (b) its by-laws as in effect on such date.
11.3. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its Subsidiaries
of this Credit Agreement and the other Loan Documents to which it is or is to
become a party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.
11.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received from
the Borrower and each of its Subsidiaries an incumbency certificate, dated as of
the Closing Date, signed by a duly authorized officer of the Borrower or such
<PAGE>
57
Subsidiary, and giving the name and bearing a specimen signature of each
individual who shall be authorized: (a) to sign, in the name and on behalf of
each of the Borrower of such Subsidiary, each of the Loan Documents and
Subordination Documents to which the Borrower or such Subsidiary is or is to
become a party; (b) in the case of the Borrower, to make Loan Requests and
Conversion Requests and to apply for Letters of Credit; and (c) to give notices
and to take other action on its behalf under the Loan Documents.
11.5. VALIDITY OF LIENS. The Security Documents shall be effective to
create in favor of the Agent a legal, valid and enforceable first (except for
Permitted Liens entitled to priority under applicable law) security interest in
and lien upon the Collateral. All filings, recordings, deliveries of instruments
and other actions necessary or desirable in the opinion of the Agent to protect
and preserve such security interests shall have been duly effected. The Agent
shall have received evidence thereof in form and substance satisfactory to the
Agent.
11.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Agent shall have
received from each of the Borrower and its Subsidiaries a completed and fully
executed Perfection Certificate and the results of UCC searches with respect to
the Collateral, indicating no liens other than Permitted Liens and otherwise in
form and substance satisfactory to the Agent.
11.7. CERTIFICATES OF INSURANCE. The Agent shall have received a
certificate of insurance from an independent insurance broker dated as of the
Closing Date, identifying insurers, types of insurance, insurance limits, and
policy terms, and otherwise describing the insurance obtained in accordance with
the provisions of the Security Agreements.
11.8. SOLVENCY CERTIFICATE. Each of the Banks shall have received an
officer's certificate of the Borrower dated as of the Closing Date as to the
solvency of the Borrower and its Subsidiaries following the consummation of the
transactions contemplated herein and in form and substance satisfactory to the
Banks.
11.9. OPINION OF COUNSEL. Each of the Banks and the Agent shall have
received a favorable legal opinion addressed to the Banks and the Agent, dated
as of the Closing Date, in form and substance satisfactory to the Banks and the
Agent, from Goodwin, Procter & Hoar, LLP and Hutchins, Wheeler & Dittmar,
counsel to the Borrower and its Subsidiaries.
11.10. PAYMENT OF FEES. The Borrower shall have paid to the Banks or the
Agent, as appropriate, the fees required to be paid pursuant to the Fee Letter.
11.11. PAYOFF LETTER. The Agent shall have received for filing all
termination statements and take such other actions as may be necessary to
discharge all mortgages, deeds of trust and security interests granted by the
Borrower or any of its Subsidiaries in favor of from Merrill Lynch Business
Financial Services Inc..
<PAGE>
58
11.12. DISBURSEMENT INSTRUCTIONS. The Agent shall have received
disbursement instructions from the Borrower.
11.13. CONSENTS AND APPROVALS. The Agent shall have received evidence that
all consents and approvals necessary to complete the transactions contemplated
hereby have been obtained.
12. CONDITIONS TO ALL BORROWINGS.
The obligations of the Banks to make any Loan, including the Revolving
Credit Loan and the Term Loan, whether on or after the Closing Date, shall also
be subject to the satisfaction of the following conditions precedent:
12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the
representations and warranties of any of the Borrower and its Subsidiaries
contained in this Credit Agreement, the other Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Credit Agreement
shall be true as of the date as of which they were made and shall also be true
in all material respects at and as of the time of the making of such, with the
same effect as if made at and as of that time (except to the extent of changes
resulting from transactions contemplated or permitted by this Credit Agreement
and the other Loan Documents and changes occurring in the ordinary course of
business that singly or in the aggregate are not materially adverse, and to the
extent that such representations and warranties relate expressly to an earlier
date) and no Default or Event of Default shall have occurred and be continuing.
12.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Bank would make it illegal for such Bank to make such Loan.
12.3. GOVERNMENTAL REGULATION. Each Bank shall have received such
statements in substance and form reasonably satisfactory to such Bank as such
Bank shall require for the purpose of compliance with any applicable regulations
of the Comptroller of the Currency or the Board of Governors of the Federal
Reserve System.
12.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Credit Agreement, the other Loan Documents and
all other documents incident thereto shall be reasonably satisfactory in
substance and in form to the Banks and to the Agent and the Agent's Special
Counsel, and the Banks, the Agent and such counsel shall have received all
information and such counterpart originals or certified or other copies of such
documents as the Agent may reasonably request.
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13. EVENTS OF DEFAULT; ACCELERATION; ETC.
13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following events
("Events of Default" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time, "Defaults") shall occur:
(a) the Borrower shall fail to pay any principal of the Loans when
the same shall become due and payable, whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed
for payment;
(b) the Borrower shall fail to pay any interest on the Loans, the
commitment fee, the Agent's fee, or other sums due hereunder or under any
of the other Loan Documents, when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of maturity
or at any other date fixed for payment and such failure shall continue for
three (3) Business Days;
(c) the Borrower shall fail to comply with any of its covenants
contained in Sections 8.1 - 8.2, 8.4, 8.5.1., 8.7. 8.9.1, 8.12, 8.14,
8.15, 8.16, 9 or 10;
(d) the Borrower or any of its Subsidiaries shall fail to perform
any term, covenant or agreement contained herein or in any of the other
Loan Documents (other than those specified elsewhere in this Section 13.1)
for thirty (30) days after written notice of such failure has been given
to the Borrower by the Agent;
(e) any representation or warranty of the Borrower or any of its
Subsidiaries in this Credit Agreement or any of the other Loan Documents
or in any other document or instrument delivered pursuant to or in
connection with this Credit Agreement shall prove to have been false in
any material respect upon the date when made or deemed to have been made
or repeated and the result thereof has a Material Adverse Effect;
(f) the Borrower or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation for
borrowed money or credit received or in respect of any Capitalized Leases
in an amount in excess of $100,000, or any Subordinated Debt, or fail to
observe or perform any material term, covenant or agreement contained in
any agreement by which it is bound, evidencing or securing borrowed money
or credit received or in respect of any Capitalized Leases, in an amount
in excess of $250,000, or any Subordinated Debt, for such period of time
as would permit (assuming the giving of appropriate notice if required)
the holder or holders thereof or of any obligations issued thereunder to
accelerate the maturity thereof;
(g) the Borrower or any of its Subsidiaries shall make an assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall
petition
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or apply for the appointment of a trustee or other custodian, liquidator
or receiver of the Borrower or any of its Subsidiaries or of any
substantial part of the assets of the Borrower or any of its Subsidiaries
or shall commence any case or other proceeding relating to the Borrower or
any of its Subsidiaries under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law of any jurisdiction, now or hereafter in effect, or shall take any
action to authorize or in furtherance of any of the foregoing, or if any
such petition or application shall be filed or any such case or other
proceeding shall be commenced against the Borrower or any of its
Subsidiaries and the Borrower or any of its Subsidiaries shall indicate
its approval thereof, consent thereto or acquiescence therein or such
petition or application shall not have been dismissed within forty-five
(45) days following the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any of
its Subsidiaries bankrupt or insolvent, or approving a petition in any
such case or other proceeding, or a decree or order for relief is entered
in respect of the Borrower or any Subsidiary of the Borrower in an
involuntary case under federal bankruptcy laws as now or hereafter
constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any final
judgment against the Borrower or any of its Subsidiaries that, with other
outstanding final judgments, undischarged, against the Borrower or any of
its Subsidiaries exceeds in the aggregate $250,000;
(j) the holders of all or any part of the Subordinated Debt shall
accelerate the maturity of all or any part of the Subordinated Debt or the
Subordinated Debt shall be (or shall be required at such time to be)
prepaid, redeemed or repurchased in whole or in part; or the Borrower or
any of its Subsidiaries shall be or become required under the
Subordination Documents to prepay, redeem or repurchase (or shall be or
become required thereunder to offer to prepay, redeem or repurchase) all
or any part of the Subordinated Debt;
(k) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Agent's security interests, mortgages or liens
in a substantial portion of the Collateral shall cease to be perfected, or
shall cease to have the priority contemplated by the Security Documents,
in each case otherwise than in accordance with the terms thereof or with
the express prior written agreement, consent or approval of the Banks, or
any action at law, suit or in equity or other legal proceeding to cancel,
revoke or rescind any of the Loan Documents shall be commenced by or on
behalf of the Borrower or any of its Subsidiaries party thereto or any of
their respective stockholders, or any court or any other governmental or
regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment,
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61
order, decree or ruling to the effect that, any one or more of the Loan
Documents is illegal, invalid or unenforceable in accordance with the
terms thereof;
(l) the Borrower or any ERISA Affiliate incurs any liability to the
PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an
aggregate amount exceeding $500,000, or the Borrower or any ERISA
Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA
by a Multiemployer Plan requiring aggregate annual payments exceeding
$500,000, or any of the following occurs with respect to a Guaranteed
Pension Plan: (i) an ERISA Reportable Event, or a failure to make a
required installment or other payment (within the meaning of Section
302(f)(1) of ERISA), provided that the Agent determines in its reasonable
discretion that such event (A) could be expected to result in liability of
the Borrower or any of its Subsidiaries to the PBGC or such Guaranteed
Pension Plan in an aggregate amount exceeding $500,000 and (B) could
constitute grounds for the termination of such Guaranteed Pension Plan by
the PBGC, for the appointment by the appropriate United States District
Court of a trustee to administer such Guaranteed Pension Plan or for the
imposition of a lien in favor of such Guaranteed Pension Plan; or (ii) the
appointment by a United States District Court of a trustee to administer
such Guaranteed Pension Plan; or (iii) the institution by the PBGC of
proceedings to terminate such Guaranteed Pension Plan;
(m) the Borrower or any of its Subsidiaries shall be enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting any material part of
its business and such order shall continue in effect for more than thirty
(30) days;
(n) the Borrower or any of its Subsidiaries shall be indicted for a
state or federal crime, or any criminal action shall otherwise have been
brought against the Borrower or any of its Subsidiaries, a punishment for
which in any such case could include the forfeiture of any assets of the
Borrower or such Subsidiary having a fair market value in excess of
$250,000;
(0) Summit Partners shall at any time, legally or beneficially own
less than twenty-five percent (25%) of the capital stock of the Borrower,
as adjusted pursuant to any stock split, stock dividend or
recapitalization or reclassification of the capital of the Borrower, or
any other Person or group of Persons shall at any time, legally or
beneficially own more of the capital stock of the Borrower than the Summit
Partners, as adjusted pursuant to any stock split, stock dividend or
recapitalization or reclassification of the capital of the Borrower, or
the Borrower shall at any time, legally or beneficially own less than 100%
of the capital stock of any Guarantor; or
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(r) any Liquidity Event (as defined in the Subordination
Documents) other than the occurrence of the IPO shall have occurred;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Majority Banks shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Credit Agreement,
the Notes and the other Loan Documents to be, and they shall thereupon forthwith
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrower; PROVIDED that in the event of any Event of Default specified in
Sections 13.1(g) or 13.1(h), all such amounts shall become immediately due and
payable automatically and without any requirement of notice from the Agent or
any Bank.
13.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of
Default specified in Section 13.1(g) or Section 13.1(h) shall occur, any unused
portion of the credit hereunder shall forthwith terminate and each of the Banks
shall be relieved of all further obligations to make Loans to the Borrower and
the Agent shall be relieved of all further obligations to issue, extend or renew
Letters of Credit. If any other Event of Default shall have occurred and be
continuing, or if on any Drawdown Date the conditions precedent to the making of
the Loans to be made on such Drawdown Date are not satisfied, the Agent may and,
upon the request of the Majority Banks, shall, by notice to the Borrower,
terminate the unused portion of the credit hereunder, and upon such notice being
given such unused portion of the credit hereunder shall terminate immediately
and each of the Banks shall be relieved of all further obligations to make
Loans. No termination of the credit hereunder shall relieve the Borrower or any
of its Subsidiaries of any of the Obligations.
13.3. REMEDIES. In case any one or more of the Events of Default shall
have occurred and be continuing, and whether or not the Banks shall have
accelerated the maturity of the Loans pursuant to Section 13.1, each Bank, if
owed any amount with respect to the Loans, may, with the consent of the Majority
Banks but not otherwise, proceed to protect and enforce its rights by suit in
equity, action at law or other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Credit Agreement and
the other Loan Documents or any instrument pursuant to which the Obligations to
such Bank are evidenced, including as permitted by applicable law the obtaining
of the EX PARTE appointment of a receiver, and, if such amount shall have become
due, by declaration or otherwise, proceed to enforce the payment thereof or any
other legal or equitable right of such Bank. No remedy herein conferred upon any
Bank or the Agent or the holder of any Note is intended to be exclusive of any
other remedy and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or any other provision of law.
13.4. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that, following
the occurrence or during the continuance of any Event of Default, the Agent or
any Bank, as the case may be, receives any monies in connection with the
enforcement
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63
of any the Security Documents, or otherwise with respect to the realization upon
any of the Collateral, such monies shall be distributed for application as
follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Agent in connection with the collection of such monies by
the Agent, for the exercise, protection or enforcement by the Agent of all
or any of the rights, remedies, powers and privileges of the Agent under
this Credit Agreement or any of the other Loan Documents or in respect of
the Collateral or in support of any provision of adequate indemnity to the
Agent against any taxes or liens which by law shall have, or may have,
priority over the rights of the Agent to such monies;
(b) Second, to all other Obligations in such order or preference as
the Majority Banks may determine; PROVIDED, HOWEVER, that (i)
distributions shall be made (A) PARI PASSU among Obligations with respect
to the Agent's fee payable pursuant to Section 5.2 and all other
Obligations and (B) with respect to each type of Obligation owing to the
Banks, such as interest, principal, fees and expenses, among the Banks PRO
RATA, and (ii) the Agent may in its discretion make proper allowance to
take into account any Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other provisions
for payment in full satisfactory to the Banks and the Agent of all of the
Obligations, to the payment of any obligations required to be paid
pursuant to Section 9-504(1)(c) of the Uniform Commercial Code of the
Commonwealth of Massachusetts; and
(d) Fourth, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
14. SETOFF.
Regardless of the adequacy of any collateral, during the continuance of
any Event of Default, any deposits or other sums credited by or due from any of
the Banks to the Borrower and any securities or other property of the Borrower
in the possession of such Bank may be applied to or set off by such Bank against
the payment of Obligations and any and all other liabilities, direct, or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrower to such Bank. Each of the Banks agrees with
each other Bank that (a) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by
the Notes held by such Bank, such amount shall be applied ratably to such other
Indebtedness and to the Indebtedness evidenced by all such Notes held by such
Bank, and (b) if such Bank shall receive from the Borrower, whether by voluntary
payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Notes held by
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such Bank by proceedings against the Borrower at law or in equity or by proof
thereof in bankruptcy, reorganization, liquidation, receivership or similar
proceedings, or otherwise, and shall retain and apply to the payment of the Note
or Notes held by such Bank any amount in excess of its ratable portion of the
payments received by all of the Banks with respect to the Notes held by all of
the Banks, such Bank will make such disposition and arrangements with the other
Banks with respect to such excess, either by way of distribution, PRO TANTO
assignment of claims, subrogation or otherwise as shall result in each Bank
receiving in respect of the Notes held by it, its proportionate payment as
contemplated by this Credit Agreement; PROVIDED that if all or any part of such
excess payment is thereafter recovered from such Bank, such disposition and
arrangements shall be rescinded and the amount restored to the extent of such
recovery, but without interest.
15. THE AGENT.
15.1. AUTHORIZATION.
(a) The Agent is authorized to take such action on behalf of each of
the Banks and to exercise all such powers as are hereunder and under any
of the other Loan Documents and any related documents delegated to the
Agent, together with such powers as are reasonably incident thereto,
PROVIDED that no duties or responsibilities not expressly assumed herein
or therein shall be implied to have been assumed by the Agent.
(b) The relationship between the Agent and each of the Banks is that
of an independent contractor. The use of the term "Agent" is for
convenience only and is used to describe, as a form of convention, the
independent contractual relationship between the Agent and each of the
Banks. Nothing contained in this Credit Agreement nor the other Loan
Documents shall be construed to create an agency, trust or other fiduciary
relationship between the Agent and any of the Banks.
(c) As an independent contractor empowered by the Banks to exercise
certain rights and perform certain duties and responsibilities hereunder
and under the other Loan Documents, the Agent is nevertheless a
"representative" of the Banks, as that term is defined in Article 1 of the
Uniform Commercial Code, for purposes of actions for the benefit of the
Banks and the Agent with respect to all collateral security and guaranties
contemplated by the Loan Documents. Such actions include the designation
of the Agent as "secured party", "mortgagee" or the like on all financing
statements and other documents and instruments, whether recorded or
otherwise, relating to the attachment, perfection, priority or enforcement
of any security interests, mortgages or deeds of trust in collateral
security intended to secure the payment or performance of any of the
Obligations, all for the benefit of the Banks and the Agent.
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65
15.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and execute
its duties by or through employees or agents and shall be entitled to take, and
to rely on, advice of counsel concerning all matters pertaining to its rights
and duties under this Credit Agreement and the other Loan Documents. The Agent
may utilize the services of such Persons as the Agent in its sole discretion may
reasonably determine, and all reasonable fees and expenses of any such Persons
shall be paid by the Borrower.
15.3. NO LIABILITY. Neither the Agent nor any of its shareholders,
directors, officers or employees nor any other Person assisting them in their
duties nor any agent or employee thereof, shall be liable for any waiver,
consent or approval given or any action taken, or omitted to be taken, in good
faith by it or them hereunder or under any of the other Loan Documents, or in
connection herewith or therewith, or be responsible for the consequences of any
oversight or error of judgment whatsoever, except that the Agent or such other
Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence.
15.4. NO REPRESENTATIONS.
15.4.1. GENERAL. The Agent shall not be responsible for the
execution or validity or enforceability of this Credit Agreement, the
Notes, the Letters of Credit, any of the other Loan Documents or any
instrument at any time constituting, or intended to constitute, collateral
security for the Notes, or for the value of any such collateral security
or for the validity, enforceability or collectability of any such amounts
owing with respect to the Notes, or for any recitals or statements,
warranties or representations made herein or in any of the other Loan
Documents or in any certificate or instrument hereafter furnished to it by
or on behalf of the Borrower or any of its Subsidiaries, or be bound to
ascertain or inquire as to the performance or observance of any of the
terms, conditions, covenants or agreements herein or in any instrument at
any time constituting, or intended to constitute, collateral security for
the Notes or to inspect any of the properties, books or records of the
Borrower or any of its Subsidiaries. The Agent shall not be bound to
ascertain whether any notice, consent, waiver or request delivered to it
by the Borrower or any holder of any of the Notes shall have been duly
authorized or is true, accurate and complete. The Agent has not made nor
does it now make any representations or warranties, express or implied,
nor does it assume any liability to the Banks, with respect to the credit
worthiness or financial conditions of the Borrower or any of its
Subsidiaries. Each Bank acknowledges that it has, independently and
without reliance upon the Agent or any other Bank, and based upon such
information and documents as it has deemed appropriate, made its own
credit analysis and decision to enter into this Credit Agreement.
15.4.2. CLOSING DOCUMENTATION, ETC. For purposes of determining
compliance with the conditions set forth in Section 11, each Bank that has
executed this Credit Agreement shall be deemed to have consented to,
approved or
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66
accepted, or to be satisfied with, each document and matter either sent,
or made available, by the Agent to such Bank for consent, approval,
acceptance or satisfaction, or required thereunder to be to be consent to
or approved by or acceptable or satisfactory to such Bank, unless an
officer of the Agent active upon the Borrower's account shall have
received notice from such Bank prior to the Closing Date specifying such
Bank's objection thereto and such objection shall not have been withdrawn
by notice to the Agent to such effect on or prior to the Closing Date.
15.5. PAYMENTS.
15.5.1. PAYMENTS TO AGENT. A payment by the Borrower to the Agent
hereunder or any of the other Loan Documents for the account of any Bank
shall constitute a payment to such Bank. The Agent agrees promptly to
distribute to each Bank such Bank's PRO RATA share of payments received by
the Agent for the account of the Banks except as otherwise expressly
provided herein or in any of the other Loan Documents.
15.5.2. DISTRIBUTION BY AGENT. If in the opinion of the Agent the
distribution of any amount received by it in such capacity hereunder,
under the Notes or under any of the other Loan Documents might involve it
in liability, it may refrain from making distribution until its right to
make distribution shall have been adjudicated by a court of competent
jurisdiction. If a court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be repaid, each Person
to whom any such distribution shall have been made shall either repay to
the Agent its proportionate share of the amount so adjudged to be repaid
or shall pay over the same in such manner and to such Persons as shall be
determined by such court.
15.5.3. DELINQUENT BANKS. Notwithstanding anything to the contrary
contained in this Credit Agreement or any of the other Loan Documents, any
Bank that fails (a) to make available to the Agent its PRO RATA share of
any Loan or (b) to comply with the provisions of Section 14 with respect
to making dispositions and arrangements with the other Banks, where such
Bank's share of any payment received, whether by setoff or otherwise, is
in excess of its PRO RATA share of such payments due and payable to all of
the Banks, in each case as, when and to the full extent required by the
provisions of this Credit Agreement, shall be deemed delinquent (a
"Delinquent Bank") and shall be deemed a Delinquent Bank until such time
as such delinquency is satisfied. A Delinquent Bank shall be deemed to
have assigned any and all payments due to it from the Borrower, whether on
account of outstanding Loans, interest, fees or otherwise, to the
remaining nondelinquent Banks for application to, and reduction of, their
respective PRO RATA shares of all outstanding Loans. The Delinquent Bank
hereby authorizes the Agent to
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distribute such payments to the nondelinquent Banks in proportion to their
respective PRO RATA shares of all outstanding Loans. A Delinquent Bank
shall be deemed to have satisfied in full a delinquency when and if, as a
result of application of the assigned payments to all outstanding Loans of
the nondelinquent Banks, the Banks' respective PRO RATA shares of all
outstanding Loans have returned to those in effect immediately prior to
such delinquency and without giving effect to the nonpayment causing such
delinquency.
15.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any Note
as the absolute owner or purchaser thereof for all purposes hereof until it
shall have been furnished in writing with a different name by such payee or by a
subsequent holder, assignee or transferee.
15.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold
harmless the Agent and its affiliates from and against any and all claims,
actions and suits (whether groundless or otherwise), losses, damages, costs,
expenses (including any expenses for which the Agent or such affiliate has not
been reimbursed by the Borrower as required by Section 16), and liabilities of
every nature and character arising out of or related to this Credit Agreement,
the Notes, or any of the other Loan Documents or the transactions contemplated
or evidenced hereby or thereby, or the Agent's actions taken hereunder or
thereunder, except to the extent that any of the same shall be directly caused
by the Agent's willful misconduct or gross negligence.
15.8. AGENT AS BANK. In its individual capacity, BKB shall have the same
obligations and the same rights, powers and privileges in respect to its
Commitment and the Loans made by it, and as the holder of any of the Notes, as
it would have were it not also the Agent.
15.9. RESIGNATION. The Agent may resign at any time by giving sixty (60)
days prior written notice thereof to the Banks and the Borrower. Upon any such
resignation, the Majority Banks shall have the right to appoint a successor
Agent. Unless a Default or Event of Default shall have occurred and be
continuing, such successor Agent shall be reasonably acceptable to the Borrower.
If no successor Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a financial institution
having a rating of not less than A or its equivalent by Standard & Poor's
Corporation. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation, the provisions of this Credit
Agreement and the other Loan Documents shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
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15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Bank hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this Section 15.10 it shall promptly notify the
other Banks of the existence of such Default or Event of Default.
15.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events of
Default have occurred and shall be continuing, and whether or not acceleration
of the Obligations shall have occurred, the Agent shall, if (a) so requested by
the Majority Banks and (b) the Banks have provided to the Agent such additional
indemnities and assurances against expenses and liabilities as the Agent may
reasonably request, proceed to enforce the provisions of the Security Documents
authorizing the sale or other disposition of all or any part of the Collateral
and exercise all or any such other legal and equitable and other rights or
remedies as it may have in respect of such Collateral. The Majority Banks may
direct the Agent in writing as to the method and the extent of any such sale or
other disposition, the Banks hereby agreeing to indemnify and hold the Agent,
harmless from all liabilities incurred in respect of all actions taken or
omitted in accordance with such directions, PROVIDED that the Agent need not
comply with any such direction to the extent that the Agent reasonably believes
the Agent's compliance with such direction to be unlawful or commercially
unreasonable in any applicable jurisdiction.
16. EXPENSES AND INDEMNIFICATION.
16.1. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of
producing and reproducing this Credit Agreement, the other Loan Documents and
the other agreements and instruments mentioned herein, (b) any taxes (including
any interest and penalties in respect thereto) payable by the Agent or any of
the Banks (other than taxes based upon the Agent's or any Bank's net income) on
or with respect to the transactions contemplated by this Credit Agreement (the
Borrower hereby agreeing to indemnify the Agent and each Bank with respect
thereto), (c) the reasonable fees, expenses and disbursements of the Agent's
Special Counsel or any local counsel to the Agent incurred in connection with
the preparation, administration or interpretation of the Loan Documents and
other instruments mentioned herein, each closing hereunder, any amendments,
modifications, approvals, consents or waivers hereto or hereunder, or the
cancellation of any Loan Document upon payment in full in cash of all of the
Obligations or pursuant to any terms of such Loan Document for providing for
such cancellation, (d) the fees, expenses and disbursements of the Agent or any
of its affiliates incurred by the Agent or such affiliate in connection with the
preparation, administration or interpretation of the Loan Documents and other
instruments mentioned herein, (e) any fees, costs, expenses and bank charges,
including bank charges for returned checks, incurred by the Agent in
establishing, maintaining or handling agency accounts, lock box accounts and
other accounts for the collection of any of the Collateral; (f) all reasonable
out-of-pocket expenses (including without limitation reasonable attorneys' fees
and costs, which attorneys may be employees
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of any Bank or the Agent, and reasonable consulting, accounting, appraisal,
investment banking and similar professional fees and charges) incurred by any
Bank or the Agent in connection with (i) the enforcement of or preservation of
rights under any of the Loan Documents against the Borrower or any of its
Subsidiaries or the administration thereof after the occurrence of a Default or
Event of Default and (ii) any litigation, proceeding or dispute whether arising
hereunder or otherwise, in any way related to any Bank's or the Agent's
relationship with the Borrower or any of its Subsidiaries and (g) all reasonable
fees, expenses and disbursements of any Bank or the Agent incurred in connection
with UCC searches, UCC filings or mortgage recordings.
16.2. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless
the Agent, its affiliates and the Banks from and against any and all claims,
actions and suits whether groundless or otherwise, and from and against any and
all liabilities, losses, damages and expenses of every nature and character
arising out of this Credit Agreement or any of the other Loan Documents or the
transactions contemplated hereby including, without limitation, (a) any actual
or proposed use by the Borrower or any of its Subsidiaries of the proceeds of
any of the Loans or Letters of Credit, (b) the reversal or withdrawal of any
provisional credits granted by the Agent upon the transfer of funds from lock
box, bank agency or concentration accounts or in connection with the provisional
honoring of checks or other items, (c) any actual or alleged infringement of any
patent, copyright, trademark, service mark or similar right of the Borrower or
any of its Subsidiaries comprised in the Collateral, (d) the Borrower or any of
its Subsidiaries entering into or performing this Credit Agreement or any of the
other Loan Documents or (e) with respect to the Borrower and its Subsidiaries
and their respective properties and assets, the violation of any Environmental
Law, the presence, disposal, escape, seepage, leakage, spillage, discharge,
emission, release or threatened release of any Hazardous Substances or any
action, suit, proceeding or investigation brought or threatened with respect to
any Hazardous Substances (including, but not limited to, claims with respect to
wrongful death, personal injury or damage to property), in each case including,
without limitation, the reasonable fees and disbursements of counsel and
allocated costs of internal counsel incurred in connection with any such
investigation, litigation or other proceeding, except to the extent that any of
the foregoing are caused by the gross negligence or willful misconduct of the
otherwise indemnified party. In litigation, or the preparation therefor, the
Banks and the Agent and its affiliates shall be entitled to select their own
counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay
promptly the reasonable fees and expenses of such counsel. If, and to the extent
that the obligations of the Borrower under this Section 16.2 are unenforceable
for any reason, the Borrower hereby agrees to make the maximum contribution to
the payment in satisfaction of such obligations which is permissible under
applicable law.
16.3. SURVIVAL. The covenants contained in this Section 16 shall survive
payment or satisfaction in full of all other Obligations.
<PAGE>
70
17. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.
17.1. SHARING OF INFORMATION WITH SECTION 20 SUBSIDIARY. The Borrower
acknowledges that from time to time financial advisory, investment banking and
other services may be offered or provided to the Borrower or one or more of its
Subsidiaries, in connection with this Credit Agreement or otherwise, by a
Section 20 Subsidiary. The Borrower, for itself and each of its Subsidiaries,
hereby authorizes (a) such Section 20 Subsidiary to share with the Agent and
each Bank any information delivered to such Section 20 Subsidiary by the
Borrower or any of its Subsidiaries, and (b) the Agent and each Bank to share
with such Section 20 Subsidiary any information delivered to the Agent or such
Bank by the Borrower or any of its Subsidiaries pursuant to this Credit
Agreement, or in connection with the decision of such Bank to enter into this
Credit Agreement; it being understood, in each case, that any such Section 20
Subsidiary receiving such information shall be bound by the confidentiality
provisions of this Credit Agreement. Such authorization shall survive the
payment and satisfaction in full of all of Obligations.
17.2. CONFIDENTIALITY. Each of the Banks and the Agent agrees, on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives, to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Borrower or any of its Subsidiaries
pursuant to this Credit Agreement that is identified by such Person as being
confidential at the time the same is delivered to the Banks or the Agent,
PROVIDED that nothing herein shall limit the disclosure of any such information
(a) after such information shall have become public other than through a
violation of this Section 17, (b) to the extent required by statute, rule,
regulation or judicial process, (c) to counsel for any of the Banks or the
Agent, (d) to bank examiners or any other regulatory authority having
jurisdiction over any Bank or the Agent, or to auditors or accountants, (e) to
the Agent, any Bank or any Section 20 Subsidiary, (f) in connection with any
litigation to which any one or more of the Banks, the Agent or any Section 20
Subsidiary is a party, or in connection with the enforcement of rights or
remedies hereunder or under any other Loan Document, (g) to a Subsidiary or
affiliate of such Bank as provided in Section 17.1 or (h) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant agrees to be bound by the provisions of Section 19.6.
17.3. PRIOR NOTIFICATION. Unless specifically prohibited by applicable law
or court order, each of the Banks and the Agent shall, prior to disclosure
thereof, notify the Borrower of any request for disclosure of any such
non-public information by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of such Bank by such governmental agency) or pursuant to legal
process.
17.4. OTHER. In no event shall any Bank or the Agent be obligated or
required to return any materials furnished to it or any Section 20 Subsidiary by
the Borrower or any of its Subsidiaries. The obligations of each Bank under this
Section 17
<PAGE>
71
shall supersede and replace the obligations of such Bank under any
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Borrower prior to the date hereof and shall be binding upon any
assignee of, or purchaser of any participation in, any interest in any of the
Loans from any Bank.
18. SURVIVAL OF COVENANTS, ETC.
All covenants, agreements, representations and warranties made herein, in
the Notes, in any of the other Loan Documents shall be deemed to have been
relied upon by the Banks and the Agent, notwithstanding any investigation
heretofore or hereafter made by any of them, and shall survive the making by the
Banks of any of the Loans and the issuance, extension or renewal of any Letters
of Credit, as herein contemplated, and shall continue in full force and effect
so long as any amount due under this Credit Agreement or the Notes or any of the
other Loan Documents remains outstanding or any Bank has any obligation to make
any Loans, and for such further time as may be otherwise expressly specified in
this Credit Agreement. All statements contained in any certificate or other
paper delivered to any Bank or the Agent at any time by or on behalf of the
Borrower or any of its Subsidiaries pursuant hereto or in connection with the
transactions contemplated hereby shall constitute representations and warranties
by the Borrower or such Subsidiary hereunder.
19. ASSIGNMENT AND PARTICIPATION.
19.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein, each
Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under this Credit Agreement (including all or
a portion of its Commitment Percentage and Commitment and the same portion of
the Loans at the time owing to it, the Notes held by it); PROVIDED that (a) each
of the Agent and, unless a Default or Event of Default shall have occurred and
be continuing, the Borrower shall have given its prior written consent to such
assignment, which consent, in the case of the Borrower, will not be unreasonably
withheld, (b) each such assignment shall be of a constant, and not a varying,
percentage of all the assigning Bank's rights and obligations under this Credit
Agreement, (c) each assignment shall be in an amount that is a whole multiple of
$2,500,000 (or such smaller amount if representing the entire Commitment being
assigned) and (d) the parties to such assignment shall execute and deliver to
the Agent, for recording in the Register (as hereinafter defined), an Assignment
and Acceptance, substantially in the form of EXHIBIT E hereto (an "Assignment
and Acceptance"), together with any Notes subject to such assignment. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five (5) Business Days after the execution thereof, (i) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder,
and (ii) the assigning Bank shall, to the extent provided in such assignment and
upon payment to the Agent of the registration fee referred to in Section 20.3,
be released from its obligations under this Credit Agreement.
<PAGE>
72
19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; Covenants. By
executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, the assigning Bank makes no representation or
warranty, express or implied, and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection
with this Credit Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Credit
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant hereto or the attachment, perfection or priority of any
security interest or mortgage,
(b) the assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower and its Subsidiaries or any other Person primarily or secondarily
liable in respect of any of the Obligations, or the performance or
observance by the Borrower and its Subsidiaries or any other Person
primarily or secondarily liable in respect of any of the Obligations of
any of their obligations under this Credit Agreement or any of the other
Loan Documents or any other instrument or document furnished pursuant
hereto or thereto;
(c) such assignee confirms that it has received a copy of this
Credit Agreement, together with copies of the most recent financial
statements referred to in Section 7.4 and Section 8.4 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;
(d) such assignee will, independently and without reliance upon the
assigning Bank, the Agent or any other Bank 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 Credit
Agreement;
(e) such assignee represents and warrants that it is an Eligible
Assignee;
(f) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this
Credit Agreement and the other Loan Documents as are delegated to the
Agent by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto;
<PAGE>
73
(g) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Credit
Agreement are required to be performed by it as a Bank; and
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance.
19.3. REGISTER. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the names and addresses of the Banks and the Commitment
Percentage of, and principal amount of the Revolving Credit Loans owing to the
Banks from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower and the Banks at any reasonable time and from time to
time upon reasonable prior notice. Upon each such recordation, the assigning
Bank agrees to pay to the Agent a registration fee in the sum of $3,500.
19.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance executed
by the parties to such assignment, together with each Note subject to such
assignment, the Agent shall (a) record the information contained therein in the
Register, and (b) give prompt notice thereof to the Borrower and the Banks
(other than the assigning Bank). Within five (5) Business Days after receipt of
such notice, the Borrower, at its own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank
has retained some portion of its obligations hereunder, a new Note to the order
of the assigning Bank in an amount equal to the amount retained by it hereunder.
Such new Notes shall provide that they are replacements for the surrendered
Notes, shall be in an aggregate principal amount equal to the aggregate
principal amount of the surrendered Notes, shall be dated the effective date of
such in Assignment and Acceptance and shall otherwise be substantially the form
of the assigned Notes. The surrendered Notes shall be cancelled and returned to
the Borrower.
19.5. PARTICIPATIONS. Each Bank may sell participations to one or more
banks or other entities in all or a portion of such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; provided
that (a) each such participation shall be in an amount of not less than
$1,000,000, (b) any such sale or participation shall not affect the rights and
duties of the selling Bank hereunder to the Borrower and (c) the only rights
granted to the participant pursuant to such participation arrangements with
respect to waivers, amendments or modifications of the Loan Documents shall be
the rights to approve waivers, amendments or modifications that would reduce the
principal of or the interest rate on any Loans, extend the term or increase the
amount of the Commitment of such Bank as it relates to such participant, reduce
the amount of any commitment fees to which such
<PAGE>
74
participant is entitled or extend any regularly scheduled payment date for
principal or interest.
19.6. DISCLOSURE. The Borrower agrees that in addition to disclosures made
in accordance with standard and customary banking practices any Bank may
disclose information obtained by such Bank pursuant to this Credit Agreement to
assignees or participants and potential assignees or participants hereunder;
PROVIDED that such assignees or participants or potential assignees or
participants shall agree (a) to treat in confidence such information unless such
information otherwise becomes public knowledge, (b) not to disclose such
information to a third party, except as required by law or legal process and (c)
not to make use of such information for purposes of transactions unrelated to
such contemplated assignment or participation.
19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. If any
assignee Bank is an Affiliate of the Borrower, then any such assignee Bank shall
have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or other modifications to any of the Loan Documents or
for purposes of making requests to the Agent pursuant to Section 13.1 or Section
13.2, and the determination of the Majority Banks shall for all purposes of this
Credit Agreement and the other Loan Documents be made without regard to such
assignee Bank's interest in any of the Loans. If any Bank sells a participating
interest in any of the Loans to a participant, and such participant is the
Borrower or an Affiliate of the Borrower, then such transferor Bank shall
promptly notify the Agent of the sale of such participation. A transferor Bank
shall have no right to vote as a Bank hereunder or under any of the other Loan
Documents for purposes of granting consents or waivers or for purposes of
agreeing to amendments or modifications to any of the Loan Documents or for
purposes of making requests to the Agent pursuant to Section 13.1 or Section
13.2 to the extent that such participation is beneficially owned by the Borrower
or any Affiliate of the Borrower, and the determination of the Majority Banks
shall for all purposes of this Credit Agreement and the other Loan Documents be
made without regard to the interest of such transferor Bank in the Loans to the
extent of such participation.
19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall retain
its rights to be indemnified pursuant to Section 16 with respect to any claims
or actions arising prior to the date of such assignment. If any assignee Bank is
not incorporated under the laws of the United States of America or any state
thereof, it shall, prior to the date on which any interest or fees are payable
hereunder or under any of the other Loan Documents for its account, deliver to
the Borrower and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes. If any Reference Bank
transfers all of its interest, rights and obligations under this Credit
Agreement, the Agent shall, in consultation with the Borrower and with the
consent of the Borrower and the Majority Banks, appoint another Bank to act as a
Reference Bank hereunder. Anything contained in this Section 19 to the contrary
notwithstanding, any Bank may at any time pledge all or any portion
<PAGE>
75
of its interest and rights under this Credit Agreement (including all or any
portion of its Notes) to any of the twelve Federal Reserve Banks organized under
Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or
the enforcement thereof shall release the pledgor Bank from its obligations
hereunder or under any of the other Loan Documents.
19.9. ASSIGNMENT BY BORROWER. The Borrower shall not assign or transfer
any of its rights or obligations under any of the Loan Documents without the
prior written consent of each of the Banks.
20. NOTICES, ETC.
Except as otherwise expressly provided in this Credit Agreement, all
notices and other communications made or required to be given pursuant to this
Credit Agreement or the Notes shall be in writing and shall be delivered in
hand, mailed by United States registered or certified first class mail, postage
prepaid, sent by overnight courier, or sent by telegraph, telecopy, facsimile or
telex and confirmed by delivery via courier or postal service, addressed as
follows:
(a) if to the Borrower, at Stride & Associates, Inc, 222 Berkeley
Street, Suite 1620, Boston, Massachusetts 02116, Attention: Chief
Executive Officer or at such other address for notice as the Borrower
shall last have furnished in writing to the Person giving the notice, with
a copy of all notices to Mr. Anthony Gross, Stride & Associates, Inc., 11
East 44th Street, Suite 1800, New York, New York 10017 and to Hutchins,
Wheeler & Dittmar, 101 Federal Street, Boston, Massachusetts 02110,
Attention: James Westra, Esq., and Summit Partners, 600 Atlantic Avenue,
Suite 2800, Boston, Massachusetts 02110, Attention: Thomas S. Roberts;
(b) if to the Agent, at 100 Federal Street, High Technology
Division, Boston, Massachusetts 02110, USA, Attention: John B. Desmond,
Vice President, or such other address for notice as the Agent shall
last have furnished in writing to the Person giving the notice; and
(c) if to any Bank, at such Bank's address set forth on SCHEDULE 1
hereto, or such other address for notice as such Bank shall have last
furnished in writing to the Person giving the notice.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
<PAGE>
76
21. GOVERNING LAW.
THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED
THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE
NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT
BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN Section 20. THE
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
22. HEADINGS.
The captions in this Credit Agreement are for convenience of reference
only and shall not define or limit the provisions hereof.
23. COUNTERPARTS.
This Credit Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Credit Agreement it shall not be
necessary to produce or account for more than one such counterpart signed by the
party against whom enforcement is sought.
24. ENTIRE AGREEMENT, ETC.
The Loan Documents and any other documents executed in connection herewith
or therewith express the entire understanding of the parties with respect to the
transactions contemplated hereby. Neither this Credit Agreement nor any term
hereof may be changed, waived, discharged or terminated, except as provided in
Section 26.
25. WAIVER OF JURY TRIAL.
The Borrower hereby waives its right to a jury trial with respect to any
action or claim arising out of any dispute in connection with this Credit
Agreement, the Notes or any of the other Loan Documents, any rights or
obligations hereunder or thereunder or the performance of which rights and
obligations. Except as
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77
prohibited by law, the Borrower hereby waives any right it may have to claim or
recover in any litigation referred to in the preceding sentence any special,
exemplary, punitive or consequential damages or any damages other than, or in
addition to, actual damages. The Borrower (a) certifies that no representative,
agent or attorney of any Bank or the Agent has represented, expressly or
otherwise, that such Bank or the Agent would not, in the event of litigation,
seek to enforce the foregoing waivers and (b) acknowledges that the Agent and
the Banks have been induced to enter into this Credit Agreement, the other Loan
Documents to which it is a party by, among other things, the waivers and
certifications contained herein.
26. CONSENTS, AMENDMENTS, WAIVERS, ETC.
Any consent or approval required or permitted by this Credit Agreement to
be given by the Banks may be given, and any term of this Credit Agreement, the
other Loan Documents or any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by the Borrower or any of its
Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or
such other instrument or the continuance of any Default or Event of Default may
be waived (either generally or in a particular instance and either retroactively
or prospectively) with, but only with, the written consent of the Borrower and
the written consent of the Majority Banks. Notwithstanding the foregoing, the
rate of interest on the Notes (other than interest accruing pursuant to Section
5.11.2 following the effective date of any waiver by the Majority Banks of the
Default or Event of Default relating thereto), the amount of the Commitments of
the Banks, and the amount of commitment fee hereunder may not be changed without
the written consent of the Borrower and the written consent of each Bank
affected thereby; the Revolving Credit Loan Maturity Date and the Term Loan
Maturity Date may not be postponed without the written consent of each Bank
affected thereby; this Section 26 and the definition of Majority Banks may not
be amended, without the written consent of all of the Banks; and the amount of
the Agent's Fee payable for the Agent's account and Section 15 may not be
amended without the written consent of the Agent. No waiver shall extend to or
affect any obligation not expressly waived or impair any right consequent
thereon. No course of dealing or delay or omission on the part of the Agent or
any Bank in exercising any right shall operate as a waiver thereof or otherwise
be prejudicial thereto. No notice to or demand upon the Borrower shall entitle
the Borrower to other or further notice or demand in similar or other
circumstances.
27. SEVERABILITY.
The provisions of this Credit Agreement are severable and if any one
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction, and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Credit Agreement in any jurisdiction.
<PAGE>
78
IN WITNESS WHEREOF, the undersigned have duly executed this Credit
Agreement as a sealed instrument as of the date first set forth above.
STRIDE & ASSOCIATES, INC.
By: /s/ Michael Robichaud
-------------------------------
Name: Michael Robichaud
Title: President
BANKBOSTON, N.A., individually and as
Agent
By: /s/ John B. Desmond
-------------------------------
Name: John B. Desmond
Title: Vice President
<PAGE>
Exhibit 10.15
- --------------------------------------------------------------------------------
FIRST AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
- --------------------------------------------------------------------------------
First Amendment dated as of August 10, 1998 to Revolving Credit and
Term Loan Agreement (the "First Amendment"), by and among STRIDE & ASSOCIATES,
INC. a Delaware corporation (the "Borrower"), BANKBOSTON, N.A. and the other
lending institutions listed on SCHEDULE 1 to the Credit Agreement (as
hereinafter defined) (the "Banks") and BANKBOSTON, N.A., as agent for the Banks
(in such capacity, the "Agent"), amending certain provisions of the Revolving
Credit and Term Loan Agreement dated as of June 4, 1998 (as amended and in
effect from time to time, the "Credit Agreement") by and among the Borrower, the
Banks and the Agent. Terms not otherwise defined herein which are defined in the
Credit Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain terms
and conditions of the Credit Agreement as specifically set forth in this First
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT.
Section 1.1 of the Credit Agreement is hereby amended as follows:
(a) The definition of "Leverage Ratio" is hereby amended by deleting
such definition in its entirety and restating it as follows:
LEVERAGE RATIO. As of any date of determination, the ratio
of (a) Senior Funded Indebtedness of the Borrower and its
Subsidiaries outstanding on such date to (b) the EBITDA of the
Borrower and its Subsidiaries for the Reference Period ended on such
dated; PROVIDED, HOWEVER, for purposes of determining the Leverage
Ratio for purposes of calculating the Applicable Margin and
compliance with Section 10.1 hereof for the period from the Closing
Date through December 31, 1998, EBITDA for the quarter ending (i)
June 30, 1997 shall be $2,005,900; (ii) September 30, 1997 shall be
$2,216,200; (iii) December 31, 1997 shall be $2,233,400; and (iv)
March 31, 1998 shall be $2,105,770.
(b) The definition of "Term Loan" is hereby amended be deleting such
definition in its entirety and restating it as follows:
<PAGE>
-2-
TERM LOAN. The term loan made or to be made by the Banks to
the Borrower on the Closing Date in the aggregate principal amount of
$26,000,000 pursuant to Section 4.1.
SECTION 2. AMENDMENT TO SS.2 OF THE CREDIT AGREEMENT. Section 2.8.1
of the Credit Agreement is hereby amended by deleting the time "11:00 a.m.
(Boston time)" which appears in the first sentence of Section 2.8.1 and
substituting in place thereof the time "2:00 p.m. (Boston time)".
SECTION 3. CONDITIONS TO EFFECTIVENESS. This First Amendment shall
not become effective until the Agent receives a counterpart of this First
Amendment, executed by the Borrower and the Majority Banks.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in Section 7 of the Credit Agreement (except to the
extent of changes resulting from transactions contemplated or permitted by
this First Amendment, the Credit Agreement and the other Loan Documents and
changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date),
PROVIDED, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of
this First Amendment and the performance by the Borrower of all of its
agreements and obligations under the Credit Agreement as amended hereby are
within the corporate authority of the Borrower and have been duly authorized
by all necessary corporate action on the part of the Borrower.
SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby,
the Credit Agreement and all documents, instruments and agreements related
thereto, including, but not limited to the Security Documents, are hereby
ratified and confirmed in all respects and shall continue in full force and
effect. The Credit Agreement and this First Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or
any related agreement or instrument to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended hereby.
SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation
of the Borrower or any rights of the Agent or the Banks consequent thereon.
SECTION 7. COUNTERPARTS. This First Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-3-
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as a document under seal as of the date first above written.
STRIDE & ASSOCIATES, INC.
By:/s/ Anthony Groves
---------------------------------------
Title: Chief Financial Officer
BANKBOSTON, N.A.,
individually and as Agent
By:/s/ John B. Desmond
---------------------------------------
John B. Desmond, Vice President
<PAGE>
Exhibit 10.16
- --------------------------------------------------------------------------------
SECOND AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
- --------------------------------------------------------------------------------
Second Amendment dated as of December 31, 1998 to Revolving Credit and
Term Loan Agreement (the "Second Amendment"), by and among STRIDE & ASSOCIATES,
INC. a Delaware corporation (the "Borrower"), BANKBOSTON, N.A. and the other
lending institutions listed on SCHEDULE 1 to the Credit Agreement (as
hereinafter defined) (the "Banks") and BANKBOSTON, N.A., as agent for the Banks
(in such capacity, the "Agent"), amending certain provisions of the Revolving
Credit and Term Loan Agreement dated as of June 4, 1998 (as amended by the First
Amendment to Revolving Credit and Term Loan Agreement dated as of August 10,
1998 and as further amended and in effect from time to time, the "Credit
Agreement") by and among the Borrower, the Banks and the Agent. Terms not
otherwise defined herein which are defined in the Credit Agreement shall have
the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain terms
and conditions of the Credit Agreement as specifically set forth in this Second
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. The
definition of "Consolidated Operating Cash Flow" is hereby amended by
deleting such definition in its entirety and restating it as follows:
CONSOLIDATED OPERATING CASH FLOW. For any period, an amount
equal to (a) EBITDA for such period, less (b) the sum of (i) cash
payments for all taxes paid during such period, PROVIDED that for
purposes of calculating this clause (i), income taxes incurred for the
fiscal quarter ended September 30, 1998 but not paid until the fiscal
quarter ended December 31, 1998 shall, for purposes of this definition,
be treated as paid in the September 30, 1998 fiscal quarter and
excluded from calculations for the December 31, 1998 fiscal quarter,
PLUS (ii) to the extent not already deducted in the determination of
EBITDA, Capital Expenditures made during such period.
SECTION 2. AMENDMENT TO SECTION 10 OF THE CREDIT AGREEMENT.
Section 10.2 of the Credit Agreement is hereby amended by deleting
Section 10.2 in its entirety and restating it as follows:
SECTION 10.2 DEBT SERVICE COVERAGE RATIO. The Borrower will
not permit the Debt Service Coverage Ratio (a) at the end of any
fiscal quarter other than the fiscal quarter ending March 31, 1999
to be less than 1.25:1.00, and (b) at the end of the fiscal quarter
ending March 31, 1999 to be less than 1.00:1.00.
<PAGE>
-2-
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall
not become effective until the Agent receives a counterpart of this Second
Amendment, executed by the Borrower and the Majority Banks.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in Section 7 of the Credit Agreement (except to the
extent of changes resulting from transactions contemplated or permitted by
this Second Amendment, the Credit Agreement and the other Loan Documents and
changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date),
PROVIDED, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of
this Second Amendment and the performance by the Borrower of all of its
agreements and obligations under the Credit Agreement as amended hereby are
within the corporate authority of the Borrower and have been duly authorized
by all necessary corporate action on the part of the Borrower.
SECTION 5. RATIFICATION, Etc. Except as expressly amended hereby,
the Credit Agreement and all documents, instruments and agreements related
thereto, including, but not limited to the Security Documents, are hereby
ratified and confirmed in all respects and shall continue in full force and
effect. The Credit Agreement and this Second Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or
any related agreement or instrument to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended hereby.
SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation
of the Borrower or any rights of the Agent or the Banks consequent thereon.
SECTION 7. COUNTERPARTS. This Second Amendment may be executed in
one or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as a document under seal as of the date first above written.
STRIDE & ASSOCIATES, INC.
By: /s/ Anthony Groves
---------------------------------------
Title: Chief Financial Officer
BANKBOSTON, N.A.,
individually and as Agent
By: /s/ John B. Desmond
--------------------------------------
Vice President
IMPERIAL BANK
By: /s/ Paula O. Pouripauskur
--------------------------------------
Title: Vice President
SILICON VALLEY BANK
By: /s/ Janet Bran
--------------------------------------
Title: Senior Vice President
<PAGE>
Exhibit 10.17
- --------------------------------------------------------------------------------
THIRD AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
- --------------------------------------------------------------------------------
Third Amendment dated as of March 16, 1999 to Revolving Credit and Term
Loan Agreement (the "Third Amendment"), by and among STRIDE & ASSOCIATES, INC. a
Delaware corporation (the "Borrower"), BANKBOSTON, N.A. and the other lending
institutions listed on SCHEDULE 1 to the Credit Agreement (as hereinafter
defined) (the "Banks") and BANKBOSTON, N.A., as agent for the Banks (in such
capacity, the "Agent"), amending certain provisions of the Revolving Credit and
Term Loan Agreement dated as of June 4, 1998 (as amended by the First Amendment
to Revolving Credit and Term Loan Agreement dated as of August 10, 1998 and as
further amended and in effect from time to time, the "Credit Agreement") by and
among the Borrower, the Banks and the Agent. Terms not otherwise defined herein
which are defined in the Credit Agreement shall have the same respective
meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain terms
and conditions of the Credit Agreement as specifically set forth in this Third
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMent. The
definition of "Consolidated Excess Cash Flow" is hereby amended by inserting
immediately after the words "(other than payments made in respect of the
prior fiscal year's Consolidated Excess Cash Flow)", the words ", PLUS (iii)
for the 1998 fiscal year, those closing expenses incurred by the Borrower on
or prior to the Closing Date which are approved by the Agent for such period"
SECTION 2. AMENDMENT TO SECTION 4 OF THE CREDIT AGREEMENT. Section 4
of the Credit Agreement is hereby amended by as follows:
(a) Section 4.3.2 of the Credit Agreement is hereby amended
by deleting the words "is equal to or less than 1.50:1.00" which
appear in Section 4.3.2 and substituting in place thereof the words
"is equal to or greater than 1.50:1.00".
(b) Section 4.3.3 of the Credit Agreement is hereby amended
by deleting Section 4.3.3 in its entirety and restating it as
follows:
4.3.3. PROCEEDS OF ASSET DISPOSITIONS AND EQUITY
ISSUANCES. In the event the Borrower or any of its
Subsidiaries receives any (a) Net Cash Sale Proceeds from
any Asset Sales permitted by Section 9.5.2 (except for any
Net Cash Sale Proceeds received by the Borrower from the
sale or other disposition of obsolete assets as permitted
by Section 9.5.2 so long as the Borrower uses such Net Cash
Sale Proceeds to
<PAGE>
-2-
purchase replacement assets within twelve (12) months from
the date of such sale or other disposition); or (b) Net
Cash Proceeds from any Equity Issuances by the Borrower and
its Subsidiaries after the Closing Date (except for Net
Cash Proceeds received by the Borrower from Equity
Issuances of the Borrower (i) made in connection with its
Stock Option Plan or to members of the Company's management
(other than in connection with the sale of Equity Issuances
to such members of management in the Initial Public
Offering); or (ii) to Investors of the Borrower existing on
the Closing Date so long as no Event of Default has
occurred and is continuing and provided such Net Cash
Proceeds are not received in connection with the sale of
Equity Issuances to the Investors in the Initial Public
Offering), the Borrower shall make a prepayment of
principal on the Term Loan in an amount equal to 100% of
such Net Cash Sale Proceeds or Net Cash Proceeds, as the
case may be, with such prepayment to be applied to the Term
Loan based on the then outstanding amount of the Term Loan
and applied against the scheduled installments of principal
due on the Term Loan on a pro rata basis; PROVIDED,
HOWEVER, that notwithstanding the foregoing, the Borrower
shall be permitted to use all or any portion of the
proceeds of an Equity Issuance to redeem the Redeemable
Preferred Stock outstanding on such date and/or the
Subordinated Notes PROVIDED (a) either (i) the Leverage
Ratio is less than or equal to 1.00:1.00 on a pro forma
basis immediately after giving effect to any prepayments or
(ii) in the event such proceeds are from the Borrower's
Initial Public Offering, (1) the Borrower shall have
received Net Cash Proceeds from such Initial Public
Offering of not less than $46,000,000; (2) the Borrower
shall apply 100% of the Net Cash Proceeds remaining after
redeeming the Redeemable Preferred Stock held by the Summit
Investors and repaying the Subordinated Notes (which
remaining amount shall in no event be less than $2,000,000)
to repay the outstanding principal amount of the Term Loan,
to be applied against the scheduled installments of
principal due on the Term Loan in the inverse order of
maturity and (3) the Borrower shall pay to the Agent for
the pro rata accounts of the Banks a fee in the amount of
1/4% on the Total Commitment plus the outstanding amount of
the Term Loans after giving effect to any prepayment made
pursuant to subparagraph (2) above, such fee to be due and
payable upon receipt of such Net Cash Proceeds; (b) no
Default or Event of Default has occurred and is continuing
or would exist as a result thereof; and (c) the Summit
Investors at all times prior to and after giving effect to
such a redemption are the legal and beneficial owners of
not less than twenty-five percent (25%) of the capital
stock of the Borrower.
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Third Amendment shall
not become effective until the Agent receives a counterpart of this Third
Amendment, executed by the Borrower and the Majority Banks.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in Section 7 of the Credit Agreement (except to the
extent of changes resulting from transactions contemplated or permitted by
this Third Amendment, the Credit Agreement and the other Loan Documents and
changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse, and to the extent that such
representations and warranties relate expressly to an earlier date),
PROVIDED, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of
this Third Amendment
<PAGE> -3-
and the performance by the Borrower of all of its agreements and obligations
under the Credit Agreement as amended hereby are within the corporate
authority of the Borrower and have been duly authorized by all necessary
corporate action on the part of the Borrower.
SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby,
the Credit Agreement and all documents, instruments and agreements related
thereto, including, but not limited to the Security Documents, are hereby
ratified and confirmed in all respects and shall continue in full force and
effect. The Credit Agreement and this Third Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or
any related agreement or instrument to the Credit Agreement shall hereafter
refer to the Credit Agreement as amended hereby.
SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation
of the Borrower or any rights of the Agent or the Banks consequent thereon.
SECTION 7. COUNTERPARTS. This Third Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as a document under seal as of the date first above written.
STRIDE & ASSOCIATES, INC.
By: /s/ Anthony Groves
---------------------------------------
Title: Chief Executive Officer
BANKBOSTON, N.A.,
individually and as Agent
By: /s/ John B. Desmond
--------------------------------------
Vice President
IMPERIAL BANK
By: /s/ Paula O. Pouripauskur
--------------------------------------
Title: Vice President
SILICON VALLEY BANK
By: /s/ Janet Bran
--------------------------------------
Title: Senior Vice President
<PAGE>
Exhibit 10.20
[BankBoston Letterhead]
DATE: July 31, 1998
TO: Stride and Associates ("Stride")
ATTN: Anthony Groves
FAX: 212-697-6399
PHONE: 212-697-5800
FROM: BankBoston, N.A. ("BBNA")
ATTN: Jennifer Buonopane, Derivative Operations, Confirmation Unit
FAX: 617-434-4284
PHONE: 617-434-9929
RE: INTEREST RATE COLLAR TRANSACTION
[Our Ref: CP57746US/FL57747US]
The purpose of this letter agreement is to set forth the terms and conditions of
the Interest Rate Collar Transaction entered into between BankBoston, N.A.
("BBNA") and Stride and Associates ("Stride") on the Trade Date specified below
(the "Transaction"). This letter constitutes a "Confirmation" as referred to in
the Master Agreement specified below.
The definitions and provisions contained in the 1991 ISDA (the "Definitions"),
each as published by the International Swaps and Derivatives Association, Inc.
("ISDA"), are incorporated into this Confirmation. In the event of any
inconsistency between the Definitions and provisions in this Confirmation, this
Confirmation will govern.
1. This Confirmation evidences a complete binding agreement between you
and us as to the terms of the Transaction to which this Confirmation relates. In
addition, you and we agree to use our best efforts promptly to negotiate,
execute and deliver an agreement in the form of the ISDA Master Agreement
(Multicurrency-Cross Border) (the "ISDA Form") published by ISDA, with such
modifications as you and we shall in good faith agree (such agreement, the
"Agreement"). Upon the execution by you and us of the Agreement, this
Confirmation will supplement, form a part of, and be subject to the Agreement.
All provisions contained or incorporated by reference in the Agreement, upon its
execution, shall govern this Confirmation except as expressly modified below.
Until we execute and deliver the Agreement, this Confirmation shall supplement,
form a part of, and be subject to an agreement in the form of the ISDA Form as
if we had executed an agreement in such form (with a Schedule thereto which
provides that Market Quotation and the Second Method apply for purposes of
Section 6(e) of such agreement) on the Trade Date hereof. In the event of any
inconsistency between this Confirmation and either the ISDA Form or the
Agreement, this Confirmation will govern.
2. The terms of the particular Transaction to which this Confirmation
relates are as follows:
Trade Date: July 31, 1998
Effective Date: August 4, 1998
<PAGE>
Terminate Date: August 4, 2000, subject to adjustment
in accordance with the Modified
Business Day convention.
National Amount: USD 13,000,000.00
Premium Payer: Not applicable
FLOATING RATE PAYER A: BBNA
Cap Rate: 6.00%
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: Three month
Floating Rate for
Initial Calculation Period: 5.6875%
Method of Averaging: Inapplicable
Spread: Inapplicable
Day Count Fraction: Actual/360
Reset Dates: The first day of each Calculation Period
Floating Rate
Payment Dates: The last Business Day of March, June,
September and December in each year
beginning September 30, 1998 and ending
on the Termination Date, subject to
adjustment in accordance with the
Modified Following Business Day
convention.
FLOATING RATE PAYER B: Stride
Floor Rate: 5.63%
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: Three month
Floating Rate for
Initial Calculation Period: 5.6875%
Method of Averaging: Inapplicable
Spread: Inapplicable
Day Count Fraction: Actual/360
Reset Dates: The first day of each Calculation Period
2
<PAGE>
Floating Rate
Payment Dates: The last Business Day of March, June,
September and December in each year
beginning September 30, 1998 and ending
on the Termination Date, subject to
adjustment in accordance with the
Modified Following Business Day
convention.
Payments of Net Amount: With respect to the Floating Amount
calculated in respect of a Calculation
Period if (a) USD-LIBOR-BBA is greater
than the Cap Rate, Floating Rate Payer A
agrees to pay to Floating Rate Payer B
on the Payment Date in respect of such
Calculation Period the Floating Amount
where the Floating Rate is the amount by
which USD-LIBOR-BBA exceeds the Cap
Rate; (b) if USD-LIBOR-BBA is less than
the Floor Rate, Floating Rate Payer B
agrees to pay to Floating Rate Payer A
on the Payment Date in respect of such
Calculation Period the Floating Amount
where the Floating Rate is the amount by
which the Floor Rate exceeds the USD-
LIBOR-BBA; and (c) if USD-LIBOR-BBA is
greater than or equal to the Floor Rate
but less than or equal to the Cap Rate,
no payment will be made.
Calculation Agent: BBNA
Business Days: New York and London
Governing Law: New York law
Documentation: ISDA Master Agreement to be provided by
BBNA
3. ACCOUNT DETAILS
PAYMENT INSTRUCTIONS FOR
BBNA: BankBoston, N.A. (formerly known as The
First National Bank of Boston) Routing
No. ABA 011000390, for the Arbitrage
Settlement Account #295032, Attn: Cap
Desk, 01-13-08.
PAYMENT INSTRUCTIONS FOR
STRIDE: PLEASE ADVISE
Stride Associates Inc.
BankBoston
ABA No. 011000390
A/C # 89843325
3
<PAGE>
4. CONTACT INSTRUCTIONS
BBNA: Cap Desk (Resets/Payments): Tel: (617) 434-7264
Fax: (617) 434-0505
Confirmations: Tel: (617) 434-4405
Fax: (617) 434-0505
STRIDE: PLEASE ADVISE
Tel: (212) 697-5820
Fax: (212) 697-6399
Very truly yours,
BANKBOSTON, N.A.
By: /s/ William K. Lapara By: /s/ Robert S. Hutchinson
------------------------------- -------------------------------
Name: William K. LaPara Name: Robert S. Hutchinson
Title: Managing Director Title: Vice President
Agreed and accepted as of the date first above written:
STRIDE AND ASSOCIATES
By: /s/ Anthony Groves
--------------------------------
Name: Anthony Groves
Title: Chief Financial Officer
PLEASE COUNTERSIGN AND FAX TO:
(617) 434-2484
ATTN: JENNIFER BUONOPANE
REQUEST CORRECTIONS AT (617) 434-9929
4
<PAGE>
EXHIBIT 11.1
<TABLE>
Three Months Ended
Year Ended December 31, March 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE--BASIC
Net income available to common
stockholders $732 $451 $306 $534 $463
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average common
shares outstanding 5,000 5,000 4,158 5,000 3,540
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income per common share--basic $0.15 $0.09 $0.07 $0.11 $0.13
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
NET INCOME PER COMMON SHARE--DILUTED
Net income available to common
stockholders $732 $451 $306 $534 $463
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average common
shares outstanding 5,000 5,000 4,158 5,000 3,540
Dilutive effect of common stock
equivalents -- -- 576 -- 1,469
-------- -------- -------- -------- --------
Weighted average common and
common equivalent shares outstanding 5,000 5,000 4,734 5,000 5,009
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income per share--diluted $0.15 $0.09 $0.06 $0.11 $0.09
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-75301 of Stride & Associates, Inc. of our report dated February 1,
1999 (May 6, 1999 as to Note 14) appearing in the Prospectus, which is a part
of such Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
/S/ Deloitte & Touche LLP
New York, New York
May 6, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,079
<SECURITIES> 0
<RECEIVABLES> 4,046
<ALLOWANCES> 744
<INVENTORY> 0
<CURRENT-ASSETS> 7,583
<PP&E> 1,873
<DEPRECIATION> 734
<TOTAL-ASSETS> 9,568
<CURRENT-LIABILITIES> 7,415
<BONDS> 0
0
25,965
<COMMON> 35
<OTHER-SE> 4,004
<TOTAL-LIABILITY-AND-EQUITY> 9,568
<SALES> 8,427
<TOTAL-REVENUES> 8,427
<CGS> 2,869
<TOTAL-COSTS> 2,794
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 776
<INCOME-PRETAX> 2,029
<INCOME-TAX> 900
<INCOME-CONTINUING> 1,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,129
<EPS-PRIMARY> 0.13<F1>
<EPS-DILUTED> 0.09
<FN>
<F1>For puposes of this exhibit, primary means basic.
</FN>
</TABLE>
